Welcome to another episode. Today, we’re thrilled to have Walker Deibel, Wall Street Journal and USA Today bestselling author of “Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game.” Walker’s work has been featured in Forbes, Entrepreneur, Inc, Fast Company, and the Harvard Business Review. He is also the creator of Acquisition Lab, the premier accelerator for acquisition entrepreneurship, focusing on delivering world-class education, tools & resources, group coaching, and a vetted community.
In this enlightening discussion, Walker shares his journey from practicing acquisition entrepreneurship since 2006 to amassing $16.5 million in revenue through acquisitions. He delves into the reality of startup failures and the benefits of discovering acquisition entrepreneurship. Walker recounts his first acquisition and subsequent ventures, comparing the differences between real estate investing and business acquisitions. He highlights the risks and rewards of buying a business and emphasizes the importance of understanding market dynamics in acquisitions. Walker also shares insights into the mindset and habits of successful acquisition entrepreneurs, offering valuable advice for anyone interested in buying and building businesses.
Tune in now to gain exclusive access to Walker Deibel’s expertise and discover how to navigate the world of business acquisitions effectively. Don’t miss out on this insightful episode!
Full Transcript:
Bronson Hill: As a busy professional, I wrestled with how to grow my income without taking up more of my precious time.
I learned that managing real estate, actively trading stocks, or being unable to scale up investments is not passive investing. This is the place where you’ll discover new asset classes, develop investing skills, and learn from experts how to become financially free with less work than you thought possible. And now, get ready for truly passive income.
Okay, well, I am really excited about this interview with Walker Deibel. If you don’t know who he is, he wrote the book Buy Then Build, which is talking about buying small businesses. He’s bought and sold six businesses.
He has the acquisitions labs, which he has thousands of people in it that are buying businesses. Super interesting space for me, because a lot of real estate deals these days, you’re not getting cashflow. Some of these businesses, you’re getting whatever you paid for the business, you financed most of it, and you’re getting something you bought for three times profit, right?
So, it’s crazy, crazy cashflow as an investor, and there’s two ways to do it. One, you can be active, which we talk about, and we also talk about being passive. There are some funds, there’s some things we’re doing, we’re making offers on businesses to be passive.
So, we’re going to jump in. I think you’re going to love this interview. If you’re interested in owning a business, if you do own a business, you want to sell it.
If you’re interested in being a part of a fund that passively buys businesses and has high cashflow, let’s jump in. Let’s do it. All right.
Walker Deibel. Welcome to the Mailbox Money Show. How’s it going, brother?
Walker Deibel: Bronson, I’m so looking forward to this. Thanks for the invitation. The only thing I like more than Mailbox Money is you, brother.
Thanks for having me.
Bronson Hill: Oh, dude. I feel flattered, man. I’m getting ready.
No, man. I got to say, I really enjoyed connecting with you. We met in Houston a few months ago, just had a, we had dinner together, a great conversation and I just love how much value you’ve added to the space.
And I think there’s your book, Buy Then Build. I think it’s the best book out there on private equity, getting into deals for retail investors, for people that really want to figure out how to buy businesses. And it’s just such a huge opportunity.
Can you talk? I mean, I know you’re like the Renaissance man. You like, you know, are into like making movies and doing all kinds of stuff, but talk to us a little bit of your story and how you got here being the guy for private equity.
Walker Deibel: Yeah, right. So, you know, I mean, ultimately, Bronson, it was like, you know, look, like we all sort of know that like, you know, like nine out of 10 startups fail. Right.
And yet, and yet, like, as we’re trying to be an entrepreneur, we still know that you’ve got to start a business from scratch. Right. So, I got my MBA like right after the turn of the millennium, like oh, two to oh, four.
And I was trying to do startups and I was in, you know, the Bay Area before that trying to do startups. And it’s like I was walking. I was getting my MBA in St. Louis and I’m like walking around and I’m walking around at like, you know, the six thousand square foot homes in St. Louis and I’m like, none of these people, okay, built their fortunes doing, you know, like internet, like being internet entrepreneurs. Okay. So, like, how come every single one of these like accelerators, like entrepreneurial groups or you know, whatever it is, is always trying to teach us this like swing for the fences startup model. And I was like, look, I know there’s a way to like buy these small companies.
I just don’t know how to do it. And so, like when I graduate in 2004, that same month that I graduated, our startup completely failed and I had no job. I was like this one of two kids that like wasn’t that didn’t have a job.
Only I was the only one, I think, that wasn’t looking for one. So, I looked like the loser, right? I looked like the guy that came out of like the ranked university with no job.
Right. So, it’s one of these where I was like, okay, I’m going to buy an existing company and I’m going to figure it out. Okay.
And that’s the first time I realized, like when I was actually trying to do it, that’s when I realized like, wait a minute, here I am with all this formal education and like, here’s this like, this like capital market. Okay. That has like no information, like there’s no how tos, there’s no best practices, like no one is talking about this, no documentation.
I can’t get any information. I’m looking for businesses. I don’t know how to do it.
The market is opaque and it’s fragmented and like, it was just, and my first search ultimately failed, right? It wasn’t until 2006 that I bought my first company. And, um, at the, at the risk of being a, this being a long answer.
Let me tell you real quick, I ran that as, I bought the company. I ran that as CEO for seven years. Um, and then I sold it to an acquisition target.
And after that I ended up buying, half a dozen additional companies. You know, and again, my model was like, okay, I want to buy, I sort of want to be like, you know, the, like the smallest private equity firm that no one’s ever heard of, and I’m just going to own like 80 to a hundred percent of all of these businesses. Right.
So it was during that time that I went out and got like all the private market certifications that they existed. And I spent about four and a half years writing by them build, which, um, thanks for the compliment. But, you know, it was one of these were, I sat on it for nine months because no one was talking about this.
And I felt like all my logic was faulty and like all this weird stuff. And ultimately, I was like, no, this is like entrepreneurs need to understand like this opportunity.
Bronson Hill: Yeah, it really, I mean, I want to kind of share, I really appreciate you sharing cause it’s a journey you had. Then I think that’s what gave you the authority to write the book is that you’ve done it and you’ve had, you know, obviously you’ve, you’ve figured out how to make it work. But most small businesses that people start fail.
And when you buy an established business, there’s a little more safety in that. You see some track record there or you see a brand, you see different things. And it’s become a little bit in vogue.
And of course, we have all the boomers that are aging and kind of the small mid-sized businesses and, but you know, it’s another thing that you mentioned too, about being the smallest prior or the largest private equity firm nobody’s heard of. There are certain size businesses that are like private equity wants to buy, right? If you have over $3 million in profit or an EBITDA per year, then, then a lot of they want to buy this, but if you’re, if you’re, you know, you generate a million and no, like there’s fewer buyers for that.
And, we’ve recently, since we connected last time, you know, we’ve made offers on a couple smaller e-commerce businesses that, you know, one to 3 million and EBITDA and we’re really excited about that. It’s just, we’ve had some issues with a couple of things. I mean, it’s just, there’s a lot that goes into it.
So, talk to us a little bit. I mean, you’ve done real estate as well, but talk to us about like, if a lot of these people listening are real estate investors, how is it different than like, okay, Hey, I want to buy a business, which I hear like all the people all the time, Oh, I want to buy a business. But you’re like, you have no idea what they’re like, you have no idea like what that’s going to be like, even from like your offer accepted.
And, you know, talk to us about that process of how people like, like how is it different than real estate investments?
Walker Deibel: You know, I think that, yeah, my brain’s going three different directions right now. Like there’s a lot of, there’s a lot to go there, but, you know, I mean, I think that the first thing that’s important is, you know, yes, you’re right. I am in real estate, quote unquote.
But, that was, that came much, much later. I didn’t go hardcore into real estate probably until, you know, between 2020 and 2022, like that’s, that’s when all of a sudden I started really going hard into it. So, and the reason was because a lot of people get their start in real estate, kind of, you know, doing fix and flips or, you know, just being, if nothing else, just being handy, right?
Like swinging a hammer and, you know, whatever else. And I never wanted to do that because Bronson, I didn’t feel like I actually could, what I mean by that is that when you buy a small business, okay, you know, you’re, you’re figuratively swinging the hammer all week, right? I mean, it’s like, you’ve got, you’ve got your value-add property.
You know, I’m using quotes here, you know, in the business that you’re buying. And so, the thing is, is that a lot of, you know, when you first said like, Hey, would you like to come on my podcast? So, it was like two things, Bronson.
Number one, I’m absolutely honored and flattered. Number two, this is not mailbox money. So, I want to be really careful because I actually think of business acquisitions as active investing.
And that’s, and that’s what actually makes these great returns, right? So, if you compare it to real estate, like the, it’s like saying, it’s like saying, Oh, I’m getting like a 33% cap rate, right? I mean, it’s, it’s absolutely insane compared to real estate.
However, you know, don’t underestimate how much time it takes. And what I mean by that is that in real estate, the downside, you know, is really well protected because at the end of the day, you’re going to have some big stack of bricks, right? And in like a physical location that everyone in the world knows where it is or whatever.
And in this it’s like, Oh, sorry. And the upside of real estate is like whatever little value you can add. And then maybe like the, you know, 2% appreciation over years, right?
With businesses, the standard deviation on where you buy it as to where it can be later is enormous. You can lose a hundred percent of your money and it can go into thin air. Cause it’s just like so much of business is intangible.
It’s processes and systems and relationships and IP and all these other things. Right. And so, it’s sort of like the intangible side of things.
And then as a result, the upside is literally like whatever your TAM is like your total addressable market. So, like, if you can, look, I mean, there’s probably, I can attribute billions of dollars in acquisitions from readers. And you know, it’s one of these where, this one gentlemen bought a company for, you know, it was a few hundred thousand.
And then about two and a half years later, he was talking to me about selling it and I was running a valuation on it. And I was like, I can sell this easily for like 25 million. Like with one hand tied by my back, I can help you sell this.
Like what’s going on? Like what, what’s the issue? And he’s like, well, I can’t, I don’t have any money for inventory.
Like I keep growing so fast. I, and I was like, well, what if I got you money for inventory? And he was like, oh, then I definitely keep the business.
We’re going to double this year. And I was like, oh, so I just introduced him to some private equity people.
Bronson Hill: And that was a great introduction. Yeah.
Walker Deibel: Like, you know, so it’s like, that’s, that is a story that literally happens. You know what I mean? The opposite is also true.
You know, some people, you know, the reason I sat on by them build for nine months is I was like, Bronson, someone’s going to read this book and like go out and buy a company and like, that’s crazy. Yeah. Like if you really, you right.
So, it’s like, and so a lot of what I talk about are the changes in the SBA that really took place in 2016. Like the big changes, it eliminated the need for seller financing. It made all of the cash available.
Like you could buy up to $5 million with 10% cash infusion. This was crazy. And because of that little change, people like me were able to go out there and take multiples of our net worth and personally guaranteed debt to buy companies that we’re putting ourselves in.
Now there’s a lot of different models of business acquisition. Okay. But the truth is at the end of the day, you know, owning a small business is the single best way for most people to make real money.
Yeah. Okay. And so, acquisition is the most certain way because you’ve got revenue.
You’ve got earnings, you’ve got infrastructure and you’ve got all this access to cash. So, but you, but you gotta put the reps in, you gotta do the work.
Bronson Hill: So, I want to touch base on that for a couple of directions. I wanted to go. I think I’ll start with this one.
So, you said something about, this is not passive. And I think that’s very true. If you buy a business, it’s not going to, you’re going to be all hands.
You’re going to be probably tons of work for a long time. Yeah. Um, for passive investors, sometimes there is, there may be a way to be passive, right?
There are private equity funds. There’s different things, or even, you know, we may start a fund or have individual deals as well. Um, I guess it’s, you know, you just would have to look at it saying your upside is higher potential potentially, but also your downside is unlimited.
So, you have to kind of have a risk profile on that, right? Would you say?
Now, yes. Keep going. Is that the other question?
So, then the other part of this question is you mentioned the SBA, the small business administration loans for those owners familiar, you can get basically whatever you want up to 5 million and then somebody can extend those loans. You get these banks that can do it. We looked at a proper company recently and we decided to pass on it because it was a Amazon business selling $15 million a year on Amazon.
It was selling about nine mil, a little over $9 million. It was like 3 million in profit a year. So, it was like a three, but it was like a three multiple, which is crazy, right?
Three times profits, cashflow is 3 million. But for me, I didn’t want to like, we couldn’t find any other, maybe you know, something, I couldn’t find any other lending options except for SBA and I didn’t want to do SBA because SBA comes with personal recourse and I have other assets, other things I mean, I don’t want to, you know, if I’m like worth nothing, I’ll do SBA all day because the risk is like, well, what are they going to come after, right? Versus if I own a bunch of other stuff and I’m in all these investments, if that goes south, I’m personally on the hook versus some other type of lending, private equity will be non-recourse. So, I guess my thought is like, is that a common thing you see with deals and the downside of some of these SBA, if the deal doesn’t work or it fails, then, you know, there’s other losses.
Personally, you’ve got a guarantee. Copy that.
Walker Deibel: There’s sort of three questions in there, I think. So let me try to talk for a while. Well, your first question was like, you know, if you’re investing in these, do you need to be prepared for more of a downside risk?
Is that was that the first and I just, I mean, I just wanted to touch on the passive side that maybe there are ways for passive investors to get in and yeah, and there’s a few different models. Right. And I think that the truth is, is that, look, I haven’t, I haven’t said this publicly yet, but I’ve actually made just as much money being a minority investor in privately held businesses that I’m not running and or being an LP, right?
And in real estate projects, I’m not running. Okay. And that’s a big part of, of kind of what I’ve been working on and maybe sort of like the anchor for my next book is sort of like, how do you sort of scale without feeling the need to kind of like buy everything yourself, right?
And like, just file these personal guarantees. So, in other words, you know, there’s immense benefits that come with, you know, the leverage, you know, that comes with, you know, buying an asset or whatever. But, but, you know, and the thing is, I just secured, this is I’m dropping a lot of firsts here, but like, I’ve just spent three weeks in diligence.
I just secured an investment opportunity for my email list where we’ve got a pre-IPO. Yeah. And I’m going to be able to, you know, raise, I guess, and syndicate around it.
And, and so we’re, we’re going IPO in about 14 months. And a big part of it is just looking at like, you know, what’s the market, you know, who’s the team, right? You know what is the, the value proposition and how, like, what certainties are there, how many X factors are there where this could go wrong and just trying to limit all those things.
Right. I think that when I’m buying a company of my own, I can be confident in myself and I’m willing to sign a personal guarantee to get a bunch of money. Right.
Now you’re, and the downside to that is, you know, we had someone at the acquisition lab or accelerator that brought this business and he, and he wanted to buy it. And I’m telling you a horror story right now, which is not representative of the acquisition lab where we’ve had over 200 million in acquisitions in the last two years. But anyway, this gentleman brought a deal and it was like a local, it wasn’t this, but it’s a good, it’s analogous to this.
It’s like a local sandwich shop, you know, like, like a subway or a Jimmy John’s, but like local name, you know, like Walker’s sandwich shop, you know, or whatever. And he brought the, he brought the deal to the search forum that I run and we, and I looked at it and I was like, look, I can’t tell you to buy a business or not buy a business. Cause I don’t know what your magic is, but what I can tell you is I would never touch this business that you’re showing me right now because the margins are so low that if there’s one hiccup, okay, you’re putting your entire personal guarantee amount at risk.
This is like not good economics. Okay. He bought it and it, and it took him about four months to default on the loan.
Right. And it’s just like, so there’s like little, so like these, this is the, the, the horror story. Right.
But, but in the thing was, was I went back, we record all those sessions and I went back and looked at it to be like, what did I tell him? And sure enough, I was like, it’s right there. You know, not that, not that I can be, you know, like not one guru knows everything and I’m not a guru, but, but it’s one of these where, um, you know, you can pick off this sort of easy things and, you know, for your specific situation, you’re talking about a $15 million transaction, right?
Yeah. And then maybe there was some inventory in there or did that include?
Bronson Hill: I think that didn’t, yeah, it was a, it’s like a nine or nine and a half million per hour purchase with a million of inventory potentially on top of that. Okay. So, it was 10 million.
So it was, it was 9.5 is what they wanted. Oh, it’s just under a million, maybe seven or nine or K of inventory or something.
Walker Deibel: Okay. So, there’s a few things here. Now, what I would tell you is the origin of investing in these deals is something called search funds.
Okay. And search fund, traditional search funds. Okay.
So, they came out of, out of Cambridge, Massachusetts, okay, at Harvard. And then they spread to Stanford when the professor moved. Okay.
And it was really the Ivy league schools that pulled together a handful of like, you know, Ivy league alumni who were investing in this super small asset class, right? And that became search funds. Okay.
Now, Jim Southern was the recipient of the first ever search fund money. And when I talked to him on the phone, he said, Walker, you know, trying to get someone to invest in these, you know, SMB transactions that doesn’t is like pushing a rope. I’m like, I’m like, I agree.
I’ve been trying, I’ve been trying to do this like forever. And one of the reasons I didn’t ever start a fund around these SMBs is just because of the decentralization of all the different operators, all the different business models. Like, like you would need a ton of them to actually get any scale, right?
And, and like a traditional, traditional private equity fund is only going to do like 12 to 24, you know, in a fund and like 12 to 24, you know, like, million-dollar transactions or $5 million transactions is too small to get any real returns, right? And it’s, it’d be a bunch of chaos. All that being said, the way that you raise around a 10, so the average search fund is actually about 12 or $13 million in transaction value.
So right where you’re talking, there is a new black hole. It used to be what you said at the beginning of this call. Hey, if you’re under private equity, institutional capital isn’t coming down, right?
Yeah. Well, private equity, you know, they’re going to buy on a small end, you know, a $3 million EBITDA times five, right? Because that’s, that’s like what they’re looking for.
Bronson Hill: So, this is the earnings for those listening. Yeah, the EBITDA is the earnings per year, you know, and they pay five times multiple for that.
Walker Deibel: Right. So, so, you know, a small deal, and this math doesn’t exactly line up, but a small deal for private equity is like 25 million. Okay, right.
So, there’s this new sweet spot where all these acquisition entrepreneurs can come in and just buy whatever they want between one and maybe 7 million because a lot of, a lot of SBA lenders can tack on a little traditional loan on top of it or expand or whatever and then just take the collateral, lack of collateral on themselves internally and they’ll do that. But the thing is, is once you start getting in between, say, you know, 10 million and 20 million, there’s this real black hole and SBA becomes a part of the capital stack, but ultimately you’re looking for a senior secure lender. They’re always going to want a piece of SBA on it, and then you’re going to need a lot of equity or equity investors, right?
So, you know, I mean, traditional private equity is going to put at minimum 40% equity into a deal like that. So, you know, you’re going to need, you’re going to need the full sort of capital stack.
Bronson Hill: Yeah.
Walker Deibel: For a deal of that size, yeah.
Bronson Hill: Yeah, we’re kind of looking at different ways and you got to believe in the deal enough. I have something, I want to shift gears a little bit and then this will be kind of our last question, but I just so appreciate the time. We can obviously go longer if you want, but I know you’re, you’re an author.
You’ve written an amazing best-selling book by then build and creativity pick it up. I decided recently to write another book. Excellent.
So, I went to a book camp recently. So, this is my cover. This is rich brain.
Walker Deibel: Oh, I love it.
Bronson Hill: How the wealthy change their brain to change their bank account. Oh, yeah. So, I’m pretty excited about it, but I wanted to hear from you.
Really, it’s the wealth habits that wealthy people do or even people like, you know, that make the mindset. I’m going to go start a business. The limitations are there.
Like, what do you, what do you think are the factors that make someone be either willing to start, you know, having these wealth habits is a worthiness thing or what do you see as just some wealth habits that as you’ve observed people or in yourself.
Walker Deibel: Interesting. I think that number one, you really just have to identify that you want it, right? I mean, it’s just so fundamental, but so many people they don’t, they miss that part, right?
And then they’re like adults and then they forgot, you know, but like, you know, so I mean, number one, you got to want it. And, you know, I mean, I’m answering this on the spot without having, you know, usually with a framework, I’m going to walk around for a week. But, you know, what I would say is speaking for myself, I know a couple of things about me and that’s like number one is I’m extremely driven.
I extremely driven. Okay, and so, you know, you work a lot and like when I read the four-hour work week, the first thing I thought to myself was like, how can I build 10 of these?
Bronson Hill: Yeah, I was like, that’s so sweet.
Walker Deibel: I can be done by noon. I’m going to make nine more. You know, yeah.
So, you know, you have to be driven. You have to work towards the goal. And then ultimately, I think the little thing that, you know, like, you know, you have to be able to make things out of nothing, right?
And I don’t like, even when you’re buying an existing company, like that thing, that entity is not like, I think so many people miss this. They’ll look at a business that’s for sale and they’ll try to look at it and identify the risk. But the truth is, what really should be happening is you should be holding up a mirror.
Because what happens is, is that business, the day after you own it, anything that was on the history of the company and the spreadsheet is over. You cut the head off of that organization and we put you on top. Okay, you are now the CEO of this business and you own it and you’ve got a personal guarantee.
What are you going to do? Like, first thing is, yeah. And so, I think the third thing is, is just, you know, ultimately, it’s being able, being willing to take outsized risks, right?
So, you know, and I think that, you know, I believe in the corridor principle heavily, which is everyone thinks that entrepreneurs are taking these like crazy risks like every single time. And when you actually ask the entrepreneurs, they’re like, well, I mean, I just saw the pieces and like, so it didn’t feel risky to me and I sort of went in. But at the end of the day, you know, if you’re jumping into, you know, like a multi-million dollar situation and like putting your name on the line and all the rest of it, like you’ve got a lot to, you’ve got a lot to live up to.
And the thing is, is like you’ve got to be willing to take that leap of faith and just believe in yourself.
Bronson Hill: Yeah, that’s it. No, I love it. I love your answer because it’s totally, you can see how you’ve approached being successful in business and being willing to do it and go for it, which is great.
Well, Walker, I just want to really appreciate you appreciate your friendship, all the value you add and all the stuff you’re creating for your community. And we didn’t even talk about your movie, your how you’re making movies and all this other stuff that you’re involved with too. But yeah, I see you distraction everywhere you go, though, you’re just always trying to find a way to add value and create, create, create.
And so, I just, I really that inspires me, inspires a lot of people. So how can people follow you, get your book, get in touch with you?
Walker Deibel: Sure. The easiest way to get Buy Then Build is obviously on amazon.com easiest way to do it. Other than that, hit me up on LinkedIn.
Or if you go to walkerdeibel.com, there’s now a place where you can just sign up for our newsletter, which goes out every Sunday with usually a video and sort of a write up of SMB acquisitions and things like that, all free.
Bronson Hill: Awesome.
Walker Deibel: Oh, sorry. One more thing.
Obviously, we started Acquisition Lab, which is acquisitionlab.com, which is the premier accelerator for helping people find and buy businesses. Thanks.
Bronson Hill: Yeah, that’s awesome. We’re really good to have you here. We’re really excited for this episode to go live.
And thanks for being here, brother. Look forward to connecting soon.
Walker Deibel: Thanks, Bronson.
Bronson Hill: Okay, so my good friend, Walker Deibel. Great interview. Super inspired.
Lots of great things. There are lots of nuggets. I may go back and listen to that several times.
But basically, he is talking really about how this process is you get going into buying a business. I highly recommend you to buy the book, Buy Then Build. There are also some other great books out there on private equity and doing things even in your community.
How can you buy businesses? There’s so many boomers that are aging that have a smaller or mid-sized business that private equity doesn’t want to buy because it’s too small. There are things about it that they don’t like.
But again, these are things that somebody’s going to have to operate or they’re going to have to shut them down. So, I personally think it is easier to take over an existing business in most cases than it is to start a new business. Most new businesses fail.
Anyway, lots to say about that. I hope you enjoyed it. Would love to hear any feedback from you on this.
And I would love to connect with you on social media. If you haven’t joined our investment club, I talk about it a lot because I’m so excited about it. If you haven’t joined our club, we are literally doing stuff that no one else is doing.
And so go to bronsonequity.com and click the join button. We’ll start a relationship with you. We can share these deals with you.
Thanks for taking the time to educate yourself. We’ll see you on the next episode of the Mailbox Money Show.
Outro: You’ve been listening to the Mailbox Money podcast. For more free resources, articles, and videos, go to bronsonequity.com.
There you can download your copy of the special report, the single best investment strategy during and after a pandemic. None of the information shared here is an offer to buy a specific investment. And this is for educational purposes only. Consult your financial, legal, and tax professionals and use your own common sense before making any investment decisions. Thanks for joining us and be sure to tune in next time for more Mailbox Money.
