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One Strategy Took Them From 12.5 to 16 times EBITDA

October 15, 2021 |  

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Arleen & Ted Taveras had been growing their insurance consultancy for twenty years when they received an unsolicited acquisition offer for 12.5 times EBITDA.

It was a tempting offer from an industry stalwart, but Arleen & Ted wondered if they might be leaving money on the table.

Rather than accept the offer, the couple decided to hire an advisor to shop their company in a formal sale process which garnered 27 expressions of interest, 12 of whom made a formal offer. Ultimately, Arleen & Ted agreed to a cash offer of around 16 times earnings – more than their original, unsolicited bid.

In this episode you’ll discover how to:

  • Gracefully turn down unsolicited offers without dampening their interest.
  • Use the unsolicited offers you get from private equity groups.
  • Get employees to think like owners.
  • Create a turnkey operation using video-based Standard Operating Procedures (grab our guide to SOPs here).
  • Stay calm at the prospect of losing a multimillion-dollar offer.
  • Calculate the right amount of your sale proceeds to share with your employees.
  • Handle retained earnings building up inside your company so that you don’t lose them as part of an acquisition.

About Our Guest

Ted & Arleen Taveras

Ted Taveras

Ted Taveras is the Co-founder of Insurance Licensing Services of America, Inc.  (ILSA). He has over twenty years’ experience in the financial services industry working in insurance, commercial banking, and investment banking.  At ILSA he took on the role of training the company’s staff in the areas of personal development, management development, and leadership development. He served as a board member, and chairman, of the Heart of Texas Workforce Development Board, Inc, and has served on The Texas Surplus Lines Association (TSLA) Legislative Committee and as well as a member of the Texas Association of Workforce Boards, The American Bankers Insurance Association (ABIA), The Independent Insurance Agents of Texas (IIAT), and the National Association of Professional Surplus Lines Offices (NAPSLO).

Ted holds a Bachelor’s degree in English and Journalism from Syracuse University.

Arleen Taveras

From 1997 until September 1, 2021 Arleen Taveras was Co-founder, President & CEO of Insurance Licensing Services of America, Inc. (ILSA). Throughout the years the company launched over 50 compliance services. In 2017, the 20th anniversary year, the company launched the Spot On Insurance (SOI) podcast—the place for insurance professionals to get weekly podcasts covering innovative solutions for the industry. Arleen co-hosts the podcast with her husband Ted.

Arleen is considered a leading authority in insurance compliance and licensing regulations. She is a past member of the National Association of Insurance Brokers’ Licensing Task Force, and the Texas Surplus Lines Association Legislative and Recruiting Committees and has been a member of the Society of Insurance Licensing Administrators (SILA) since 1993.

Arleen attended Jersey City State University and the College of Insurance in New York City where she obtained her Associate in Risk Management, (ARM).

On September 1, 2021 she relinquished her President & CEO role when ILSA was acquired by ReSource Pro. She now serves an advisor to the company which employs over 5000 team members worldwide.

 

Connect with Ted & Arleen:
Ted – LinkedIn
Arleen – LinkedIn

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Transcript

Disclaimer: Transcripts may contain a few typos. With most episodes lasting 60+ minutes, it can be difficult to catch some minor errors.

John Warrillow:

So, do you remember Sully, the guy who landed the plane on the Hudson River? He had done everything there is to do in an airplane, he was even a trainer of other pilots, yet he had never had the opportunity to land an airplane on the Hudson River. He had one shot at greasing that landing and he nailed it, and when it comes to selling your business, you’ve got one shot. One shot to make sure you punch above your weight when you go to sell your company. One shot to make sure you don’t make some of the most common mistakes that entrepreneurs make when they sell their business. That’s why I wrote the book, The Art of Selling Your Business. It’s a field guide for anyone looking to sell their company. You can get it along with some gifts for my listeners, at BuiltToSell.com/Selling.

Welcome to another edition of Built to Sell Radio. My name is John Warrillow, your host, and this is the show that helps you punch above your weight when it comes to negotiating the sale of your company. I want to start off with a question… What do you do when you get an unsolicited email from someone who wants to either buy or invest in your company? My guess is that lately that’s been happening to you more frequently, whether it’s a private equity group or a strategic acquirer, it’s a pretty frothy M&A market, and you may be getting people approaching you about potentially buying your business. Now, that could be incredibly flattering when it happens, it validates your business and everything you built. And by getting lured into that conversation, certainly by signing a no-shop clause, that often is a prerequisite to signing a letter of intent, or a condition of signing a letter of intent, you lose negotiating leverage, and it’s at the stage where you actually want negotiating leverage. You want multiple bidders for your company. And that’s exactly what Ted and Arleen Taveras knew, they’re longtime listeners to this show, they’ve heard this sentiment before. And so when they got an unsolicited offer for their business of 12 times EBITDA, they were tempted. But as they’ll tell you, they knew that they needed to shop the deal. They didn’t sign the letter of intent at 12 times EBITDA, and they went back to the market. They got multiple offers, ultimately settling at 16 times EBITDA. To tell you how they did it, here is Ted and Arleen Taveras.

Arleen and Ted Taveras. Welcome to Built to Sell Radio.

Arleen Taveras:

Excited to be here with you, John.

Ted Taveras:

Absolutely great fans. Especially my wife. She’s a super fan.

John Warrillow:

I got to win you over yet, Ted, is that right?

Ted Taveras:

No, no. I’ve listened to many of them but she listens to more podcasts than I do, specifically in this area. Since we were trying to bring the company to another level or get away from it, she was really, really gung ho on listening. And it’s not something that started a year ago. She’s been doing it for eight or nine years.

Arleen Taveras:

Oh, yeah. We’ve been listening for a long, long time.

John Warrillow:

That’s great.

Arleen Taveras:

And I would just give him the CliffsNotes on a lot of the episodes.

Ted Taveras:

That’s right.

Arleen Taveras:

Oh, then when the CliffsNotes, I felt wouldn’t do justice, I’m like here’s the link to the episode.

John Warrillow:

Better listen to it, buddy.

Arleen Taveras:

Yep.

Ted Taveras:

We listen to a lot of that stuff in the car, so yeah, she would just turn it on in the car and drives.

John Warrillow:

These are my favorite episodes because I loved hearing from listeners who sell, that’s the whole point of the show, so that’s awesome that you guys are poster children for the show. So it’s great. Love it. So, we’re going to dig into this company with a weird name but a really cool product. So, it’s called Insurance Licensing Services of America, which we can shorten for our guests, our listeners to ILSA. Correct?

Ted Taveras:

Yes.

John Warrillow:

I read the press release. I’m like I have no clue what you guys do. So you’ve got to dumb it down for me. What on earth does ILSA do?

Arleen Taveras:

Okay. So, if an insurance agent is selling insurance to cover American Airlines, let’s say.

John Warrillow:

Yep.

Arleen Taveras:

American Airlines has planes in every single state. That means that that insurance agent needs to have a license in 50 states. Because American Airlines, you could imagine is a risky type of coverage, they also need what’s called a surplus lines license. So, not only did they need a property and casualty license, but they need a surplus lines license. So, now you’re talking about 100 licenses that they need there. And they work for an insurance agency so that agency also needs those 100 licenses. So, they don’t want the headaches of having to obtain all of those licenses, so they outsource to us. We get them the licenses, we maintain the licenses and pay certain taxes that have to go to certain insurance departments because of those special licenses.

John Warrillow:

This is like the plumbing, the underbelly of the insurance business. Like, how on earth do you get into that? That’s incredible.

Ted Taveras:

Freelancing in New York.

John Warrillow:

Okay.

Ted Taveras:

We were doing freelancing in New York City and we landed in a company called Minnett. Absolutely loved the company, loved the management of that company. We learned so much from them. We were very young at the time. And Arleen worked her way to be Vice President.

Arleen Taveras:

Yeah. An assistant Vice President, went to the college of insurance and just stumbled really upon the insurance industry. Like Ted said, we freelanced. Just loved the team, loved the environment and decided this was the path.

Ted Taveras:

They asked her to handle licensing nationwide, so she was doing the licensing for the company here in the US and in Canada as well.

John Warrillow:

Okay. So, if I’m an insurance… Let me get this straight. So, if I’m an insurance agent and I’ve got a relatively complicated case that kind of goes beyond my pay grade in terms of licensing and trying to figure out all the states and all the… I might outsource some of the… I maintain the relationship with the client, so I get paid and they think of me as their hero. At the back end, I might sort of pass some of the complicated stuff off to you guys.

Ted Taveras:

Yeah.

John Warrillow:

Am it getting it ish close?

Arleen Taveras:

Yes, so that you can make money so that you can keep writing tons of national policies, big policies, but you don’t have to worry about licensing and renewing all of those licenses that come at different times of the year.

Ted Taveras:

Regulatory compliance is a job in itself, so what we tell the agents and the agency says hey, you get to do your job rather than trying to do this. And keeping up with any changes, at any time, a license could be set up for renewal and if you have 100 licenses and they’re set up for renewals or something changes, there’s no way you’re going to know and the fines can be pretty stiff. And since our people are in touch with the states every single day for so many clients, for thousands of clients, it’s easier for them to keep up and make changes in our system and [inaudible 00:07:26].

John Warrillow:

It’s like the old, would you go to a doctor to replace your hip? No, you’d go to a specialist that does the hip. You have a GP relationship, but at the same time, you have specialists that do some of the more specialized stuff. Okay. I think I get it. What was the business model? How did you guys get paid? How did you make money?

Arleen Taveras:

So, initially, we were actually doing like an all inclusive service, so if you needed to renew 100 licenses and you needed to track continuing add and we could give you a set price per month. After we started the business, years later we changed that business model to a per transaction service, just because we felt it was a fairer system. So we have now over 50 compliance services, not just licensing but a lot of filings that have to do with the Secretary of State, the Department of Revenue. Every single transaction has a fee associated with it so at the end of the month, the clients were invoiced for all of the transactions that we’ve handled for them.

John Warrillow:

Got it. You moved to like the Stripe Visa model where you pay per transaction. So the more complicated files they write, the more transactions and… Got it. Excellent. I was going to ask you how seasonal that was. Did you find that going to… What were the downsides of going transactional? Was it more seasonal? Or were there other…

Arleen Taveras:

So, for sure. If you’re charging a set fee every month, you have a good understanding of what your cashflow is going to be. But when you go to a transactional setup, it definitely will have a seasonal. So, there’s certain services that we provide that have to do with the Secretary of State. Those are definitely seasonal. March and April are busy times. Our surplus lines tax filing services, those are more towards the end of the year and the beginning of the first quarter of the year. But with time, the more clients you have, you’re able to easily deal with those ebbs and flows on the cash flows.

John Warrillow:

Got it. Got it. And you owned this business for about 20 years, right?

Arleen Taveras:

Yes.

John Warrillow:

So, you went through the kind of great recession of ’08/’09.

Arleen Taveras:

Sure.

John Warrillow:

What was that like for you guys?

Arleen Taveras:

That was really an eye opener. To that point, at the end of the year, we would always give out big bonuses, pretty much wiping out all the cash and just start all over again.

John Warrillow:

You mean you bonused yourselves out?

Arleen Taveras:

Oh, no. We would bonus our employees, all of our employees.

John Warrillow:

Okay.

Arleen Taveras:

And so, our CPA, who’s been with us for 20 years, Roy Spinks out of Waco, Texas. He would say, I don’t know guys if this is the best thing for you guys to do. Of course the great recession comes, October 2008. We think at that point that the insurance industry is going to be insulated from this great recession. Heck no. It starts really hitting us about 2009, 2010. We lost 70% of our income. 70%. Because a lot of our clients merged. Many went out of business and we were bleeding hundreds of thousands of dollars every month.

Ted Taveras:

We took a year without salary.

Arleen Taveras:

Yeah.

Ted Taveras:

To stay afloat and we were just happy to be surviving at that point. And we had a talk with our staff and we said, guys, we understand if you guys need to leave. Because in Texas, the oil fields were shut down, with so many things happening and guys, if it wasn’t the wives who were working for us, it was their husbands who were going to go somewhere else and look for jobs. And we said we understand if you have to go.

At that time, we had gone from 70 employees to 30. They slowly started to drift away and we weren’t really firing anybody. It was just that’s what’s going on and we were fine with that. At the same time, we were cross training everybody. So we had this… We said this is an opportunity for us, now that we’re down, to really get people trained in so many different areas. So the ones we had left, we did that. And we sat with them and we said, we understand if you need to leave. And they were like, no, we’re not going anywhere. And here’s a list of things you need to cut for us because we are staying here. It was a blessing for us.

Arleen Taveras:

It’s kind of amazing, right. In our darkest financial days, for us to take our team and say we’re going to take the time now to really cross train and automate a lot of processes that we haven’t been able to do in the past because we were so busy. So everyone got cross trained. How wonderful is that? And then all of these automation projects got put in place and then we also read the Great Game of Business and put that into place, which was…

Ted Taveras:

We have money huddles every week and we talk about our finances, where everything is, where we’re going. The important thing about that time is that we didn’t sit around and panic. What we did is we talked to our people and we said, listen, the reason why we’re doing all this cross training, the reason why we’re upgrading all our technology is when those gates open, we want to be like that horse, just itching for things to get going. We know that things are going to get better and we want to come out the gates just blazing hot. And that’s exactly what happened. And if you fast forward to today and what’s happened with COVID last year, our guys didn’t blink. It was like we’ve done this before, we know that we’re not going to panic. We’re just going to hit this full force.

John Warrillow:

You’ve seen this movie before and know how it ends.

Ted Taveras:

Yeah. And we had the best year ever last year as a result.

John Warrillow:

Wow. That’s… I’ve got some more digging to do on this concept in particular, because for a lot of people they will not have heard of the Great Game of Business, the Jack Stack book with Bo Burlingham as well as the program. Can you, in a brief moment, just describe the great game of business for folks who want to kind of dig in further.

Arleen Taveras:

So, it’s really about sharing all of your financials with your team, making them aware of revenue that’s coming in and all of the expenses that are going out. As business owners, a lot of times we’re wary of sharing all of that information, but I think what it does is, it really allows your team to just take ownership of it, like, oh, let’s not stay at the fanciest hotel when we go to this conference because that’s going to affect our bonuses. And then excited about the revenue that’s coming in, as opposed to them feeling like oh, it’s just more work coming in. They know that it’s going to affect their bonuses.

John Warrillow:

Here’s the thing with employee ownership though, or disclosing your numbers. I get it when things are bad, right, because you get to hold up to the company and say, here are our numbers, look at us, we’re not taking a salary, et cetera. But when things turn and the company starts to grow again and is profitable, in your case, really profitable, doesn’t that create the sort of two class citizens, this sort of animosity, like how come you guys are making all the money. It’s harder isn’t it to share numbers when things are going well?

Arleen Taveras:

I guess in a sense it is and we have changed our bonus plan over the years. So the latest thing that we put together was just profit share. So, just across the board, everyone gets the same percentage to avoid that situation where it’s seen as the senior management team is getting more than staff members. So, it has definitely evolved over the years. But then the other thing is, when people see how much we’re spending in day care expenses, how much we’re spending in employee benefits, that’s a lot of money. And they’re aware of that. So, yeah…

Ted Taveras:

For us, it didn’t have an effect at all. They knew that we always had the best intentions for them and Arleen and I weren’t pulling money out of the company like crazy, in fact the ReSource Pro, when we went to do the deal with us, were surprised at how much money we had within the company. So, we weren’t those that were buying Maseratis and going crazy. No, it was just like, hey, leave it in the company. If something goes wrong, we have backup.

John Warrillow:

What tools did you use to cross train people. We talk a lot about standard operating procedures, SOPs, on this show. Did you use standard operating procedures to cross train when you dropped from 70 down to 30?

Arleen Taveras:

So, every single department of ours is very unique. Of course most of the production departments share the same database, but we would do training in our class room environment.

John Warrillow:

Okay, so live.

Arleen Taveras:

Yes, live. And the managers, supervisors, would do the training to the employees. And yeah, it just-

Ted Taveras:

Then we developed videos. Training videos, specific to what was going on there.

John Warrillow:

Got it, got it, got it. That’s helpful for sure. As you grow, describe the next sort of stage of the journey. So, you get through the 2008/2009 financial crisis, things start to turn around. At some point, you started to… You were, in fact, approached by an acquirer. Maybe talk a little bit about that.

Arleen Taveras:

Yeah, so things definitely turned around for us now we had a team that was more well rounded, right. We could pull people from any department and put them in another department during heavy volume periods. Our people are able to communicate with clients and just provide solutions across all of the areas that we provide, so that was wonderful. Yeah, so then we fast forward to late 2019 and-

John Warrillow:

How big are you at this point in 2019? Like the number of employees, revenue, anything you want to share?

Arleen Taveras:

So, we went down to, like Ted said, about 35 employees probably in 2010. We went back up to about 55 employees by 2019.

Ted Taveras:

We didn’t want the 70 again, right. We wanted to stay lean and mean. And that was actually one of our mottos. The staff, all of us, are saying lean and mean, lean and mean.

Arleen Taveras:

And we were much more profitable than pre-recession time. So, yes, we started to have a conversation with a very big player in our industry and dinner…

Ted Taveras:

Arleen fell in love, let’s put it that way.

Arleen Taveras:

And I was like, wow, this is great. This is late 2019. We go into 2020, February, and of course the whole world is starting to hear about this COVID situation and they’re still progressing. They’re having these virtual meetings with us and in March of 2020, they gave a great, a figure offer. This is March 2020 when the whole world is shutting down and I’m like, Ted, we’ve got to do this.

Ted Taveras:

No, no we don’t. And from listening to your podcasts and having studied a lot of what we should be thinking about and doing, that first one was kind of a test for us. I said, let’s see what we get here in terms of a price and if it’s reasonable and it’s up there, we have an idea of what we can go to market with and perhaps get some more. And perhaps do better when you have competitive bidders. Let me state it that way. And it actually worked out that way. She falls in love pretty easily with some of these folks.

John Warrillow:

She being Arleen, in this case?

Ted Taveras:

She being Arleen, right here.

John Warrillow:

Okay.

Ted Taveras:

Yes, she absolutely… And I said no, no, no, we’ll wait. Be patient. And she was like well, we don’t know what’s going to happen. And I said, that’s life. We never know what’s going to happen. We’ve gone through our roller coaster rides, but we know that we have a good company, it’s doing well and I think the numbers will be better for next year. And then we’ll get a competitive bid, we’ll put it out there. And that’s exactly what we decided to do afterwards.

John Warrillow:

I’ve got so many questions about that. So, first of all, it sounds like, Ted, in this case, in this situation, you were willing to roll the dice to see what else and risk, effectively, losing that offer in return for potentially a bigger offer with multiple bidders. Arleen, it sounds like you were, in this case, the more risk averse, saying hey, bird in the hand’s worth two in the bush, let’s do this deal. Is that characteristic of your partnership in other areas or is it unique to this situation? Are you generally, Arleen, more conservative and Ted, more aggressive or was it really just this deal was unique that that point?

Arleen Taveras:

That’s definitely the way we are. I’m definitely more the emotional one and less willing to take on risk. And he’s like, no, the sky’s the limit and-

Ted Taveras:

Bottom line.

Arleen Taveras:

Yeah, let’s go for it. And he’s the strong negotiator.

John Warrillow:

Okay. So, Arleen, and this happens, by the way. People listening to this will be like nodding up and down and going, yeah, I know exactly the situation Arleen’s in, because increasingly, our listeners are being approached by acquirers, whether that’s strategic acquirers, private equity groups and it’s a bit of a romantic engagement, right. There’s a romance to it. And so, how did you fall… What was it in their approach that made you fall in love with them? What did they do and say that made you think, man, this is the one?

Arleen Taveras:

Well, they did say, oh, we feel that getting to a closing with just one on one is so much better than when we have a lot of players in the mix. Company culture was good. Assurance that the team would remain in place. So, things like that.

John Warrillow:

Yeah, yeah. And so, it was sort of proposed like, we’re friends, why bring other people into this perfect little relationship. Let’s just do this together. Let’s not muddy the waters. Let’s… Yep.

Ted Taveras:

I’m your mate. You don’t need to compare me with anybody else in order to choose who you’re going to marry.

John Warrillow:

Right, right, right, right. Yeah.

Arleen Taveras:

But I have to add that it’s a great company, you know, so very prestigious and has done tremendous things in the industry.

John Warrillow:

And that probably also goes into when you’re approached by an industry icon, then it’s flattering and it’s intoxicating and it’s validating maybe on some level, right. So, there’s all those emotions that go into it, I’m assuming as well.

Arleen Taveras:

Yes. And then on top of that, we’re in the very beginning of a world wide pandemic.

Ted Taveras:

She’s the emotional one, I’m the Mr. Spock. I go logically all the way across and down to the bottom line.

John Warrillow:

Okay. So, let’s talk logic. It was an eight figure offer. We talked about… What multiple ball park are you able to share of earnings would it have represented, that original offer?

Arleen Taveras:

So, bidder A’s offer was about 12 and a half times.

John Warrillow:

Got it. And Ted, what was, as a logical person, what was your reasoning? Because you were risking something, right. Offer’s nothing to sneeze at, especially from a big, successful company with brand recognition that would be able to close, would have the cash to close. You were risking a very reasonable offer. What made you think that there was a better offer out there?

Ted Taveras:

Number one, I didn’t think that our numbers were what I wanted them to be yet.

John Warrillow:

So, you thought the company could grow further?

Ted Taveras:

I thought the company could grow much further and I felt we could do it, even during 2020. I have a really strong belief in what we put together and our people. So, they were hitting the ground running. I wasn’t going to panic over it. And I felt that if I did, it would be a kind of a panic. But if I ran for that number, it would be a panic. And for me, it was more important to get three, four or five bidders. You know that in the market, if you’ve got people talking back and forth, and you’ve got people, three or four large companies that really want you, they’re going to give the best bid.

In this particular case, how do we tell where we’re at? Are they giving us a bottom line? Are they giving us… Are they really, really wanting us at this point? They just throw a number out at you and then they say, okay, are you happy with that. And I wanted outside parties to have that discussion about how much we were worth. Not with one bidder.

John Warrillow:

I know we have to keep the name of the first bidder private, to protect their privacy, so let’s just call them bidder A for the purposes of our conversation. So, what was bidder A’s reaction when you said time out, we’re going to look at potentially shopping this to other potential clients?

Ted Taveras:

I’m going to answer that, because it wasn’t a surprise to them, because from the very beginning, I said to them we will entertain your offer, we will listen to you and we will see where this goes, but I really would like to put this out to market. So, from the very beginning, they were aware that that was on my mind. So, they weren’t surprised.

John Warrillow:

So they weren’t surprised from you, but Arleen, you’d fallen in love. What was their reaction to you specifically? Can you leave Ted out of the conversations next time is basically what they probably said?

Arleen Taveras:

Yes. I felt like everything is done through virtual meetings and I felt bad, right, like saying no to the offer. And feelings. I felt like, ooh, what is their true feeling about us saying no. And I thought maybe they would be resentful, but then fast forward a few months down the road, maybe almost eight months down the road, and I realized that they weren’t resentful when they entered back into the game.

John Warrillow:

Okay. So, they didn’t try to pull guilt trip or anything like that.

Arleen Taveras:

No.

John Warrillow:

They expected it and they said, okay, great, we’ll play the game.

Ted Taveras:

But I can tell you, Arleen was still second guessing us a month after had given the… She was like, are you sure that we’ve made the right decision?

John Warrillow:

What was that like, Ted?

Ted Taveras:

I just know her well, so I’m able to calm her down and say, no, we’re going to be okay. Just have faith that we have been successful all these years and we have taken these kinds of… If you’re an entrepreneur, you’re going to have to take these dives into the water, even though it looks murky at times. And you just have to do it as an entrepreneur if you’re going to be a success. You have to have faith in what you put together and I have a lot of faith in her and what she does and I know she does in me. So-

Arleen Taveras:

One of the things that we did, John, at the very beginning of the pandemic, was we had gone through the recession, right, so in my mind, what the heck do we need to do to survive, right. What’s going to happen. So, we started doing… In addition to our podcasts that you know that we have this spot on insurance podcast, we decided to start posting live weekly compliance webinars and we were doing it to keep in touch with the industry. Now, all of a sudden, we weren’t going to conferences. We weren’t seeing our friends at conferences. We weren’t seeing potential clients.

And so we started putting together these live compliance webinars to bring the industry together, to bring regulators to the webinar so that they could see the industry and it was just a game changer. So, now, all of a sudden, we were the ones that were bringing the industry together on a weekly basis and our people were answering people’s questions. We were resourced during the pandemic. What states were changing their processes. We were the hub for everything.

Ted Taveras:

Then she had a very good idea and she said why don’t we do one on M&As. We’re looking to possibly sell this, this upcoming year, put this out to market. Let’s do an M&A special and we’ll get a lot of them to talk about the industry. And it’ll be a way for us to kind of look at the players out there and maybe choose one from that group.

Arleen Taveras:

Because there’s a lot of M&A activity in the insurance industry, right. It’s very stable. Most either service providers like ourselves or agencies, we have recurring revenue. So, that’s very attractive to the PE firms and the BCs. So, we put together a series, I think it was a three part series, of M&A activity, just specific to the insurance industry.

John Warrillow:

So cool. Very sneaky, but I love it. That’s great. So, these webinars were bringing the industry together. You’re kind of quietly doing these M&A ones to figure out who else is sort of in this space.

Arleen Taveras:

Yes.

Ted Taveras:

Yes.

John Warrillow:

I love that.

Ted Taveras:

And from there, we picked the ones that we thought had really brought a lot to the table. That’s how we selected our M&A advisor.

John Warrillow:

Your [inaudible 00:30:18] M&A advisors, people who represented you in the deal. Interesting. That’s cool. And give them a plug, what’s the name of the firm?

Arleen Taveras:

So, it’s Agency Brokerage Consultants. They are amazing. Michael Mensch and Brenda Sali. Couldn’t have done it without them.

John Warrillow:

Got it. Okay. Love that. I still want to go back and dig further in this issue because I take my mind back to April of 2020. And I thought the world was ending. The NBA’s canceled. We were in Arizona on vacation. We flew home. We live in Toronto, so we were worried about getting home. They were closing the borders. This was like… It was a really dodgy situation and the of course, all of the horrible news out of Italy at the time and then the United States. It was just one terrible, terrible thing after the next. I’m fascinated that you didn’t just turn around and say, take the money and run. Like twelve times EBITDA at a time when the world is coming to an end. Must have been…

Ted Taveras:

I tell you why it wasn’t.

John Warrillow:

Oh, gee.

Ted Taveras:

I’ve been doing yoga meditation since I was 16 years old.

John Warrillow:

Okay.

Ted Taveras:

I do a lot of Zen. I also practice Tai Chi. So, none of that really… I tried to clean out that noise, when everybody’s panicking. I’ve also been involved with of course Wall Street in terms of stocks and I’ve been watching for 20 years what’s been going on. And I know that what goes up comes down and what goes down comes back up in a short time. And it was just a matter of surviving through it. And then everybody was in a panic and I tend to think that when everybody’s in a panic, that’s when you have to have your cool head. That’s the best way to act. So…

Arleen Taveras:

And Ted kept telling me, we know, we’ve studied this process for a long time. We know that the best situation for us is to have multiple players in the mix. So, we know that. So, we shouldn’t deviate from that. We have to trust the process. And it was true.

John Warrillow:

Some people would argue though that there are some acquirers, some big prestigious acquirers, maybe like bidder A in this case, that just refuse to participate in a beauty pageant. Like they won’t… They’ll respond to you, say, okay, you guys go ahead, fill your boots, shop your company, we’re out. Because we’re not going to be held ransom to some process that you’re running. Some can be very argumentative and really play aggressive but you didn’t get that vibe at all from bidder A?

Arleen Taveras:

So, quite frankly, we didn’t know what bidder A would say when we went into the formal market. That’s when we realized we don’t know if they’re a little bit resentful, but they were the first ones that were [crosstalk 00:33:24] in the mix.

John Warrillow:

Isn’t that interesting.

Arleen Taveras:

In the mix.

John Warrillow:

Okay. So, then you hire agent, you do the webinar which I think’s brilliant. I love that strategy. You figure out Agency Brokerage Consultants are like the top drawer people. You bring them in. What was next? What were the next steps in the process?

Arleen Taveras:

So, the next steps is they put you through an extensive pre due diligence process. So, for about six to eight weeks, we’re just dealing with Agency Brokerage Consultants, just to go over everything and then come up with a list of potential buyers. And at that point, they’d done hundreds of transactions in our insurance industry, so they know all the players very well. And then they asked us for a list of potential buyers from our side.

Ted Taveras:

They were scouring also, all our financials, making sure… They were so thorough. I was so impressed because they wanted to make sure that there was no question that Brenda could not answer. Anything that seemed funny or whatever, she had the answer to it.

John Warrillow:

Brenda was the lead deal person from Agency Brokerage?

Arleen Taveras:

Yes.

John Warrillow:

Okay. Got it.

Arleen Taveras:

One other thing that was important is we were getting solicited all the time, right, from PE firms, right. You get these standard template emails like daily. Ted got it. I got it. Our general manager, Wes Foster, would get them and you tend to, after a while, just ignore those, right. Because they all say the same thing. Well, in all of that, there was-

Ted Taveras:

And you’re skipping the part about we had about 28 bidders at that point. 27.

Arleen Taveras:

But one of them which ended up being the winning bidder. He was one of the emails that we kept getting all the time that I had ignored.

Ted Taveras:

She goes, Ted, we’ve been ignoring this. Should we put them in too? I said, go ahead, put them in.

John Warrillow:

Okay. So, you kept all the letters. And this is good best practice for anybody listening. If you’re getting offers from private equity groups, put all those offers you may politely decline, because it’s not the right time for you, but put them all in a folder, email folder, whatever. And then when you do go through a process, by all means, it’s great to reach out to them. That’s what you did, I’m assuming. And they were like, okay.

Ted Taveras:

Yes.

John Warrillow:

And some of them actually did come forward and bid.

Arleen Taveras:

Yes. Yes.

Ted Taveras:

This in particular, turned out to be ReSource Pro.

John Warrillow:

Which is the name of the ultimate acquirer.

Ted Taveras:

Yes.

John Warrillow:

I want to get to that in a second, but before we go. So, Brenda shops the deal. You go through pre diligence, she shops the deal and gets 27 people.

Arleen Taveras:

28.

John Warrillow:

Did they all submit letters of intent or did they just sort of raise their hands saying they were interested?

Arleen Taveras:

They all raised their hands that they were interested. And how many LOIs did we have? We had-

John Warrillow:

Eight or nine-

Arleen Taveras:

No, we had, I think, like 12 to 15 LOIs and then we started having the meetings, which of course, everything is during COVID, so they’re all virtual meetings, which means sometimes we were doing three meetings in one day.

Ted Taveras:

So, what is it, the Bachelorette or whatever, Arleen was sitting there falling in love every time we had a Zoom meeting.

Arleen Taveras:

Oh my gosh. Ted and Brenda-

John Warrillow:

Defend yourself, Arleen. It wasn’t like that. It wasn’t.

Ted Taveras:

I even had Brenda on my side. Brenda, at one point, was like, no, no.

John Warrillow:

Falling in love with these people?

Arleen Taveras:

Yes. But it’s very humbling. It’s very… It was a great process, right. And-

John Warrillow:

It sounds like it, with 12 LOIs. This is incredible.

Arleen Taveras:

Yeah. You know, just makes you feel like… Because going into the process, I said to Ted at one time, what about if we don’t have anyone that’s interested in us.

John Warrillow:

Yeah.

Arleen Taveras:

You never know.

John Warrillow:

Yeah, what if we throw the birthday party and nobody comes?

Ted Taveras:

Yeah.

John Warrillow:

Right?

Arleen Taveras:

And then when you start getting all these LOIs and you start having all of these meetings, then you start feeling like, oh my gosh, there’s only going to be one winner.

Ted Taveras:

When it was down to three, she was really torn about who we would choose, but interestingly enough, the one who had been after us for over a year, before we even started the process, is the one that really, at the end, was giving us everything that we wanted and then some. So, we were… The culture, everything.

John Warrillow:

I want to get into that, for sure. So, the 12 LOIs, ball park. How big a gap between the low bidder and the high bidder? Just give me a sense.

Arleen Taveras:

There was quite a gap, so several million bucks, yeah.

John Warrillow:

Yeah, yeah. On a multiple of earnings, the bidder A that we referenced earlier, the proprietary unsolicited deal was at twelve times. What did they come back at in the more fuller round?

Arleen Taveras:

They really came back at the same amount.

John Warrillow:

Interesting. Interesting. So, they were, I would imagine, in the lower end of the spectrum of the 12 offers.

Ted Taveras:

Mm-hmm (affirmative).

John Warrillow:

And so, would the highest offer have been… Ultimately, it was much more than twelve.

Arleen Taveras:

Right. It was. It was the highest offer and also we just felt it was the best company that we could possibly partner up with just because of their company culture, the growth opportunities for our team, our legacy. Going into this process-

Ted Taveras:

Wait a minute. I think John wants the number.

Arleen Taveras:

[crosstalk 00:39:11].

John Warrillow:

Ted is a wise man.

Ted Taveras:

She’s hesitating.

John Warrillow:

Culture, smulture, give me the number.

Ted Taveras:

It was around 16 times EBITDA.

John Warrillow:

Love it.

Well, congratulations. 16 times, that’s fantastic. Was that their starting point on the LOI or did you kind of play one off the other and get them up to 16?

Ted Taveras:

No, I think Brenda as going back and forth with them and telling them, hey, we’re in this area. I know that she went back to at least one or two and told them you’re below where you need to be in order to be part of this deal. And some of them dropped out and then the others countered. But in the end, the one that we chose actually had the best deal for us.

It was pretty much, you know, I had come to the conclusion that it doesn’t matter what a company offers you after the deal, because you’re not sure whether you’re going to get that number or what’s going to happen. So I wanted that deal to be comfortable when we closed. So, I said to Arleen, let’s have the mentality that when we close, even if all these other promised numbers, all these other things that are offered to us, if they don’t come, we are very, very happy with what we have. It’s our retirement. It’s whatever it needs to be.

Arleen Taveras:

On the day of closing.

Ted Taveras:

Anything behind that is a cherry on the top. We already got the cake. So, that was the attitude.

John Warrillow:

To be clear, did the 16 times have, was a proportion of that on an earn-out or some sort of at risk piece or was that cash at closing?

Arleen Taveras:

Cash at closing and then-

John Warrillow:

Wow.

Arleen Taveras:

Yeah, it was cash at closing and then we have two other goals that we can collect revenue on, which are kind of like bonuses, not so much like an earn-out.

John Warrillow:

Mm-hmm (affirmative).

Ted Taveras:

Let me tell you how impressive ReSource Pro is.

John Warrillow:

Yeah, please do.

Ted Taveras:

I mean, we were planning to just be out. Three months. As a matter of fact, Brenda did a complete turnaround, because from the very beginning, we said no, it’s going to be a three month process, maybe six at the most. But we’re not going beyond that. We have kind of a turnkey operation. Arleen and I haven’t been at our main office in Texas for about a year, more than a year. So we had a turnkey operation, they could come and run it from day one, without our help.

So, we said, look, here’s the situation, just three to six months. Once we started dealing with ReSource Pro, we liked them so much, we liked their culture, we liked the fit with our company. And then at one point, I said to Arleen, you know what, these people are giving us our retirement, we should just stay a couple of years and help them, make sure that they’re successful. We don’t like to leave any place or anywhere we go, we like to leave winners. So, if it has our name on it and we’ve made a deal, let’s make them a success. And so, that’s what we’re doing. We’re doing the podcasts for several years.

Arleen Taveras:

They asked us whether we would be willing to stay on for a certain amount of time and we agreed. We said, yeah, we love the team so much, we strongly believe in the company. It’s just such a good fit with what we do. I can’t imagine another company having been a better fit than ReSource Pro.

John Warrillow:

You mentioned, actually, 2009 recession that your employees, Open Book Management, Jack Stack, [inaudible 00:42:59] your Business, how did you approach this news that you were planning to, and ultimately did, sell the company with your employees?

Arleen Taveras:

So, we actually started that conversation with our employees many, many years ago.

John Warrillow:

Hm.

Arleen Taveras:

Probably back in 2011, 2012. And we actually had two big powerful industry players approach us back in 2015 or 2016 so our employees were aware of that. One of those companies-

Ted Taveras:

We had them visit us.

Arleen Taveras:

They came, they visited us. And obviously we said no to the deal. It wasn’t a good fit for us. But our employees were already… They knew that we were going to embark on this journey, so we were very open with them. So, when fast forward to 2020 when we tell them that we’re going to put ILSA back on the market, they’re like okay, yeah, you’ve told us this before, whatever.

John Warrillow:

It’s old news.

Ted Taveras:

Yeah, yeah, yeah, yeah.

John Warrillow:

Did you incentivize them at all? Did they participate in the exit?

Arleen Taveras:

So, we personally did give them a thank you bonus was what we called it. We were able to share with them a really good number.

Ted Taveras:

1.2 million.

John Warrillow:

Wow.

Ted Taveras:

For our employees. These are people that have been with us for over 20 years, at least 20 years, who’ve worked hard. What we tell them is look, we know, we’ve paid you for your services, but this is our way of saying thank you for getting us to this point and we hope that the company that is purchasing us values you the way we value you and gives your opportunities. And we’re hearing left and right of all the different opportunities that our employees have now with the ReSource Pro. And for us, it just makes us so happy that we were able to really create a win win situation for us and for our employees at the same time. And I don’t know how anybody can make it through the process without having a lot of their staff involved. I tell you that. Because that’s a bear. Going through the financials and getting information and all that. We were buffered because we had employees involved.

John Warrillow:

How did you arrive at $1.2 million? I think a lot of people listening to this really struggle with this decision, right. Because, to your point, you paid your employees fairly. You’d given them a safe working environment, you’d promoted them, you’d involved them, you’d given them bonuses. You didn’t owe them anything, contractually, but you felt this sort of indebted. And I think a lot of people listening to this feel the same way, right. They feel like they’d like to somehow thank their staff but they run into this…

I don’t know if you follow the story Intuit just acquiring Mail Chimp. Have you heard about this deal where Intuit paid some astronomical amount of money to Mail Chimp, I think it’s $12 billion, whatever. And there was a lot of backlash online because some employees of Mail Chimp felt like they were promised that they would never sell and here they are selling. There’s a lot of resentment that was caused, again. And so it’s a challenge that I think a lot of founders struggle with. How do I properly thank the people that brought me. So, what was, I understand, your rationale for thanking them, but I’d be curious to know how you did the math? Like why 1.2 and not 1.0 or 1.4 or… Do you know what I mean?

Arleen Taveras:

We wanted it to be an amount that was really impactful and still leave us feeling comfortable with what we were getting. But yes, it is a considerable amount of what we were getting in total, the percentage. But we felt that it was just… We couldn’t have gotten to where we’ve gotten without this team.

John Warrillow:

Mm-hmm (affirmative).

Arleen Taveras:

And even when we go through the several months of due diligence, it was just crucial to have them there and crucial to have them know what was going on. And just the way that we’ve always communicated with our people, we just felt like it was so important for us to just give back to them this way.

Ted Taveras:

So, John, I was looking at the charts and really looking at our employees and the ones, the hard work that they had put in and we started, hey, how much would I like to give that individual, this individual, this one, to say thank you. And it just started to kind of grow from there. From there, we looked at the numbers and it got to around that point and we said, this is the magic number right here. We’ve looked at what everybody’s receiving. I then did a chart with all the individuals in the company, those who have been with us for a year, two years and so on; what they would be receiving and then it just started to go from there. When it reached that number, it was like, that’s it, there’s our number. That’s as close as I can describe it to you.

John Warrillow:

That’s super helpful. You know, you mentioned that ReSource Pro, the ultimate acquirer, was surprised at how little money you’d been personally pulling out of the company over the years. I wonder, I’m curious, how this has affected your life going from relatively modest income, we don’t have to talk about what that is, but not pulling out millions of dollars a year to all of a sudden having this spectacular exit. What impact has that had on your life?

Arleen Taveras:

So, actually, we really started really hoarding cash in the last, I would say, three years.

John Warrillow:

When you say hoarding cash, your retained earnings are growing in the company?

Arleen Taveras:

Yes.

John Warrillow:

Okay, you’re not pulling them out personally. You’re leaving them in the company and that’s growing. Okay.

Arleen Taveras:

Yeah. We really-

Ted Taveras:

We have not lived like paupers in the last 20 years.

Arleen Taveras:

Yeah.

Ted Taveras:

[crosstalk 00:49:39].

John Warrillow:

Okay. Thank you for clarifying.

Arleen Taveras:

Yeah, so we’ve received a good salary for many, many years. So, we lived fine. Car wise, house wise, travel wise, all of that. So, yeah, the money that we’re making from this transaction is wonderful but a lot of people have asked, what’s your big thing that you’re going to buy, you know. Don’t really have a big, big thing. We’re more about taking trips and what not and having good experiences.

John Warrillow:

Awesome. I’d love to dig in around retained earnings because this is an issue that comes up a lot in acquisitions because I think that most entrepreneurs believe that as they, quote, to use your words, Arleen, hoard cash, that that’s kind of their money, that’s money that when you sell, you’re going to strip out those retained earnings and pocket those and then sell for multiple your… And then of course acquirers think differently about the retained earnings. Oftentimes, they say well, that’s cash in the company and it’s obviously needed to fund its immediate working capital, et cetera. How was the retained earnings piece, this cash you’ve hoarded, dealt with in your acquisition?

Arleen Taveras:

So, first of all ReSource Pro is very much a process driven company. They’re all about very excellent processes and lean management. So, we had several meetings about working capital and the retained earnings, right, a few days prior before the closing, they were like all of this cash has to go out. We’re not buying this cash. There’s no reason for us to buy this cash. So, please take it out.

John Warrillow:

So they said take it out?

Arleen Taveras:

Yeah. They came up with the working capital that was needed and that’s what was needed to be left in there and the rest, they were like, take it out.

John Warrillow:

And was the working capital calculation a number or was it a percentage of receivables or was it just like a strict number that they said, this is the amount of money we need in the company when you pass us the keys?

Arleen Taveras:

It was a number.

John Warrillow:

Got it. Got it.

Arleen Taveras:

And then there’ll be like a little true up meeting down the road. But yeah, they came up with a certain number. And yeah, it was extensive how we went, how we got to those figures.

John Warrillow:

Got it. I’m assuming they bought your shares, not your assets?

Arleen Taveras:

They bought the assets.

John Warrillow:

Oh, they did? Okay.

Arleen Taveras:

Yes.

John Warrillow:

Got it. Got it. Amazing story. I’m so impressed with what you’ve accomplished and I’m so happy for you that you guys were able to get such a huge bounce, running the process and sounds like Brenda and the team did an amazing job.

Ted Taveras:

Yeah, but you know, it wasn’t just Brenda. We had a unique situation in that we were in Puerto Rico and so we had to have financials for Puerto Rico, financials for what we were doing, since we had the two offices and they were dealt with very differently. And so, we had several accountants, an accountant from Puerto Rico. We had an accountant that just dealt with the taxes as you know. And then we had our lawyers who were really magnificent.

Arleen Taveras:

Yeah, so we definitely want to give a plug to the Stinson Law Firm. They have represented us for about 20 years.

Ted Taveras:

For the life of our company, pretty much.

Arleen Taveras:

Pete Thrane has been our point person and then Jo [inaudible 00:53:29] was our advisor for this transaction and she was just phenomenal at the Stinson Law Firm. And then we used Andrew Rohne from Basi, Basi and Associates. They’re a team of lawyers, CPAs and their specialty is tax planning through a transaction, through a sale transaction. So they were crucial and we were very grateful to have-

Ted Taveras:

Highly recommended. We would highly recommend his services and their company’s services. They absolutely saved us a lot of money. We saw the difference from what we were looking to get and then they came in and redid the numbers and really looked at all the different IRS, what do I call them, I don’t know, all the IRS information and they were able to find these other loopholes-

Arleen Taveras:

The best tax strategies for us.

Ted Taveras:

The best tax strategies for us and that, I can tell you, they more than paid for itself.

John Warrillow:

Great. And we’ll put links to that in the show notes at BuiltToSell.com. Are you open to people reaching out to you on LinkedIn or is there a good place for folks to say hi on social media?

Arleen Taveras:

LinkedIn. I mean we’re on LinkedIn several times a day.

John Warrillow:

Okay. Well, we’ll put connections to both your profiles in the show notes. And anywhere else you want to point people to? The podcast or anything else you want to give a plug to, now’s the time.

Arleen Taveras:

Definitely check out the podcast which is Spot On Insurance which John did episode 206 with us and that’s really helpful, especially for our insurance industry. We also would love you to check out the company, ILSAinc.com and then of course, our new owners, which is ReSourcePro.com.

John Warrillow:

Awesome. Arleen and Ted, thanks for doing this.

Arleen Taveras:

This was awesome, John.

Ted Taveras:

Our pleasure.

Arleen Taveras:

This is so cool, after listening to Built to Sell for, ooh, close to a decade, to get to be guests on your show. Want to thank you for all the valuable information that you’re putting out there. This is tremendously valuable to anyone that’s looking to go through a sale process.

Ted Taveras:

I just hope that this episode is as helpful to the listeners out there as previous episodes you have done have been helpful to us, really.

John Warrillow:

That’s very generous, guys. Thank you so much for saying that and thank you for being great case studies. It’s amazing to hear the success you guys had. So, I’m flattered that you’d tell the story to me, so thank you for doing this.

Arleen Taveras:

Thank you, John.

John Warrillow:

Hey, if you liked today’s episode, you’re going to love my new book, The Art of Selling your Business. The book was inspired by the cohort of my guests over the years, who’ve been able to negotiate an exit far better than a benchmark in their industry, sometimes two or three times more than I would have expected. I was curious to understand the tactics and strategies of these entrepreneurs and what they do differently from average performers. The result is a playbook for punching above your weight when it comes to selling your business.

To learn more, go to BuiltToSell.com/Selling, where we put together a collection of gifts for listeners who order the book. Just go to BuiltToSell.com/Selling.

Built to sell radio is produced by Haley Parkhill. Our audio and video engineer is Denis Labattaglia. If you like what you’ve just heard, subscribe to get a new episode delivered to your inbox each week. Just go to BuiltToSell.com.

Outro:

Thanks for listening to Built to Sell radio with John Warrillow. For complete show notes with links to additional resources, visit BuiltToSell.com/Blog. John is the founder of The Value Builder System™. To find out to improve the value of your business by 71%, visit ValueBuilderSystem.com. John is also the author of Built to Sell: Creating A Business That Can Thrive Without You and The Automatic Customer: Creating A Subscription Business in Any Industry. Connect with John at Facebook.com/ BuiltToSell or on Twitter @JohnWarrillow. Thanks for listening.

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