[EP 034] My Business Sale Story, with Sam De Longis

Hi, it’s Joanna Oakey here and welcome back to The Deal Room Podcast, brought to you by our commercial legal practice Aspect Legal.

Welcome to another episode with Sam De Longis. This is part 2 of our 3-part series with Sam where we go through three distinct phases in the business cycle.

Last week, in part 1, Sam talked to us about growing his business – and the thought process that drove him to finally consider planning his business exit. Picking up from that conversation, in today’s episode we’ll talk about how Sam geared himself up for the business sale.

In this episode, Sam talks about some of the fundamentals that we hear again and again and again. The importance of looking at your business from a buyer’s perspective and the importance of selling the business at the right time when it’s got strong value and still has value to give into the future.

So let’s get started!

Increasing your business profile

Joanna: How did you get ready for sale? What did you do? Obviously, you’d never sold a business before so you’re in foreign territory. How did you get ready for it?

Sam: Well, there were two things.

One is that I realised that a lot of people were starting to pay attention to us because we were doing well around town in general. We decided that we should probably increase our profile a little bit as a result of that.

We started applying for a couple of awards and there was (I can’t remember now) a Reuters award that was allocated for people in the recruitment industry. For the first year, we decided to write a proposal for that and my business development manager did that.

We actually ended up going to Sydney. We were one of the finalists and we won the best candidate management award Australia-wide. This was in, I can’t remember what year now. But probably a year or two before we sold and that gave us a bit of prominence.

There was a lot of Who’s Who of the recruitment companies and managers and owners, Sydney Opera House presentation, all that sort of stuff.

We were the only ones from West Australia to have won an award Australia-wide. Then I think next couple years we came runner-up on a couple of other categories as well.

We started to get a bit of recognition and then I started to really think we’re probably doing all right here. That was probably the impetus then to say I know the company has got a value and then see how we go.

Joanna: And so then you meet advisors. You met HHMC and obviously we met at that exact time, which was fabulous!

Sam: We did it. We did it well. I don’t know if it’s appropriate at this point to give Rod Hore and Richard a big plug here.

Joanna: Go for it!

Sam: Those guys are absolutely fantastic. They were wonderful. They were wonderful. HHMC, they’re fantastic guys. And also yourself Joanna, I’ll give you a plug.

Joanna: Oh thank you Sam!

Sam: For everyone who’s listening out there, if you want a real down to earth. I’ll summarize you like this Joanna and I know you’re probably embarrassed of me saying this.

I think if you want someone who I think is down to earth, genuine in representing and going in to bat for you in negotiations I could not think of a better partner.

I remember a couple of occasions where I really knew you were on my team and I was really impressed cause you reminded me probably a bit of my feistiness in some issues. I really like that about you. I think your practical approach and your dedication is really impressive. I would always recommend you.

Joanna: Oh thank you! That’s so sweet. Now I’m blushing on the other end.

Sam: Good. That’s your right. You deserve to.

Know your facts and figures

Joanna: Were there any parts of the sale process as a whole that you found surprising that you think it’s useful for people to understand before going into the process?

Sam: I think what’s important is make sure you know your facts and figures when you’re sitting in front of someone. You don’t want to go there half baked. You need to know your stuff, and so if you’re looking at balance sheets and stuff like that you really need to know your business because they will ask you questions.

Make sure you know your facts and figures when you're sitting in front of someone. You don't want to go there half baked. - Sam De Longis #TheDealRoom #podcast Share on X

The conclusion I came to,  having spoken to a few of these guys before we selected the one that we thought was the right horse to go with, was how well we were doing in the numbers that we were producing relevant to the number of staff that I had, relevant to the numbers these guys were producing and the number of staff they had.

I realised that we had an extremely efficient business and that was something that sort of surprised me. But then later on, I was thinking well no wonder we’re doing so well because these guys just seem to have much higher overheads and just different ratios of how many people they have working to achieve the same results we were. So that was a bit of a feel good moment from that point of view.

I think it just comes back to the same story as I said before. If you work real hard, if the only thing you’ve got to do is work hard to put in long hours, it’s a bit more than. You need to have some smarts. But you should be able to beat most people most of the time. I think if you focus on something you can. That was a surprise.

Understanding the value of your business

Joanna: I think one of the issues with many businesses that go to market at the moment is the owners belief that their business is worth a lot more than the market will meet them at effectively. There’s a lot of talk at the moment about us being on the cusp of a massive number of business sales about to hit at some stage in the next decade because of the ageing baby boomer owner demographic of small businesses in Australia.

I think it’s fascinating that you almost came in the reverse way. You didn’t come in initially expecting far more than the market. You came in and then suddenly realised what the market would value your business at. I mean wow, that’s just amazing! Completely contrary to a lot of what we’re seeing.

Sam: That’s the difference. I think a lot of people come in and they start the business purely for the sole purpose of making it a fat asset to sell so that they can buy an island in the Bahamas or something. I never had that ambition.

They value it quite differently because they deliberately try to get some results. They deliberately trying to squeeze everything in. Probably in some aspect, and I don’t know because I don’t approach it that way, but in some aspects probably they tart the business up to look probably a lot better than it does. We were never in that because we were never chasing that end.

I never built my business to have this end. In fact, I always figured that one day when I’d had enough, I equated it to driving a taxi. While I’m driving the taxi and have passengers hop in and I’m driving, I’ll make money. When I park the taxi, I’m not going to make money.

That’s probably the way I felt and then to know that I actually had something that had real value that people were wanting to pay for it. But on the same token, not silly enough to think I’m going to give my business away either because I didn’t have a great perception of value.

I understood the value very real and as you know, made sure that I got the value that I thought it was. But I didn’t have an over inflated idea of what that business should worth.

The guys at the HHMC let me understand what the sort of figures were, roughly what was going on at the time. No different than when you buy and sell a house. There’s the median price going around. You look at things that are exceptional in your circumstances or gives you a better positioning or whatever. But from that point of view, I think it’s just typical to anything else. It is what the market is willing to pay. If you don’t like what the market is willing to pay, don’t sell.

It is what the market is willing to pay. If you don't like what the market is willing to pay, don't sell. - Sam De Longis #TheDealRoom #podcast Share on X

Joanna: This is clearly your very analytical side though Sam.

Let’s take a break

Let’s take a short break. When we get back, Sam talks about the important concept of really putting yourself in the shoes of the buyer and ensuring real opportunities for them to make the most out of the business they are purchasing.

And finally, we close this episode with some insights from Sam’s experience in transitioning the business over – his valuable tips on making sure sellers keep control of this phase in the process.

And that’s next! I’m Joanna Oakey and you are listening to The Deal Room Podcast, brought to you by Aspect Legal.

Our Business Sale and Acquisition Services

Aspect Legal has a number of great services that help businesses prepare for a sale or acquisition to help them prepare in advance and to get transaction ready. We’ve also got a range of services to help guide businesses through the sale and acquisitions process.

We work with clients both big and small and have different types of services depending on size and complexity. We provide a free consultation to discuss your proposed sale or acquisition – so see our show notes on how to book a time to speak with us, or head over to our website at Aspectlegal.com.au

Welcome back

Welcome back! Earlier, Sam talked to us about his strategy of increasing the business’s profile by applying for awards. He also talked to us about how that fed into his work with his exit advisors HHMC in creating a situation where he was able to build a pool of potential buyers, creating that all important competitive tension, and putting him in the driver’s seat of being able to choose from a pool of buyers.

We also talked about the importance of really understanding your business inside-out, and knowing your facts and figures before coming to the negotiating table. And just before the break, we talked about Sam’s level headed approach to the sale. He was realistic about the sale price. He wasn’t emotional.

So let’s keep the conversation going and talk about this important concept of providing ongoing value to acquirers.

 Ensure growth opportunities for your buyer

Joanna: Many business owners get very emotional about the value of their business whereas it’s clear I can hear that you kept that analytical side alive.

Sam: Well I think you have to.

Joanna: I think that made the difference. There were times when we needed some hard negotiations. I think what really helped was you weren’t emotional at those times. You were very analytical. I think that that in itself makes the process a lot easier particularly from advisers, sitting here in the perspective of advisors working with businesses. I think it makes a big difference.

Sam: Yeah. Well look, I agree.

It just depends how and why they’re selling. I mean in my case, as I said, I had a strong position if the negotiations didn’t go my way I was quite happy to work those 5-10 years so I didn’t care.

But you’ve always got to have a fallback position. What you’ve got to understand is when you’re selling something, you’ve got to put yourself in the buyer’s shoes as well. Is he getting a good deal?

We probably could have sold a year before but it wasn’t the right time to sell. The reason why I say it wasn’t right time is because there was nothing to give the buyer.

What I did, I deliberately waited until this panel that I spoke about that we did very well on. The first five years were up and then went out again for another five year period. It was pointless selling a year before this panel was going to expire and then leaving the vulnerability for a new buyer to perhaps only have a year before it expired and had to get back on the panel.

I ensured that they got back on the panel and then we had a complete new five years to go so that the buyer knew that he had another five years worth of very strong growth here.

People get emotional about their business. My business is worth so much. But you’ve got to look at it. This guy is paying a lot of money for your business. He needs some guarantee that there’s some growth forward.

The story there is that you say “Well Sam, if there is such strong growth forward why didn’t you stay and pick up that growth?” and I could have done. That’s why I was happy to go for another five or 10 years.

But I made a decision for the reasons of the things that I wanted to do. That no, I don’t want to be part of that. I know the money I’m missing out. But on the other hand, a bird in the hand is worth two in the bush.

I want the buyer to have growth. I want him to have the success then hopefully they can carry it forward as I have done.

I think a lot of people when they decide to sell just say I just want my money and I give a damn what happens to you and what you do with it. I think you need to be mindful of the buyer. Your negotiation point is going to be weak or strong depending on and in some cases I’m sure deals will fall over because a buyer just says well there’s nothing in it for me.

Joanna: Yeah.

Sam: I think people can have inflated self-worth and inflated business-worth I think.

Make sure you’re in control of transition

Joanna: Reflecting back on it then. It’s hard to perhaps even remember. It’s a few years ago now. But is there anything that you’d do differently or prepare differently leading up to the sale, if you had the chance again?

Sam: No. The only thing I would highlight in our particular case, I’m not sure if you recall, but I was very strong in wanting to make sure that the transition process when it came to the final crunch we had a couple of week transition process where we had to get a number of contractors over.

Joanna: I remember that well.

Sam: That was the bone of contention. That was the real crux of the whole story. I insisted that I try to take as much control of that process as possible to ensure that happening.

Now in this particular case the client buying the business decided that they wanted to get involved in actually doing the new contracts because it was an asset sale not a share sale. That thing almost had the potential to come unstuck because they insisted on the new contracts and we only had a two-week period so 10 working-day period.

Three or four days had gone by the first week and we only got literally about half a dozen people across on contract. There was another 295 to go.

It physically wasn’t going to damn well happen in that time frame. I had to step in a bit and put some pressure on that and make it happen. So I would say to anybody selling make sure that you’re in control of that transition. You can become unstuck and probably even the client come unstuck. Also, just in general terms, I think clients are very good at agreeing on something and then try to claw back a little bit where they can throughout the process.

I would say to anybody selling make sure that you're in control of that transition. - Sam De Longis #TheDealRoom #podcast Share on X

They are probably the two things that I learnt that definitely make sure you have control of that transition process if it’s part of the final price. Make sure because things can go dramatically wrong and that was a very stressful two-week period.

In fact, I would say anything less than my 40 years experience in I.T. and certainly by that point about 24 years in business. Anything less than that and I think we would have been in serious trouble. I had to call upon every ounce of everything I knew and loyalty to my people.

Joanna: I was going to say that. I recall at the time, because I do, I recall every day we were counting down. Every day I get a report. We had to get to 75 percent or something. I can’t remember.

Sam: It was. This is where I again Joanna, I say just how strongly you supported me on that and how tenacious you were. That made me feel very good and you were a 100% on site. I love that about you.

Joanna: I was awake in the middle of the night thinking of it during the two week period. You think it was stressful for you? I was obsessed with it as well.

Sam: Yeah. I know that. I could see that in you. But I really appreciated that with you. Without you and the guys at HHMC, it wouldn’t have happened. That was fantastic.

Joanna: I feel that this is where the loyalty that you had, that relationship that you had with your staff and the contractors, I felt that was what really kicked into gear at that point. I recall you had a BBQ and you had everyone together. You were pushing them one by one. It’s sort of interesting. It’s like everything all came together at that final moment to combine.

Sam: It did. But it was a very stressful two weeks. As I said, anything less than the total amount of experience that I had in business and the loyalty from my contractors, the loyalty from my staff. I mean there was there was an opportunity there in one case for 30 or 40 people to just disappear and not transition across because of what they were trying to do with the new contracts.

I told them not to make any changes. People need to go across on the same conditions. Buyers obviously also try to do things in their best interest but they can jeopardize the whole process.

It comes back to my two things in any negotiation and in any deal, there’s always two stages.

One is to get on board and then secondly to make it work. One thing is to get someone to agree to a price, but then to get across to the final conclusion is another very serious step to make it happen. You just got to be careful.

Let’s wrap up!

That’s it for part 2 of our 3-part series with Sam De Longis. Please subscribe to The Deal Room Podcast on iTunes or Stitcher to get notified when we release the last episode for this series next Tuesday.

In part 3, we will be closing out our series with Sam with a discussion on what life is like after the sale and what business owners can look forward to out of retirement.

Until then, please see our show notes if you want to download a copy of the full transcript to this episode if you’ld like to read it all in more detail. Just head over to our website at www.thedealroompodcast.com and look for this episode – episode 34, where you’ll find a download link.

And if you’re interested in learning more about Sam’s story, you might want to tune in to our earlier episode, episode 33 and also our episode 49 in Talking Law. Sam there discusses how he started his business and weathered a few storms during two particular downturns in his business. To find this episode, head over to Talking Law at www.talkinglaw.com.au and look for episode 49.

Thanks for listening in. This has been Joanna Oakey and The Deal Room Podcast, a podcast brought to you by our commercial legal practice Aspect Legal. See you next time!