Inside the Mind of a Service Business Acquirer with Jason Swenk

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Jason Swenk sold his marketing agency in 2011. Since then, he’s transitioned to the role of an acquirer, purchasing nine agencies. With experience on both sides of the negotiating table, Jason reveals his unique perspective on how to:

• Structure your contracts to ensure they don’t get nullified when you sell your company.
• Decide when to sell.
• Answer the most common questions acquirers ask.
• Deflect the question, “Why do you want to sell?”
• Evaluate the core value fit with your potential acquirer.
• Avoid getting defensive during diligence.
• Avoid putting an artificial limit on the value of your company.

Show Notes & Links

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Definitions

 

Accretive: By definition, in corporate finance, accretive acquisitions of assets or businesses must ultimately add more value to a company, than the expenditures associated with the acquisition. This can be due to the fact that the newly-acquired assets in question are purchased at a discount to their perceived current market value, or if the assets are expected to grow, as a direct result of the transaction.

Imagine you have a collection of stickers, and you get a new sticker to add to your collection. Your collection becomes more valuable because it has more stickers in it. In this example, adding a new sticker is “accretive” to the value of your collection.

In business or finance, when something is said to be “accretive,” it typically means that an action, like acquiring a new company or making an investment, is expected to increase the value of the company or investment per share.

For instance, if a company buys another company and this acquisition is “accretive to earnings,” it means that the purchase is expected to increase the company’s earnings per share. It’s like adding a valuable sticker to the collection, making the overall collection (or, in this case, the company) more valuable on a per-share basis.

Due-Diligence: This is a comprehensive appraisal of a business or investment undertaken before a merger, acquisition, or investment. It seeks to validate the information provided and uncover any potential risks or liabilities.

Earn-out: This is a financing arrangement for the purchase of a business, where the seller must meet certain performance goals before receiving the full purchase price. It reduces the buyer’s risk and aligns the interests of both parties post-acquisition.

Put Option: A put option is a bit like an insurance policy for your stock investment.

Imagine you own a stock that you think might go down in price, and you want to protect yourself from losing too much money. A put option can be your safety net.

Here’s how it works:

• You pay a fee, known as a “premium,” to buy a put option.
• This option gives you the “right” to sell your stock at a predetermined price, called the “strike price,” by a certain date.
• You don’t have to use this option if you don’t want to. It’s like paying for car insurance but hoping you never have to use it.

So, let’s say you own a stock that’s currently worth $50. You buy a put option with a strike price of $40 that expires in one month. You pay a premium, maybe a few dollars per share, for this right.

Two things can happen:

1. The stock price drops to $30. Yikes! But because you have the put option, you can still sell your stock for $40, the strike price. So, the option saves you from a bigger loss.
2. The stock price stays the same or goes up. You decide not to use your option. It expires, and you lose the premium you paid. But your stock is worth more or the same, so you’re probably okay with that.

Remember, unlike owning a stock, which you can keep for as long as the company is in business, an option has an expiration date. Once that date passes, the option is either used (exercised) or it becomes worthless.

So in simple terms, a put option is a way to pay a little money now to protect yourself from potentially losing a lot more money later. It’s a form of financial safety net for your stock investment.

Check out our full M&A Glossary

About Our Guest

Jason Swenk

Jason Swenk is a prominent digital marketing agency coach and founder of Agency Mastery 360. He built and sold a multi-million dollar agency, and now helps other agency owners scale their businesses. Swenk is known for his 8-system framework for agency growth and hosts the Smart Agency Master Class Podcast.