PDF Summary:Go Do Deals, by Jeremy Harbour

When building wealth and growing companies, many entrepreneurs solely focus on operations and day-to-day management. In Go Do Deals, Jeremy Harbour argues that the true path to financial prosperity lies in mastering the negotiation and execution of business transactions.

Harbour provides a framework for finding motivated sellers, structuring innovative deals requiring little upfront capital, creatively valuing companies, and utilizing mergers, IPOs, and special-purpose entities to expand rapidly. He explains how to enhance profits and shareholder value while methodically preparing businesses for sale—and how divestments can financially benefit entrepreneurs as much as founding companies.

(continued)...

The true value of a business is established by the price a buyer is willing to pay for it.

Harbour emphasizes that the value of a business is not fixed but subjective, arguing that its true worth is established by the amount a willing buyer is prepared to pay. He emphasizes the significance of grasping the incentives and perspective of the purchaser during the negotiation of terms and the determination of the final cost. Entrepreneurs can secure valuations that genuinely reflect the worth of their efforts by skillfully showcasing their business's promise and shaping the transaction to align with the buyer's preferences.

Safeguard your legal interests by utilizing a distinct entity designed for your acquisition activities.

Harbour underscores the significance of employing distinct entities designed for particular tasks to segregate risk and streamline the configuration of ownership. He uses his own experience acquiring multiple businesses to highlight the advantages of separating individual companies legally while facilitating overall control and management.

An SPV is designed to protect your personal assets and current business operations from potential hazards, encompassing obligations of a legal nature.

Harbour recommends the regular employment of SPVs to serve as a protective legal barrier during business acquisitions. The structures for acquiring a business are designed to ensure the buyer's personal assets and other business interests are shielded, thereby establishing a barrier that defends against any potential liabilities linked to the company being purchased.

Vehicles designed for specific purposes facilitate the management of acquired entities, regardless of whether the stake owned is a majority.

Harbour points to the power of SPVs in securing control of acquired companies even without a majority ownership stake. By carefully structuring the specifics of ownership and the terms of the contract for the Special Purpose Vehicle, it's possible to exert considerable influence over the business's management, profitability, and the terms of its ultimate disposition or disbandment. Entrepreneurs can gain control of companies with little initial outlay by acquiring a stake that is less than the majority.

Other Perspectives

• While assessing a company's value may involve subjective judgment, there are established systematic processes and methodologies that provide a structured approach to valuation, which can be more reliable than purely artistic or intuitive assessments.
• Valuation methods like P/E ratios and asset valuation are based on financial theory and historical data, and while they may be subject to interpretation, they are not inherently subjective; they provide a framework for comparability across companies and industries.
• The price a buyer is willing to pay may reflect the value to that particular buyer but does not necessarily establish the true value of a business, as it may be influenced by unique synergies, strategic interests, or temporary market conditions.
• Utilizing a distinct entity for acquisition activities can complicate the business structure and may not always be the most efficient or cost-effective approach for safeguarding legal interests.
• An SPV can protect personal assets and operations from potential hazards, but it can also obscure transparency, potentially raise questions about the true financial health of the business, and complicate the accountability of the business operations.
• While SPVs can facilitate the management of acquired entities without majority ownership, this can sometimes lead to governance issues, conflicts of interest, or challenges in aligning the interests of all stakeholders, which can affect the long-term success of the business.

Advanced Deal Structures

This section of the book delves into complex structures for deals that extend beyond straightforward purchases. Harbour advocates for growth through mergers, outlines the unique BIBO approach, and demonstrates how combining companies can uncover concealed value in small to medium-sized businesses.

Mergers facilitate swift expansion without requiring financial outlay.

Harbour emphasizes the tactical advantage of using mergers for swift expansion by capitalizing on equity instead of immediate monetary investment. He underscores the benefits of combining businesses, such as synergy generation, the encouragement of optimal practices, and the improvement of capital investment and market value by leveraging the opportunities provided by stock exchanges.

The combination of companies can lead to synergistic benefits, enhance best practices, and support the increase of liquid assets.

Harbour acknowledges the potential for mergers to generate synergies by consolidating operations and eliminating redundancies. He acknowledges the importance of utilizing the strengths and optimal practices from each combined organization to boost overall productivity and performance. He emphasizes the potential for mergers to enhance revenue through the facilitation of companies' transition into publicly traded entities. Combining businesses and growing to a substantial size can make a company more attractive to investors and facilitate its journey to the stock market, thereby greatly enhancing the company's value and unlocking wealth for its owners.

Successfully merging companies while preserving their unique cultures and talent reserves is crucial.

While recognizing the benefits of synergies, Harbour emphasizes the importance of preserving the unique culture and talent of merging businesses. He warns against disruptive integration practices that demotivate employees and alienate customers. He advocates for a collaborative approach that capitalizes on the distinct strengths present within each element of the merged entity.

Strategies referred to as acquiring a stake in struggling businesses, improving their performance, and subsequently selling the improved share back to the original owner are known as Buy In, Buy Out.

Harbour imparts a unique approach to transactions, which he refers to as the strategy of acquiring stakes and then taking full ownership. It involves purchasing stakes in companies that are not performing well, with the goal of implementing improvements and then selling those stakes back to the original owner for a profit.

Employ strategies in financial management to enhance the firm's revenue and earnings, subsequently divesting your share for financial gain.

Harbour recommends employing strategies for financial restructuring to pinpoint and strengthen areas that require improvement in the specified companies. This involves enhancing the oversight of financial inflows and outflows, honing cost structures, and uncovering hidden profit opportunities. By plowing back profits to show tangible progress, entrepreneurs can significantly enhance the value of the business, making it more attractive for the original owner to think about buying it back.

The BIBO approach guarantees that the acquisition deal is advantageous for both the acquiring party and the original owner.

Harbour emphasizes an approach designed to secure beneficial results for every party involved. The opportunity arises for the purchaser to apply their expertise in rejuvenating and increasing the worth. The book provides the company's creator with an opportunity to rescue their struggling business and regain control after overcoming initial challenges.

Agglomeration brings together multiple smaller businesses into a single organization that is listed for trading on the stock market.

This section delves into the concept of agglomeration, which Harbour identifies as the next phase in the evolution of business mergers, predominantly taking place within the digital domain. This innovative deal structure tackles the key challenges that hinder the growth and assessment of the worth of SMEs, focusing on matters related to risk, scalability, and marketability.

Addresses the challenges associated with risk, growth, and the constraints on liquidity that impede investments in small to medium-sized businesses.

Harbour explains that by adopting a strategy of amalgamation, enterprises ranging from small to mid-sized can effectively overcome the intrinsic challenges associated with risk, scale, and capital. He argues that by consolidating multiple small to mid-sized enterprises into one larger, publicly-listed entity, the risk is diversified, the combined size of the business attracts investment, and being on the stock market provides the benefit of having shares that are readily marketable.

Assists owners of small and medium-sized enterprises in converting their accumulated value into publicly traded equity.

Harbour highlights the benefits that owners of businesses ranging from small to medium-sized experience when they participate in mergers. Entrepreneurs are able to retain control over management and ownership in a company that has been listed on the stock exchange, thus acknowledging the value they have created in their enterprises. The combined entity's increased valuation and revenue streams set the stage for an attractive exit strategy and facilitate growth through the ability to tap into financial markets.

Agglomeration combines global funds with the prosperity of smaller enterprises to create a structure that encourages the generation of value.

Harbour characterizes the merging of smaller companies as a potent tool that connects global investment to the wealth created by small-scale enterprises. He believes that this structure acknowledges and respects the monetary investments of business founders. He envisions a future where the merging of businesses allows business creators to address wider societal issues, thus creating greater benefits for the community by aligning financial motivations with the creation of worth.

Other Perspectives

• Mergers may not always lead to swift expansion and can sometimes result in financial strain due to integration costs and unforeseen complexities.
• Synergistic benefits are not guaranteed in a merger; cultural clashes and misaligned objectives can lead to a decrease in productivity and value.
• Preserving unique cultures and talent is challenging, and mergers often result in talent loss due to redundancy or dissatisfaction with the new corporate culture.
• The Buy In, Buy Out (BIBO) strategy assumes that the original owner will want to buy back the improved share, which may not always be the case.
• Financial management strategies may not be sufficient to turn around a struggling business, and external factors such as market conditions can impede success.
• The BIBO approach may not always be advantageous for both parties if the market conditions change or if the improvements do not lead to the expected increase in value.
• Agglomeration assumes that being part of a larger, publicly-listed entity is always beneficial, which may not hold true for all small to medium-sized enterprises due to loss of autonomy and potential dilution of ownership.
• The challenges of risk, growth, and liquidity constraints may not be fully addressed by agglomeration, especially if the aggregated companies do not integrate well or fail to achieve economies of scale.
• Converting accumulated value into publicly traded equity can expose owners to market volatility and may not always result in a fair valuation of their business.
• The combination of global funds with smaller enterprises does not always lead to value generation and can sometimes result in mismanagement and inefficiencies due to differing operational scales and objectives.

Concentrating on enhancing shareholder value and preparing for a possible future divestment.

Harbour emphasizes the importance of increasing value for shareholders as a primary goal, and he maintains this focus even after taking ownership of a business. He counsels entrepreneurs to prioritize revenue creation while securing the financial prosperity of the business and systematically preparing it for potential sale. He further advocates for embracing multiple exits over a single "big payday."

Prioritize maintaining a strong cash flow and ensuring profitability rather than merely pursuing an increase in sales numbers.

Harbour challenges the common focus on boosting sales, highlighting that the importance of cash flow is frequently overlooked. He emphasizes that businesses fail not due to a lack of sales, but because their cash reserves run dry. He underscores the significance of meticulously improving cash flow and profitability as key elements that boost the value for stakeholders with equity in the firm.

Identify and eliminate unnecessary expenses, optimize pricing, and streamline operations

Harbour advises entrepreneurs to meticulously examine their enterprises to pinpoint potential areas for enhancement. He recommends a thorough review of all costs, cutting out any that fail to enhance profitability and positive financial liquidity. He advises a comprehensive reassessment of the pricing for products and services to ensure it reflects their true value and emphasizes the need to improve procedures to boost efficiency.

Prepare the company for potential acquisition by methodically organizing all critical documents and contracts in a digital archive.

Harbour recommends that entrepreneurs prepare their businesses for potential acquisition by creating a digital archive for important documents. This entails gathering all crucial documents and incorporating them into a protected digital archive for easy access by potential purchasers throughout the verification stage. This approach speeds up the deal-making process while also increasing its worth, and it reduces the fatigue that typically comes with extended bargaining.

Plan for multiple exits, not just a single "big payday"

Harbour challenges the traditional view that a single, substantial financial accomplishment signifies the zenith of an entrepreneur's professional journey. He contends that banking on a single significant exit event inherently carries risk and constrains the potential for generating wealth.

Frequently participating in minor divestitures and financial transactions offers the chance to reinvest and grow your economic assets.

Harbour advises pursuing multiple smaller exits throughout the span of one's entrepreneurial journey. The steady income generated is subsequently channeled into funding new ventures, which accelerates wealth growth through the power of compounding.

Shift from active management to focusing on enhancing shareholder value.

Harbour advises business owners to transition their attention away from daily tasks and instead embrace the perspective and tactics of a strategic investor. He argues that entrepreneurs can increase their financial freedom and amplify their impact while creating value for shareholders by concentrating on strategic acquisitions and meticulously orchestrated sales.

Other Perspectives

• Enhancing shareholder value may not always align with other stakeholders' interests, such as employees, customers, or the community, potentially leading to decisions that are profitable in the short term but detrimental in the long term.
• Prioritizing cash flow and profitability over sales growth can lead to underinvestment in marketing, research and development, or expansion opportunities, which could stifle long-term growth and innovation.
• Cutting unnecessary expenses is prudent, but there is a risk of being overly frugal, which can lead to underfunding critical areas of the business, such as employee development or customer service, potentially harming the company's reputation and operational capacity.
• While optimizing pricing is important, there's a risk of setting prices too high, which could alienate customers and reduce market share, or too low, which could devalue the product or service and squeeze profit margins.
• Streamlining operations is generally positive, but over-optimization can lead to a lack of flexibility, making it difficult for the company to adapt to unexpected changes or opportunities.
• Organizing critical documents in a digital archive is helpful for potential acquisitions, but overemphasis on preparing for a sale could distract from the core business operations and innovation.
• Planning for multiple exits may lead to a short-term focus, potentially neglecting the long-term vision and sustainable growth of the company.
• Frequent minor divestitures could disrupt business continuity and company culture, and the costs associated with these transactions can erode the benefits of reinvestment.
• Shifting focus from active management to solely enhancing shareholder value can lead to a disconnect with the day-to-day operations, potentially resulting in a lack of leadership and oversight that could harm the company's performance.