If you’re selling, you want to be where your buyers are.
But what does it take to thrive in a massive tech industry marketplace?
In this episode, entrepreneur, author, and franchise owner Nate Lind gives an inside look at WebsiteClosers.com, which provides sell-side advisory and transactional services for tech companies in the lower middle market.
Nate will also share insights from his book Maximum Exit, which guides tech founders through the process of a clean exit.
Mentioned in this episode:
Transcript
Patrick Stroth: Hello there. I’m Patrick Stroth, trusted authority in executive and transactional liability and founder of Rubicon M&A Insurance Services, now a proud member of the Liberty Company Insurance Broker Network. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions, and we’re all about one thing here. That’s a clean exit for owners, founders and their investors.
Today, I’m joined by Nate Lind, entrepreneur, author and franchise owner of WebsiteClosers.com. Nate provides essential sell-side advisory and transactional services for sellers of E Comm, SaaS, tech, and internet companies in the lower middle market. And you’re a recent publisher of the book, Maximum Exit. So Nate is great to have you here. Welcome to the show.
Nate Lind: Thank you very much for having me, Patrick, how are you?
Patrick: I’m doing really well. And I’m excited because one of the things that we want to talk about here with M&A are the huge volume of these lower middle market activity opportunities, particularly in the tech space. And it’s not infinite, but it’s pretty large. And you’ve developed a real great practice. Before we get into Website Closers and Maximum Exit, let’s talk about you. How did you get to this point in your career?
Nate: Yeah, I, I was trying to buy a business in 2012. It was an online e-commerce supplement company. The owner had written a book about ginkgo biloba and was selling supplements to the people who read his book and were interested in the interesting benefits of ginkgo biloba. Kind of helped with like brain fog and that kind of stuff. And the margins on it were huge. The scalability of it, I thought was, it was insane.
The business didn’t actually make it through due diligence. But it taught me enough that I got really excited, went ahead and started a supplement company. Ran one for a little over 10 years. Had about seven or eight different brands within that over that point in time. I built some technology and sold it to a shopping cart in 2016, kind of gave me my first mergers and acquisitions experience. And I went on to continue selling supplements directly.
I didn’t realize there was a market for those supplement companies, I kind of just thought they were cashflow companies. They didn’t really make much in the way of enterprise value. So I’ve never sold one of those. And it wasn’t until I met Jason and Ron, the founders of Website Closers that I realized holy cow this supplement companies sell like hotcakes. Shucks, I wish I sold one.
But by then I had moved on to do some, some event planning and I was doing trade shows and conferences for entrepreneurs, and ended up going ahead and buying a franchise at Website Closers, becoming a business broker. I’ve got two associates myself now. I live in Puerto Rico. And as you see, if you go to the main Website Closers, website, pretty much all the testimonials are of this guy. I’m a rainmaker over there. I love doing what I do.
And I love helping entrepreneurs have their own exits. I’ve bankrupted companies, and I’ve sold them. So I’ve been through thick and thin, I’ve had the tragedy of failure and shutting businesses down, I felt the extreme triumph of selling those suckers off and having somebody validate you, by paying you a massive whopper of a wire that says you’re worth it. Your company’s worth it, I’m going to buy it from your friend.
Patrick: Wow. And we go with that where I mean, you learn lessons along the way, by actually doing it. And you’ve moved from actually being a star player to coaching others. And so let’s talk about this advisory service that you have now what you do with Website Closers. Because you’re not just a business broker, transacting, you’re kind of shepherding people along the path. So let’s talk about Website Closers first, and then, you know, what are the things that you were bringing to the table?
Nate: Yeah, Website losers. It’s the biggest marketplace. It’s like the MLS of online technology, digital marketing, SaaS, apps, mobile, anything tech, internet related. We’re like the MLS, the multiple listing service. For those of you that are familiar with real estate, we’re like that, but for the M&A space. So we’ve got over 100 listings right now, over $500 million worth of companies actively for sale right now. We sell 300 or so a year. We’ve sold over 3000 since the company was formed 13 years ago.
So yeah, we’re a massive marketplace and just like the MLS within it are multiple brokers, multiple brokerages or for us, we call them franchises. I own a franchise in Puerto Rico and I work on deals that are over a million dollars in size, they must be two years or older and they need to be making at least half a million dollars in positive net earnings or cash flow in order for my buyers to show interest.
So for those deals, we bring them to market and I get pounded with buyers interested in it. And in fact, I’m redesigning some of the way that we’re in taking our buyers because we’ll get oftentimes 200 buyers signing NDAs and looking at our transactions. And while having that many eyes on it is great, I want to make sure every eyeball, and especially every person we’re having a conversation with is pre-screened.
And as really a qualified buyer, because it’s it I do full service. I’m preparing the offer memorandum prior to its listing, I’m coaching and counseling my clients on exit strategy and planning. I’m helping their finance officers, their CPAs, their CFOs, I’m giving them minute details.
We’re reorganizing charts of chart of accounts on their, in their books, and we’re cleaning them up, we’re properly preparing them so that buyers can assess the true value of the business in a positive way. We want to set the battleground in our favor before we go out to market. And that’s just some of the stuff that I do.
Patrick: Okay, just forgive me, I’m just not as aware of this. But with Website Closers are comparable options out there. Maybe they’re not the same level but talk about them. You’ve got micro acquire out there, Flippa, these are other just marketplaces whereas you guys a what you’re doing you’re actually doing some counseling and coaching with your clients to get them prepared.
Nate: Yeah, it’s a great question. So anyone out there is thinking about selling your business, you want to be where your competitors are in terms of size, and where buyers are looking for you based on usually it’s your size. Most buyers, their first threshold of what they’re looking for is they have a budget to buy something. They’re looking to acquire either a website or a domain for those or blog, if it’s a smaller site, or they want a business with cashflow, and they want employees.
They want you know, they want inventory or they want contracts with you know, long term, you know, revenue coming in. Micro Acquire and Flippa. They serve a market that’s on the smaller end, you know, smaller businesses and more startup in nature. We only handle mature cash-flowing profitable businesses, they have to be at least two years old or older. Whereas for Micro Acquire, you know, there’s some other options in there too.
Their transaction size are smaller. They’re anywhere between $30,000. And maybe on the upper end 100, $150,000. You know, for us, our average transaction size is 2 million. We’re doing a lot of transactions in the upper single-digit millions. And then the lower, you know, teens and 20 Millions. I’ve done several 20,000,000, 20-$30 million transactions. I’ve listed companies, we’ve had a lot of buyer interest at the 100 million dollar mark.
So we’ve got you know, that’s what, we’re what we call ourselves as lower middle market. And for that, that 1 million to $150 million in sale price for a business, we really don’t have a competitor. We’re the 800-pound gorilla there. We just have been doing it for 13 years, and we’ve had so many sales that, you know, we find a little bit of competition with some of the bigger investment banks try to like push down. But they usually do bigger deals. You’re talking 500 million and more. But they have, it’s a total different buyer.
It’s a totally different process. You go with the investment bank route, you’re talking, you know, 10s of 1000s 50 $100,000 to prepare to list. We don’t charge jack to list. It’s totally free. We’re a success fee only. But because of that, and I can only do 12 to 13 deals a year, I will only list businesses that I feel confident I can sell. So we have a real heart-to-heart in the listing process to make sure that this is the right fit both ways.
Because I can’t take listings, I can’t sell. And I don’t want to waste anyone’s time either. If I know you know that our marketplace is not going to be the right fit, I’m gonna tell somebody. And if I think it’s the right fit, I’m gonna tell them that too. So if you’re listening out there, you’re selling, you know, at least over a half million dollars in profit.
Usually it’s at least a million dollars in annual revenue, at a 50% margin, you’re making a half mil, most of our clients don’t even make that kind of margin. They’re making more like 10, 15, 20% margins. So you got to be up there a little bit. Maybe closer to 2 million a year in annual revenue, and two years old, we’ve got a buyer for you.
Patrick: Okay, and at the initial outset, when we were speaking, you said oh, we were going to do 200 NDAs, we’ve got this massive market, it’s almost like sensory overload. And then as we peel back a little bit, you step back and say, okay, well, this isn’t too good to be true. This is just a nice well-defined market. And it’s in tech. And I think that’s one area where I think you’re going to have a competitive advantage on behalf of your clients is that unlike business brokers out there that are dealing with a lot of you know, real-time, brick and mortar type operations out there.
You’re in the virtual world and so you understand how things move. You understand positioning and you can enhance valuation for your clients out there. Could you give us an example of just, you know, a case study with one of your clients, just something recently to paint the picture for us on what it looks like when somebody comes to Website Closers and wants to engage you?
Nate: Yeah. So the engagement process starts with the business valuation. Usually the entrepreneur wants to know, how much is it worth? How much can I get? How much cash can I have?
Patrick: That’s the only question actually, yeah.
Nate: That’s the only question. So I do a business valuation for them. You know, I need to figure out what their multiple is. And then I need to figure out what their cash flow is, it’s the trailing 12 months cash flow multiplied by the multiple. That’s going to give us a kind of a rough idea of where their trading range is. I’m comparing that to the other listings, like that company that we’ve sold. So it’s a comparable based valuation. All that data is private, we don’t share publicly what the sale transactions end up at.
So you can’t get that valuation from anywhere but the market makers are the marketplace. And that’s us. Once that’s done, if my client says, heck, yeah, that sounds good. I want that kind of cash in my pocket, I’ve got a burning desire, passion, I’m burnt out or, you know, I’m bored of what I’m doing, I want to get this sucker listed. Yeah, they usually want to get it sold faster than slower. So we get it listed.
I have to pre-screen all the buyers. I was commenting in our introduction call, I get sometimes 150, 200 buyers signing a nondisclosure agreement, and I have to pre-screen them all. And we know I only take, you know, probably about five to 10% of those and, you know, work their way through the system that are qualified. And we’ll have a phone call with them, or Zoom call in this case. And then we’re it’s a two-way interview.
They’re interviewing, you know, my client to find out, you know, really, what’s the meat behind this business? And my client is listening to them and curious, what are they going to do with it. A lot of these transactions have a component of, a large component of cash at closing. I’m getting about 70%, on average of the enterprise value in cash at closing for my client, and then that remaining 30% is some combination of equity or performance-based or a seller note.
And when that’s the case, my client wants to understand who’s the buyer and how is the other 30% going to work out down the road. So that’s how that process works. We elicit a letter of intent, we go under contract, I manage the due diligence process like a project manager. So we’re having weekly touch base calls, making sure that we can get that all sorted out and squared away.
And then before you know it, if the buyers got their financing all lined up, we get to the legal process, we got to deal with reps and warrants. We got to deal with some other issues that come up sometimes from sales, tax-related issues, if they’re an E-commerce company. If they’re a business-to-business company, there’s other issues potentially with contracts and transferability of some of that sort of stuff.
So we got to navigate that. And that’s where I have to call in some big dogs with legal help, sometimes insurance help as well. And, you know, we do the negotiations back and forth one more time with the buyer and seller, make sure the final deal is good to go. And then we wrap. Close, wires go out and boom, the deal is done.
Patrick: Yeah, got a couple questions because the intent here is volume. It’s you want these simple, you want them efficient, okay. You’re not trying to cram things through, but what percentage of your transactions involve where you have to bring in either tax attorney, some outside professional. How often does that happen?
Nate: Every deal. Yeah, I mostly focus on the million-dollar plus, and I’d say my average is probably two to $3 million. And it’s a big enough deal there’s tax planning involved, there’s reps and warrants issues, there’s every deal I have, I recommend my client have an attorney. I can’t think of a single one I’ve done where there wasn’t at least a deal attorney involved.
There may not have been a tax strategist, or if there was sometimes I don’t know about it, because my client is working in the background with their CPA or their tax planner or their wealth planner. But oftentimes, I have to deal with that upfront because my client has a number in their head. And that’s that’s how much money is going to end up in my bank account. And often I don’t know what their tax liability is.
So we’ve got to start to kind of like ferret that out, because I’ll know I can get them 5 million bucks, but they may only walk away 3 million. And I may not know that. 3 million may not get the deal done for them. They may, either they may be thinking well dang, I can make that in two years. Why am I going to sell? So I have to work through that usually upfront in the engagement process.
Patrick: And then with the buyers, the buyer profile is all over the board from search funders to independent sponsors to private equity?
Nate: Yeah, I get into this in my book actually. I have a whole chapter about the types of buyers. We’ve got individual buyers, then we’ve got company buyers and on the company side it could be private equity firms. It could be hedge funds. It’s a lot of private equity sponsors. We have publicly traded companies. We’ve got, you know, massive private equity funders and firms and lenders that are involved as well. Sometimes the lenders want the big boy deals, but then they’ll kind of working in cahoots with the private equity sponsor.
If it’s a smaller transaction, where there needs to be someone kind of operationally running the ship, and they don’t have the private equity, you know, fund doesn’t have the staff to handle it. So we’ve got it all. It’s, it’s amazing, you know, to see the type buyers, you know, when somebody pops up on my list, and they’re, you know, they’re traded on the New York Stock Exchange, and I go look at their ticker. And they’re a $6 billion company. Yeah, that those guys, one of several are on my buyer list. They want the big deals.
Patrick: I think that’s one of the things is that buyers have come way down market. That’s why the lower middle market gets so robust right now. And there’s quite a few actually quality companies that are a real value to them, because they’re still at that, at that smaller stage. One of the things you mentioned in there was reps and warrants. And one of the big issues that happens with mergers and acquisitions is that there’s a concern about risk. And, you know, buyers don’t want to be stuck holding a lemon.
But sellers don’t want to be on the hook to the buyer for years after the deal for things that the buyer didn’t know about and had no control over. And so there’s been at that point in the the requirements in contract where the seller has to pay the buyer for the buyer’s losses post-closing. And you know, you’ve got that concern out there. Nate, just from your experience, have you guys come across reps, warranties, anything like that in your area?
Nate: Pretty much comes up in every deal. You know, that’s what I thought was attractive about us talking that I wanted to get to know you professionally, as well as to be able to share a little bit of my experience with your community. You know, every transaction over a million dollars, there’s going to be some conversation about reps and warrants. And, you know, typically turns into an argument and then it’s a second negotiation. So we’ve already negotiated a deal. And now it’s a couple months later, and the deal is you know, kind of close to getting closed.
And, you know, it comes up, it creates a little bit a little bit of extra friction for the buyer and the seller. And sometimes that friction can get, you know, can get overwhelming. A lot of times as attorneys last minute, they’re fighting to protect their clients. And they’re not necessarily fighting to get the deal done. And I just I didn’t know there was an option available at the cost that you guys operate at. So I mean, I went took it upon myself to share it with my colleagues at Website Closers. And it sounds like you’re already looking at a deal with my buddy, Doug.
Patrick: Yeah, so I’m very pleased about now is there’s a new product when I mentioned earlier reps and warranties insurance. For the larger deals, there’s a newly introduced sell-side policy where the seller is the policyholder. The policy is triggered when the seller receives a written demand from the buyers, like there’s been a breach, we’ve suffered financially, we want, you know, $1.4 million back in damages.
Well, this, what this policy does is steps in the seller shoes. And essentially just responds to the buyer and pays the buyer the buyer’s loss. They will incur defense costs to negotiate with the buyer, because you’re not going to just write a check when the buyer gives you an initial offer, and work with them to go ahead and make sure that the buyer is whole without being at the cost to the seller.
The name of the policy is called transaction liability private enterprise. It is priced by the amount of insurance you buy. It’s between, depending on the size and complexity of the deal, it’s between 15,000 and $20,000 per million dollars in coverage. So for a $2 million deal for the upward side of maybe $30,000, the buyer can get all $2 million back in the event of a real catastrophic loss at no cost to the seller. And so we want to do is be able to give sellers that clean exit. Be able to facilitate getting these deals done.
And you know, quite frankly, its not available when you’ve got deals in the you know, 15 to $20 million range where you know, buy-side rep and warranty policies aren’t going to come down to that level. Well we now have a response even though someone wants to pay for the insurance, you know, on the buy side is scenario it’s not available. Well it’s available here.
And so we’re very, very proud about that. And that’s what we’re trying to do is get these type of technology companies fast-tracked through so the entrepreneurs can close and move on to their next adventure. And also it gives buyers peace of mind because a lot of times buyer may only be able to get it even if they put it the seller’s expense. They’re gonna say, well, we’re going to have an indemnity cap, but it’s only 10% of the purchase price.
Okay, well, you buy a $2 million company and a $1.4 million loss but your cap is $200,000. You’re still out. Isn’t a nice when you can have, you know, a lot more protection there. And so that’s why we quite often see both the seller and the buyer paying for the policy and splitting the costs. So it makes it even more economical that way. Now, Nate, let’s talk about Maximum Exit real quick.
Nate: Yeah, absolutely. Well I cover so many of the questions that I’m asked, every day when I’m talking to potential clients. They want to know, what’s my multiple? Who are the buyers? How do I get paid? What’s the cash I get at closing? That sort of stuff. What do buyers look at? You know, what factors increase the value of my business? What factors decrease the value of my business? Should I sell? Should I grow it? Should I shut it down? What should I do with this thing?
I go through all of that? It’s about 136 pages. I’m happy to offer it to your audience for free. If they go to natelind.com/gift. G I F T my gift to your audience. You can download the digital version of the book for free, and also get access to a lot of the resources I have. I’ve got a what’s my multiple spreadsheet I make available, I’ve got examples of financials that have sold. You know, businesses whose financials help them sell.
Examples of businesses that were their financials are so complicated, it didn’t sell. So what you can do and what you should avoid. A bunch of stuff in there. So yeah, I get I get down into the nitty gritty, but I make it in a bite-sized way that someone who’s got some interest in selling a business one day should have enough that they can, they can explore.
If they want to go you know themselves, they could self list. If they want to use a guide like myself, there’s certainly an opportunity for them to get a free evaluation at the end, and I’d be happy to share with them a little bit more about what their business would be worth, if you should list it or not. So that’s really what the book covers.
Patrick: Okay, fantastic. Nate, as we’re looking forward now, what trends do you see in 2023? We just got through the first quarter and all these economic headwinds, we got all these macro issues out there. Do they apply to our world in the lower middle market?
Nate: I had my best first quarter ever, so I don’t think so. You know, I know there’s some headwinds out there that some people are encountering. A number of my clients in the digital tech and e-commerce space are reporting record sales, you know, January, February, and March. So a lot of my potential clients or folks that I’m in contact with, and they’re not quite ready to sell yet, they’re kind of they’re playing the wait and see game to see what their numbers can get up to are saying they’ve got some pretty astounding things going on.
So, you know, from what I’m hearing, things are going pretty well for folks. You know, I keep hearing nothing but doom and gloom from the newscasters. But it hasn’t hit you know, where I’m at. I’m seeing a little bit less intake in sale side interest. I think people have a perception that, that things are not great. But I’m having record numbers of buyers inquiring on companies.
I’ve had companies that I had listed before in the past, and they didn’t get quite what they wanted, or they changed their mind, come back and relist and we got, I had one of them got like eight LOIs. The first time I struggled to get a single LOI for the company. And so I’m seeing some really interesting dynamics that are, they are not falling into line with this doom and gloom outlook that everyone else is showing.
And I don’t know what to say other than, like, my email is not lying. These LOIs are not lying, these buyers are qualified, and they’re interested. And I think it makes sense, though, if you if you really, like if you dig into it, just from a psychology standpoint, you know, money likes to go where it’s comfortable. And a lot of people that have money have been in entrepreneurship, and they feel comfortable, you know, continuing entrepreneurship.
And it’s easy to look at a company right now and see how it’s doing. Because you can’t lie on your financials. Your financial statements are showing the trend of where you’ve been, and where you are. Now, it doesn’t shake say exactly where you’re going to go. But you can make some pretty dang good predictions based on what your track record has been.
And that’s where I think, you know, the lower middle market has been such a great spot to park money, because the returns on it are so good. And you can also, you can still borrow money. You can borrow from the SBA. You know, it’s a tick over 10%. But it’s a 10 year note. And, you know, it’s still from a cash flow perspective, you can make some of these deals work. And we saw a lot of deals using SBA on the buy side.
And, you know, it’s not a bad deal right now, you only have to put down, you know, 10, 20% cash at closing. You know, so for a $2 million deal, quarter million bucks, you can get into something that’s going to be cash flowing, you probably $500, you know, close to $650,000 a year. So, that’s not a bad deal. The cash flow, the debt service works, and people are doing it. So yeah, we’ve seen some pretty good things.
Patrick: Great insight with the SBA, particularly because if you have a deal that’s insured I mean, that even enhances your ability to qualify and probably get a larger loan from the SBA because you know, TLPE insurance policy can name the lender or the buyer, as loss payee on the policy. So now you’ve got, you know, financial security backing your financing, in addition, just having an insurance policy for the seller. So I think it’s a great thing. Well, I appreciate the optimistic outlook. I share it with you.
And I think that the concerns that the economy is slowing down are maybe apparent on the macro side. But, you know, on the lower side, when you’re targeting, you know, a sub $10 million acquisition, it’s hard to make a, you know, a 30, $40 million mistake on a six or $7 million acquisition. That’s why I think there’s gonna be robust trading down at that level. Nate Lind, from Website Closers, one more time, if you could tell us about the book. How we can get the book and how can my audience members find you?
Nate: Yeah, you can go to natelind.com. I’ve got a contact form there. You can reach me that way. You can also go to natelind.com. That’s n a t e l i n d.com/gift. And my free gift to your audience is a copy of my book. All the resources I give to potential clients to evaluate their business all on their own if they want to. You never have to talk to me.
But if you’re curious about what I have to say, and what your business would be like, and you want me to do a comparable based valuation, just like you would if you are looking to sell your home, you’re gonna call the person that’s, that’s been sending you postcards that’s been selling all your neighbor’s houses. I’ll do the same thing for you for free. As long as you meet my threshold, you need to be at least two years old and a half million dollars worth of profit over the last 12 months.
Patrick: Website Closers, thanks again. Great having you.
Nate: Thanks, Patrick.