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The Acquisition Entrepreneur with Steve Divitkos


Steve Divitkos

In recent years, “entrepreneurship through acquisition” courses at Ivy League MBA programs have surged in popularity, outshining traditional classes in marketing or corporate finance.


This trend reflects a shift in aspirations among students, many of whom now prioritize acquiring a business over roles in consulting or banking.


As a business owner, you’re likely to encounter increased interest from these eager MBA graduates keen on acquiring your company with the backing of people who specialize in funding these first-time entrepreneurs.


For example, listen to this week's Built to Sell Radio to hear from Steve Divitkos a Harvard MBA who decided to acquire and build a small business using money he raised from investors.


There are pros and cons of selling to an acquisition entrepreneur in this episode, you learn how to:

  • Structure the sale of your business to an acquisition entrepreneur.

  • Negotiate with an acquisition entrepreneur.

  • Avoid the most common reasons acquisitions fall apart.

  • Ace your meetings with potential acquirers.

  • Identify complementary acquirers.

  • Avoiding having to roll equity with your acquirer.


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More about Steve Divitkos

Steve Divitkos is the Founder of Mineola Search Partners, specializing in Search Funds and their acquired companies.


As former CEO of Microdea, a document management software firm, Steve led its growth and transformation, quadrupling its equity value and achieving a 15% CAGR in the first five years. Under his leadership, Microdea became one of Canada’s fastest-growing businesses and a top workplace.


Before Microdea, Steve founded RedLeaf Management Partners and worked in Private Equity at CPPIB. He holds an MBA from Harvard and a BBA from Wilfrid Laurier University.


Definitions

Search Fund:

A search fund is a unique investment approach, typically used by entrepreneurs to find and buy a single private company. Think of it as a two-step process:


  1. Raising the Fund: First, the entrepreneur (often a young business professional with an MBA) raises a small fund from investors. This money isn’t for buying a company straight away. Instead, it’s used to support the entrepreneur while they search for a suitable business to acquire. The search can take a couple of years, and the funds cover expenses like travel, due diligence, and sometimes a small salary for the entrepreneur.

  2. Finding and Buying a Company: Once the entrepreneur identifies a promising company, they negotiate a purchase. This is where the real investment happens. The investors from the first step usually get the first chance to invest more money to help buy the company. The entrepreneur then takes a leading role in the company, aiming to grow it and increase its value.

The goal is to create a win-win situation: investors get a return on their investment if the company does well under the new leadership, and the entrepreneur gets the opportunity to run a company and potentially own a significant stake in it.


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.


Letter of Intent (LOI):

This document outlines the basic terms and conditions of a deal before a formal agreement is drawn up. It serves as a mutual commitment between the buyer and the seller to move forward with the transaction on the agreed-upon terms.


Note: 

In the world of mergers and acquisitions (M&A), a “note” is like an IOU, a promise to pay back money.


Imagine two kids, Sally and Bob. Sally has a lot of candies, and Bob wants to have some. They decide to strike a deal. Sally gives some candies to Bob today, and Bob promises to give Sally some of his lunch money next week. Here, Bob’s promise is similar to a “note” in M&A.


When one company decides to buy another company, they might not pay all the money upfront. Instead, they might pay part of it later. This promise to pay a certain amount in the future is often written down as a “note.”


This way, the seller gets some money now and more money later, and the buyer doesn’t have to come up with all the money at once. It’s a way for both parties to feel comfortable with moving forward with the deal.


Covenant: 

A promise to do (or not do) something. Typical covenants you may need to sign are a covenant not to compete directly with your acquirer and/or not hire your current staff in another capacity for a period of time.


 

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