SPI 789: The World of High-Value Business Exits with Nick Bradley

SPI 789: The World of High-Value Business Exits with Nick Bradley

Nick Bradley: When you go into a sales process, the thing to understand, is that you’re dealing with people who do this every single day. Most people will never even do an exit, but you’ve got people doing it all the time, they’re pros. And what we often say is, in private equity terms, if someone doesn’t know what they’re doing when we acquire them and we can manipulate the situation to our benefit, we call them the prey. I often articulate it like going into the gladiator’s arena. There’s a person there that’s done the reps for years, and you’re turning up there doing it once. Not a smart move.

Pat Flynn: Selling your business can be an incredible moment, a once in a lifetime moment, a moment that can help generate generational wealth for you and your family. But when you look a little bit deeper into this world, there’s a lot of layers to how this all happens, the world of mergers and acquisitions the world of exits. And today we have Nick Bradley who is an expert who has had his hand in over five billion dollars worth of exits with 26 different companies He has effectively helped over a hundred different mergers and acquisitions across his clients and today we’re going to talk about this world and what it’s like because I mean, it’s ruthless.

And we use those words. He uses words like prey, because private equity groups sometimes consider their potential sellers as prey. But how do we position ourselves if we were to sell our business as not the prey, but rather the prize? And how do we position ourselves so we’re not being taken advantage of? How do we set up our businesses for success, for an exit?

And we talk about all of those things and more and the things to look out for the 15 things that we talk about at the end that if you have in your business would make it very difficult to sell. So make sure you stick around for that and more. And I got to thank my coach, James Schramko for introducing me to Nick.

Cause Nick is just a wealth of knowledge in this world. And it’s again, some you’ll hear in my questions, just, I have no idea what’s going on. So I just dig deeper and I ask more Nick delivers for sure. So enjoy this episode with Nick Bradley from High Value, Exit or his podcast Scale Up.

Announcer: You’re listening to the Smart Passive Income Podcast, a proud member of the Entrepreneur Podcast Network, a show that’s all about working hard now, so you can sit back and reap the benefits later. And now your host, after coming home from Japan for the first time, he was quick to install a bidet in his bathroom. Pat Flynn.

Pat Flynn: Nick, welcome to the SPI podcast. Thanks for being here.

Nick Bradley: Hey, it is great to be here, Pat. Thank you very much for having me.

Pat Flynn: We are talking about selling companies exits, something that you are very familiar with. I see here that you have sold 26 plus companies for over 5 billion. That’s with a B. It’s a B. That’s, that’s crazy. Is that all companies that you have owned or you’ve helped through this process?

Nick Bradley: I would love to say that I’ve owned all of those companies and you know, I’m sitting here about to buy a sporting team. I’d love to say that. The truth of the matter is I sold my first company when I was 21 years of age for 3000 Australian dollars. So that was my first exit, the last business that I was involved in selling sold for 2.3 billion in 2018. So I always, I like to say I redeemed myself through the years, but to answer your question, some of those are my companies. Some of those are businesses that I’ve been brought into by investors to turn around. Others are bigger companies where I was on the senior leadership team, simply participating in the preparation and the exit.

And then some of them are people that I’ve worked with more recently as clients, helping them achieve a high value exit in their company.

Pat Flynn: What’s the most exciting part of exits to you? I mean, you’ve built your whole brand around this. You have a book coming out in the future, you have programs and such.

I mean, highvalueexit.com, definitely check it out, everybody. But why the focus on this? What excites you about this kind of work?

Nick Bradley: I, I got kind of exposed to it sort of through my career, right? So I’ll give you the short version of it. I was involved in kind of the corporate world for a long time and the obsession there was really growth, right?

Scales are more, scales are like a sexy word for growth that’s predictable, right? But back then it was growth. You know, I’m a, I’m not a young guy. I may look young, but I’m almost 50 and I was involved in, in lots of growth. And then. I was involved in M&A sort of at the middle point of my corporate career.

And I didn’t quite understand what that was about. I didn’t understand that you could, you know, scale a business quickly by buying another business and bolting the whole thing together. And where it really came to sort of hit, if you like, it was a big exercise involved in in 2008, just before the market crash.

And it was the breakup of a big media company, a company called EMAP, East Midlands Allied Press in the UK, which was the second biggest consumer publishing group in the UK at the time. And it was one of those kind of corporate raider takeover things. where someone came in, broke the company up and it got sold to various components.

And I just kind of, I was involved in the whole process, but I watched what happened. And I saw two things. Firstly, I saw how ruthless the world can be when there’s a lot of money at stake. But then I was also a bit younger and I was quite intoxicated by that thought as well. Not so much the money, but just the, the level of, of kind of activity that happens when you get to that outcome.

And that took me into the world of private equity for over a decade where I was involved in multiple acquisitions, effectively over a hundred. And that’s when all the exits happened. And I just couldn’t believe that you could create an asset, right, a business, and then sell it for millions, billions of dollars, and the whole thing was just crazy.

And then I realized the growing a business is great, you know, being an entrepreneur is great, but you have this ability to not only change your life, but change other people’s lives by creating these big liquidity events. And I just became obsessed with that world, being really honest on this show, like self serving me to some extent for a number of years.

But then after a while, I realized that there was a bigger, bigger piece to this, which is kind of what I’m more focused on now, but it’s still, it’s still in this lane of how do you, how do you create this event?

Pat Flynn: And we’re going to talk about that, what we can do to set up our businesses for a potential exit and maybe even a little bit about if you were to buy a company, what would you want to look out for?

And we’re going to talk a lot about like the maybe not so great parts of this world. And you had mentioned ruthless earlier in some of these bigger deals. Like what does that mean? What is, what does ruthless mean in the world of mergers and acquisitions?

Nick Bradley: When we talk a little bit more about private equity specifically, you’ll see exactly what I mean.

But it comes down to this. When there are such large sums of money, sitting on the table, you know, and, and to some extent it aligns with power as well, right? Wealth and power can be very addictive things. And if you put both of them together at the same time, it can conjure up all sorts of characters and it can change people.

And what I’ve seen is when there’s a large check sitting on one side of the table that someone can take they may come across as the most integral person, like, you know, having the best ethics and character and values. But when there’s a big check, hundreds of millions sitting on that side of the table, you start to see different behaviors, right?

And maybe it’s being a little bit primitive, right? And going back to sort of caveman times, if you like. But people will literally kill people, right? Sometimes for that check. Or certainly do things which are crazily unethical, however you define that. And I saw all of it. I saw some pretty horrific things happen when there’s a big check there.

Pat Flynn: Well, let’s hope none of us get into that sort of situation. So maybe we could begin talking about our own businesses and what even would make our business a viable business to sell. Like, what is a company looking for or a private equity group looking for when it comes to the businesses that we’re creating big or small?

Nick Bradley: I should contextualize this by saying I focus now on helping entrepreneurs create eight to nine figure exits to what I call sophisticated buyers. And the most sophisticated buyer is a private equity firm. And what you’ve got to understand first is. Anyone who’s going to pay eight or nine figures or more for your company is buying an asset, basically a transferable asset that they can then grow into the future and get a return on.

So this is not you buying your mate’s business down the road for a packet of chips or whatever it is. This is, this is seriously high stakes stuff. There are a number of things that are important there, right? And this is where a lot of business owners who have smaller businesses or businesses that are scaling, they don’t appreciate the fact that they have to build the business a certain way.

You know, I call it being built to sell. Even if they have no immediate intentions of selling it, they have the option to have that event at any point in time. And what does that look like? Well, firstly, if you’re the founder of a company and you know, most of the key operational activities rely on you, right?

You know, you’re out there doing marketing, you’re out there doing sales, you’re doing delivery, you know, you’re making the product. If that exists, even if you’re like an eight figure company, if you’re still the cog in the wheel, that business is very hard to sell. It could still be sold, but it’s going to be a lower multiple valuation than if that business is a well oiled machine where it’s not reliant on you or any one person to operate.

Right, that’s what I mean, a transferable asset. The other thing that we do certainly from a private equity standpoint is we like to mitigate risk as much as possible. So if you take the concept of recurring revenue, subscriptions, long term contracts, things like that, if I’m going to buy a company that, you know, has to go out there and hunt for what it eats every single day, because it has to go out there and grow by one customer at a time.

That’s risky, right? It’s risky because I don’t know where my next meal was going to come from, so to speak, right? But if I have a business that’s, you know, repeatedly, predictably and sustainably driving revenue and growing that revenue every single month, I can then model that out for the next period of time, three years, five years, 10 years.

You know, I’m going to hold a business for about five years in private equity and try and sell it again. And I can see where I can pay more for that company because I have a very clear line of sight of how that’s going to grow. And there’s about 15 or so characteristics like that, that when I was in private equity doing acquisitions and things that I would be assessing when I’m literally sitting across the table from a founder asking them about their business.

And I’ll talk more about that at the end, because I definitely have some resources that I can give to your listeners to let them understand this a bit more, but it’s quite, it gets quite technical and complex, but you’ve got to think of it from the idea that the business has to exist without you. And it has to have a lot of characteristics which make it extremely valuable for that transaction to happen.

Pat Flynn: Is there a scenario where a solopreneur is able to sell their business and maybe they because they are still the center of the cog and then, you know, they’re kind of necessary to still run the business, but they can still sell the business and kind of then work for the company that that buys them.

Is that a scenario?

Nick Bradley: Yeah, it happens. It happens a lot. But remember, if I put my private equity hat on, right, you know, when I was in that environment, I’m going to try and mitigate the risk of, you know, I’ve just given you a check of tens of millions, if not hundreds of millions of dollars. Right. Your life has just changed.

And I often say that, you know, selling your company is usually a once in a lifetime event, and it’s probably the biggest financial transaction you’ll ever experience unless you do it again. Right. But the point of that is that I’m going to get you there sticking around maybe for a couple of years. And I’m going to make sure that you’re locked in to stick around to some handler transition, but I’m not expecting you to necessarily be that engaged.

At that point, the only time that changes Pat is if you have the ambition to sell your company again. And so sometimes there’s a thing here where you can roll over equity. So let’s say I buy your company. It’s worth a hundred million dollars. You walk away with say 60 or 70 million once the transactions happen, but you’ve got that extra 30 million or so that’s still owed to you.

You may decide to roll that investment into the new entity because remember, a private equity firm is going to grow and scale and want to exit again. We can get into what that looks like. In some cases, you could sell your company again through those shares and actually make more money than what you did on the initial sale.

So in that situation, you’re incentivized because you’re partnering with the sophisticated buyer for that outcome. That makes sense. It’s very clever stuff when you get into it. And when people start to understand this, they can then start to make decisions about what sort of exit or what sort of transition works for them

Pat Flynn: On these deals that are done, how does the conversation even begin? Are you as an entrepreneur who has a business perhaps that is set up for sell it is built to sell It does have recurring revenue. For example, are you shopping around? Are there agencies are there? Is there like a shark tank situation?

Nick Bradley: Oh, it’s it’s it’s full on. It’s full on. One of the one of the businesses I’m working with at the moment that’s very well, well, it’s a great business and it’s becoming a better business because of some of the stuff we’re doing with it. We had 15 approaches last week from private equity firms literally cold calling outreach.

Pat Flynn: Cold calling. Wow.

Nick Bradley: Yeah, and what I often say there’s there’s two things I like to tell business owners is If that’s happening to you, obviously you’ve created something that people are interested in, particularly that level, right? Private equity firms are always out there looking for deals because it’s a competitive market.

There’s something like 6,000 at last count private equity firms in North America. There’s a lot of big ones. There’s kind of league tables within that. Again, we can get into it. You’re not going to sell your business on one of those outreach calls. That’s the worst way you can do it. The other thing that lots of business owners do, which I advise against is they, they decide one day they want to sell for whatever reason and they go and hire a broker or an investment banker. And nothing wrong with, with those, those entities and particularly investment bankers can add a lot of value. But if you haven’t prepared your business in advance to give yourself a high degree of certainty that you’re going to get the number that you want, more often than not, those business owners are leaving money on the table.

And sometimes they’re going into a situation with sophisticated buyers. They just don’t know how to play the game. So if we want to go through how it works quickly, cause I think it’s important to, so people understand this. I’ll start with the tiers, right? And, and the levels where the game is played, and this is a really important thing for people to get.

So if you want to sell your business and let’s say you’re doing. seven figures of revenue. Now, not many businesses even get to that level. So congratulations to even get to that level, but your profit is probably going to be, if you’re lucky, 1 million, 2 million, that sort of level. And that’s, that’s a great business.

You can get good income from that, all those things. The problem is it’s too low, too small for most of the private equity firms to be interested in. The thinking behind that is it takes just as much effort to do a small deal as it does do a bigger one. So you have to have a certain amount of scale. And I say that the minimum threshold that you should be looking at is about four to 5 million of EBITDA net profit, because that opens up the world of what we call the lower mid market and the mid market private equity firms.

And that’s where, if you think of a bell curve, the top of the bell curve is in the mid market. There’s more private equity firms, but there’s also a lot more capital. At last count, there’s 2 trillion in North America sitting in the mid market of private equity undeployed. 2 trillion. We played around with a billion before and now we’re getting into trillions.

Pat Flynn: Yeah. This is, this is unknown to me.

Nick Bradley: It’s going to, well, it blows my mind too, but here’s the thing. If you get to four to five million of EBITDA and you’re in a, in a certain market, let’s say it’s an education market, right? In an education market, businesses there sell for anywhere from five times to 12 times EBITDA.

Okay. And we can talk about the difference of why a business would sell for five and 12 a bit later, but just think about this. Let’s for round numbers sake, say you’ve got 5 million EBITDA and you sell at the bottom of that range in that market, you’ve got an enterprise value of 25 million you’ve created.

If the business is built a bit better and structured a bit better, let’s say you get a 10 X or 10 times that EBITDA, you’ve got 50 million now that’s life changing money for people. So what I say is, you know, if you’ve got a business that’s doing 1 or 2 million of EBITDA, if you can grow it, you know, really intentionally scale it to getting into what I call those swim lanes of the mid market private equity, you’ve now created the option of a very significant capital event.

Pat Flynn: EBITDA being earnings before interest tax and amortization. I think.

Nick Bradley: Yeah. And it’s, I always get it confused. It’s debt. Exactly that. But it’s the way to think of it is it’s, it’s your net profit, right? So it’s the way that we calculate the net profit of the business.

Exactly. Right.

Pat Flynn: Get to five-ish, because that’ll put you into this part of the private equity arena that, you know, the numbers really start to multiply and start to exponentially grow at that point. If you are in the one to two, better off trying to scale that to that point versus just selling at one or two.

Nick Bradley: Well, I’ll give you the statistics on it, right? The broad statistics are that if you are in the seven figure revenue range or in that EBITDA range, which is lower than where the mid market opens up, you have like a two in 10 chance of selling your company successfully. And certainly to a number that you would be satisfied selling it for, right?

So therefore most founders say, well, I’m just going to keep the business and then they can’t sell it. So they have to close it down or do something else later on. And that happens all the time. If you want to get to that point of significant, you know, potentially even generational wealth kind of creation, my advice is do some things to grow it a bit bigger and there’s lots of clever things you can do, like you can buy other companies, you can do your own M&A to create, you know, these kind of groups and structures, but you’re sitting on a very big windfall and the statistics, just to give you that it’s something like 70 to 80 percent of businesses that get into that, that swim lane I mentioned before. So, so that’s the difference between the delta.

Pat Flynn: Mm. That’s huge.

Nick Bradley: Crazy, isn’t it?

Pat Flynn: Yeah. But that’s, that’s good perspective though. And you’re right. I mean, that’s life changing money at that point. And I’m curious, like in what little I know about this world, I often hear about how important the story is, the story of your company.

Does that play a role in the selling and the multiples that, that occur in this? world? Incredibly so. It does.

Nick Bradley: And it’s, it’s a great question there. I look at when I left private equity sort of six years ago, I took away from that, what I call a playbook. And I thought about this and I thought, you know, what are the, what did we do?

So when we used to buy these companies, right, and the whole game of private equity is to buy low to sell high. And we want to take the company off you in very clever ways for the lowest price we can, but still keep you involved for long enough for us to not need you anymore. Part of the example of ruthlessness.

Yeah. Right. And after we get the company, we want to do certain things to it. But here’s the three pillars that I took away from that experience of private equity. The first thing we always did was, was strengthen the foundations of the asset we acquired. And the way I kind of articulate that to people is most businesses, even if they’re at sort of, you know, seven, eight figures, there’s still, you know, what we would call good businesses.

They have what I call organized chaos going on. So it’s not things happen and things, you know, create good results, but it’s not usually very precise. And what we used to say in private equity is we need to go from this organized chaos to a well oiled machine. Right. And the way that we did that, the way we strengthen the foundations, three main things, Right people, right seats, right?

Really intentional organizational design. But not just the leadership. We would look at the key people in the business, driving the strategy, right? As I go through this, if any business owners are listening, you can do this now. Right? So the stuff I’m talking about now can actually apply this to your business.

It’s, it’s useful stuff. Second thing is systems automation, you know, making sure that everything is documented in processes and where we can take efficiencies out using technology, we do that. And then the third thing is data driven decision making. Now, what’s interesting about all three of those when you put them together, and I, I impressed this off when I work with founders, I say.

If you’re stuck in your business right now, and your ultimate goal is to create a bit more freedom from your business. If you go deep into those three areas, what you’re really doing is creating your first exit. You’re removing yourself from the important running of the company, the day to day operations.

And you know what? Sometimes people, when they work with us, they actually do that. And that’s enough for that point in time. That’s when we talk about creating the option because we’re, we’re reducing reliance on any one person. So that’s the first piece, right? That strengthen foundations. The second part is around scale, but not just scale. We call it profitable scale. Most businesses, when we acquire them have inconsistent growth patterns. So they might be focusing too much on organic growth. They’re too much, too much reliant on paid media for their marketing. For example, many of them don’t have any recurring revenue in there. And I mentioned before how much of a risk that is.

Most businesses don’t know how to scale properly through joint ventures, partnerships, and acquisitions. And most are very inefficient with how they manage margin. Give you an example of that. They won’t know things like customer profitability or product profitability. They’re not getting granular enough.

So the second thing we do is we start to change those areas and affect those areas. So we’re driving as much profit as we grow as possible. And making the business like super efficient. Okay, the third part, and I’ll just go through this is what we call the actual sales process, which comes to your exit story piece.

Every time a private equity firm buys a company, they already are reverse engineering the exit from day one. And sometimes they’ll buy a company knowing that it’s going to be disruptive enough in a market that it’s going to get bought by a big public company or whatever else. And they, they do it for that reason.

But when you go into a sales sort of process, the thing to understand, and this is super important I think for people as well, is that you’re dealing with people who do this every single day, like I’ve said I’ve done 100 acquisitions, 117 actually, most people will never even do an exit in their life, let alone do one, but you’ve got people doing it all the time, they’re pros, right, there’s a very clear game around that, and what we often say is, in private equity terms, if someone doesn’t know what they’re doing when we acquire them, right, and we can manipulate the situation to our benefit, we call them the prey.

Pat Flynn: The prey.

Nick Bradley: I’ll get into this in a bit more detail.

Pat Flynn: So that makes you the predator.

Nick Bradley: It’s, it’s a game. It’s, I often articulate it like going into the gladiator’s arena. There’s a person there that’s done the reps for years, and you’re turning up there doing it once. Not a smart move.

Right, you need to learn how to play the game, but there are times when, in my experience in private equity, where we would have businesses that would turn up, we’d find them, they were beautifully prepared, incredibly well positioned. The founder had educated themselves on the world of M&A. They had a compelling exit story and an exit story to come back to your question is, I have a growth plan for this company that is super exciting, super clear.

I’m not just selling my company to you. I’m bringing you in as a partner to take the vision that I’ve created to its next step. Now, as a private equity guy, I look at that and go, wow, this is great. I don’t have to go and recreate the strategy. All I need to do is implement it. And in a situation like that, Pat, we would say that’s a prize business.

So some businesses are a prey, a business like that is a prize. Equally as compelling for us. We’re going to pay a lot more money for it, higher multiple, but we need to do less work. Both are good. I want to get across here that as an ex private equity guy, you know, I’d buy the prey business as much as I’d buy the prize business, but I’m just going to pay a lot less money for that prey business.

And if you’re listening to this, you want to maximize your output your return by flexing that multiple in that way.

Pat Flynn: Be the prize,

Nick Bradley: Be the prize, and you can do it with enough runway and enough education, knowledge of how to do that.

Pat Flynn: About how long would it take a business that is set up to do something well in terms of an exit, perhaps, and become that prize?

What’s the runway look like? What’s the timeline look like to get things prepared, to get that story ready, to then get to the point of exit, or at least a pitch?

Nick Bradley: The maximum, I often say, it depends on the number you’re going for, to some extent. Like, I often believe, well, I believe two things. Any business can be built to sell, right?

As long as you’ve got the runway to do it. And any number can be achieved if you’ve got enough, again, runway capital around it. And then there’s plenty of examples of that. I often say it’s between six and 36 months. Now, I’m working with a business right now that I recently started helping and I came and sort of kicked the tires on that business.

It’s ready to go. It’s ready to go. The number is clear that the founder wants to hit. The foundations are strong enough. It’s got a very, very clear, profitable scale strategy. Ready to go. Other businesses, they’ve got more work to do. So that’s where the 36 months comes in. But it doesn’t take as long as you think it takes when you start to understand the different levers that you have to pull.

And a lot of those levers business owners don’t know about, or they’re not understanding enough about it to be able to execute like that.

Pat Flynn: To go back to my question earlier about story, in my mind, when I was asking that question, I was asking about the story of the brand, the sort of brand reputation, and sort of, here’s how I got started, and here’s where it’s going, but that maybe plays a little bit of a role, and you can tell me yes or no.

Nick Bradley: But I think you’re on the mark here, Pat.

I think you’re on the mark. I mean, you’re When I say exit story, we would never use that term when we’re going through a process to sell a company or get positioned. What we’re talking about is all of the things that make the business what it is. So brands, culture, those things come into it. The way to think about this is, and as I said, I’ll, I’ll, I’ll share later on kind of the 15 different things and give that to your listeners.

But, you know, within that a unique and remarkable brand that is top three within its defined market is a hugely attractive thing. A defined culture where the behaviors are clear, not just the values and it’s driving performance. And you can prove that hugely valuable thing. Referenceability of clients.

So some businesses work with blue chip clients as their businesses or customers. Hugely valuable thing because they’re hard to get. All of that builds. So there’s two parts of the exit story to use that term. It’s everything that you’ve created that is a win theme that got you to where you are today to that point.

But it’s everything that the business can continue to do because you’ve got it to that point in the future. Because the key thing is this, when someone puts a big multiple in front of you, remember they’re paying somewhere between 10, 15, the highest multiple I’ve ever been involved in was a 36 times EBITDA.

That’s 36 years of profit paid in one day. So for someone to be comfortable with that level, they have to see that compelling future and some certainty around that. And that all comes down to how you pitch it, how you prepare and how you position.

Pat Flynn: Yeah. And that sounds like why, if you already have a plan in place to scale that to go along with the pitch and it’s like, Hey, this is how we can get to this next level.

We just want to bring you on as a partner. We need some resources. We need some connections, which you have let’s get here together. Exactly.

Nick Bradley: That’s the prize conversation, Pat. And I tell you, there’s a couple of little tricks here that I sometimes employ. If you buy, let’s say an acquisition, like the thesis in private equity is buy and build by, as I said, as cheap as you can, like we call it by intelligently, but whatever, and then buy other businesses and create a group.

Now, if you go and buy a business, let’s say you buy a small supplier or a competitor, and you do that in the last, say, 12 to 18 months before you go to market, private equity guys are going to go, Hey, this business has the capability to do what we’re about to do with it. If you’re a bit more established, international expansion is another thing.

That last big exit that I was involved in, I mentioned in 2018, I was actually acquired into that business. I was in the UK and we were the only international acquisition. And I didn’t realize at the time that we were going to sell the whole group so quickly. They didn’t tell me that, which is great. But anyway, the point is they bought the business that I was running so that they could show they have a beachhead internationally.

So there’s things like that, that if you know how the world plays, you can do things and it doesn’t have to be as complex as maybe that sounds, but that’s how the game is played in the sophisticated capital markets.

Pat Flynn: It’s almost like playing 4D chess. You kind of have to think outside of the box and position things again for the cell, because ultimately the private equity group just wants to come in at the lowest cost possible and then build it out and sell it again at a much higher profit. Right. That, that’s ultimately their goal.

Nick Bradley: And I’ll give you the stats on this a little bit, cause I think it’s interesting. And we, I joke about this sometimes. So, and the numbers will blow you away, but this is why there are more billionaires in private equity than real estate or anything like that.

Right. So there’s a couple of metrics that private equity is measured on. Right. One is called IRR, which is internal rate of return. And that is effectively how long a private equity firm holds onto money from investors before the investors get a return. So that means that private equity have to buy and they have to scale and sell quickly.

You can’t just hold onto an asset for 20 years. That’s why the average hold time is, I think it’s around five to seven years, but usually a private equity firm wants to get out in and out quickly. The second one’s kind of where you were alluding to. It’s called MOIC, and it means multiple of invested capital.

And the way to think of this is, let’s say I buy your business for $50 million and then I put another $50 million in on a buy and build. So you’ve now got maybe three or four companies in a group now for me to get the return. You might think in a kind of normal world, well, you know, you’ve put a hundred million in, maybe you want to get a a 50% return, maybe a 20% return.

We want a 300% return as minimum. Geez. Now here’s, here’s, here’s the funny bit. I was measured, my bonus, right was on at least a 300%, so a three times MOIC. But what they really wanted was closer to a five times MOIC. Now, just think about this for a second. It does. This is kind of the blow your mind thing, right?

I’ve put a hundred million dollars in. I expect to get at a minimum, 300 million bucks back, possibly 500 million bucks back within a three to five year window.

Pat Flynn: Yeah, you’re not gonna get that in the S and P.

Nick Bradley: Isn’t that crazy? Isn’t it mental? I’ll tell you the joke very quickly. There’s some very expensive wine clubs in London and the sort of places that you would never have a sign on the door and it’s like secret knock. In my book coming up later in the year, one of the chapters, I kind of expose what private equity is by saying, I’m going to take you into one of these clubs for a night. And you’re going to sit there like a fly on the wall. And I’m not joking. Like if someone came in and everyone knows the deals that people are working on and transactions, it’s not that discreet.

People know, like if someone’s had a great win or they’ve had, you know, a poor performance and, and it was kind of a bit kindergarten at times. Like, you know, if someone came in and they’d had a fantastic exit, like they’d be cheering and all sorts of crazy stuff. Again, if someone came in, it was poor. Like, you know, there’d be a bit of a laughter in the room.

It’s a bit horrific when you think about what’s going on there, but that’s, that’s what the game was like, you know, crazy.

Pat Flynn: That is crazy before we get into the 15 things. And I know you have a, I definitely want to point people toward an episode that you had me listen to 15 reasons why your business won’t sell to private over on your podcast Scale Up.

Well, we’ll definitely link to that in the show notes, but I want to ask you about. After the sale, how often the seller business owner feels. I mean, it’s a life changing amount of money, but does that do anything for those people? I mean, I’ve heard some stories of people who sell and they instantly regret it, or they start going into a spiral because they have all this money and it just money amplifies who they are.

And then they spend all this money on bad things. Do you get to hear the stories of what happens after the sale?

Nick Bradley: Yeah. More so now. Because I’m now working as I said, I work exclusively with business owners. Now I don’t work with private equity more because my belief after going through some sort of personal things was that the people who created all that value need to realize that value.

They need to harvest that value because private equity is not structured for that to be the outcome. So it’s about leveling the playing field, right? I see different patterns. One of the reasons why businesses don’t sell. One of the big reasons is that the seller gets cold feet and that sounds crazy right when you think about life changing money, but one of the things I spend time with people I’m working with is about what we call the next act or again sort of compelling future and If you get someone who’s you know, maybe a little bit older they might be in their sort of 60s or whatever else and they’ve had their business for 30 or 40 years, you can’t disassociate their identity from it.

It’s very hard. It’s like losing someone in your family. And sometimes they don’t even realize that they’re sabotaging the transaction through the process, particularly when it heats up and it becomes stressful and emotional. And then private equity prey on that again, not, not, not a nice thing. So you get that situation where people just don’t go through with it because it becomes too painful for them.

The antidote to that, as I said, is to create your next act, work out what you’re going to do next. Not so much about the money. The money’s part of it, but you know, you might want to go and do more philanthropic things, or you may want to kind of invest again. There’s lots of different things, but that’s important.

So you have that characteristic for sure. I’ve had situations where someone’s gone and bought the Aston Martin before the transaction is actually completed. And then, yeah, I had a really bad situation once with a company where the guy thought he was going to sell out for 60 odd million pounds. He ended up selling the business for 150,000 pounds.

So was it two years later because he made some very critical errors in the business and, and there was some government changes around regulations. So there’s all those things, but the ones that I like to work with and what I see the most of is people that they have a different perspective and a different level of kind of feeling once that financial piece is ticked off.

Most of them go off and do more impactful things. So when they invest, it’s not just about making more money. A lot of it’s about making a bigger difference. And you actually see that with some of the, the sort of deck of billionaires in the world too, you know, there’s a balance between that. Others want to go out there and build empires.

They’ve had one big exit. They’re now going to go out and have, you know, multiple ones. And I have people come to me and say, I want to sell my business for a hundred million dollars. And I’ll often say to them, I’m not going to judge your ambition, but you know, if you haven’t got 20 million in the bank right now, sell your business for a number, that’s going to change your life first, because then you’re going to be more expansive with your thinking.

And then maybe the second or third place to get into that nine figure threshold or more, but it’s a big thing. And the other thing I’ll say just to finish the point is sometimes people don’t have any friends anymore, and this is going to sound bizarre, but not that they change, even though I’m sure they do change, but the perception of them changes and I get a lot of people have to find a new peer group, right?

And they’re like, where do I go now? I can’t hang out with my mates down the pub anymore because they just act differently around me.

Pat Flynn: Wow. That’s crazy.

Nick Bradley: These are all important characteristics that can sometimes happen when you go through that event.

Pat Flynn: Yeah. Things to think about. I mean, we often fear success as much as we fear failure because of those changes, but I, I love the idea of thinking about your next act and some of the other things that you can do that maybe weren’t even possible before, especially providing more value out there and the philanthropic stuff. That’s really exciting to me.

Nick Bradley: I still believe, and I’ve had this belief for a long time that entrepreneurship is a force for good.

It has the power to change the world if pointed right in the right direction. And the more that entrepreneurs can be successful through what we do through exiting that option to exit my belief, maybe it’s a little bit kind of rose tinted glasses at times, but. I do believe that the people do go on and do great things and make bigger change.

Pat Flynn: For sure. And much of our audience here are those kinds of people who would do that. So again, I appreciate you for sharing the insider scoop on what happens in this world. And before we get into some of those points that we want to make sure we get the reasons to sell or things why it wouldn’t sell. I know that you, in terms of helping people who want to get to work with you a little bit more closely, can you explain a little bit more about what that might look like? And perhaps where people can go get access to that or see what you got going on.

Nick Bradley: Yeah. So to give you a little bit more context, I left private equity during that last transaction.

I had a bit of an epiphany really about, I was a guy that was, well, hunting businesses for a living is probably the nice way to say it. Right. You know, I was, Kind of out there trying to buy these business in and exploiting the people who created them and I had a situation where I realized that that was firstly I was gonna go to hell. But I wasn’t showing up as who I wanted to be.

I wasn’t particularly well health wise and I made this big change I made that big change actually because I ended up going to a Tony Robbins Unleash the Power Within. And I sat there for four days. And if anyone’s ever experienced anything like that, I remember crying my eyes out actually, and seeing the world very differently.

But he put up a, a quote, which was from Zig Ziglar, which was, you know, if you can help enough people in the world, get what they want, then you’ll have everything you want. And it sounds like a very simplistic quote, but really it smacked me in the face because I, my whole system, if you like my programming up to that was, I’m just going to take from you.

And the more I take from you, the more I have, it sounds very primitive, but that’s, that’s what it was. Anyway. I share that because I jumped on that other side of the table and I didn’t know what I was doing right in terms of what am I going to do now? Right? I mean, private equity, I made some money and I, and I have these, you know, I have an income through private equity.

How do you replace that? And I started doing one on one consulting and coaching. And over the last six years, that’s become full. I can’t do it anymore. And, and that’s a great thing to, to be, but I, you know, my mission is to help a million business owners create high value exitable companies in the next decade.

And so as a result of that, we’ve just launched what we’re calling the High Value Exit accelerator. And it’s our first, I’m calling it a group coaching membership, because as you asked the question, how long does it take? Well, you know, people can be in our coaching membership for as long as it takes. And we coach around those three areas that I spoke about previously, you know, the strengthening foundations, the scaling value and the selling smart, the selling intelligently, all with the premise of making sure that we can guide and support people who have the intention and want to create the option to exit, to be able to learn from someone, you know, who’s been on that side of the table, ultimately the person who is going to buy your company, so you have that support before you go through that process. So very excited about it. And it’s taken a bit of time for me to get it to what I want it to be, but we’ve just launched that.

Pat Flynn: Well, congrats on that. If I don’t know if when people listen to this, they’ll be open spots available or, you know, whenever the next cohort is or whatnot.

Nick Bradley: We run cohorts every two months. So there will be that, but definitely reach out. I mean, our website has details on that. So, you know, as you, as you mentioned before, highvalueexit.com. Plus what we talk about next in terms of the blueprint, as I call it, the Exit for Millions Blueprint. I’ll, I’ll put a link here for anyone listening to the show to get access to that because it’s, it’s a bit of a mini diagnostic on the 15 things that make it very challenging to sell your business to sophisticated buyers. And I think if people can assess their business in advance, they know the gaps, then there’ll be primed perfectly for a conversation about how we can obviously support them.

Pat Flynn: Amazing. We’ll put all the links in the show notes for everybody, but let’s finish strong with, with these 15 things, the blueprint.

Nick Bradley: Sure. We’ve touched on some of them and I’ll go through them quickly because you know, once you start going through them, you can dive deeper into each of them. But the first thing, these are the things that make your business unsellable to a sophisticated buyer like private equity. And as I’m going through them, what I’d like your listeners to do is maybe give a scoring, like a red, amber, green around where they’re at.

And what you want to get to, you know, to create the option of a high value exit is you want to get to about 80 percent of them being green. They don’t all have to be green, but if you’ve got like that 70 or 80 percent of green, your business is going to be at the point where the multiple can be maximized within your market.

Okay. So the first one is your business is generating low profit or minimal growth. So some people get a bit funny about this. I’m going to just a bit of explanation because you see businesses that don’t make any profit being sold on things called revenue multiples, right? It doesn’t happen as much as people think.

And the times when it does happen is when it gets slammed into another business and someone’s always thinking about where the profit’s going to come from. Okay. So, you know, at the end of the day, if you, if you’re not growing or you’re going backwards or you’re not very profitable, you’re not going to be very valuable.

Okay. The second one, which we touched on. Is that your brand or your offering is commoditized, right? You don’t stand out in your market. You’re in what we call the red ocean. Anytime where you have to compete fully on price, not good. Okay. Third one is your leadership team is either non existent or has gaps in key functional areas.

Okay. It comes back to my point beforehand. You’re buying a transferable asset, so you have to have the right capability in the right areas. Aligned with that, you have talent gaps across and through your organization. So what I like to say here is that you’ve got a strategy, right? But if you’ve got key roles that are not aligned to the strategy and you can’t demonstrate that again, I’m going to assess that as risk.

Fifth one is your culture is not driving the right levels of performance. Okay. And you see examples of that with businesses that look impressive from the outside, but they have a cultural issue. I think Uber had that recently, a few years back, things like that, but you have to define your culture. It’s a really powerful thing, particularly now that we operate more remotely.

Right, so people are not always in the same space, so it has to be through principles and behaviors. The sixth one is your business is too reliant on the founder. We touched that. And sometimes that’s because the founder is a micromanager as well, right? But what I do here, and you’ll laugh at this, is when I work with businesses and I get to a certain stage, I say to the founder, you now have to go away for six weeks.

Right. And I go, what? And we do this towards the end, by the way. And they’re quite appreciative of the fact that when I say that in the beginning of working together, and that might be, you know, 12 to 18 months before they’re ready, they can’t even realize how that’s possible. But it’s a testing. It’s a pressure testing the business.

The seventh one is your business relies on one to two main channels for acquiring customers. So we like to have at least three to four customer acquisition channels or lead generation ways in your business. And you don’t want to be kind of relying on referrals, obviously, right? You know, you want to have something that’s predictable, repeatable, sustainable, like I mentioned.

Number eight is your business has no recurring revenue. Okay. We went through that in quite a bit of detail. Nine is your business relies on only a few customers driving the majority of your revenue. This is a huge one. So if you have a business that say has 10 customers, And 80 percent of your revenue comes from three or four of them and they go, or they’re not locked into long term contracts or whatever. Of course, I’m not going to pay you the value of the company because again, there’s too much risk.

Pat Flynn: Yeah. Super risky.

Nick Bradley: Okay. Number 10 is your business lacks documented systems and processes. Comes back to that sort of automated processes piece we talked about in the Strengthened Foundations. 11 is your business is not tracking or measuring performance effectively across and through the organization again, so it doesn’t have this bias towards data and metrics.

The best businesses I work with have very simple dashboards that clearly articulate the key things that make the business operate. 12 is your financial accounts are not audit ready. Again, a big one. When you sell a company, particularly an eight or nine figure exit, the private equity firm is going to do what’s called a quality of earnings analysis.

They’re going to look at how the business makes money. And if you can’t demonstrate that that’s independently validated, A, it takes longer to sell a business because it makes the due diligence process longer. But remember, the majority of the value is still going to be in the financials. About 40 percent of the value of your company is in the numbers and about 60 percent is in these intangible areas.

So you still have to show that they are as beautifully put together as possible. 13 is your business has no established board or external advisory team in place. The first thing a private equity firm is going to do as soon as they acquire your company is put a board around it. Right. You’ll be on the board as the founder, but there’ll be an operating partner.

There’ll be a couple of people from the private equity firm themselves. And the reason this is here is that if you can show that you can operate with a level of governance, professionalism in the business, it proves firstly, that that’s going to be easy to transition to the private equity firm equally.

If let’s say you’re a founder, that’s never had a boss for years. You’ve suddenly got a boss. So you want to demonstrate that you’re mature enough to be able to deal with that situation as well.

Pat Flynn: That makes sense.

Nick Bradley: Last couple 14, your business has subscale profitability to be attractive. Now we talked about the four to 5 million threshold.

So, you know, if you’re not really at that level, You can still be acquired, but it’s a much tougher game to play. So you want to get to that four to 5 million that I mentioned previously. And then the last one is your business is not ready for strategic scale. Now strategic scale is either it can do acquisitions or it can do international expansion.

It can do partnerships. So again, as a business owner, listening to this, these are things that you can put in place well and truly before you start a sales process. And they’re all kind of little tricks, if you like, that as soon as you start talking to private equity or those sophisticated buyers, you know, their eyes are going to be lighting up as you go through answering these types of questions, because you’re literally singing to the choir in terms of what they want to see.

Pat Flynn: Amazing. Thank you for that rundown. I’ll get the link on the show notes page for where you can get that.

Nick Bradley: And ExitForMillionsBlueprint.com, but we’ll give you a link for that as well. But yeah, the PDF on that goes through all of those with a bit more explanation. It also has the ability to do the scoring that I mentioned beforehand and people find it very valuable just to kind of do a temperature Check of where they are in their business.

Pat Flynn: Yeah, what was that link one more time?

Nick Bradley: It’s ExitForMillionsBlueprint.com.

Pat Flynn: Thank you The the last question i’ll ask is and this is something that just came to mind when you were talking was You You know, in terms of the seller being able to choose the buyer, if there is an opportunity for a seller to understand like, yes, this buyer, this private equity group, they’re going to take care of my customers.

Like I’ve built this business. I care about my audience. I care about the perception of the brand. How can I be sure that a private equity group or any buyer would do right by what I’ve created or whoever is selling?

Nick Bradley: Yeah, very good, important question, because if you go through some of the stuff that I’ve covered today around making your business, the prize, people want the prize, multiple people want the prize, right?

So, you know, you are a unique thing. And in that situation, you, you create what I call sell side control. So, whereas you’re going up against these sophisticated buyers, they know how to play the game. You stand out as something unique. You then flip the script to some extent on that whole thing, and you start to, to some extent, earn the right to select who you want to partner with, and you get to interview them.

Now, that does happen all the way through the process, but you’ve suddenly turned, as I said, the tide on kind of the whole thing. What does that look like? Well, let’s say you hire an investment banker, a good one, and they run a process. I won’t go through the process cause it’s a whole nother probably conversation, but you’re going to get to the end where there’s going to be, let’s say, anywhere between probably five, I had seven in the last transaction I was involved in, suitors. And at that point in time, they all want your business and they’re going to put a price in front of you. But what I always encourage business owners to do at that point is don’t just go by the highest price. There’s a thing called terms as well.

Price and terms. Terms is how they’re going to pay you the money and all the other things they’re going to do as part of the transaction. And when you’re negotiating the terms, you can start to be a bit more explicit about what you want things to be going forward, because you’ve earned the right to do that because you’re the price.

So my advice here, just to finish this is pick the partner. That’s going to give you the best balance of those things. Pick the partner. Who’s going to do the right thing by your people, pick the partner. Who’s going to take the vision that you’ve created and really scale it into the future. If all of those characteristics are important to you.

And one thing I fully believe is, you know, I hate it when business owners, they get to this part of the process, and I won’t work with them, I’ll be really clear on this. And they’re like, I don’t really care about all the people that got me here, I just want to get the money. That’s the worst situation.

And I know people listening to this are probably not those people, but you want to very much remember how you got to this place because you’re about to create this event and it’s a super important thing to make sure you protect everyone and reward and incentivize everyone who’s got you there.

Pat Flynn: Yeah. A hundred percent.

Nick, this has been an incredible conversation. Thank you for the deep dive and helping us get into the rabbit hole a little bit here with this world and everybody should definitely check up Scale Up on your favorite podcast app. There’s so much gold there. Nick, this has been an absolute pleasure. Thank you so much for this.

One more time. Where can people go to follow along and get all the good things?

Nick Bradley: Yeah, absolutely. Well, I just want to say thank you very much. I’ve enjoyed the conversation. We’ve gone down a little bit of the rabbit hole.

Pat Flynn: Oh, I’m sure

Nick Bradley: There’s more to go back. But I said, my main thing now is just making sure people are aware of their options and their opportunities around this sort of stuff.

So I’m grateful for the opportunity. So I just want to say thank you, but yeah, people can reach out to me. So firstly, my practice, if you like, my consultancy is High Value Exit and it’s highvalueexit.com. You can also reach out to me on LinkedIn. I’m on LinkedIn all the time. So it’s real Nick Bradley, I think is the URL there, something like that anyway, but you’ll find me.

And then, as I said, the, the blueprint, as I said, will be very valuable to people listening is ExitForMillionsBlueprint.com.

Pat Flynn: Amazing. Thank you, Nick. We appreciate you and all the best.

Nick Bradley: Thank you.

Pat Flynn: All right. I hope you enjoy that episode with Nick Bradley, founder and CEO of High Value Exit. And man, this is a, this is a crazy world, but when you compare the possibilities of what a business could turn into in terms of the revenue that you could generate from just a single day’s exit, which of course will take years to get there and perhaps a 36 month runway to get there from where you’re at now.

I mean, there’s, there’s a lot of, this isn’t an overnight thing obviously, but compare that to a lot of investments that we normally think about that help us generate wealth from real estate to investing in the market, retirement plans, et cetera. I mean, building a business to scale and to sell seems like it would be worth it.

And if this episode interests you at all, and you want to see how to take the business that you have or an idea that you have and get it to that point, well, Nick is definitely the person to follow. Again, you can follow him and find them at High Value Exit. On LinkedIn, Nick Bradley. And we’ll have all the resources and links mentioned in this episode on the show notes page at smartpassiveincome.com/session789, again, smartpassiveincome.com/session789.

Thank you, Nick. Thank you for listening all the way through. I hope this was a interesting dive into a world that we don’t talk often about, but it’s there and man, we’re talking billions and trillions of dollars available, amazing opportunities.

Best of luck to you and I look forward to serving you in next week’s episode.

Thank you so much for listening to the Smart Passive Income podcast at SmartPassiveIncome.com. I’m your host, Pat Flynn. Sound editing by Duncan Brown. Our senior producer is David Grabowski, and our executive producer is Matt Gartland. The Smart Passive Income Podcast is a production of SPI Media, and a proud member of the Entrepreneur Podcast Network. Catch you next week!