When an acquirer evaluates your business, expect them to try and understand your sales model.
If you’re a company that sells to other businesses, an acquirer will want to know where you get your leads from and how much each costs you to generate. They’ll want to understand how your sales reps get meetings and how many appointments a good rep has each week. They’ll want to know the close rate of a high performer and how it compares to an average performer.
The acquirer’s questions aim to gauge the scalability of your sales model under significantly higher investment, rather than assess past performance. Acquirers love stumbling over a business where the main constraint to grow sales is capital. They fall over themselves for a company that has an efficient sales engine that needs more fuel (i.e. money). Most acquirers have lots of capital, but struggle to find businesses with a sales system that won’t collapse under the weight of more money.
This week we released an interview with Gregg Romanzo who ran an old-school freight brokering business. Most freight brokers are nothing more than a handful of people arranging shipments in return for razor-thin margins, but Gregg realized his sales model had the potential to grow to something much bigger.
Gregg’s model involved hiring high-potential people with a relatively modest base salary of between $40,000 – $60,000 per year and teaching them the business from scratch. He armed them with a computer and access to the best scheduling software and tied their variable compensation to the gross margin of the jobs they booked. Gregg knew if he could get a rep to clear $100,000 per year in total compensation, he would be able to keep them for the long run.
As he shares in this video, Gregg took his very best talent — the top 1 or 2 percent — and built a team around them so they could earn even more. This cohort of salespeople could clear three, four, or even five hundred thousand dollars in an exceptional year.
Since Gregg paid a relatively low base salary and his people didn’t need a lot of equipment, he was able to hire a lot of salespeople. By the end, Gregg had 200 employees — 190 of which were salespeople. That’s 95% of his headcount dedicated to sales.
How does that compare to your company? If you have a winning formula you think would hold up if you doubled or quadrupled your sales team, consider monetizing the sales model you’ve created. Either hire a lot more reps or show a deep-pocketed acquirer how durable your sales model is and how all you need is their capital to grow it.
💬 Quote of the Week
“You have this race car of a business… why would you put the cheaper fuel inside?”
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– Gregg discussing his strategy of investing in employee development to foster their growth, and how this approach contributed to retaining his top talent.
🏆 An Italian Luxury Getaway
To celebrate the sale of his company, Gregg treated his family to a three-week vacation exploring Italy. Here are 54 of the most luxurious Airbnb’s in Italy from Venice to Sicily.
📈 Deals
- scite, an AI-powered search and discovery platform that enhances research accessibility and assessment, was acquired by Research Solutions for a reported $14 million. Research Solutions is known for its cloud-based solutions that expedite research in R&D-focused organizations. As of October 31, 2023, scite’s business and consumer software subscriptions, comprising both monthly and annual plans, have an annual value of $3.6 million. This acquisition suggests that Research Solutions valued scite at just shy of four times its revenue.
- Alpha Mind Technology Limited, specializing in insurance and insurance technology is being acquired for $180 million by FLJ Group Limited, a parent company that oversees and runs different types of businesses under its umbrella. Alpha Mind’s insurance agency offers a variety of insurance products nationwide, collaborating with around 180 carriers. Their insurance technology division focuses on SaaS platforms and artificial intelligence applications for the insurance industry. In 2022, Alpha Mind generated a revenue of $47.4 million, indicating that FLJ Group valued Alpha Mind at approximately 3.8 times its latest annual revenue.
