Getting Acquired Doesn’t Have to Be a Blood Sport

 

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Our show is all about maximizing your take from the sale of your business. We’re about helping the seller outmaneuver the buyer to maximize the seller’s take from an exit. We think it’s a noble cause, but every once in a while, a guest reminds us that selling a business doesn’t have to be so confrontational.

This week’s episode of Built to Sell Radio features David Amigo. He co-founded Carolina Country Homes, a modular home dealer. Amigo grew his company to $10 million in annual revenue, but never loved the modular home business where red tape and financing challenges are commonplace.

After 17 years, Amigo decided it was time to sell. He hired a business broker who pegged the company to be worth 2-4 times Seller’s Discretionary Earnings (SDE) —  a form of profit that took into consideration Amigo’s salary, bonus, and other perks he earned from the business. Amigo’s broker found a buyer who made a fair offer, which Amigo accepted. It wasn’t enough money for Amigo to retire. Still, it was enough for him to buy a vacation home in Maine and take his kids on an adventure of a lifetime.

Amigo’s story shows that there is an alternative path to selling your business. Rather than worry about squeezing every last dollar out of an acquirer, you can accept a fair offer and move on to other things.

Amigo’s advisor revealed his main challenge is not locating buyers, it’s finding good businesses to sell. If you’re curious to know how sellable your company is, take the Value Builder questionnaire. We’ll provide your score on the eight factors acquirers care about most.

Our guest

David Amigo was born in Brooklyn NY and currently lives in Fort Mill SC with his wife of 20 years Lisa and their 3 children Joshua, Zachary and Cooper Elizabeth. He is a graduate of SUNY Albany with a degree in Business. He has worked for Slimfast foods, Vanguard, an options trading company on the American stock exchange as well as running a family manufacturing business before starting Carolina Country Homes. He is currently the owner of a high-end landscaping company in Charlotte NC, G&G Landscape and Irrigation.

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Transcript

John Warrillow:

You know here Built to Sell Radio, we’re all about trying to maximize the value of your company. We’re trying to give you that the tips and tricks to outmaneuver out, negotiate the acquire and make sure you come out on top. And every once in a while I get put on my place and humbled a little bit by someone who has an alternative view. Somebody says, You know what, like squeezing every last dime of an acquisition is not necessarily what I’m into. In fact, what I want is a fair price for my business. I want to move on. And that’s exactly what my next guest, David Amigo discovered. He decided he didn’t want to necessarily fight with an acquirer. He actually wanted to forge a relationship with a buyer and he enjoys that relationship to this day. Here to tell you how he did. It is David Amigo.

John Warrillow:

David Amigo, welcome to Built to Sell Radio.

David Amigo:

Thank you.

John Warrillow:

Tell me a little bit about Carolina Country Homes. So I take a look at your website and it looks like there are modular homes that you can buy and kind of put on a plot of land, describe them for me.

David Amigo:

Yes. So they’re factory built homes, we actually started in October of ’98 with mobile homes and we graduated to modular homes.

John Warrillow:

What’s the difference?

David Amigo:

Mobile homes are built to the federal HUD standards, modular homes are typically built to your state code, which is typically here in North and South Carolina, the International Residential Building Code.

John Warrillow:

So when I see those trucks would like driving down the highway with a house on top, is that a modular home?

David Amigo:

It could be, it could be a mobile home as well, it could be either or.

John Warrillow:

And who buys a modular home? What’s the demographic?

David Amigo:

You know, it’s really varied over the years, it used to be that it was somebody who was looking for a less expensive home but that’s really changed. There’s a certain demographic that’s paying cash, it’s a lot of times a second home, it’s somebody who understands the quality that goes into a modular home. If you think about it, you see these homes going down the road at 70, 80, sometimes 90 miles an hour, they got to be picked up by a crane put on the foundation, they are well-built. I mean, they’re built to take some punishment, and so there’s a certain demographic that’s really…

John Warrillow:

What would a modular home costs? I don’t know, two-bedroom, 1500 square foot home, like give me a ballpark.

David Amigo:

Well, here’s the challenge I’ve been out of the business since 2015, and so that’s quite a lot of time with a lot of real estate appreciation.

John Warrillow:

Sure.

David Amigo:

I would tell you that the average home when I left the business 2000 square feet ranch style, two boxes. So it was two pieces put together was probably about 170,000 that didn’t include the property. Probably didn’t include some improvements such as well or septic. So that’s just kind of a ballpark.

John Warrillow:

And what was your business model? Were you selling directly to consumers or through construction guys or gals or…?

David Amigo:

Definitely direct through consumers, so I like to tell the story that the modular home industry has two parents. One parent was brought up and was from the Northeast of the United States, the other parent was brought up basically in the South. So what has happened is for the father, who was brought up in the North, he was a typical stick build home builder.

David Amigo:

So he would basically build homes, stick built, but the weather got bad. So he decided it’s better off to go inside the factory. And I can build every day in a weather controlled environment, that’s Dad. Mom actually comes from the automotive industry, mom started out with cars and that turned into RVs and RVs turned into mobile homes, and mobile homes turned into modular homes. So the distribution really follows the genealogy. So in the Northeast, a lot of modular home builders were really stick builders that realize there’s a better way, I’ve got problems with labor.

John Warrillow:

I’ve never heard that term stick builders.

David Amigo:

Yeah. Stick builders, there’s somebody who just goes out on a lot, it’s traditional home building.

John Warrillow:

Home building, okay.

David Amigo:

Right. So they go out a lot with a bunch of sticks and they bring their crews and they just start constructing the house on site. But in the South specifically, the Southeast, what you found was a business model that was like an automobile dealership. So when I first started in ’98, ’99 we had a retail lot, like a car lot where I had five to seven models and you would come tour my lot and you would pick out the model you wanted.

David Amigo:

Now, we wouldn’t necessarily sell you the one that was sitting on the lot, we would order one for you with your colors. Once in a while, we would sell those lot models, very different than the automotive industry, where they want to get rid of their models. A 2019 car is really depreciating in value in 2020. So you want to get rid of that model. In homebuilding, it’s different.

John Warrillow:

You said something I wanted to just clarify, David. So when you see someone in the car dealership, were you buying the inventory from a modular home manufacturer and were dealer of these?

David Amigo:

That’s correct.

John Warrillow:

Got it. And how many manufacturers did you get supply from? Just wonder were there a variety.

David Amigo:

It evolved over time, we started with one, we moved to another one and we were still a one manufacturer dealership. And this is one of the big mistakes I made in the industry, you would think the loyalty would really help you, it’s actually exactly opposite. You had to have multiple manufacturers to do better for yourself. So by the time I left, I had three.

John Warrillow:

Meaning you got better terms, better deals, better margins when…

David Amigo:

Yeah, you would think if you were somebody’s number one client that they would treat you like gold. And actually it was exactly opposite, so when you did less business with them but they realized how much business you could do that they would treat you better.

John Warrillow:

What would you make off of $170,000 home? Like what’s the margin here? Because you need to buy it from someone and-

David Amigo:

Yeah, great question. Margins are irrelevant in this business, you make a certain dollar amount per house. So typically at the end with modular homes, they’re going to try to make 20 to $30,000 per house. And I say, margins are irrelevant, I’m going to give you two examples. I have two clients that come to me, first client comes to me and says, “I have my property. I want to build this $100,000 home. I’m going to make $20,000 on it.” I say, “Great, it’s 20% margin,” we’d all look at that and go, “Wow, that’s fabulous, great margins way to go, right?”

David Amigo:

Second person comes to me and says, “I want to buy the same exact home for $100,000, I don’t have any property. So I would like to buy this $50,000 piece of property to put the home on.” Well, we would arrange for that to happen, I’d make the same $20,000 but I’d have to lay out the extra 50, so now your margin is 20 over 150, which is significantly less.

David Amigo:

And so we would say that deal is not worth as much but the way the business works is you have a fixed cost and it’s just about how many deals you can close in the month. And it doesn’t really take any longer or your interest costs because interest rates are so low. The interest carry on that extra $50,000 is insignificant.

John Warrillow:

Got it. So you sort of make 20, 30 grand on a sale-ish and that’s okay. Got it. Got it. And how did you differentiate the business? I’m assuming there are other dealers of modular homes in the Carolinas, the Southeast, what made you guys unique?

David Amigo:

Yeah, great question and this was really our secret sauce. So as I was mentioning to you, the business model was very much like the car dealership model. And so you had a dealership like mine in every single town, maybe multiple dealerships in every single town across North and South Carolina. Everybody remembers the home recession of ’07, ’08, ’09.

John Warrillow:

Sure.

David Amigo:

What most people don’t know is there was another housing recession prior to that in mobile homes, manufactured homes. And so I like to tell people, I got into the business as the snow skier, who’s going downhill and there’s an avalanche coming and we’re just barely staying ahead of the avalanche every so often we’re getting pelted with a snowball in the back of the head.

David Amigo:

So when I got into the business in ’98, I believe there was over 600 dealerships in the state of South Carolina and I’ll never forget this, and there’s a long story of why that all happened. And it happens to do with financing of the homes, mobile homes used to be financed just like cars, so they were chattel loans. And there was a company Greentree Financial who employed an accounting gimmick called Gain On Sale Accounting.

David Amigo:

And so what would happen is if you signed the contract and let’s say back in those days, it was probably somewhere between 10 and 20 years to buy the home, they were financing the home itself, just like you would finance a car except the car is typically two to five years. They would sit down and calculate the dollar amounts that they were going to make over the course of 20 years, and they would book it in the quarter or the month that it was sold.

David Amigo:

And so what was happening is they loosened credits. This is pre-Great Recession days.

John Warrillow:

This is before ’08, ’09. Yeah.

David Amigo:

Right. So here’s what’s going on, everybody’s paid on bonuses, everybody at the banks paid on bonuses. And the joke is like, if you have a pulse, you get a loan and even some people who don’t have pulses get loans and it’s this really a terrible scam that was happening before I got into the business. So what happened was they were going to dealerships like me and they were giving all this financing and everybody I can talk to, got a loan. And so the manufacturer was getting backed up, so the manufacturer put pressure on the dealership said, “You got to open a second lot and we’re going to give you this much inventory. And if you don’t like it, we’re cutting you off, because we’re 20 weeks back dated in our production. And so guess what, you’re getting 30 houses, 10 of them are going to have green carpet, 10 of them are going to have blue carpet, and 10 of them are going to have tan carpet. You don’t make any changes and you go rent that lot and you store them there.”

David Amigo:

And so the cycle went on for quite a bit because Greentree Financial, they’re showing these incredible results to Wall Street, right? Look at all this money we’re making. Well, guess what, when you don’t do your diligence on credit, eventually certain folks don’t pay their bills because they were never qualified to pay their bills. And then the cycle reversed and I got in, unfortunately, I didn’t know this, I just learned this as I went along, I got in as the cycle was coming, crashing down. And that’s why I use the analogy of the snow skier, right?

John Warrillow:

So go back to the point though that your secret sauce, what made you guys unique?

David Amigo:

So what happened was we came in, I started the business with a partner, it was not my idea, he was a mortgage broker and he did loans but he did real estate loans for mobile home. So they were tied with the land and in the business they call those land home packages. And so the financing was different.

David Amigo:

So we had two things that came across, people told us we could never survive doing land home packages because it costs too much money and the financing took too long versus somebody would come in and literally you come into a dealership and you’d leave with a house, you’d leave with paperwork that says you own a house and a big loan. And so we didn’t do chattel loans, I think in the history of my company I might’ve done three chattel loans.

John Warrillow:

I don’t know what a chattel loan is, it’s not-

David Amigo:

A chattel loan is basically a loan on real property such as a car. A car loan is a chattel loan.

John Warrillow:

Okay, there’s an asset that underlines the…

David Amigo:

Depreciating asset.

John Warrillow:

Depreciating asset, okay. You’re losing a little bit on what made you guys special. So they’re always kind of giving away free money, you can find answers, we’re pushing all this stuff and then you guys were doing it differently.

David Amigo:

Yeah. We come in, we’re doing land home financing. And what happens is the industry starts imploding, okay? So typically you had mostly mom and pop dealerships folks that probably weren’t very well capitalized. And all of a sudden their bank financing is cut off, they have all this extra inventory, they can’t make their payments, and now their clients can’t get loans because the whole cycle reversed.

David Amigo:

So we come in there, we’re doing very specific land home financing and we embraced technology, we were really big on getting our website up. And so think about this. This is the early 2000s and in a car dealership model it used to be, when you went to go buy a car, you would look at your local dealership, maybe within 30 miles. Well, we had an attitude because we were doing modular homes and the overwhelming majority of the home is built in the factory, I’ll go anywhere in North and South Carolina, I don’t care if it’s at the coast, in the mountains, we just didn’t care.

David Amigo:

And so the internet starts becoming popular in the early 2000s, where advertising your local dealership is going away and people start searching the web before they go shopping. Well, who do they find? They find us and it made us probably one of the top two dealerships in all of North and South Carolina.

John Warrillow:

How big did you get this company before you decided you wanted to sell it?

David Amigo:

It’s funny. Even though we were big, we kind of landed, we got to a point and plateaued very quickly, we were about a $10 million company and I never set up a second location, we became a destination spot and that’s one of the marketing tools, right? So the business model called for us to have this local place retail business, where you would attract local people. Well, we really converted that into a destination shop, we worked in a very small town called Lancaster, South Carolina. And there’s really not much in Lancaster, South Carolina that would attract folks to come two, three hours.

David Amigo:

But every weekend we’d have a minimum of five different parties to this day, it still happens, that travel over two hours to come visit our-

John Warrillow:

How did you guys make it a destination?

David Amigo:

It was our use of technology, it was being on the web.

John Warrillow:

So they weren’t getting anything special in the way of an experience, it was just that you were owning the internet and they were searching and they’re like, “Oh, we got to go to Lancaster, whatever to get there, gosh.”

David Amigo:

Very much.

John Warrillow:

So just to go back, so 10 million revenue, is that if the average house is a hundred and… let’s say it’s a hundred grand so that’s a hundred houses, is that…

David Amigo:

Our best year that I was there, we did 71 houses.

John Warrillow:

70, okay. Got it. Got it. And when you say you plateaued, what do you mean by that? You said you hit 10 million and then you kind of flat lines.

David Amigo:

Yeah. Well, we were in that eight to 10 million for almost the entire time I was there.

John Warrillow:

And what was that like for you? Have you been able to diagnose why you plateaued?

David Amigo:

Oh yeah. There are many reasons and it was such a huge reason of why I got out of the business, so there were several factors, okay? Number one, it is a heavily, heavily regulated industry. Nothing works without money and even though in the end, we started to get a lot more cash customers, the overwhelming majority of our buyers got loans. Think of what the mortgage market has done and the restrictions and the rules and regulations. At some point I forget, it was after the great recession, they started coming out with these rules that if anything changes on the loan, you had to wait another three days and it was silly stuff like, “Hey, the homeowners interest rate was quoted at four and a half and rates tick down, so we can get them four and a quarter. But now you’ve got to wait an extra three days to close and get your money.”

David Amigo:

And it was just a miserable stuff like that, it was miserable dealing in different counties. So because we traveled, we had to deal with every local government official and some of them were very nice, some of them were knowledgeable, overwhelming majority were not very knowledgeable. There was a joke when I went to get my contractor’s license, I did it in the state of North Carolina. At the time I think the pass rate was 60%. And so I went to take the preparation class and the gentleman who’s teaching the class. He says, “I just want everybody to know we have a high failure rate. Only 60% of you will be able to pass your tests, but don’t worry. The other 40% of you will become building inspectors.” And he said it jokingly but we found that to be…

John Warrillow:

There’s a modicum of truth there.

David Amigo:

Yeah.

John Warrillow:

So you plateaued in part because of the regulation and the regulatory environment was just becoming more difficult.

David Amigo:

It’s not just regulation, it was also we’re buying from a factory. And what would happen is say, we would sign 10 deals in a month, we’d be like, “Great. We’re going to have a good month.” A break even month was two and a half, three houses when I was there. And so the only way you really make more money is you got to compress the number of houses you close and finish in a month.

David Amigo:

And so we would have this month where we would think, “Hey, we got 10 houses we’re going to close, we’re going to have a fabulous month.” Well, then all of a sudden, the factory goes from getting you houses in a week to, “Oh, we’re two months backlog, so then you can’t even get them.” And there were all these factors or we go to get a permit. In Charleston County, South Carolina, one of the absolute worst counties to build homes in. They have one of the highest attorney per capita ratio.

John Warrillow:

That’s always a problem.

David Amigo:

Yeah, they’re very litigious, they’re very rule oriented, there are rules for the rules for the rules. And please understand, the way we get a plan in North and South Carolina is there is a CAD engineer that draws the plan up, he sends it to a third party engineer that’s certified by the state, they certify that the plan is proper, they then send it to the state which is purely a rubber stamp and it’s this time factor. They’ve got to put their stamp of approval on it, then you go to your local county and somebody like Charleston County, they might take two months to approve your plan.

John Warrillow:

And so you’ve got more. Do you recall a straw that broke the camel’s back, a day, a customer experience, something that triggered you to want to sell?

David Amigo:

No, I’d never liked the business to be honest with you, I’m a super competitive guy and I just like to win, I don’t really care what that winning is. I’ll give you a good example. My wife who’s wonderful and awesome surprised me for one of my birthdays, I don’t remember if it was my 35th to 40 and we went out to Las Vegas and we would go in and we would put $20 in a machine, and I’d win $5 on the first or second spin. And I’d look at her, I’m like, “Let’s go.” She’s like, “What?” I said, “We won.”

John Warrillow:

I won.

David Amigo:

And I just like winning, and winning to me is having satisfied customers doing things right. Obviously, I liked big bank accounts too, that’s a form of winning, but it doesn’t have to be. And what I learned in this business is you’re always losing, you’re never getting your houses on time, you’re never satisfying your customers, you’re always fighting with your subcontractors, you’re fighting with the factory. You got employee issues like everybody has. And I think I was just always beat down by it and there wasn’t enough winning in it, it was surviving. And so it was one of those death by a million cuts kind of thing.

John Warrillow:

Man, I’m sure a lot of people hearing this right now can relate given that we’re recording this during a pandemic and the economic turmoil that is sort of triggered by all that. I’m sure a lot of people feel the same way that you did during those set, those times.

David Amigo:

Yeah.

John Warrillow:

So there was no specific triggering event, but what was the next step once you decided that you wanted to sell? Did you take it to market? Did you have someone in mind? Did you hire a broker? What was your…?

David Amigo:

So what happened was number one, I started the business with a partner, I was incredibly fortunate, I got involved with EO and EO…

John Warrillow:

The Entrepreneur’s Organization, yeah.

David Amigo:

Yup, and really, really helped me. So the first big watershed moment was I realized that the person I had running the company as the general manager was not the right fit. And I was able to hire a gentleman who was so way overqualified for the position, he was at the end of his career, his wife worked for a bank in Texas that at the time got bought out by Wachovia which converted to Wells Fargo.

David Amigo:

And she was moving from Texas to Charlotte and I had a contact in my EO forum group who was in staffing and they had helped me in this process. And this is where we found my new general managers name’s Guy, Guy Simpler, fabulous human being. He really helped me learn a lot, very shortly thereafter he joined I bought my partner out.

John Warrillow:

How did you value the company when you bought your partner out?

David Amigo:

He was in need of money and we haggled, this literally lasted for about eight hours, but he called me, he said, “Hey, I need to get some money.” I said, “Hey, I got a better idea, why don’t I just buy you out?” And there really wasn’t a traditional business valuation or anything like that. It was more of he needed some money and I negotiated with him and that’s how we left it. And so that was a watershed moment because he had interest in so many different things, he was a mortgage broker. He wanted to start another dealership, I didn’t want to do that, he did it behind my back, he started a mortgage company.

David Amigo:

I mean, he’s the kind of guy and he’s a professional poker player. And he was a super nice guy, I mean, he had great personality, really liked him. Just our senses of values and how to run the business were just incredibly different. So it just wasn’t going to last very long, but he was the kind of guy that if you go to the casino and you see the person playing three hands at the blackjack tables. That’s kind of his personality and I’m over there. I’m like, “Well, let’s just take care of this.”

David Amigo:

And so we bought him out and then we just realized, like we got to the point, I knew I couldn’t grow it any further, that business is impossible to grow, even the gentleman Mark who bought the business from me, he had these ideas about possibly grow in the business and I think those have changed over time in the five years, that almost five years that he’s owned the business.

John Warrillow:

So you go back to hiring your general manager. What was it that you were looking for in a general manager?

David Amigo:

Well, it was definitely somebody I can trust above and beyond all things, I wanted somebody who had experience running organizations. I wanted somebody who had real estate experience. Guy’s resume was unbelievable. First of all, he worked in the white house, he was a recruiter back in the days. And he tell you all kinds of crazy stories of Nixon, Carter, Reagan. And it just really neat, he understood business, he was a consultant for a very long time and he had his real estate license back in Texas. And so he kind of fit the bill, it’s very interesting. So we did a typical search, I forget back in the day what the search engine was but it wasn’t indeed, indeed didn’t exist back then, but it was one of those. And we had a short list of five people, his resume was absolutely top of the list.

David Amigo:

I did a phone interview with him. I had a very, very good friend of mine who’s a world class sales consultant, Mike Weinberg who I’ve worked with, went to college with, he interviewed him, we all agreed that he was head and shoulders above everybody else. I was a big believer in personality testing, still am, we did a bunch of personality tests. It was very interesting, we had five candidates and then I had my old general manager who we were going to move into a different role.

David Amigo:

There were two folks and what they told me about the personality testing, I believe that to be true, it will not guarantee success but it will guarantee failure. If somebody…

John Warrillow:

What personality test did you use?

David Amigo:

We use, what was the name of it? Oh boy. It wasn’t Myers-Briggs, it was the one base-

John Warrillow:

There’s Birkman, there’s Colby. Oh, there’s a few. It doesn’t matter.

David Amigo:

I’m going to remember it, it’s on the tip of my brain here and I’ll remember it but I’ll get back to that. Anyway, we had the five candidates and I had my old general manager do it and they told me, “Well, you have two people that are absolutely guaranteed to fail, one of the candidates and my current general manager.” So it kind of validated the move. And so Guy was coming to town with his wife to look for houses, and we met on a Saturday and we just plan to talk for about an hour and we literally talked for about eight hours. And this was in Charlotte at the offices of the staffing company I was using to help me.

David Amigo:

And he asked me about being open on weekends and I said, “Well, we’re open Saturdays. We’re not open Sundays.” And he said, “Why not?” I said, “Well, we do live in the Bible belt and we do want to respect church.” He said, “Well, what about opening after church?” I said, “Yeah, I often thought I really want to do that,” but my sales team, which were only two people said, “It’s a waste of time,” and really what was going on they didn’t want to work it. It wasn’t that it was a waste of time. So he says, “Well, I’d really love to see your place. Can we go down there tomorrow?” Which was a Sunday. I said, “Absolutely.”

David Amigo:

And so once again, we plan maybe an hour, hour and a half, we were there for seven hours. And while we were there and I’m showing him the office and the models and our computer system, we literally had like eight customers and he looked at me and goes, “And why aren’t you open on Sunday?” And I said, “Yeah, I think it’s really more a personal issue than anything else.” He goes, “Well, we’ll fix that.” Yeah, it was great.

David Amigo:

So he really allowed me to look at the business and have some confidence of somebody to trust, somebody to get them because I was really surrounded by folks that I didn’t have a lot of faith in and I didn’t feel comfortable. And I never want to drive, I always used to call it a house of cards, the higher the house of cards gets more likely it’s going to fall. I said, “I don’t want to do that.”

David Amigo:

So we reached that certain level and after a while and surviving the great recession, I was just burned. And here I am, I meet Jay Offerdahl who has this company, Viking Mergers & Acquisitions. And I became great…

John Warrillow:

He sells companies? Is that right?

David Amigo:

Mm-hmm (affirmative). He represents sellers and I guess it was started by his father, and he joined the business. And Jay was in my forum in EO, so every month I got to see him and great Christian guy, I mean, just really stand up. He’s really one of the folks that I really look up to because he always remembers details about you and he’ll ask, “Hey, how’s such and such doing, or how did this issue go?”

David Amigo:

I mean, it might be a month apart, he is incredibly thoughtful and especially for a guy, I’m that type A…

John Warrillow:

You don’t have to throw all of us under the bus.

David Amigo:

Well, a lot of us are, at least it wasn’t, I’ll take the mantle for that. I mean, I’m terrible I mean…

John Warrillow:

So what did Jay say about selling your company? What did he think it was worth? What are the…

David Amigo:

That’s the thing, Jay’s business model. He’s like, “Listen, we do business valuations for free.” So he said, “Let’s kind of go through the process.” And so I knew my company wasn’t big enough, even back then, we weren’t big enough where I can sell and retire that wasn’t going to happen. But what my plan was is I just really need to change and so I want to get out of this and I’m not a quitter, it’s not essentially I wound up working there 17 years.

David Amigo:

So even at this point it was over a decade, but I just realized I was burnt out on the business. And so my idea was, what I need to do is I need to sell the business, I want to take a little bit of time off and it’s going to take a little time, you don’t just walk into another business. And you got to have some money to buy another business. And so that was my three-part plan, sell the business, time off, go into another business. And so we did a business valuation and this was like 2011-ish, I think. So we made it through the recession, but the books didn’t look right. And Jay kind of counseled me on, “All right, this is how we operate in this ballpark. You’re going to get a multiple of owner’s cash flow, it’s going to include your salary, whatever benefits you get, your profits, you could add back some of your amortization, depreciation, interest expense.” Let’s think about it.

David Amigo:

Now, the one thing, one of the best moves I’ve ever made when we started the business, we rented the space where we operated and we had an option to buy it. And I exercise that option the first year because I didn’t want to buy it initially because I didn’t know if the business would succeed. And so once I realized it was a good business and mind you, okay, so I came in, in our small little town. I told you, some of these towns have more than one dealership, we were the eighth dealership in town. There were seven other competitors there with us, including some manufacturers that had retail outlets.

David Amigo:

In our first full year, we did more business than the other seven combined. So I had a lot of confidence that we were going to last. So I went out and I bought the property and I’m not a big debt person and I figured, “Well, I can have cash sitting around at whatever it was back then 2%, 3%, or I can pay my note down at 7%.” So I just kept paying my note down payment went down. And that’s something that really carried us through the great recession was I own my property free and clear, but had an equity line on the property.

David Amigo:

And so when all the banks stopped lending money, they still would lend you money on your property. And that’s what I used for my operating cash back in the day, and it turned out to be really valuable.

John Warrillow:

Okay. So I want to go back to your M&A professional Jay and then we’ll get into how the real estate ownership played into devaluation as well. But Jay said that your business is probably worth a multiple, I think brokers, M&A professionals refer to this thing called SDE seller’s discretionary earnings or income, which is basically as you described it, what kind of multiple did he think you might get on SDE?

David Amigo:

Somewhere between two and four was the guess, maybe one…

John Warrillow:

Kind of two to four times SDE. And does that, I’m assuming he was proposing you’ve carved out the real estate and own that or sell that as a separate asset, is that correct?

David Amigo:

Yes, that’s correct.

John Warrillow:

Okay. Got it. Got it. I don’t mean to cut you off. Let’s keep going in the story. So you have this valuation done, the books aren’t looking great, you’ve just come out of a recession. What did you do next?

David Amigo:

Put my nose to the grindstone. I mean, we really just dug back in, I don’t know that we did a lot of special things. I mean, I was always trying to improve the business, the one thing that I always had going for me is I’m not really good at anything, so I need good people around me. Some people look at that as a negative, I always looked at it as a positive. The business was not relying on me to sell the houses, the business was not relying on me to build the houses, it was just relying on me to keep the finances and keep things going. The big joke I still use it to this day is my official title was CEB, and everybody looks and says, “CEB, I’ve heard CEO, I’ve heard CFO, what’s CEB?” I said, “Chief Errand Boy.”

John Warrillow:

Nice.

David Amigo:

And that’s really the way I looked at myself, I try to be the grease to make everybody else’s job go easier. And so I always had that at my company, that was a big asset specially to sell, there was no risk of David walking away that the company would collapsed because I did X, Y, or Z, and nobody else can do X, Y, or Z. The big joke is I signed the checks, that was the thing that was most important for.

John Warrillow:

So fast forward to you put your nose to the grindstone, and then presumably you then decided to take the business to market when the financials were looking better.

David Amigo:

We did evaluation back in, it was probably 13, 14, somewhere in that range.

John Warrillow:

2013, okay. And what did that come out at? What was your reaction to the number that-

David Amigo:

Very doable, it was very doable. Like I said, it wasn’t where I was going to retire but by my calculations I could probably take a year off and have enough money to buy another business and try something else.

John Warrillow:

Had the multiple of SDE changed or was it that your SDE had improved that much?

David Amigo:

Yes, the SDE improved.

John Warrillow:

I see, okay. So you’re more profitable but the multiple remains the same. What was the next step? Did you hire Jay or what? Where did you find him?

David Amigo:

I hired Jay, and one of the things, so we’re in forum together so I know a lot about Jay’s business, he knows a lot about my business and it’s incredible of the similarities that the business brokerage has with the modular home world, right? There’s long sale cycles, you get no cash until the closing. Just a lot of things that we shared as a forum together. And so I start asking questions somewhat as his client, but even more to know more about his business. I said, “Jay, go through what, tell me about timing. What do you see is typical timing? And what do you know about in this area? What makes this difficult? What makes this easy?”

David Amigo:

He made a comment to me and I was shocked at the time, right? Because I’m over here as a seller, and he told me his quote was, “Buyers are a dime a dozen.” He says, “I have no issue getting buyers.” He says, “What I have a problem is finding good businesses to sell and you have a good business.” And I looked at him, I said, “So you’re going to be able to do this? Because I’m thinking that there’s a good chance the company’s not going to sell it, I’m going to be stuck.” He goes, “Oh, no, you don’t worry about that. This is easy.”

David Amigo:

And he tells me, he said, “Once a quarter, I sell a business before the listing even goes up on my website and we advertise it in different areas.” I said, “Really?” He said, “Yeah.” And I was just blown away by that, I thought I was going to have a terrible time. And so what happened was he had some interests, and he has many agents that work for his company and they do have a pool of people that are looking to buy a good business and they’ll reach out to that pool of people to give them like a sneak peak of it.

David Amigo:

And sure enough, he had a guy. Now, one of the complications in this business is you did have to have a general contractors license, which is not very easy to come by. So either you have to have it or you have to bring somebody in that has it, or they had a swing to deal with me to stay on which is not something I wanted to do. And so we had a gentlemen who was interested before it even went to market, and I’ll never forget this guy came, we met at Jay’s place, we talked, he came, he did a visit at my sales center.

David Amigo:

And he started asking me, right before he left, he said, “You know, I do have a partner that’s going to help me financially. And I got to talk this over with my wife.” He just looked at me and he said, “But it would make me really happy if you would agree that you and your wife we’d go out to dinner with me and my wife, if I feel like we can do this,” I said, “That’s a done deal. Just give me the offer. I’ll be there for dinner.”

David Amigo:

And that particular day, my wife came down to meet me for lunch and we’re in the car and we’re driving to the restaurant, and Jay calls and I put him on the Bluetooth, so my wife’s sitting right next to me. And he said, “David, you just sold your business.”

John Warrillow:

Hold on a second back up. So he had given you an offer?

David Amigo:

He had not given me an offer yet, he had just left after he said that about going out to dinner with the wives. And so this is, I don’t know, maybe 40 minutes later, my wife shows up and go out to lunch. And I said, “What’s going on?” He said, “He’s going to go home and talk to his wife, but he’s coming in.” And I think this was a Thursday.

David Amigo:

So I think he said, “He’s coming either Friday or Monday and he’s going to do one last look and he’s going to write the offer up.” But he said, “It sounds like it’s a done deal.” I was like, “Great.” And then, so I’m ecstatic, I mean, hasn’t gone to market yet, we had this guy, it’s awesome.

David Amigo:

And Friday came by, he didn’t show up, Monday came by he didn’t show up. Tuesday or Wednesday came and he said, Jay called me, he said, “David, I apologize but he’s backing out.” I’m like, “Okay, didn’t bother me that much because it was… We hadn’t even gotten to market yet, but it was a little bit of a disappointment.” And then we had it on the market for many months, still wasn’t a great time, 14, 15. It was 15 at this point, 15 still wasn’t a great time for home building, people really did… especially modular home building, there’s still some perception out there about the business in the industry.

David Amigo:

And Jay held an event at our local baseball stadium, we have a minor league baseball team in Charlotte. And few years ago they built a gorgeous brand new stadium in what we call uptown Charlotte, which is downtown Charlotte. And Jay had an event where he brought in a few of his clients, few of his past clients and a bunch of his agents. And there was a gentleman there that Jay was bringing on as an agent.

David Amigo:

And I met him, we started talking, and I’m a baseball guy, I like baseball, I played baseball growing up. I think I watched maybe three or four total pitches that whole game. I talked to this guy the entire time. He said, “I got a friend of mine that I worked at, at Driven Brands which is the parent company for Meineke and Maaco. And he was the CIO, he ran the franchise development group and he ran the in-house store group. So he moved around as an executive and he was consulting. He said, “He’s actually from England and he’s overseas right now, but he would be perfect for your business.”

David Amigo:

“And when he gets back, I’m going to talk to him.” And that was Mark Street and that’s who bought my business.

John Warrillow:

It gets from there. So what was Mark’s first reaction to the business? What did he say?

David Amigo:

He’s incredibly intelligent, he just kept in a very good way peppering me with questions about the industry. How does this work? How does that work? What do you do for this? What do you do for that? And he understood the business model immediately, immediately he understood it and he was very excited by it.

John Warrillow:

And was there a concern in your mind as you’re talking to Mark that the more you revealed the weaker your negotiation position would be?

David Amigo:

No, we had it priced so cheaply at that point. So one of the things we didn’t discuss is, so we went to market at a certain price and during that hiatus of really not getting any interest, Jay had asked me to drop the price of the business wasn’t by a lot but-

John Warrillow:

What you listed it for and what he asked you?

David Amigo:

I probably can’t tell you all that because I don’t want to divulge Mark’s confidentiality.

John Warrillow:

Maybe just on a percentage-

David Amigo:

Percentage basis? We probably dropped it I don’t know 15%.

John Warrillow:

Okay. So at this point you’re feeling like it’s a pretty low price, so you’re out working [inaudible 00:47:28].

David Amigo:

And honestly there was never any negotiation about price. Mark saw the value in it, I knew the value in it, I priced it to sell, I was ready to sell, and he understood that. And I think the one thing that I looked back and it was all the difference in the world is the relationship that me and Mark have, he is just a super, super great guy. And I think that we went through the process together and we understood that obviously we have both our selfish needs out of this. But if I did everything possible to look out for the benefit of Mark and he looked out for the benefit of me, that this was going to be a really fun ride and a good deal for both of us and I think it has been, and I took that attitude.

David Amigo:

I mean, we had a few things, I guess, in every deal you just can’t think of every scenario, you just can’t, there’s so many things that can crop up and gum up.

John Warrillow:

What happened in years?

David Amigo:

They weren’t major things, it might’ve been an expense that we were going to incur. Mark and I would look at each other and be like, “All right, you want to split it? Okay.” I mean, that was literally the wave of our negotiations with these little extra things that would come up.

John Warrillow:

Got it. And how did he structure his deal? Was it a 100% cash at closing, or did he structure it with some financing? What was the structure?

David Amigo:

No, financing, yes. So several things and you had two parts to it, right? It was an asset sale of the company assets which was one company that I owned. And then there was the real estate sale from another company that I owned, and Mark structured it similarly, he set up two companies. Mark actually used retirement funds and he used SBA lending. And so I’m not privy to all the extra details he had to go through of using the retirement funds, but it was an SBA note, it was a 10-year note on his part, he might’ve refinanced by now, we had a conversation I just don’t recall what he told me about it.

David Amigo:

But typically SBA, you got to come with 25% down and then you can finance the rest. And so that’s basically what he did.

John Warrillow:

And did you have to finance some of it as well?

David Amigo:

No. Well, here’s what happened. So very difficult business and it’s almost, I basically wrote the offer because I think I was the only one who understood the business well enough to make that happen. So the problem in this business is you have this incredibly long sales cycles, and there’s a time period that it takes to close a deal. And so the way the deal had to be structured was we had a list, the clients that we were working on and categorize them. And so there were certain clients that I started and I was going to finish and they were all going to close before the deal to transfer ownership to Mark was going to happen.

David Amigo:

So that was category one, there was category two of clients that I was going to start, and then they’ll finish probably when Mark takes over, which meant he’d have to help get those deals done. I might still have paid for some of the bills and I was going to keep the revenue. Then there were deals that I was going to work on for Mark and he would reimburse me the expenses and I was going to turn those over to him. So he would benefit from having revenue when he started.

David Amigo:

And I guaranteed him a certain revenue in the first, I think it was two months, we would guarantee to have this closed and if something would have happened where they didn’t close in that time I would lend him the money until they closed. And that’s how we worked it, but it was pretty sophisticated in how we had to isolate each individual deal and decide what would happen.

David Amigo:

One of the things looking back are there were deals that really should have closed under my jurisdiction that got dragged out for months. Part of why I left the business, I just couldn’t get things closed fast enough. And then in hindsight, I probably should’ve be more aware but I was always the optimist in this business and I was always beat down by it because my optimism very rarely came true.

John Warrillow:

What commitments did you make either legally or morally to Mark to help him with the transition? Have you agreed to stay on for period? Or was that…

David Amigo:

Yeah, so legally, I think it was 30 days I was supposed to be there and I did, and then I started coming in once a week to pay my bills, so I still had my deals that were going on, he would keep a separate folder and I would pay my bills and I would help him with whatever questions he had. And then Mark felt it was better and he was right, that I stopped showing up at the office.

David Amigo:

So then Mark and I would meet for breakfast once a week, and we did that for months at a time. And to this day we don’t meet every week, we meet once every few months but we go have breakfast and he totally does not need me, he’s perfectly capable without me. And so we do talk about the business but we’ll talk about other things as well.

John Warrillow:

It sounds fascinating. I mean, what a story, if you had it to do over again, all the way back to the, really even after the first valuation where you saw the number wasn’t what you needed. Would you do anything differently? And again, a lot of EO members will be listening to this where they’re looking for tips and tricks, negotiation, secrets, things they might sort of moves they might play to make the process more favorable.

John Warrillow:

Is there anything that you might do differently with hindsight being 2020?

David Amigo:

So this is really further hindsight, this is actually something that I picked up over the last six months. There’s another EO member, Greg Crabtree who’s an accountant, I think he’s at Birmingham but I think he was in the Atlanta chapter of EO. And he’s developed what he calls and he’s got a book called Simple Numbers and I’ve just adopted that in my new company. And that probably would have been a game changer for me, keeping track of things in Carolina Country Homes. And from a negotiation standpoint, I think using the simple numbers, I probably would have been able to drive more value because I would have been focused more on some other numbers that would have helped me drive that value. That’s the one thing that I look back now.

David Amigo:

What actually transpired with Mark, if you can guarantee what you can’t to have a personality sitting across the desk like Mark that would be the number one thing, and maybe that’s something people can look at. Spend as much time evaluating the personality that you’re working with. Now, some people might not care, it might be a dollars and cents thing for them.

David Amigo:

For me, it really made the process fun, enjoyable. This business was my baby and so I love the fact of talking about it and we’re laying to somebody who was incredibly bright of my struggles and problems and success stories with it. It allowed me to, I enjoyed the process of selling the business more than the business itself. And I said this comment to Mark, I really did. I said, “Mark, I would love to work with you again just not in that business.” And I think that’s a key. I mean, I think you can make your process incredibly rewarding and fun or you can make yourself absolutely miserable.

David Amigo:

I mean, there’s no question in my mind that this could be a miserable process for somebody. I have a new EO friend, he just joined EO and his relationship with the person he bought the business from is not great, and it causes a lot of pain and heartache. And to this day I have not missed a Christmas party, Mark has invited me to every Christmas party and I’d go to every single one and I love seeing the people, they’re like family to me. And I’m very proud of what Mark has done and he’s frankly, I think he’s done a better job than I have and I’m thrilled for him, I’m absolutely thrilled for him.

John Warrillow:

Well said, indeed. Did you buy yourself a trophy, any sort of recognition for a job well done?

David Amigo:

So one of the biggest things for me is I’m married 20 years coming up on 21 years now.

John Warrillow:

Congratulations.

David Amigo:

Thank you. I have three children, one just turned 20, 20 soon to be 19 and a 17 year old. And my two sons are the older and then my daughters the “baby”. I wanted to spend more time with them, I’ve always had a really good balance of being home and doing things but it was always preoccupied time. So I’d always throw a football with the kids but I had a phone in my ear talking to a subcontractor or whatever.

David Amigo:

So I wanted to have some undistracted time and so my oldest child, he’s a big sports fanatic as I. And so we made this trip to New York, I’m originally from New York, I don’t know if anybody’s picked up on that accent yet. I hide it pretty well being in the South and my wife’s from the South. And so we had this incredible weekends where we’re big Tar Heel basketball fans and they were playing up in Barclays, this was probably 16, I think it was, no 15, it must’ve been 15.

David Amigo:

And so they were playing in Barclays, we went to see them, we then went to the Panthers-Giants game, which is the game where Odell Beckham and Josh Norman were fighting with each other and the Giants were getting killed and came all the way back. I did and the Panthers were in Panthers jerseys, even though I’m from New York, I’m not a giants fan and I’m wearing my Panthers jersey. And then the biggest cue is we left the Panthers Giants game and went to Madison Square Garden to go watch the Rangers.

John Warrillow:

Wow.

David Amigo:

And we had a friend, anybody who knows New York, you know how crazy and busy it is and getting in and out. So there’s a steakhouse in Madison Square Garden, and we had a friend who did not come to the football game but was going to the hockey game. He went to the steak house, got us a table, ordered food. We literally got off the train station, walked upstairs into the restaurant, sat down, ate food, went up a back door. It’s a Madison Square Garden watch the Rangers game.

John Warrillow:

Selling the sports fans fantasy.

David Amigo:

It was awesome. It was awesome. We had a great time. And then my younger son is a big musician and his class was going down to Orlando Universal to play at Universal Studios. And so I was able to go with him and chaperone and spend the time with him, so that was wonderful. And then my daughter also wanted to go back to New York in the spring and we caught the Mets opening day and Rangers game. And then we also went to see, I think we went to see Wicked and a bunch of ice.

David Amigo:

One of my friends has a daughter close to her age and they find these cool ice cream places to go to cake shops. So we had a blast, so we did all that. And then what we had is a huge family trip and I have one nephew who is two years older than my oldest son but he’s almost like the oldest son, he spends a lot of time with us.

David Amigo:

And so we all got in our minivan and we drove up to Hershey, Pennsylvania and spent a few nights and went to the park. And then we went to Albany, New York is where I went to school and I had a relative and some friends still there and we did that. And then we went to Boston, spent a night over in Boston, did some touring. And then we came to this little remote part of Maine, it’s about an hour Northeast of Portland and it was on the coast. My wife found this house that is surrounded by water on two sides. And next to the house is a lobster restaurant that gentlemen who owns the house also owns the restaurant. And we saw somewhere online that he would let the kids work at the lobster restaurant.

David Amigo:

Mind you, this was back in 2015, I guess ’16, and so they’re ’15, ’14, and ’13, and we spent two weeks in Maine and we just loved it. It is absolutely God’s beauty, I mean, we are on these fingers that jet out off the mainland and there’s water everywhere and it’s a big lobster fishing place with a lot of the local economy is lobster fishermen. And there were some of the hardest working folks you can ever come across. And everybody loved it and my kids are very different. And so we came back the following summer and we started looking around for property because my wife and I had this crazy idea, like maybe someday we’re going to retire and we want to have a summer place. And my wife looked at me and she said, “You know, you don’t want to buy a house. I know you, you want to build a house.”

David Amigo:

And I looked at her I said, “You know, you’re right, I do want to do that.” And so it was one of these HGTV episodes, I mean, we went in, we looked at three properties, we found one, we loved it, we bought it, started coming up with plans. And a very good friend of mine he actually designed our house in South Carolina, I asked him if he wanted to do it again. And he said, “Yeah.”

David Amigo:

And so we designed this house where it’s a two phase build. And last year we completed phase one, which was basically it’s a garage, which I’m sitting in right now which is more of a man-cave it’s very finished out, this is where my kids sleep, there’s a 75-inch TV screen on the wall, it’s great. And then there’s an apartment upstairs with a full kitchen bedroom. We have two full baths and we also have a laundry room in the entranceway.

John Warrillow:

And I got to ask, is it a modular home?

David Amigo:

It is not. It actually is not.

John Warrillow:

That’s their industry.

David Amigo:

Yeah, we thought about it, we actually considered it, but for the design we want… And this is a very hilly rocky part of the country and the logistics of being able to get a modular in here, we could barely… Listen, we could barely get the lumber in here, that is crazy. So we weren’t going to be able to get the modular.

John Warrillow:

So selling this business it wasn’t all that bad because you bought yourself an ocean front home in Maine and took all three kids on trips of a lifetime. So I think it’s just a great story and I appreciate you sharing it with us.

John Warrillow:

Where can people get in touch if they wanted to reach out to you directly? Do you have a website you want to point people to, or do you accept LinkedIn requests? Or what’s the best way to say hi?

David Amigo:

I am terrible, my 16-year-old daughter likes to tell me how old I am, and I’m really not that old but I am anti-social media, however feel free, anybody can email me. My email address is david.amigo A-M-I-G-O and it’s at my new company. It’s gandglandscape.net.

John Warrillow:

Awesome. And we’ll put that in the show notes as well. David, it was great to meet you. Thank you and congratulations again.

David Amigo:

Thank you very much. Pleasure being with you.

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