14 Aug Built to Sell: He Bought a $2.1M HVAC Company. Two Years Later, He Was Bankrupt
One of the fastest growing groups of acquirers is the self funded searcher. A searcher is not a competitor nor a private equity group. A searcher is usually one person, often recently out of an MBA program, who puts ten to twenty percent down from personal savings, borrows the rest from a bank, often asks the owner to finance part of the purchase price, and signs a personal guarantee for the debt.
Owners find searchers appealing for good reasons. They may pay your asking price, and they promise to look after your employees rather than fold them into someone else’s operation. There are three reasons to look hard at one before you sign anything:
Grant a no shop clause to a buyer who cannot close and you have handed away your negotiating leverage and months of momentum for nothing.
Sell to the wrong one and the company you spent years building, along with the people in it, may not survive the transition.
Finance part of the purchase price yourself and you sit second in line behind the bank on a loan secured by a business you no longer control.
Dan Burnside spent seven months searching. He cashed out his 401(k), sold his house, and lined up five banks in advance so he could move faster than the other searchers chasing the same deals. Two owners signed a letter of intent with him and neither deal closed. The third was Parker Mechanical, an HVAC company in rural Colorado doing $2.1 million in revenue and close to $900,000 in seller’s discretionary earnings. Burnside paid $2.1 million with ten percent down. Two years later he filed for personal bankruptcy.
This episode is a surprisingly candid view behind the curtain of a search: the good, bad and the ugly.
