Frank Cottle led an investor group to buy Hi-Mark Software for 10 times EBITDA. Cottle then sold a chunk for 15 times and ultimately sold his last tranche of equity for more than 16 times EBITDA to Lufthansa.
In this interview, you’ll get deep inside the mind of a private equity buyer and learn:
- three reasons acquisition deals fall apart.
- the difference between your reputation and your brand and which one acquirers value most.
- the definition of “suicide by investor” and the dangers of getting into bed with a private equity group.
- how stock clawbacks can dilute your position to zero in the company you started.
- how a stock re-capitalization works.
- one key decision every entrepreneur must make in growing their company.
- why cross-selling as an investment thesis is flawed.
Selling to a Private Equity (PE) firm can be a high-risk proposition. While a PE firm may pay cash, more often a PE deal involves you staying on and risking your equity alongside the PE firm, albeit as a diluted and potentially less powerful owner. The key to getting a deal that works for you is to have some leverage going into a negotiation with a PE buyer and that’s what we focus on at The Value Builder System™. We want you to enter a negotiation from a position of strength, so you end up getting the very best deal you can when you go to sell your life’s work. If you’re curious, take 13 minutes and complete the Value Builder questionnaire right now.
Click to Tweet: Ep. 70 of BuiltToSell Radio: Inside the Mind of a Private Equity Investor.
At Built to Sell we’re all about shifting the balance of power from the buyer to the seller. If you support our mission, please write a review on iTunes—and if you have any comments or questions you can find us on Twitter and Facebook. Tune in every Wednesday for another episode of #BuiltToSell Radio with John Warrillow.
About Frank Cottle
Frank Cottle is CEO of Alliance Virtual Offices and chairman of the parent company ABCN (Alliance Business Centers Network), which he founded in 1991. ABCN is a global network of 700 serviced offices and virtual office services across 52 countries.
The ‘virtual office’ equips small businesses with a local presence in the form of a real business address, mail handling and mail forwarding, a local phone number, and market-leading VoIP services. It also provides live receptionist call-answering and appointment-setting services. In essence, a combination of ‘People, Place and Technology’.
Prior to creating the Alliance brand, Cottle successfully operated his own portfolio of business centers spanning multiple locations across North America. Before that, Cottle was an executive vice president with the investment banking firm L.E. Peterson and Company, where he managed US syndicated real estate operations.
Some Highlights of the Show
Business: Acquired Hi-Mark Software
- Acquiring Hi-Mark: “We were acquiring a variety of companies around the travel industry… Hi-Mark was the leading company for data aggregation and reporting across the travel industry.” [2:15]
- Middlemen: a group of eight people that acquired a bunch of companies, consolidated and resold. [3:00]
- Acquired 44 companies over three years. [5:34]
- The Return: internal rate of return requirement was 40% a year compounding against the capital invested into the project.
- The management fees. [7:24]
- Why Hi-Mark: synergistic relationships and the capacity to scale. [8:23]
- Revenue: $15MM when purchased and paid 10X–11X EBITA. [10:22]
- Click to Tweet: How a stock re-capitalization works. [12:40]
- The Hi-Mark Acquisition: what really worked in building value. [23:18]
- Talking risk. [26:00]
- The entrepreneur’s incentives. [28:45]
- Click to Tweet: The definition of “suicide by investor” and the dangers of getting into bed with a #PrivateEquity group. [29:50]
- Click to Tweet: How stock clawbacks can dilute your position to zero in the company you started. [32:20]
- Mistakes entrepreneurs make. [40:00]
- Click to Tweet: The difference between your reputation and your brand. What #acquirers value most. [42:45]
- “Time kills more deals [probably] than anything else.” [43:32]
- Frank is now CEO of www.AllianceVirtualOffices.com
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