Ep. 153 — Kevin Short: The Outrageous Price Hides in What the Buyer Won't Tell You

6 min read

Subscribe: Apple Podcasts · Spotify · YouTube · Amazon Music · iHeartRadio · Pandora · RSS

Episode Summary

You ran the auction, the bids came in around a 5x, and one buyer showed up at 10x. Same data, same book, same room. Six months later you bump into them and they tell you they’ve already made their money back. That’s the moment Kevin Short had fifteen years ago, and it’s the moment that turned him into a guy who hunts outrageous prices for a living. I had Kevin on because most owners are selling into a financial-buyer mindset, which puts a lid on the deal before the deal even starts. Kevin’s argument is that there’s almost always a buyer who values your business at two or three times what the spreadsheet says, and your job (and your banker’s job) is to find them and design tests that flush out what they really want. We got into how to read what a strategic buyer is actually buying, why running an auction with hundreds of names catches the outrageous price you didn’t even know existed, how to handle the management team conversation with a stay bonus structure that doesn’t blow up the deal, the books-and-records cleanup that has to happen years before close, the 338(h)(10) election most CPAs have never heard of, and why the 14-year sales tax problem that no one caught is what delays your closing by three months. Real numbers. Real deals. And the honest version of how emotional this gets when the buyer is jerking you around on document number 47.

Watch on YouTube

## Top 10 Takeaways
  1. The financial-buyer mindset puts a lid on your deal because you’re selling to a spreadsheet, not to a business reason.
  2. An outrageous price (2x+ the average industry multiple) shows up because the buyer sees synergies you don’t, or because you found them by accident in a wide auction.
  3. Hundreds of buyers in your auction protect you, because the highest bidder is often someone you didn’t know existed at kickoff.
  4. Your job is to figure out what the buyer is really going to do with your business, then price the deal off their math, not yours.
  5. The owner you are at the start of the deal is not the owner you’ll be six months in. Your priorities will shift as you meet buyers.
  6. Have dinner with every finalist before the final presentation. How they treat the staff tells you who you’re getting in bed with for two years.
  7. Never tell employees the company is for sale. Use a stay bonus paid in thirds (close, year one, year two) for the keys you have to involve.
  8. Customer concentration, a thin management team, and messy books are the three deal killers buyers underwrite against before they ever look at growth.
  9. Your wills-and-trusts attorney will get eaten alive by Jones Day. Hire m&a-experienced legal and tax help years before you go to market.
  10. Run the business as if you’re not selling. Deal fatigue and counting the money before it hits the bank are how owners blow up their own deals.

Sound Bites

“100% of the companies on the planet that I’ve ever met are underpriced. Meaning in some corner of the business, there’s something you could charge more for.” (@TBD) — Kevin Short

“When I sold it for a 9 multiple I thought that was 10 years of earnings, right, by definition. So it turns out that I had sold it for six months.” (@00:02:53) — Kevin Short

“You really want to get out of the financial buyer mindset as a seller, because all you can do is put a lid on the deal. You’re selling basically to a spreadsheet exercise, not to a business mindset.” (@00:07:04) — Kevin Short

“You hover over the deal asking questions, looking for the outrageous price moments. And when you see something or smell something, you dive down like you’re coming in from 30,000 feet.” (@00:12:35) — Kevin Short

“Don’t count your chickens until they’re in your bank account. People really get themselves in a hard spot when they’ve already counted their money. Sometimes they spend it before they get it and now the deal craters.” (@00:39:16) — Kevin Short

About This Episode

Kevin Short is the managing partner of Clayton Capital Partners, a St. Louis-based investment bank, and the author of Sell Your Business for an Outrageous Price: An Insider’s Guide to Getting More Than You Ever Thought Possible. He cut his teeth in the 1980s acquiring businesses for a family office, ran his own companies into the early 90s, and has spent the last three decades on the sell-side advising lower-middle-market owners. The book came out of fifteen years of pattern-matching: deals that closed at two or three times the industry average multiple, and what those deals had in common. His firm works with about 4,000 private equity firms across the U.S. and runs auction processes designed to flush out the buyer who values your business for reasons the rest of the market can’t see.

Resources Mentioned

  • Sell Your Business for an Outrageous Price by Kevin Short — The book this conversation is built around.
  • Never Split the Difference by Chris Voss — Referenced for the “Black Swan” concept of figuring out what the other side really wants.
  • Clayton Capital Partners — Kevin’s firm. Reach Kevin directly at 314-725-5858.
  • 338(h)(10) election — IRS code reference for a hybrid stock-sale/asset-sale tax treatment. Worth asking your CPA about; if they look at you blank, that’s your signal.

Connections

Phase + Module:

Milestones:

Concepts referenced:

Graph View