Listen now to learn how to evaluate potential buyers, secure a fair deal, and position your business for a successful exit.
About this Episode
Adam Kerrigan started as the owner of a managed service provider (MSP) business, which he built and eventually sold. After his exit, he joined the acquiring company to lead its M&A group, where he completed 16 deals and helped build a private equity-backed organization.
In this episode of Built to Sell Radio, Adam pulls back the curtain on how acquirers often push for cashless deals, offering equity instead of cash—and how sellers can negotiate to ensure they get the deal they deserve.
You’ll discover how to:
Recognize when you’ve become the bottleneck in your business.
Build recurring revenue streams that attract buyers.
Evaluate the risks of rolling equity in an acquisition.
Negotiate effectively when offered a cashless deal.
Value your business and understand common multiples across industries.
Navigate the emotional challenges of letting go of control.
Adam also discusses the concept of “valuation arbitrage”—where smaller businesses can increase their value by joining a larger entity—but highlights the risks of relying solely on a future payout.
Whether you’re thinking of selling or want to understand the strategies acquirers use to maximize their leverage, this episode offers a wealth of actionable insights.
About Our Guest
Adam Kerrigan
Adam Kerrigan is a world champion powerlifter and successful entrepreneur. He founded and sold his Managed Service Provider to Intelligent Technical Solutions in 2018, navigating challenges like burnout and scaling.
In powerlifting, Adam is a three-time national champion, 2021 USPA World Champion, and holds a world record deadlift of 622.8 pounds. His journey showcases resilience, discipline, and success in both business and athletics.
Definitions
Due-Diligence: This is a comprehensive appraisal of a business or investment undertaken before a merger, acquisition, or investment. It seeks to validate the information provided and uncover any potential risks or liabilities.
Earn-out: This is a financing arrangement for the purchase of a business, where the seller must meet certain performance goals before receiving the full purchase price. It reduces the buyer’s risk and aligns the interests of both parties post-acquisition.
Roll Over Investor: A rollover investor, in the context of selling a business, refers to an individual or entity that rolls some of their proceeds from the sale with the buyer. This strategy allows the seller to defer capital gains taxes and potentially leverage their expertise or resources in a new venture.
Debt Coverage Ratio: The debt coverage ratio is like a financial health check for a small business applying for a loan from a bank. It shows whether the business earns enough money to comfortably cover its debt payments.
In simpler terms, it’s a way for the bank to see if the business can afford to pay back the loan. If the ratio is high, it means the business is making enough profit to easily handle its debts. But if it’s low, it could indicate that the business might struggle to make loan payments, which could make the bank hesitant to lend them money.
Let’s say there’s a small bakery called “Sweet Delights” that wants to expand its operations by taking out a loan from a bank to buy new equipment. The bank wants to make sure Sweet Delights can afford to repay the loan, so they calculate the debt coverage ratio.
Sweet Delights’ annual net income (profit) is $50,000, and they have annual loan payments of $20,000 for existing debts.
The debt coverage ratio formula is:
Debt Coverage Ratio = Net Operating Income / Total Debt Service
In this case: Net Operating Income = $50,000 (annual profit) Total Debt Service = $20,000 (annual loan payments)
So, the debt coverage ratio would be:
Debt Coverage Ratio = $50,000 / $20,000 = 2.5
This means that for every dollar of debt Sweet Delights has, they’re making $2.50 in profit. In simple terms, the higher the ratio, the better, because it shows that Sweet Delights is making enough money to comfortably cover its debt payments. This would likely make the bank more confident in lending them the money for the new equipment.
Arbitrage: Arbitrage refers to the practice of exploiting price differences or inefficiencies in the market to generate profits. In the context of selling a business, arbitrage may involve identifying undervalued businesses or assets, acquiring them at a lower price, and then selling them at a higher price to realize a profit. This could involve various strategies such as purchasing distressed businesses, improving their operations or market positioning, and subsequently selling them at a higher valuation.
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