Ep 494 Exit Story: Building News Sets for TV Stars—and a Business Worth Millions
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Hi there, and welcome back to another edition of Built to Sell Radio, the podcast designed to help you punch above your weight in a negotiation to sell your company. I'm the executive producer, Colin Morgan, and today you're going to hear from Mac McLaughlin, who spent nearly 30 years building FX Design Group. The

The company behind the sets you see on TV news and sports broadcasts. From lighting to video walls, Mac's team made on-air talent look good. Now he grew this company into a multi-million dollar business, survived a brutal downturn, and eventually sold to one of his longtime subcontractors. Along the way, he learned the pitfalls of selling to an employee, the importance of staying close to the numbers, and why owning his building turned out to be a critical move. Without further ado, here is John Warlow and Mac McLaughlin. Enjoy.

Bye.

Mac McLaughlin, welcome to Build to Sell Radio. Hey, John, how are you doing? I'm good, man. I'm good. I'm good. You know, I look at everybody's LinkedIn profile before I record the interview. And in your case, I looked at FX Design Group and I saw how many years? 28 years. This is a long journey. I want to hear about where it started. Like, walk me through FX Design Group. How did you get into this business? Well, you know, as I tell people, you know, if you ever read the book, the...

Now I'm going to forget the name of the book, but the accidental entrepreneur, right? That's me. I was a theater major in college and started my first business actually while I was in college. And over the years, it morphed into what became FX Design Group. But I was actually owned my own business of some sort for almost 40 years. So what does FX Design Group do? We design and build sets primarily for broadcast, local news, television.

some network, sports, entertainment, and the new big market going forward for them, I think is going to be corporate videos and podcast videos. Huge. Yeah, that's going to be a much bigger market over time than news was for us. As TV dies off. So if I'm visual, like I...

You think about a TV studio, you've got the lights, you've got the desk that the anchor sits behind, you've got the signage behind them. You guys would design all that? All that, yeah. We did the scenery, the lighting design and installation, fabrication of the scenery.

And got into a little bit with the technology, you know, LED video walls, things like that. We worked with a couple of different integrators to get those installed. But we'd kind of designed what the placement was. And for a time, we owned a graphics company and we would do the graphics that would go in those and your lower thirds and all that stuff as well. So we were heavily involved in anything that made you look good on TV. And what was the business model like? Was it...

you know, project based or did you have any sort of recurring revenue? Like how did that work? Yeah, no. And like I read your, you know, I read your book and like recurring revenue just wasn't a thing. I kept trying to come up with ideas to get it to recur. It recurred in that we had a lot of repeat customers. We were working within the owner groups and,

And they would pass this from one station to the next, but none of it was guaranteed. There was no mailbox money from any of those residuals. And that was one thing we tried to get. We just couldn't figure an angle to make that work. What does it cost to design a set? Like if I'm CNN and I want a new...

Seth, maybe that's a bad example, but maybe if I'm a local TV station. Yeah, local TV, you know, low-end projects. I mean, if you go all the way down to podcasts, like, you know, I'm watching you, it's like, you know, John, I could work on your environment a little bit for you. And some lighting, you know, and then I've watched some other episodes. I could help some of the guests get on. But low-ends probably, you know, for a podcast type studio, scenery, lighting, you know, maybe 50 up.

to network, ESPN, things like that, millions, right? But average...

Project was about $250,000 to $500,000, give or take. Oh, wow. That big? Yeah. Okay. So these are big jobs. Yeah, they're decent. Are you personally doing the selling, Mac? Well, when we get to how I was able to sell, I wasn't. But for 20 plus years, I was that guy, right? I was out on the front line doing the sales, creative director, managing the design team. And when we get to how I sold, I finally...

We got rid of the hub and spoke, and that's what ultimately led the company to be sold. Hey, it's Jon. Look, if you're building to sell, I want to let you know about a resource you may find helpful. It's called the Value Builder Score, and it will evaluate your company in the same way that acquirers will look at your business.

It'll give you a score on the eight factors that drive the value of your company. You'll also get an estimate of value and things you could do to improve that value over time, whether you want to sell now or in a decade from now. Knowing how the movie ends, I think, puts you in the catbird's seat, gives you all kinds of negotiating leverage. So,

It's available exclusively through a Value Builder advisor. So talk to your advisor. If you don't have one yet, you can go to valuebuilder.com slash score. Let us know what industry you're in and we will connect you with an advisor who specializes in companies like yours. Just go to valuebuilder.com slash score. We were talking off mic and you mentioned that you went through a period where you tried to sell...

Maybe just walk me through how big you were in terms of revenue or profit, whatever you're comfortable sharing at that stage. And what triggered you at that stage to want to sell? The first time I tried, I'd actually sold early on. I sold my company, bought it back way back in the day. That was for peanuts. But the first attempt at a real sale happened.

I was working with several key employees that had been with me for a while. And I was turning 50. And in my head, that was the retirement date, right? Back then, I thought I should retire at 50. So we worked out a deal that I would give them stock. And then over the course of five years, they would leverage that stock and run the company for me and buy me out within five years. And that started in 2006.

And in 2009, we had the recession and that just crushed everything. I had to come back in, uh,

go back to work as the lead salesperson and go on the road again. Because I had let go. They were running the company. They were doing a really great job. 2007, 2008 were two of our best years up until that date. Ballpark, where are you? We were then about $5 million in revenue back then. Got it. And profitable? Oh, yeah, definitely profitable. And I was, I mean...

you know, give up one of my secrets. I only came to the office like one day a week and I sat in my office and played online poker. Yeah. I don't know if I should say that, but, you know, they were, they were doing a great job. I mean, they really were. I mean, things were humming along and, and, you know, we, revenue was increasing every year and,

Did you really play online poker? I was doing that in my office. That's awesome. Yeah. Okay. So here, you built the kind of business I think a lot of people aspire for, right? Like multi-million dollar company, brought them without you one day a week. We were there. Just ballpark profitability at that stage? Like what would you put? I think probably about...

12% to 15% net back then. Okay. So you're making half a million to a million bucks a year. This is a pretty good business. Yeah, it was going well. And just walk me through the economics of selling. Because I think a lot of our listeners have thought about, well, maybe I'll sell it to my employees. But they're a bit... And we hear about, well, the employees...

buy you out, but they have no money. So what was the economics of that? Well, that was a couple of mistakes I made in, in that I didn't have it all worked out. Uh, you know, I didn't have a broker, anybody. I didn't even have an attorney at the time really involved in it later on. And my attorney says, what did you do? And why'd you do it that way? But we were, you know, we were all theater people pretty much. And, and we were, I thought we were a great team and we were kicking some butt and, and I wanted them to have a company. And so I gifted them 30% of the company stock, uh,

At a minimum, I remember it was pennies, whatever it was. And then they were going to use that 30% and their ability to run the company over five years to go to a bank and buy me out. I didn't have a price or a multiple.

Up front in any of the documentation. So, you know, it could have all fallen apart anyway if they decided, oh, you're only worth X and I thought I was worth Y, which most owners always think they're worth more than they are. But, you know, fortunately or unfortunately, you know, the recession came along and it it just I mean, we went from five million, I think, down to 2009, two and a half million.

Wow. Yeah, it was it was it was it was a brick wall. I mean, in our company and most companies in our industry, it's kind of a two to four year cycle, especially in local news and that national news. Every four years we have the election. And leading up to that, they spend they spend well on sets and lighting and rehabs and things like that, new graphics, whatever. And in the off years, they they don't spend much.

And in 2008, we're in a bubble. I think I mentioned to you, I was in Vistage and everybody in my group and starting in late 2007, they were screaming bloody murders like we're, you know, you know, the sky is falling. You know, we're not getting any work and a lot of contractors and stuff. And I'm like, who me? We're we're doing great. We're having our best year ever. And I wish I had paid attention to them more. But we were in that election bubble in 2008.

And then in 2009, which is typically an off year anyway after the election, it was going to slow down. But then the recession, that wall hit us and it went almost to stop, zero stop.

in April of 2009. So. Oh, you weren't alone in that. Yeah. You look back and it's like all the signs were there. Right. I mean, you know, everybody was talking about it. We were talking about it. I lived in a neighborhood and they were adding two new phases. And my next door neighbor bought five houses in the new phase and flipped them before they even finished being constructed. Right. It was just it was just going nuts.

That's funny. I was in, I remember distinctly I was in Miami for some reason. I was in a hotel, maybe doing a conference or speaking or whatever. And I went to get a haircut and I was talking to my hair, the guy doing my hair. And he's like, yeah, yeah. You know, I've got to, I've got to move out. I've got to flip this condo. I just bought him like, oh yeah, you bought a condo. And he's like, oh yeah, I bought them all the time. I'm like, well, how does that work? And he said like, like once I reached 5%,

equity, I got to flip it because I'm like 5%. We wouldn't even give you a mortgage on 5%, but that was, those were the days of 2007. You could get a mortgage, right? Yeah. Yeah. Okay. So go back to you. So the deal with your former employees was, okay, I'm going to gift you 30%. Right.

Then, if I'm understanding you correctly, you were proposing that they go to a bank and effectively borrow the money to buy you out. Right. After having their equity. Yeah, for five years, right? We own 30%. Let's say, well, by 2012, we were doing $8 million in revenue. So had that continued, they were still part of it at that point.

you know, 8 million and we were doing almost 20%. They could have gone to a bank and SBA and probably gotten a decent loan. Okay. And when you came back in the business to, to save it effectively in 2009, did you rescind that offer? Like, did you get that equity back or did you continue to leave it where it was? We left it where it was, but two employees left in nine. Okay. And then there were three left. And then, um,

I think, uh, 10 or 11, another one or two left. And then the last one, I think left in 12. So, um, and, and we switched it from stock to, uh,

phantom stock so they would still if if i sold women at time they'd still get paid back for it but but then it just evaporated after that so but if they left yeah they would lose rights to that phantom stock got it and i really wish it had worked out you know just if that recession had happened it it would have been fine i think yeah yeah

So where does that go from there? Because it sounds like there was maybe a second failed attempt or misfire. Well, not a failed, but so what I learned in the first one, one was to have the contract better, you know, better lockdown, which I, you know, was friends and, you know, in business. And, you know, you still we should have had it a little more locked down. But two, I turned over all financial control to the team as well.

So I wasn't talking to the CFO, the CPA, and I was hearing what everybody, everything's going great, which it seemed to be. I'm hearing from my friends in Vistage that, you know, it's getting bad, but I didn't get any red, you know, the CFO didn't call me up and say, hey, Mac, you know, things are going bad. So I'm okay. I'm in my office on Fridays doing what I was doing. And so that the one thing I learned from that is going forward,

I always have to be the person talking to the CFO. They can't report to anybody else. They can sideline report to somebody, but they couldn't

They had to direct report to me and give me a net. In fact, the new CFO I brought in, he put together this spreadsheet for me. But the way he boiled it down is I could look at one number and we did it every week after that. And for the rest of the time of the company, I could look at one number out of that spreadsheet, like 10 pages of stuff that they put all together. I look at that one number and go, we're OK. What was the number?

It was a combination of our revenue estimated over the next six months because we were working on projects. We assigned each project based on where it was in the pipeline, a percentage to close number. So I had those. I had six months of revenue looking out, money in the bank, receivables, and those numbers combined into one number.

To say, I'm okay. I'm okay for the next 30 days, 60 days, 90 days, six months. And it held true after that. Kind of almost like a quick ratio. Yeah, yeah. And yeah, it wasn't any standard form. It was something we cobbled together that made sense to me. And funny thing is, you know, I've talked to a lot of business owners since and a lot of them don't know that number. They don't.

It's pretty scary. And just to be clear, in that regard, were you counting projects you expected to close, like were in the sales pipeline, but had not closed yet? Or were you only counting on projects that you had committed, like signed contracts? No, we were counting both. The contracts, receivables, and...

future contracts. And we got pretty good at estimating this one's going to close. You know, once it got to a 75% or better number, it typically closed. So we had them all in, you know, at any one time there might've been a hundred projects in the pipeline.

And they had a score from 100 that closed down to zero, just sending stuff out. And if that number accumulated, if on average 50% of them closed and there was 10 million in the pipeline, we knew over the next six months or so we had 5 million coming in.

Yeah. It's great when you have that sort of projectability and longevity because you've been in the business for a long time. You kind of knew what was fake and what was real in terms of the pipeline. So that's super helpful. And that's kind of what got us in 2009 is we had some big projects in the pipeline that just folded up their tent and went away. I mean, that was, you know, black swan. You couldn't predict that happening. Yeah.

Yeah. Yeah. So where does the story go from there? So you resuscitate the business. How big did it get before you decided to sell? Well, so in 11 and 12, met with a local broker, probably because I met with met with you. Remember, at 11, we met in Chicago. Well, you had your your I guess your first kind of webinar in Vegas. And I went out there with John or with John.

Alan and Bob and went through your initial training. It was before you had Value Builder. And so I had all the parts. So we met with a broker. He put together a package. And what I realized then, now knowing FreedomSquare, I don't know if you called it FreedomSquare back then, but knowing what I needed to survive, live comfortably at the age then, what was I? 16? No.

55, 56, whatever, that it was going to be a multiple of maybe four.

And that wasn't going to be enough. And I think it's a trap that a lot of small business owners fall into, a trap or not. It's like, well, if I'm going to get four and I'm 55, if I work four more years, I still have the business. I've got all that money. And then I'll go back at it again. And then you get there and it's four again. It's like, well, then I'll keep working. Next thing you know, you're 67, 70, 75. Because the last thing I saw you did on Baby Boomers...

you know, the, the, the 70 plus boomers are saying we're going to exit in four to five years. It's like, they never stop pushing that, pushing that up the hill. Right. So, um,

And that's the thing is it wasn't enough. And I was still young enough and the company was running well and just kept going. Walk me through that. In 11-12, the broker saying you might get four times profit or four times SDE? Yeah, SDE. So then it probably would have been about, I think maybe we were, would have been nearly $5 million, maybe. In revenue?

No, in that, if I got that four times, we were doing about a little over a million in net then. Got it. So the broker said, like, I think I probably get you five million for the business. And I can't remember, do the math now. In 2012, I was 2008, I was 50. So I was only 54 or 55. So it wasn't.

wasn't going to be enough to maybe live to here or beyond. So it sounds like a lot of money to me. Why wasn't that enough? Like, do you have a very expensive lifestyle? Well, I mean, at that time I had two kids that hadn't gone to college yet. And it just, it just didn't seem. And again, that trap of, well, I can keep earning a million dollars a year for the next four years. I'll sock some of that away.

And I'll sell in four years. And you mentioned your business was generating about a million dollars of profit at the time. Did you have the kind of business where you could basically just pocket that every year as a dividend or were you having to reinvest in the business because it was thirsty for cash? I was able to pocket some. We gave out some pretty good bonuses in 11 and 12.

And we didn't have a cash intensive business as far as like needing new equipment. You know, our marketing was, you know, I know, you know, John Jantz, you know, I'm a fan of his and kind of that guerrilla marketing style. So our marketing expense wasn't high. So, no, it was it was, you know, some going into into pockets, some going into the business. But it wasn't it wasn't a big cash suck.

So can you estimate like between your salary plus what you were able to dividend yourself in those years? The reason I'm asking this, I want to pressure check against this idea of like, well, if I just hold on to the business for four years, I'll have all that money. So like, could you just, could you take a rough kind of guess at salary plus dividends? Like what that would have been each year? Probably in the four to 500K range, roughly. Right. Okay. So the idea of getting 5 million,

was actually kind of more like, in a way, 10 times what you were able to pull out every year. It wasn't 10 times STE, but it was between your salary and your dividends, right?

It was, you know, would it take you 10 years of owner owning the business to accumulate that amount of money? But at the time, if I'm if I'm understanding your headspace correctly, it was like, well, if you're only going to get me four times as to like, I'll just hang on to it. Right. Right. And that's I think I think you even talked about that in your last webinar about the the myth of the the the number there with the taxes and stuff.

I guess it was one of your other podcasts the guy was talking about. He was looking to sell his business. And if you do the math right, you really like to say maybe I was getting 10x. But on paper, it's like 4x. Right. Because the broker thought, well, maybe I'll get five. But then you got to take his or her commission. Right. And then there's tax and you're down to something quite a bit south of five by the time. Yeah. Got it.

Okay. So you say, well, screw it. I'm not, I don't have enough to, so I'm going to just continue to, to, to run. What happens next? Where does it go from there? So going forward, we had a couple of off election years, you know, struggled a little bit. So, you know, that should I have sold? Well, maybe, maybe, but Hey, you know, we, we didn't 2018. I got an offer for my, my building.

I wasn't in the market to sell the business at the time. I got an offer for my building that was too good to resist. And it was much more building than we needed because we were in like 60,000 square feet. But that was from the days when we did live events. We stopped doing live events in 2010, but we had probably 30,000 square feet of stuff in storage. So we ended up selling the building in 2018, downsizing to a smaller building,

you know, we went from 60,000 square feet for us to 20,000 square feet for us. And then I had two tenants, um, in my building with me. So they, they basically were paying my mortgage on the building from the two tenants. So it was, talk about the economics. Cause I think a lot of our listeners have been tempted, uh, maybe even coached at some point, uh,

to buy the building they operate in. And I think there's sort of two schools of thought on this. One is the prevailing school of thought that most people would say, look, you know, Microsoft doesn't own its buildings because they're in the business of software, not real estate. I have no idea if Microsoft owns it or not, but that's kind of the idea behind, like stick to your knitting effectively and, and,

And then there's the other school of thought. Often, a lot of small business owners fall in the second camp, which is like, no, it's a hard asset. It's dirt. I can touch and feel it. I want to own it. I thought I'm going to occupy this space anyways. Why don't I pay myself rent effectively? That's the second point of view. So just walk through...

First of all, before you answer which of those two camps you're in, walk through the economics in the 2018 sale. So what did you buy the property for, if you don't mind sharing, and then what did you sell it for? Bought the building in 1999, I think.

for just under $800,000. Had to do some renovations. It was a big metal, 60,000 square foot metal building. Had to do some fixes on it. But say I was all into it for maybe a million and I kept it. At that time, it was...

In the business. So it was part of the business and there was not a rent. When I did the deal with the employees in 2006, we broke the building out. We started a new operating company for the business building out. And then FX Design Group paid FX Senior and Display, the old company, rent for the building. I didn't look this up, but I think I sold it for $3.5.

I think was the number in 2018. And that was a totally unsolicited. You know, I wasn't had no intention of trying to sell it. A company that did metal recycling had been looking for a building and my building was perfect. When they when they finished it, they had machines that started it because it was like, you know,

It was 800 feet long. It was a long building. And they had a machine at one end where the metal came in and five or six machines down the line where the metal came out and went into storage, all cleaned and ready to go. So it was a perfect building for them. They had to have it. I didn't really need it anymore. And I actually ended up having a

kind of a flea market sale and called all the theater companies in town. Hey, if you need any scenery parts, pieces, you know, come on out and bring your truck and take stuff away. So, so we, we emptied it out that way. And we still, I think had probably half a dozen truck, you know, we had to move saw and things like that to the new building, but we went from 60,000 and operating initially to 30 and then down to 20.

Got it. And just so I understand the math, you bought in 2018, put some refurbishments, you're probably all in a million. And then like, excuse me, you bought in 99, 2018, like less than 10 years later, you've tripled the value. Like you got three X. 20 years later.

Oh, my mistake. Yeah. Yeah. That's why I had guests to do the math for me. 20 years. Almost 20 years, 18. Yeah. 19 years. Which is like, I mean, it's probably like a 7% or 8% a year. Yeah, it should be. Return. Yeah. Yeah. And then plus I had written off rent and all that stuff over the years. And more importantly, I'm in the camp of,

I think you should own your building if you can, especially as a small business. I get it. You know, like one of my tenants in my new building, they had rented that same space for almost 40 years. And that was their company's philosophy. You know, they probably have

thousands of facilities around the country they're a national brand and they rented and they were happy to rent but they had rented that space for you know 40 plus years so to be clear mac in 2018 you sold for 3.2 right and you bought another building right for 2.6 i think it was okay yeah and that was in in 2018 right right at that time did you consider leasing

I mean, I looked at all those options cause it was kind of in a rush. You know, I only had 90 days to get, I mean, actually thought of trying to sell the company at that point, just, but we had, um, too many, too many contracts to go. And, um,

There didn't seem to be anybody interested in, you know, I met with a couple of subcontractors to see if there was any interest there, talked to a broker. There was really no appetite at that point. So, you know, we bought the new building and forged ahead. But what I will say, going back to owning versus leasing, is in that recession period,

the building saved my butt because I was able to go to the bank. Which recession? The 2008, 2009? Okay. Yeah, I was able to go to the bank, take out a second mortgage on the building to cover our expenses in 2009 and 2010 until we got our pipeline filled back up. So it was a great asset for me then anyway. Whereas in paying rent, I had nothing. Yeah. Yeah.

Not only do you get capital appreciation, you're paying yourself rent, but also you can use it as a bit of a lead with banks because it's dirt. Yeah, it's an appreciating, it's a depreciating, appreciating asset. Yeah, I wouldn't have had it any other way.

A depreciating and depreciating, meaning the structure. You're writing, you're writing off, you're depreciating it as you go over time. Right. I see. But it's appreciating. It's going up in value every year. Whereas if I had been renting those 20 years and the recession, you know, I think I, I'm coming to what I got. It was like three, $400,000. Right. And just as a, to tide me over, I, I probably couldn't have got that money. We might've folded up. So.

So 2018, you buy another building for $2.6 million and, and you're continuing to grow FX at that point, or are you still trying to sell it or what? I wasn't trying to sell, um, talk to a few people about some things and then, and, you know, then COVID hits right in, in 20. And, um, fortunately for us, you know, the lockdown, everybody's watching news again. So,

We year over year, 19, 20, 21, 22, 23 year over year, we had revenue increase. We got back up to seven million in in 23. And the other thing that happened for COVID and this is so going back, kind of going back to the to the value builder hub and spoke. The other thing that happened after recession is I grabbed everything back in. Right.

I, you know, instead of I can't sit in my office, I have to be frontline. So I knew all of my my employees. I knew all of my contractors. I knew all of my clients and was frontline. So that was one, you know, when I talked to a broker in 18, he's like, well, you're you're too, you know, you're too engaged in this company for, you know, there's who's going to replace you in the company.

So the great thing about COVID, if there are great things, is several, you know, we were subcontracting about 50% of our fabrication out to other shops in the area and some nationally. And one of those shops closed the very first week of lockdown. I got a call from their shop foreman. Hey, you know, we're locking down. Everybody's leaving. If you want what we have on the floor of yours, come grab it.

And through that, I was able to hire three employees, one of them being a key employee who had been president of that company. They were owned by a PE firm. So he was the president of that branch. And I was able to get him in right into the beginning of COVID. It made sense to me to grab him when I could. About six months later, another one of our subcontractors in, I think, their second or third round of layoffs laid off their general manager.

And I was able to bring him in and I'd been, he'd actually worked for me before back in the 08, 09 world. And so you're building your team up with eight players. Yeah. Yeah. At a discount, you know, and, and so by 22, 21, 22, I, you know, and plus COVID, you

I was working from home. I didn't go in very often. I wasn't playing poker online, but I didn't have to go to the office. It was really great. I mean, the team was good. What we did initially, everybody had a garage.

And we had one guy and he would deliver stuff to their houses so that they could build stuff at home. Right. And I don't know how long that lasted, maybe three or four months until whatever was lifted and we were able to go back in. And when we went back in, only the shop went in. And again, they have a lot of space there in 20,000 square feet. There's eight or 10 of them, whatever. So there wasn't an issue of being too close. Everybody else stayed home, right? None of the office folks went. I think a couple that just had that...

I got to be in the office. A couple of them went in to do stuff. So I think that release from that allowed me to let go a little bit. And and, you know, we did a lot of Zoom, you know, our meetings on Zoom and, you know, everybody knew what they had to do and what needed to be done. And and they did it. And so it was a great team effort to get us through that.

But from the outside looking in, the guy who eventually bought me was one of our subs throughout that. And he saw him max at home and the company's running and he's got these great guys. And he was building stuff for me and I was marking up what he was charging me. So I think he saw the math there. It's like, well, so I think that's what intrigued him to buy me because I actually went to him. I want to do a roll up with him. He had done primarily...

Live events, trade shows, interiors. And he got hit hard by COVID. I mean, that-

This subcontractor, what would it he or she, what would it he or she fulfill? The fabrication. So we did internally, we did design, the project management, the lighting design, the lighting fulfillment. And then we subbed out to, you know, a handful of shops to do the actual fabrication. We kept some, we had a six or eight guys in our shop. Okay. So my goal then after 18 and into COVID was I didn't want to,

overextend what we could do in case stuff happened again. Yeah. But knowing that we're always going to do, say, 4 million, just, you know, just always going to be able to do that, kept that amount of people in and then everything else above that we fabricated outside. So we didn't... Because in the past, you know, one time we were 75 people back in... Yeah. And, you know, at the end when I sold it, I think we were at 25. Wow. Okay. So...

A lot more efficient. So you had, you had 7 million in revenue, similar profit, like 10, 15%. I think at the end there's about 12. 12% on the bottom line and 25 employees. And so you've got the sub who's making the desks and the, the sets for you. And, and,

And he's seeing that Max got a pretty good life here. He's not working too hard and he's doing well. Take me through, like, so you remind me how this, this played out. So what was the next step? Because originally you'd reached out to subcontractor,

I think under the auspices of buying him, wasn't that? Well, I mean, what we did is we had a breakfast. So I was selling back up. So he he primarily built trade shows and chairs and that that really died during covid. And so he was struggling a little bit.

But I could see that this is now early 22. Things are starting to come back. And, you know, we got along really well. So I thought, hey, let's roll up. Between us, we'll be, you know, closing on maybe 15 million. And now we can talk about a decent multiple if we're doing, you know, 15% at 15 million. Now we're talking about maybe six or seven X, right?

So, you know, we had a breakfast or lunch, sat down and I brought, you know, Gary and Johnny with me. So they knew what I was trying to do. And it's like, hey, let's roll up. Let's merge, you know, and work out, you know, who owns what and that kind of thing. And I don't know that he said it right then and there, but maybe within a couple of days, he called me back and said, you know, I'd just rather buy you.

I would, I would, you know, he's younger. He's about 10 years younger than me. You know, FX is kind of sexy. I mean, a little bit, right. You know, and, and I think he saw it as something really cool. And, and so that was in April of 22. It took us a year back and forth, you know, plus staying, you know, saying we were very busy too. It took us a year to close, but we closed in May of 23. Yeah.

Okay, walk me through that. So he says, I want to buy you. What's your first reaction? Okay, make me an offer. And did he make you an offer? Yeah, it took probably, I don't remember, you know, everything after COVID is a mush, right? But it probably took...

a couple of months to, to boil it down to a number that he was comfortable with, that I was comfortable with. Uh, it's probably, you know, maybe 30, 45 days before I got a letter of intent with a number. And then did you share with him? What did you share with him in order for him to come up? I let him see everything. I mean, all the books, right. Um,

Were you worried, Mac, at all that he might screw you over? It sounds like you had a good trusting relationship, but letting him inside the tent to that extent that he could get into QuickBooks and look around.

Were you worried that he might? No, not me. Tiny, tiny bit, but not really. I mean, it's like, you know, we were pretty and, you know, we've been doing the same thing for the same clients for 20 plus years. And and in our world there, we only had a handful of I mean, it's a small world. It's not it's not like, you know, it's very niche world. So.

Not too many interlopers that had come in over that 20 plus years to take away business. So I really wasn't too worried about that. What about potentially losing leverage in a negotiation with the subcontractor? So I can see a scenario where he looks at the numbers and go, Max, market up my stuff like 2X. Are you kidding me? That made him want to buy it more, right? He wanted that markup, right? So, you know, I know. I mean, and actually, I think into 22...

As we were negotiating, our prices went up because things were heating back up again. So, you know, he was charging us a little bit more, but it wasn't. We were still getting our margins. So what kind of offer did he come up with that you were comfortable and he was comfortable? Like what was the, what were the expectations? Like a three and a half X. And then knowing that I had no broker,

Right. Three and a half X. So this was like SDE or profit? Yeah. SDE. Yeah. Okay. And so three and a half X was a number that we finally settled on. And yeah,

We went back and forth on some inventories and things like that. And the other thing that was key there, and I don't know how many folks you talked to, which way they go. I wanted a stock sale. I didn't want an asset sale for tax purposes. He wanted a...

asset sale for tax purposes. And I can't know off the top of my head, I'm not going to remember the form number, but anyway, it was sold as a stock sale and then he converted it afterwards. There's a form you can fill out that turns it back into an asset sale for his tax purposes. So, so, you know, my, my tax on it was at capital gains versus income, which was important. So that brought my number, my, my number up. And then, you know, having any brokerage fees, you know, I had, I,

pretty decent attorney fee and my CFO. And I gave bonus to a couple of guys. Yeah, I was going to say, because my roll-up idea would have also worked because I think within three months of my sale, a friend of mine had a similar company to me and him combined. He was basically us combined. He sold his firm to a PE firm.

But the difference was mine was all cash and he had, I think he's a three-year earn out. So...

I think if we'd done the roll-up, we might have got maybe five or six, but we'd have had a three-year earn-out, and who knows if we'd make the numbers or whatever. And, Max, literally yours was all cash, like 100% cash? Yeah, just a small holdback for warranty work in case anything that we had built over the last year that was under warranty, if they needed repairs, guys had to go out and fix them. That was it. Right.

I just want to make sure my audience heard a couple of things there that I want to just underline. One is the difference between SDE and EBITDA as an example. They're two similar things, but SDE is like the entire sort of benefit you derive from your business. So salary plus the profit of the company. And I'm butchering it and simplifying it for the purposes of this recording. So

We'll put a definition of SDE and EBITDA in the show notes of Building Sell if you kind of want to go further there, but think of them as sort of variations of profitability with some slight nuances that you should know about. Yeah, I mean, second thing I want to tell-

from the business. So some people, and I wasn't one of them, but a lot of people put everything on, put their car, their phone, everything. I was always leery of that. So I never had a car in the business, that kind of stuff. But still a seller's discretionary. And another key thing I've learned is a lot of, especially smaller business owners that are full hub and spoke, they try to get their full salary back as SDE. And you can't do that because

You've got to be replaced. When I sold, he replaced me, but he had two guys that were running the ship. So he was still full time running his business. So had I been as engaged as some, then I would have gotten less because my SDU would have been lower because you'd have to take a chunk of my salary out to hire a general manager or something.

Yeah. Yeah. The other thing I just want to make sure my audience heard is some nuances between a stock sale and asset sale. There's tax treatment and that's going to be different depending on what jurisdiction you are in the world. Also, there can be legal liabilities that are different based on this. So the long and the short of it is this is not a DIY project. Like if you're going to sell your business, you want to definitely talk to both an accountant well in advance of doing it and also talk to a lawyer well in advance of doing it because you

These are not things you want to just do sort of last minute. And I learned those lessons from the prior sale. So, you know, I had my CPA right next to me the whole time. My attorneys, you know, were working on it the entire time. Yeah, huge difference. Yeah. And so, yeah, big difference. And again, not, you know, as a...

I would think most people probably a broker is still probably the way to go. You know, I just got lucky, you know, that, that one of my vendors was willing to do the deal. Right. Um, if, if he didn't offer that up, then probably sometime by now, and then we'll talk about this next, but I would have listed it with a broker and, and cause I hit, you know, if we want to get into it now that, you know, the five D's of, of business termination, you know, um,

death, disability, divorce, those things. I stayed on with the business for six months from May to November. I left the 1st of November and 10 days later, my wife was in ICU. Had I not sold at that time, I definitely would have had to bring in a broker and gone that route. But the good news was the company was built to sell by then. Mac, just to be clear, I'm sorry to hear about your wife. I

I was kind of aware because we're connected on LinkedIn. But when you say you would have had to bring in a broker at that point, is that because you were primarily her caregiver and that was all consuming at the time? Yeah, she was. And not to get too much into it, she was in and out of the hospital for six months. She's home now, doing better. We put our retirement on hold, right, which is –

We had cruises and all that stuff booked. So that's the other thing for small business owners is you never know when one of those Ds is going to, you know, wallop you upside the head. So if your business is built to sell, you know, and ready to go and something like that happens, you're okay, right? Walk me through to the extent that you're comfortable sharing. And if you're not, I totally, we can move on. But what was that? What was that like? Because on one hand,

After 37 years, you just had this amazing outcome where you sold your business, all cash deal. I mean, this is kind of the dream for a lot of business owners. And then to have the rug pulled out from you so dramatically, like what was that period like for you? Yeah, it's hard to explain, you know.

disappointing, upsetting, angry, you know, all those things because the plans we had are, you know, are still on hold. We've traveled a teeny tiny bit, but not to the extent, you know, that we, you know, we're going to, we had plans for, but thankfully I sold and just in time, I guess. Right. But yeah, it's, it's, it's debilitating if you're, you're trying to run the business and deal with that stuff. It's, it would have been hard. So.

I'm glad to hear she's on the mend to some extent and you're moving forward. Walk me through the building because so three and a half times SD for the company, but you also own this building you bought back in 18.

for $2.6 million. Did you hang on to that? Did you sell that? Actually, I think I mentioned earlier, I had two tenants. One who was not interested in owning any property for their company. And the other, he's a local stone wholesaler, countertops, things like that. He's got like

five offices, I think in Florida, and he owns all his other facilities. And he'd been bugging me, you know, if you ever want to sell, if you ever want to sell, if you ever want to sell, I want to buy, I want to buy, I want to buy. So once the deal with John was done, I called him up and said, Hey, the building's available. Are you interested? And he's like, sure. So again, I did it without a broker. I brought in a friend of mine who was a broker just to help me with the paperwork and stuff.

We worked out a deal. I basically sold the building for twice what I paid for it. Wow. Yeah. And I hold the mortgage at a 7% interest rate over 10 years. So,

um so you have recourse against the for the building to get it back right yeah yeah no and he and he's paid enough into it now i mean if if he were to get into any kind of trouble he could sell the building to pay off the mortgage easy no no problems got it yeah so you've done well off real estate yeah i wouldn't like i said you asked the question i i'm i'm

incredulous, I say, you know, the companies that don't want to own it, but they have their reasons. But I think as a small business owner, if you can, it's going to, should bring you possibly more than your company at the end of the day, you know, between rent and depreciation and those things. So.

In particular, in your case, because you needed 20,000 square feet, you had some inventory, you needed some facilities. So it wasn't like you were all going to be virtual or all remote. No, no. Yeah, if you're an insurance firm or things like that, and then you could be mostly remote with a small office, then maybe not. But-

We needed 20,000 square feet and the building was 40,000. I had the two tenants, like I said, they pretty much paid the mortgage with their rent. Yeah. Well, I appreciate you sharing the story and congrats on a great exit. Do you mind if we do a quick lightning round of questions before I let you go? Sure. Sure.

um you had a couple of false starts in the sale process uh and and i wonder was there a kind of a slimy trick that you saw or observed an acquirer tried to kind of put over on you or no no i didn't know no i mean the first one was you know we were all friends and that may have been the problem ultimately you know but no there was nothing there and

The second, I thought the broker is a friend of a friend. So I think he did a straight up deal. But I see these things all the time where you get these calls from the PE firm and, hey, we'll offer you X. And by the time they get done negotiating and due diligence and all that, you're down to A.

you're paying them to take the company off your hands because they've worn you out. You've stopped working as hard. You start taking vacations. And the next thing you know, your business is closed and you got nothing for it. So yeah, but I didn't run into any of that on my travels. Biggest mistake you'd love to have a do-over on specifically to selling your company. Like if you could roll back the clock

to that first conversation you had with your subcontractor where he said, you know what, I'd like to buy you out. What would you love to do over if you could? You know, I don't know if I would have done anything over. You know, part of me still thinks the roll up, I maybe should have pushed that a little bit longer. But then seeing what my friend went through, you know, you got a three year contract.

Three-year deal with an earn out. I mean, I walked away. I maybe could have put a few more dollars in my pocket. But at the end of the day, if I had been running a company for a PE firm when my wife went into the hospital, that would not have worked out. So I don't think you regret it. I think I hear the number, some 60%, 70% of business owners regret. I mean, initially, I regret the first week or two after I sold.

We got a huge contract in that we, that we've been working on, but it was started out as a one, one off and turned out to be 20 copies or something like that. And the same thing, it's like, Holy cow. But you know, that, that went away, but yeah, that was like, dang, maybe I should have sold a week later. You know,

But other than that, I have no regrets on that. No, I'm glad I did it. And the other thing that we, and I think we talked about it and it, you know, is, is preparing for the, after the sale, a lot of, you know, I didn't do a lot of that. I mean, we're going to travel, do this stuff, but you know, didn't, you know, what's it feel like to not work? Yeah.

Yeah. What did it feel like for you? You sound like you're pretty preoccupied with it. Well, you know, so after the sale, you know, we're in the hospital in the middle of December. One of my former manufacturers of our lighting

that we sold, asked me to come help him, you know, sales and marketing. So I went in as like the fractional CRO and helped him for six months. And I really enjoyed that. It was like all the fun of running a business without any of the pressure of, you know, sleeping at night. And I haven't decided what yet either help baby boomers exit or help,

young people buy companies because we're going to have... They keep talking about the silver tsunami. And I think COVID kicked the can down a little bit. Everybody had to go on hold to sell. But baby boomers are all 60 to 80 now. They've got to be itching to sell and get out. And if I were 25 right now, it's like the world is your oyster. Virtually just...

You know, pick a industry you want to be in and there's a company for sale and the SBA will loan you 80, 90% loan to value. Yeah, we had the guys who run the Harvard program on entrepreneurship through acquisition maybe a month ago and

We'll link up to the show notes, but there's a great sort of opportunity, I think, for young people to get involved in ETA. It would be awesome. Well, I think I know the answer, but I want to ask just to get it on the record. What was the most kind of emotional low point for you in selling?

Well, for me, I mean, one thing I enjoyed most was the creativity of what we did. Right. And seeing what we did on air. Right. And in fact, you know, right after I left, you know, within a couple of months, one of our last projects won an Emmy.

And, you know, one of the sets in New York won an Emmy. So, and my name didn't go on the statue, even though I was involved in the, you know, in the direction of it when it went in. I didn't own the company anymore. So my name didn't go on the statue. So that was kind of, that was kind of a little disappointing, you know, and I miss that work and the travel for that work. But I mean, that's about, it was probably about it. What was the emotional high? Of selling? Just freedom, right? Yeah.

Freedom on November 1st, freedom to do whatever we want, whenever we want, however we want. That thing changed, but hopefully we'll get back there. Yeah. Were there resources that you turned to for advice? You've already been generous about Built to Sell, so I'm not looking for a book in the book. But was there anything else you could point our listeners to that...

that they might find helpful. Yeah. I mean, some of the, some of the books I, I used, you know, built, built to sell was one good to great, you know, the hedgehog principle from that blue ocean strategy, always trying to be,

you know, in a new market or a new way in an old market versus the bloody, bloody shark pool. So actually, I did a couple of swats internally with the company and we use those books as guidelines. Great. What do we want to do? Who do we want to be? How do we want to do it? And, you know, it really took off. So I think, you know, those were

probably the three books that helped me the most. Great. Yeah. Blue ocean. Great. You know, standby for sure. Give John a plug, you know, duct tape marketing. I always, you know, he wrote that in 07 and use that as a guide. You know, we did all our marketing internally. We never hired any outside marketing folks. Yeah.

Amazing. Amazing. Last but not least, I know you have had to put some of your celebrations with your wife on hold, but was there a trophy that you bought yourself to commemorate the win? No, you know, the trophy was going to be Winnebago. Ah, okay. That was our, you know, we wanted to do, hit all the national parks and stuff. So that's on hold until we can celebrate.

but that was going to be the trophy was just, you know, travel, you know, of Winnebago just to tour around the country. Well, I hope that comes to fruition, Mac, because I think that would be an amazing physical sort of

thing to remind yourself of the win. I know, Mac, people are going to want to reach out. Are you more of a LinkedIn guy? Yeah, LinkedIn, through and through. Okay. We'll put your contact information and your LinkedIn profile in the show notes at Built to Sell. Mac, thanks for doing that. Thanks, Sean. Good to see you again.

And there you have it for today's interview between John and Mac. Be sure to hit that subscribe button wherever you're listening to today's show. And a quick reminder, if you want to watch this full video interview, to head over to our YouTube channel at Built to Sell. For show notes, including links to everything referenced in today's podcast with Mac, be sure to visit his episode page, which you're going to be able to find over at BuiltToSell.com. Also, if you know of someone who'd be a great fit to be a guest right here on the podcast with John, you can nominate them. You can head over to BuiltToSell.com slash nominate.

where they're going to have a chance to nominate yourself or someone else to be a guest right here on the show with John. Special thanks to Dennis Labataglia for handling today's audio engineering. And thank you to our community of certified value builders who help us bring our message to you. Our advisors are experts in helping you build the value of your company. To get in touch with an advisor or learn how to become one yourself, visit valuebuilder.com. I'm Colin Morgan, and I look forward to talking again next week.