A Behind-the-Scenes Look at a Mini Rollup

Built To Sell Radio Episode #362

In 2020 veterinarian Dr. Joseph Marchell started Old Brown Dog Veterinary Partners (OBDVP) after identifying a unique opportunity to do a rollup of family-owned animal hospitals.


Marchell acquired three practices for around ten times EBITDA. He then implemented a streamlined operational strategy that resulted in the sale of OBDVP less than two years later for almost three times the purchase price.


In this episode, you’ll learn how to:

  • Identify a rollup opportunity in your industry.

  • De-risk your business for an acquirer.

  • Implement a professional management team without undermining the old guard.

  • Create competitive tension for your company among acquirers.

  • Utilize an audacious negotiation tactic to increase your offer.

  • Avoid a slimy trick used by some acquirers to get your business for a discount.

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More About Joseph Marchell

Dr. Joseph Marchell is the founder and CEO of OBDVP. Old Brown Dog is a veterinary-founded, owned, and operating group od veterinary hospitals. They leverage real veterinary experience to make legitimate and viable improvements to veterinary hospitals through fair practices and genuine communication.


Definitions

Confidential Information Memorandum (CIM):

A confidential information memorandum is a document prepared by a company in an effort to solicit indications of interest from potential buyers. The CIM is prepared early on in the sell-side process in conjunction with the seller’s investment banker to provide potential buyers with an overview of the company for pursuing an acquisition. The CIM is designed to put the selling company in the best possible light and provide buyers with a framework for performing preliminary due diligence. Source.


Earn-out:

Earnout or earn-out refers to a pricing structure in mergers and acquisitions where the sellers must “earn” part of the purchase price based on the performance of the business following the acquisition. Source.


Due-Diligence:

Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party. Source.


Offering Memorandum:

An offering memorandum is a legal document that states the objectives, risks, and terms of an investment involved with a private placement. This document includes items such as a company’s financial statements, management biographies, a detailed description of the business operations, and more. Source.


Letter of Intent (LOI):

A letter of intent (LOI) is a document declaring the preliminary commitment of one party to do business with another. The letter outlines the chief terms of a prospective deal. Commonly used in major business transactions, LOIs are similar in content to term sheets. One major difference between the two, though, is that LOIs are presented in letter formats, while term sheets are listicle in nature. Source.


Arbitrage is an investment strategy in which an investor simultaneously buys and sells an asset in different markets to take advantage of a price difference and generate a profit. While price differences are typically small and short-lived, the returns can be impressive when multiplied by a large volume. Arbitrage is commonly leveraged by hedge funds and other sophisticated investors. Source.


Waterfall:

A distribution waterfall describes the method by which capital is distributed to a fund’s various investors as underlying investments are sold for gains. Essentially, the total capital gains earned are distributed according to a cascading structure made up of sequential tiers, hence the reference to a waterfall. Source.


Adjustments:

When selling a business it is common for the purchase and sale contract to include one or more adjustments to the purchase price. Adjustments may occur at the time of closing or following closing or both, depending on the availability of financial information. For example, it is common for a vendor and purchaser to agree on a working capital adjustment to be completed within a 60-90 day period following closing, once closing financial statements are prepared and settled. Source.


Tag-Along Rights:

Tag-along rights also referred to as “co-sale rights,” are contractual obligations used to protect a minority shareholder, usually in a venture capital deal. If a majority shareholder sells his stake, it gives the minority shareholder the right to join the transaction and sell their minority stake in the company. Source.


Anti-Dilution Clause:

Anti-dilution provisions are clauses built into convertible preferred stocks and some options to help shield investors from their investment potentially losing value. When new issues of a stock hit the market at a cheaper price than that paid by earlier investors in the same stock, then equity dilution can occur. Anti-dilution provisions are also referred to as anti-dilution clauses, subscription rights, subscription privileges, or preemptive rights. Source.


Pik Note:

Payment-in-kind (PIK) is the use of a good or service as payment instead of cash. Payment-in-kind also refers to a financial instrument that pays interest or dividends to investors of bonds, notes, or preferred stock with additional securities or equity instead of cash. Payment-in-kind securities are attractive to companies preferring not to make cash outlays and they are often used in leveraged buyouts. Source.


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