Unlocking the Secrets of Business Acquisition with Adrian Knight

Ever wondered how someone bounces back from failed startups to buy a three-decade-old establishment for merely a quid? Buckle up for a captivating journey with our guest, Adrian Knight, a seasoned business acquisition specialist, who did exactly that. Listen to Knight's absorbing narrative as he takes us through his journey of business acquisitions, the art of negotiation, and cultivating successful relationships. 

This episode unlocks the secrets of business acquisition, as Knight candidly shares his strategies for understanding seller motivations and ensuring their peace of mind. Learn about Knight's unique approach to negotiation and the importance of maintaining relationships beyond transactions. Benefit from his valuable insights on knowledge transfer, assessing business value, and identifying potential acquisitions. Whether you're an aspiring entrepreneur or an established business professional, this episode is guaranteed to provide you with useful insights, and maybe even inspire you to embark on your business acquisition journey.

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Chapters

• 16:54 [Ad] World of Work Experts on the People and Performance Podcast
• 17:37 (Cont.) Unlocking the Secrets of Business Acquisition with Adrian Knight

Transcript

Erin Manning: 0:02

Welcome to the Dead Pixel Society podcast, the photo imaging industry's leading news source. Here's your host, Gary Pageau. The Dead Pixels Society podcast is brought to you by Mediaclip, Advertek Printing and IP Labs.

Gary Pageau: 0:18

Hello again and welcome to the Dead Pixels Society podcast. I'm your host, Gary Pageau, and today we're joined by Adrian Knight, who is a buyer and seller of many, many companies, and today he's going to talk to us about the process of buying companies. Hi Adrian, how are you today?

Adrian Knight: 0:35

I'm very well. Thank you, gary. He's a real honor to be here. Thank you for having me.

Gary Pageau: 0:40

So obviously you're in the UK. Can you talk a little bit about how you got started in the business acquisition business, how you kind of started, because you didn't start with much.

Adrian Knight: 0:53

I certainly didn't. I mean my well. The short story of it is is that I am a terrible startup entrepreneur.

Gary Pageau: 1:04

I had how bad were you? How bad were you?

Adrian Knight: 1:08

Well, 12 failed startups, because I've got 12, yeah, 12 failures under my belt, which is as a badge of honor. And it was when I found out that I was expecting my daughter, Evie. That was when I knew something had to change, because I was working every hour under the sun, I was giving it everything, but I just didn't seem to be moving forward and I wasn't making any money. I didn't have any money. It just wasn't a very good place.

Adrian Knight: 1:40

But when you discover that you're going to be a dad for the first time, it obviously changes priorities in a very big way, and I'd always liked the idea of buying an established business because I felt that would get me past startup it, which I was clearly very terrible at. And yeah, so I I I spent a bit of time sort of understanding right, how does this work? And I basically just went for it. I just just completely went for it, and within three months, I acquired my first company, which was a 30 year old management consultancy here in the UK, and I didn't have any money, so I had no choice but to structure the deal in a way in which I didn't have to put any money down, so I ended up buying that business for a pound and I exited that last year for a very healthy six figure sum and I've gone on since then to acquire multiple businesses over the last sort of four years or so.

Gary Pageau: 2:46

So when you structure a deal for a pound, I would think you're probably not getting much out of it, right? So, because you're probably financing it as you go out of cashflow, correct? So what was your thought process there? Was this just to get the ball rolling, to kind of get you started on that path? There was just something specific on this business that you thought wow, this is my future.

Adrian Knight: 3:07

I mean the business itself I really liked. He was actually a business, ironically, that specialized in preparing businesses for sale and then exiting them, and so I saw it as a way to have like complete the loop, like learn how to buy a business and then have to build value and then sell them. Oh, this is, this is interesting. But I've always like with that one, so I was taking a salary from that from day one. The key to buying businesses, certainly at the small business level, is you kind of got to forget the finances at the beginning of the conversation and you need to understand what are the motivations like? Why is the owner of this business looking to sell? And very often they are for non financial reasons.

Adrian Knight: 3:58

So the owner of this business I'd known him for about 18 months. He knew that I was essentially a safe pair of hands, that I was more ethical and would do the business well. This was his life's work. It's been 30 years building this. He also had other companies which were arguably more successful. He just wanted to make sure that this was going to go to a safe home and would be looked after. So I got a well, we both got a good deal out of it really. But I was in a position where I could start sort of earning an income from that from day one. It would be wrong. It wasn't like a six-figure income, but it was. It was more than I was making previously, but the business has issues as well.

Adrian Knight: 4:41

Yeah, exactly so. But inevitably the business has some problems. And that's the key thing to recognize when you're looking at buying business is that, no matter what the owners or anyone tells you, you are buying a bunch of problems. So you need to go in with that mindset and willingness to go in and deal with them.

Gary Pageau: 5:02

So with like a consulting business, your problems would be people.

Adrian Knight: 5:06

Yeah, I mean a lot of the problems this one had was actually more focused around marketing. Okay, so this was a. So this consultancy was a franchise network. It was a franchise or so. It had a small network of franchisees which solved in part some of the problems around people because they weren't employees, they were business owners in their own right but there wasn't much structure in there and they were terrible at marketing themselves and the marketing and the franchise structure I knew from my previous startups. Okay, this seems to match.

Gary Pageau: 5:44

Okay. So you've had something that I think is very important. It's people tend to overlook, which is when you're dealing with a small business, you're really not dealing just with the financials. You're dealing with emotions, the pet project of someone. They've invested blood, sweat and tears to make this thing happen. What is your approach to someone like your first acquisition, maybe some of your following ones, to let people know that their baby is going to be taken care of.

Adrian Knight: 6:16

It's very much an approach of, like an authentic approach of I just want to understand, tell me what's going on here, and not just in the business. Like I would have a sense of what the financials are from a high level, but I don't really get to those until two or three more conversations down the line. Like I want to know the conversations worth having, but fundamentally I'm getting under the skin. What's really happening here? What's going on in the business? What's going on in your personal life? Why are you looking to sell now? How long have you been looking to sell?

Adrian Knight: 6:53

And that authentic approach or wanting to understand it, helps to form a relationship. And I've had many of these conversations where it's clear that it's not right for one of us or both of us, and so we agree to go ways, but that relationship is still intact. This is where people go wrong when they come to buy in small businesses, because they very much think the approach has to be kind of like you see, on the larger scale, which is numbers led, it's cutthroat, it's ruthless. But when you're dealing with small businesses, particularly those below the two to three million in annual revenue, it's the polar opposite. It's people, people, people and the people who are good people. Relations are the ones that do well.

Gary Pageau: 7:46

So from there you went on and then you bought a franchise of yourself. You had some experience looking into franchises, so you invested in a franchise. Talk a little bit about taking over a franchise structure with 70 locations.

Adrian Knight: 8:05

Yeah, so I mean I currently own today two franchise networks in the UK. They have around 70 locations, primarily across England, scotland, ireland. We've got a couple in Australia and a couple in the Middle.

Gary Pageau: 8:19

East as well. And what are those in case people want to drop in and patronize them?

Adrian Knight: 8:24

Yeah, absolutely so. The brand is called Talking Tots and Joe Jingle, so it's focused around children's education and specifically under fives, which has become quite a passion of mine since I've been on this acquisition journey. But those businesses, particularly Joe Jingle's, was in a place where it was about to go into bankruptcy. It had this large network but it was very poorly run and just couldn't survive. And that was a question of going in and taking some pretty quick action and within 12 months Manchin turned that around. He's done a complete 180. And then we spent the last two years actually just putting in the right foundations, the right structure, to then to be able to start scaling that, which is exactly where we are right now. But that's been a very much a sort of a buy and hold type acquisition rather than a like a buy turn around, and sell.

Gary Pageau: 9:26

So when you're evaluating something like that, that is something you're interested in the market. So, for example, in our industry, right, you have somebody maybe interested. They live there evaluating another photo business, for example. Now you're very interested in the under fives category and want to be a great provider of content and services to parents with young fives. So you started looking for a business in that segment, came across this company, but they were in trouble and what didn't put you off on the fact that you're about to go bankrupt? I mean, some people were just saying, hey, I'll wait for it to go bankrupt and then I'll just buy the assets and relaunch it. So what was? What is it that you saw that said, hey, I can turn this thing around.

Adrian Knight: 10:06

There was a number of things.

Adrian Knight: 10:07

So the under like, I felt that the brand was incredibly strong, which isn't reflected on the balance sheet.

Adrian Knight: 10:16

I felt that there was a strong brand there and just from the bit of research that I've done, I discovered that the customers going to the classes, to the Joe Jingles classes they went to those classes when they were children, so now they had the with like their parents and now they had grown up and had their own children. So technically there was like three generations like the child, the parent and the grandparent, and I just felt that there's something really special in that like. It clearly has a strong brand affinity and so I felt they could have, could have. Yeah, we could do a lot with that. But also it was clear that the people in the business there was so much toxicity and that was largely driving the underperformance there and it what it needed more than anything else was a bit of fresh blood, someone who would go in with some energy, get people like together again and focused on moving together collectively, which I guess yeah, I suppose it just played to like to our skill sets.

Gary Pageau: 11:25

Now, in that case, was that the founders you bought it from, or maybe the next generation? What was the life stage of that company at that time?

Adrian Knight: 11:35

So that company. When I bought it it was just over 25 years old and I acquired it 100% of the business off the founder. But the and this was the like, the crux of the problem with it the founder had been out of the business for 10 years and they had a general manager running business.

Gary Pageau: 11:55

That's kind of what.

Adrian Knight: 11:56

I was getting at yeah, so the general manager and the founder had, over that period, fallen out to the degree when, when we were looking at it from a due diligence perspective, I mean they weren't telling us, but you could feel it like disinput, you could feel it. And so I was hearing stories from both sides and I didn't know who to believe, so kind of went and thinking it could be one or the other. And yeah, and then there was probably more the general manager who was, yes, causing more issues.

Gary Pageau: 12:25

Was there a value to reestablishing a relationship with the founder to get that person's perspective, since they kind of built it and launched it? Or did you just say, hey, listen, clean slate, I'm going from here?

Adrian Knight: 12:38

So with every deal that I've done, I've always made a very conscious effort to maintain that relationship with the founder, the person I bought it from, and the way I do that.

Adrian Knight: 12:53

Because I'm often asked well, when you buy a business, do you keep the owner in, like give them a small part of the business and keep them in and they can run the day to day?

Adrian Knight: 13:01

And I always answer very quickly no, like I like to get them out. But then I like to offer them a consultancy agreement whereby for any work that they do post acquisition, they'll be paid a fee. But what really tends to happen is I spend them all the time, you know, going for a coffee, going for a meal over the period of months, because so much knowledge and so much of the value that you've acquired is tied up in their minds and they can't, of course, you know, get it all down on paper, like 25 years worth of history, and do it as part of the handover, and so when the sale is out the way, you tend to find that they tend to be a lot more open as well. So once we sign the paperwork, it's like the week after the owner was saying actually, these are some of the issues that we've had and the truth started to leak out.

Gary Pageau: 13:50

You started to come out.

Adrian Knight: 13:51

Yeah, yeah.

Gary Pageau: 13:53

All the due diligence in the world wouldn't help with that.

Adrian Knight: 13:56

I don't think it really wouldn't know, it really wouldn't.

Gary Pageau: 13:59

So the knowledge transfer thing, I think, is something that is very interesting, because in our industry there's a lot of people who have owned their business for 30, 40 years and a lot of it is built into the owner's head or the owner's family's head. When you're buying a business, I mean, you kind of have to figure out how you're going to extract that. What are things you might look for in that situation where there's a lot of stuff that's just stuff they do, because they've always either done them that way, but it works and if you want it to ongoing, but not at these people involved, how would you kind of get that information out?

Adrian Knight: 14:43

With us. I think it's a fantastic question and you've hit the nail on the head there. That's the money question, because this also can be seen from the other side. What I would love to see if I'm looking at a business more than anything else is to go in to meet the owners, to see some of the team and then for the owners to turn around, put down on the desk a massive folder or box of folders and say this is all the knowledge that's been documented. So these are processes, this is what's happened here, and we have like a CRM with customers, so every conversation with customers being noted on there so you can go back.

Adrian Knight: 15:22

That would be like the dream in many ways, and it would also be the dream for the seller, because if they had that, then they would be getting premium, premium valuation for their business and it would be a deal that I would have thought would largely be cash up front, like maybe not all of it, but the majority of it. However, that doesn't happen and that's one of the reasons why it's as a buyer I structurally deal with the way that I do now, which is I spend a lot of time helping the owners to understand just how risky. This is because all the knowledge is in their heads. Because if they have a team of 10 people and two people leave, that's 20% of the workforce.

Adrian Knight: 16:11

Because when you buy a business, it's not like buying property where you have bricks and water. You're essentially buying contracts and people, but you can't own people. They're free to do that. They have their own free will, and vice versa with contracts, most of them aren't worth the paper they're written on if they have them in the first place, and so it's very hard to extract that value up front. The only thing you can do is protect yourself from the way you structure the deal and then maintain that relationship with the seller post acquisition, to bring the value out as and when, not needed, so why should you never buy a business that is for sale?

Adrian Knight: 17:29

Yes. So the hardest thing about buying a business and also the hardest thing about selling a business they're the two like they're both. From both perspectives it's the same problem. Is that very hard to agree how much the business is worth? I believe it's.

Adrian Knight: 17:46

Harvard Business School has 127 different ways of value in a business and it's more of an art than a science to many like in many respects, and ultimately it comes down to what someone's worth to pay for it and what someone's worth to sell for it. But the problem is is that when a business owner has made up their minds that they are going to sell their business, they often think it's worth a lot more than it is. Like I've yet to have a conversation I've had hundreds of these conversations now and I'm yet to have a conversation when a owner has come to the table and said actually, this is what I think is worth and need to be fair. So what that does is it sets an expectation in their mind and then you're coming in as a buyer, looking at the numbers and saying, well, the value is being based off the finances primarily. I know you spent 30 years building this, but I'm not buying the 30 years of you building it. I'm buying what's here today, and so there's potentially what's down the road.

Adrian Knight: 18:49

Yeah, but even with the potential down the road, like that is all that's all. Very well, saying that and owners would always say you know, this is the potential. But what business doesn't have potential? And actually the hard work, as we know as business owners, it's not so much having a potential, it's bringing the potential out. Is that's the hard part. So you don't want, as a buyer, you don't want to be paying too much for all of the hard work you're going to have to do to bring out the potential. Like that. You definitely take it part of it as consideration, but fundamentally you have this gap between what the business is actually worth and what the seller is normally looking for.

Adrian Knight: 19:32

Now, this is the real, like the real heart of the problem is that very often the, let's say, someone has a figure of $1 million in their mind. This is what I want, my business 1 million. Well, quite often they mentally spent that before they've even had a conversation with a buyer. So they've paid off their property, they've gone on the world cruise, they've done this, and so when the numbers start coming in lower than that, like the first thing is well, I can't, I can't go on the cruise now, or I can't do this Right exactly.

Adrian Knight: 20:02

That's, that's the, that is lucky it's, it's funny for this, is it really happens, is it's?

Gary Pageau: 20:08

really thought about that. But you're right. I mean they've, you know, like you said, they're thinking about their next stage and they were already pre bought the car. They've already pre they've done all the stuff right in their head and now you're telling them they won't be able to do that.

Adrian Knight: 20:19

So yeah, exactly, and it creates this, this dynamic, which you're not going in there trying to do that, you just going in trying to put together like a win-win deal, because that's the only way these work, by my experience.

Gary Pageau: 20:32

So you're saying if you want to put in the win-win deal, you're already kind of starting from an awkward position because they already have an inflated view in your view as the buyer, and inflated view of what the business should be, what the sale price should be.

Adrian Knight: 20:48

Correct If the business is already for sale. However, if the owner hasn't come to that decision yet, then they're still an element, a large element of they are open minded enough to be able to have these conversations without creating that conflict. It makes it far easier for them to sell the business and, equally, far easier for a deal but to actually have food and not the right deal to have them.

Gary Pageau: 21:16

So how do you find people who are? I mean to just walk up to somebody and go, hey, that's a nice business you've got there. Would it be nice if I bought it from you? What is your approach to? I know people who have bought businesses who have just said hey, listen, I'm a customer of this business and I know the owner is kind of looking to sell. I just kind of pitch him and they work on a deal. There's all kinds of ways to do that. So what are your kind of tips for identifying a potential acquisition?

Adrian Knight: 21:52

So the best start in place with this is and again you've touched on it with an owner, you know that might be looking to sell or thinking of selling is asking yourself well, who are the business owners who might be thinking of selling? Not likely to be someone who is maybe five years into their business journey and are still busy building. It's more likely to be someone who's 15, 20, 25 plus years into their journey and who are more thinking about either retirement or thinking about I've still got 10 years left of my working life. I want to do something different. So, with that in mind, people who are, yeah, like sort of heading up more towards retirement or that sort of phase of life are normally like a good starting point, purely because you're more likely to have those type of conversations.

Adrian Knight: 22:44

When I first started, it was a very proactive approach, so I'd be looking at the sectors, identifying the businesses of that sort of age, like 20 years, like established 20 years, etc. Plus, and then I would simply just work some numbers and it was remarkable how many people came back and started having a conversation, because the realisation is that there's not a queue of people buying up. Sorry, there's not a queue of people looking to buy small businesses. There's far more people looking to sell them than to buy them, and so it puts the owner in a slightly difficult situation, especially if their 20 year plan has been to sell the business and that's their retirement funds. But if you can't sell it, it's actually a big hole in the plan.

Gary Pageau: 23:32

Right, and actually I know many people in the photography industry took a camera store type folks who kind of got in that position where they basically sold their contents of their store for inventory and they shut the door because they didn't really have an exit plan and a way to make sure. They just assumed somebody wouldn't do it. They didn't work in that position. But you do this thing with no money to start. How on earth? I mean that's a pretty. I mean I wouldn't think of buying something with no money. So how did you do that? I mean, what is your background to say, okay, I'm not going to, I don't have a deep pocket to buy something, I don't have a great financial reserve to tap into. What is the skill there people need?

Adrian Knight: 24:23

Well, I mean, my background was simply have 12 fail startups. I literally don't have, like I don't have the the finance to do it. But I think I just wanted to find no money, because I think a lot of people get confused here when, when they say I'll board a business for a dollar or a pound or a euro, whatever the currency it's often perceived as you've paid one dollar for the business. But that's not necessarily the case. I mean a lot of my acquisitions. I paid hundreds and hundreds of thousands for the business.

Adrian Knight: 24:56

I've just structured the deal so that on day one, minimal amount has has gone in and in terms of the skill to be able to do that, it is this being human is having an open conversation with someone. As simple as it sounds is having an open conversation with someone and say look, where are you at, why is this? And trying to align, like Mary, sort of your aspirations and their aspirations to go on to do something different in a way that both makes it makes sense to both of you, because if it doesn't make sense for one party, then the acquisition or the deal or the sale won't happen. So it's just being human.

Gary Pageau: 25:38

So how many you mentioned you kind of alluded to this earlier how many conversations you have to have. What's the ratio to conversations to sale? It's like 100 to one or 200 to one.

Adrian Knight: 25:51

Yes, great question. So when I first started it was probably closer to 70, 75 conversations to get my first acquisition. But something sort of happens quite early into your journey if you're looking to acquire more of these is that once you've done your first, once you've sold, once you've bought your first business, then you're not someone looking to buy a business, you're someone who has bought a business and so you have a lot more credibility and in the sector, particularly if you're looking at acquiring in the same sector, like, people do talk and so my so, joe Jingles, they approached me because they heard I bought talking Tots, the other franchise network, and so, quite like, at the moment I find my ratios probably about one in five in terms of businesses. But they've approached me and I'm and I'm a lot more like picky about what the acquisition has to look like in order to move forward.

Gary Pageau: 26:52

Great. So, adrian, where can people go to get more information about you and what you do?

Adrian Knight: 27:02

Yep, so I am very active on Instagram. I post on there several times a day and I really try to sort of show inside my life, everything from the personal development routine I go through in the morning but more through to inside my businesses, so inside the acquisitions that I've made. If I'm looking at that acquisition, then I like to sort of talk through my, my think, my thought process, and I'm currently going through an exit process at the moment which is a little bit early to talk about on Instagram, but in a few weeks I should be able to start sharing some more on that. So my Instagram handle is Adrian J Knight. That's Knight's with the K and, yeah, I love speaking with people. So if anyone has any questions, like, please message and I'll come straight back to you.

Gary Pageau: 27:51

Great, Adrian. Well, listen, it was great meeting you and you've had some great information, and I hope to catch up with you later on.

Adrian Knight: 27:59

Thank you, Gary, it's been absolutely great.

Erin Manning: 28:02

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