Summary

In this conversation, Jon Stoddard interviews Marcus Scheme about his journey in the mergers and acquisitions space, particularly focusing on his experiences during the COVID-19 pandemic. Marcus shares the challenges he faced in finding and acquiring a security company in the U.S., the creative deal structuring he employed, and the emotional ups and downs throughout the process. He also discusses the importance of due diligence and the difficulties of navigating licensing and regulatory requirements in the security industry. In this conversation, Jon Stoddard shares his journey through the complexities of acquiring a business, highlighting the financial challenges, negotiation tactics, and the importance of building trust and relationships. He discusses the significant mistakes found in financial records, the art of deal structuring, and how personal growth can emerge from adversity. Jon emphasizes the necessity of understanding the business landscape and the value of persistence in achieving success.

Takeaways

Marcus moved to the U.S. during the pandemic to explore business opportunities.
He faced significant revenue loss due to COVID-19, prompting a shift in focus.
Finding a suitable acquisition in the security industry proved challenging.
Creative deal structuring was essential to navigate financing hurdles.
Licensing requirements in the security industry complicated the acquisition process.
Emotional resilience was crucial during the ups and downs of negotiations.
Transparency in financial dealings is vital for successful M&A.
Due diligence revealed inconsistencies in the financial records of potential acquisitions.
Alternative financing options can be risky and may not meet deadlines.
The importance of having a solid understanding of the business's financial health before acquisition. You are a threat to the seller if you can run the show.
Recreating financial books is crucial for transparency.
Building rapport with the seller can lead to better deals.
Trust is essential in business negotiations.
Personal health can be affected by business stress.
Persistence is key in overcoming challenges.
Understanding the business landscape is vital for success.
You can't rely solely on digital marketing for business growth.
Failures in business should be acknowledged and learned from.
Negotiation is an art that requires patience and strategy.

 

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Transcript:

Jon Stoddard (00:00.108)
This episode is brought to you by the LinkedIn Deal Flow system. Do you want to learn the exact system I use to help a $15 million company acquire a $7 million company and get paid $500,000 in equity shares just for putting the two together? Do you want to learn how I got 800,000 impressions and have Deal Flow show up in my LinkedIn inbox? Just go to dealflowsystem.net and look for me on LinkedIn. Now let's get to the guest.

Welcome to the top &A entrepreneurs today. My guest is Marcus Scheme. Marcus and I are in the same mastermind group and known each other for over a year. And we have exchanged all kinds of like best practices, things work, things don't. We've been in two masterminds together, fundraising ones too. And so I'm here today to talk to Marcus about his recent success of signing a deal over a long period of.

ups and downs, ups and downs, and finally getting the deal. Welcome, Marcus. Thank you, John. Thank you. It's good to be here. Yeah. So you started from Australia. Why did you move to the United States and what was that process? Yes. So if I go back all the way to 2018, I had a security business in Australia and I just was looking to start one in the Philippines as well.

came across a company that was for sale in the Philippines and it turned out that it was, I guess, some guy that was copying a Filipino from America's company that was based here in Los Angeles. So we got connected, I came to the US and then from there I thought about doing business. Sort of looked into it, but nothing serious, but then COVID hit and March 15 of 2020,

The Australia basically said they were locking down and on March 16th, we lost 90 % of our revenue. So, you know, we're thinking about what I could do further. And then basically, think the company lasted another three months and then basically had to close it down. So ended up looking into some things. And as you said, we ended up in a group together. It just happened to pop up on my Facebook once I looked into it. This looks pretty good.

Jon Stoddard (02:23.406)
think it was July 2020 that I started doing that and spoke to the wife and then said, you know, how about we move to, or have a look to moving to the U S. Middle of a pandemic, December, know, first of December, we jumped on a plane after painstakingly getting some exemptions from the Australian government and land is here on tourist visas on first of December, 2020. what were you doing? I mean, were you working for a company? You're running your own company. Did you have cashflow coming in or what?

had my own company, then it closed, so we basically would close it down on July of 2020. And basically the contracts were unsolved to another company. So there was some contracts left. And then I started consulting for him and then I still consult now and my wife still does some admin work for him on the basis now, but we didn't have anything tying us down to Australia and.

you know, I guess with the middle of the pandemic and what the way Australian government was, which made the decision that, you know, maybe it's best to look elsewhere. And, you know, with the, the funding of the police and the rights and stuff that was going on at the time, thought perfect opportunity for us to look into the security industry and into in the U S and so that's why we ended up here. And we'll supposed to be here three months, go to Mexico for a month and then come back here for three months. that all changed once we arrived. So. Yeah.

So where did you find this deal that we're going to talk about specifically? what day and how did you find it? Yep. So, well, so I had two. initially I had one. if most people that won't know the security space, there's not a lot of security companies to sell in the USA period. In California, there was a few, but Los Angeles specifically, was none. So I came across one.

Let me stop so that the audience knows what we're talking about. What kind of security company is it? Security guards, housing associations, retail outlets. Malls, whatever. So basically just security guards across the board. But I'm sort of looking more about solutions. So I have two equipment products which are brought to me with the USA, but I need the licenses to sell them.

Jon Stoddard (04:46.03)
I needed to tie them in with a security guarding company to provide an overall solution. So that's why we were looking because we needed the license. So we needed to find a company where we could buy the license. So we initially looked and we found a company that was in Los Angeles and we started investigating that one. was sort of progressing along, but a number of things happened that, but that was through, it had a broker, which, know, in theory, the group that we did our stuff was, you know, never use a broker, which, you know, I don't buy into a hundred percent completely, but

you know, the basis of it is that brokers usually do kill deals and it's really difficult to deal with a broker, especially when you find that they're being underhanded and saying things behind your back, they shouldn't say. So same sort of thing was a bizbuyandsell.com I think, and then I saw this advertised and it was different because, it was surprisingly, cause in that week, there was about three companies that came up that were all looked like they were individual owners as opposed to going through brokers.

So I contacted this gentleman, the company was based in Las Vegas, has headquarters in Las Vegas, but has licenses to do business in seven states. So was like, okay, well, this looks really good. What kind of date are we talking about? So this, I started, the Los Angeles one was March, then we went through a process where we had to go back to Australia to get our visas. 2021? Yeah.

So basically it was February, 2021. We found the one in LA, went through a process. June 28th, we went back to Australia to process our visas. We're lucky and you know, it's like didn't realise how lucky we were until, you know, was like, I guess you could say we won the lottery because we got back to Australia, Australia locked down. We had two emergency appointments cancelled. Finally got an emergency appointment, went to the embassy, to the consulate in Sydney, got that done.

came back here and then found out the week after that the Consulate in Sydney had closed and all of a sudden there was no more scheduled interviews in Australia at all. So we really got lucky, got back here in August of 2021. Was still looking at the same business in Los Angeles. Another one in Los Angeles came up, but that was through a breakup, had a meeting with the owner and he'd lost his two major clients the week before and it's like.

Jon Stoddard (07:10.445)
you know, well, that's not going to work as there's no value. And even though they reduced the price, it still just wasn't going to work. So I was looking still at this other Los Angeles company. And then it was about probably around September. And this one popped up on BizBuy and Sellon made the connection there. But the idea was to still continue with the, and acquire the one in Los Angeles and then use that and leverage that to.

to acquire the one in... Yeah, kind of like a roll-up of all these three, right. So that was the idea initially, but there was issues with the one in Los Angeles. We'd entered in an LLY, we working on it, but their concern was new to the country, you got no credit, how are you gonna get financing, blah, blah, blah, blah, blah. I got some initial...

like funding, like approvals, but when it came down, it turned out that, you know, they got their PPP, which is no issue. And we'd sorted out that. And now I think they ended up getting $1.7 million in PPP. And in the end, it was all forgiven. But when we went down the road of trying to look to do the paperwork properly, it turns out he also had an EIDL line. think it was EDIL. What was it? EDIL. So it was...

They were in addition to the PPPs, but these ones weren't forgivable. So because they had to be transferred, was either we had to pay it off, which then basically increased because we negotiated a decent price, but then we had to increase it by half a million dollars to get the EID paid off or have it transferred. And unfortunately, it was going to be difficult to transfer it to me because the SBA wouldn't transfer to someone who's just basically

arriving in country. So I got a phone call from the seller in Vegas and he said, look, I've had an offer and no, I just want to know where you're at. And I said, look, let's open arms with you. I want to be transparent. I'm looking to do this LA business. I'm still trying to work on it. I'm still a few weeks away and I was looking to leverage that. said, however, if you're interested in doing something alternative and we can work on

Jon Stoddard (09:35.693)
you know, something where, you know, I'll pay you a premium, I'll pay you asking price, but, you know, we're have to become creative on how it's gonna get done. know, we can maybe consider. Yeah. What did you know about him? I know that you've got that skill from picking up Epic, but what did you know about him that he may be receptive to that? Well, it's sort of because I guess we contacted, I guess, at least every, maybe once a week, twice a week.

You contacted him or he contacted you? Both. Okay. But the last contact was he contacted me and basically said that he had an offer on the table and wanted to know where I was at. So I think our initial conversation was probably second or third week of September. His phone call came probably first middle of November. So I was about, we'd probably roughly been talking for about six weeks.

so, so I mentioned to him, so I want to actually going back to our, know, to what, what, what we learned in our group was, and they said, put it out there and said, you know, maybe look at something alternative. And he was like, okay, maybe. then, one thing that was a sort of Adamant was he was looking at doing asset style and I needed stock sale because I needed the licenses. I said, why, yeah, why was that you needed a stock sale versus an asset purchase group?

Why? Because we need the, the, the, the, the, the firm licenses or the security licenses or in California, they called PPO is they're not transferable. like you can train, like you can take them as, as in like, you know, add people to them. can take people off them, but you can't transfer them from one company to another. And the issue was why I didn't start from, from the beginning was, was that,

And loving the USA with all the loopholes, right? So if I was to start from scratch, it would take around six months for me to get my PPO. However, they still wouldn't give me a direct answer if they would take my Australian experience into consideration. Now, if they didn't, I'd have to go down the road of being a security guard and getting security guard hours up, I think, around 4,000 hours, which would You personally, you'd have to be a security guard. Yeah.

Jon Stoddard (11:57.517)
That would take two years or roughly about two years to get it completed. Second to that is, well, I can get the PPO as a non-citizen, you need a qualified manager who's an American citizen. So I can own the company and I can have people on PPO, but a qualified manager needs to be American citizen. So part of the deal was what was going to have to be that, you know, they're to have to maintain the licenses.

at least for 12 months until I can either, you we come to an agreement or I can find someone else to take over. then I recall you asking a number of people in our mastermind and they mentioned it or something. that ever come to fruition or did you go a different direction? So initially why I don't tell me so I end up partnering or technically partnering up with one of the guys from the mastermind and he had his own company and

we, basically wrote the reason why I the exemption to leave Australia was he wrote a letter saying that we're going to look to do business. And we have, we have these chaos, which, you know, they COVID related because they can reduce face to face contact security cuts. So that's why we got the exemption to leave Australia. I still have those and like we've expanded on those and that's one of the products that I'm bringing to the market as well as a, smart safe. So based on that, but, when, we were having.

difficulties in getting our visa, he basically dumped me like a hot potato. So I was like, okay, so just went on my own waiting. man, I didn't know about that. It was so, you know, like not, I guess, dropping myself into it, like, you the US government knows obviously, but we ended up overstaying our visas like four months. And so, you know, it was a very stressful time even to the point we got back to in the consulate and he wrote everything down on and said, you know, I found out that.

Even though we had our visas approved, you go, well, there's no issue we're going to approve, but I'm to put everything down on why you overstayed. He said, but even you get to the border, if the border agents are not in good mood, you're not coming in. So I was like, when we landed, be, you know, iffy, but like everything's okay. So we got here, got set up now. But then obviously you have to come over the issues with the licenses. So I basically had a conversation with the guy and said, I want you to stay involved in the business.

Jon Stoddard (14:18.597)
I'll give you your asking price. So he had a low ball offer. I think the low ball off was about 700,000 below his asking. And we were pretty much transparent in that, okay, theirs was low ball. It was probably worth three to 400,000 over it, he's had an over asking price of probably, you

or 300. But I said, look, I'll accept that. that offer, it was about the other offer that he was trying to, you know, was there a bluff or was a real offer? As far as can tell, it was a real offer. So I guess, guess in numbers wise, he was asking 2.7 million, they offered 2 million. And we discussed and said, look, know, reality wise, business is probably worth around 2.3, 2.4. But you're asking is 2.7. I'll accept 2.7. But we need to go down.

on an alternative route and see if it'll work. And I said, based on that, we can structure it in a way and then he'll stay involved. basically we structured it that he'd get 500,000 as a salary over five years, $100,000 year, and he would maintain the licenses. So that would then end my headache. then we could either, if things worked out great, we could continue on or after five years, hopefully I was down the process of becoming a citizen.

What was your insurance on that? Let's say he gets hit by a bus or he, you know, starts doing drugs or whatever it is that you can keep that license for five years. So good thing is, so I owned the company and the actual license, but he's the qualified manager to maintain the license. So I can get rid of him at any time possible and then just replacing with another qualified major. So,

you know, the longer it goes, the more connections I make, the more chance I'm going to find someone that qualifies. Yeah, that gives you a runway, right? Yeah. Yeah. So what I got to ask you a question. mean, this is a lot you going through a lot of emotional ups and downs. Like there was one part where we were in another how to raise capital group and you were looking at this, like put $200,000 down. gave you a phone.

Jon Stoddard (16:37.005)
3 million or something. What was that about and how did that transpire or end? Yeah. So that I looked at doing that. But, you know, I don't want to mention names because there's no, because I've had a number of people come to me afterwards doing the same thing. And I said, look, I don't understand. Yeah. Yeah. Well, the thing is, so I had, you know, initially I was introduced to this group, I think March of last year.

They, they had that program. It was like four times. think it was. So if you put down half a million, you get two million out within supposedly within, was paid out. I over 12 months for trans schedules or something like that. I've since found out that someone had put in the money. So you basically get your money back from the first train. So, I know that someone who's put their money in, they got their first branch, which was all well and good.

So I guess they've got their money back. So they're not out of pocket. But the remaining three trenches is now 12 months and they haven't been paid any. They've been delayed. Now, I'm not sure if it has something to do with it it is connected to a hedge fund and it's around about the same time. And they're not very transparent on where the hedge fund is. But it's around about the same time as the GameStop happened. So it could have been one of the hedge funds that lost all their money during that. So that could have been well in

good of why they're not saying that they're not going to get the money. It's just the way, but even though it's still 12 months. So they then came out with a new program, which was a 10 times program, which I investigated. had the proof of funds. was looking at potentially doing it, but the, and the, the buyer of the LA company was going to put up the funds, but we went into a meeting. He had his lawyer there and they just weren't comfortable with the wording.

of how it was structured and where the money was going. And so I decided that, you know, that's not what the option they wanted to do. I since know that someone who did put their money in, you know, they said 14 to 90 days and the fine prints has a hundred banking days. Technically his payout day was supposed to be the 12th of March. He's still waiting as well. So the thing is, don't believe they're, they're not, they're not, wouldn't say they're a scam. I do believe that they'll, they'll, you'll get your money out.

Jon Stoddard (19:03.093)
on the backend, but if you're on a deadline, so if you're using the money to acquire businesses or purchase real estate, and you've got a deadline that this needs to meet, then these aren't the guys for you because they're not gonna make the deadline. So that turned out not to be good option. I was still looking at that, but so I think- Were you transparent with him about the financing type you were gonna use? So both companies, the LA company and the

and the Vegas company, both of them, was fully transparent. So the Vegas company, when we decided to go down the road, I was still talking to the guy in LA, but it was sort of gone a bit cold now. What had come out, and I guess this is one thing that I think is valuable information for everybody to know is that when you're going down this road of mergers and acquisitions is, especially when you're dealing with family-owned, sole person businesses,

doesn't matter where it's here in the US, doesn't matter if it's Australia, it's nine times out of 10. When you go to look at their books, their books are all over the books. The books aren't complete. The books, if they don't make sense, they're not, the books aren't in a position where you can go, I can fund that. Like you can look at it. So was this, you looked at their books and then made an offer or made an offer and then looked at their books under the hood? Yeah. So the one in LA was good in they had a company that had

made an offer while I was in Australia. And they were actually to the point where they were going to sign the deal, went into the meeting, the last meeting and went to sign the contracts and then noticed that they did the company, it was a corporate company, had put in four clauses, which basically screwed this guy, well would have screwed this guy out of about a million dollars. Because what they, the deal was that the PPP loan had to go into an escrow.

until it was approved to be forgiven. However, they put in a clause that said if it wasn't forgiven by this date, the money would go back to the company and then they would still be able to try to be able to get it forgiven and then they would keep the money and he wouldn't get the money. So basically was a million, it was about a million dollars. So he loses money. he goes not smiling. So wait a minute. Was he, was he looking to keep the money himself or to keep it in the business? No, no. So

Jon Stoddard (21:26.701)
The, the, he would have kept the money himself if it was forgiven. If it wasn't forgiven, the money comes from escrow goes back to the business. Yeah. But the thing that was the PPPs were meant to say the businesses. So he, he used the money to save the business. But because it hadn't been forgiven, he had the money himself. And it was basically in an escrow, which basically was if the money's forgiven, then the money goes back to him. The money's not forgiven. The money guy has to go back to the company. Okay. Okay.

What they did was they put in that, if it's not done by this date, then we're taking the money and then we'll get it forgiven and they'll pocket the money themselves. So, I guess the smoke and mirrors from that was, this corporate company come in and spent 30, $40,000 on a due diligence company. So everything was there. You could see everything and it was sort of in order. There was a couple of issues that, like,

could have raised the red flag. They had one client that was 75 % of their business, but it was different individual contracts within that contract. So it made sense, it was still a red flag. Sure, 75 % of your business could have killed you. So we went through the process and the problem was as it went further down the process, like I'd ask him for, I need this document, I need that document, no problem. As we further went down the process,

the documents that hadn't been completed by the due diligence company, because obviously we're getting month by month by month. So about three, probably four months now getting into November after this other corporate company pulled out, like he didn't have it like, you give me a profit statement? And then wouldn't have the wages on it. I'm like, just pull it out of your QuickBooks. And it's like, we don't use QuickBooks. then I was getting paperwork that was like handwritten and I'm like, what is this? So.

Well, so what did they use? What were they using? Okay, so they're using QuickBooks for the invoicing, Paychex for the payroll. like the numbers were there, it's just from a funding point of view, it's not it's not in a QuickBooks format. it's like, you know, funders want to see, you know, we can verify this through QuickBooks and everything where there's a sort of like, we've got this bit in QuickBooks, this bit over here, and you have to put together and it's like, well, that doesn't work. So

Jon Stoddard (23:52.193)
We had some funding that was approved, then, as I said, the EIDL came out, so it was dragging on. So then that's why I thought, okay, well, maybe I'll reverse the roles and then look at the Vegas company first and then have the LA one, maybe we can leverage that one later on. So I got into an LOI and then basically the terms of the LOI was that, you know, we're looking...

to go down the road of doing a management buyout. basically the yellow white would bring me on board as an employee, pay me a salary. All right, so you proposed a management buyout, you come on as an employee, then what? Yeah. The issue was, and it was the employee who was second in charge and

was basically running the company. Now, from the beginning, I wasn't happy with the fact, he was taking his over amount salary. The revenue of the business was just over $4 million. he was, the EBITDA was probably at 700-ish, somewhere in there. And then he was taking $400,000 salary. 10 % of revenues.

Yeah. So I'm like, I said, doesn't make sense. like, you know, I've portrayed these guys to the bill and the end all, and he's a really good guy. I'm like, that's a little good, but like, you know, the numbers don't justify selling. So, I mean, that's his business. mean, he could use a personal piggy bank if you want. It's just, it's not the owner. This was the employee was taking that seller. crap.

So I was like, okay, so anyway, got, you we went on like it's sort of the yellow Y we agreed on terms on the yellow Y and then the process sort of dragged on for a couple of weeks. then, you know, basically the employee like, you know, basically like stopped me from being employed but we still went down the road and the deadline of the yellow Y was 23rd of January. So I said, look, you know, you haven't complied with the yellow Y.

Jon Stoddard (26:13.789)
sort of back and forth, but I'll still try and get this done by that date. Yeah. So you've got multiple deals trying to close and they're both in the same niche. You're being very creative. mean, do you, at some point you're like, man, this is a lot harder than I thought it was going to be or what? Yeah, no. So, that's the main thing was, know, it was, know, I guess the thing was with the main mastermind thing we did was like, if you just look at that from outside and looking here, it's like,

the way they talk and portray, you know, you get this opportunity here and closes tomorrow. you know, that's like, and that's not the reality at The reality, you know, like at this point I was already what 12 months in, you know, but realistically we came in August. six months, six months, you know, full on trying to get this solved and still dragging on. And, know, one minute we're going forwards and next we're going back. And in the meantime, you know, I don't have any income and all of our savings are,

Basically, we know it's like looking, well, where are going to get money from? Where are we going to do? So the pressure here and then the pressure of trying to get these deals done. initially like did neediness ever creep into your negotiations site or do we, how you ever to compartmentalize that? I mean, you've got these pressures of I've got to, I got to buy a business, going to get the cashflow, but I don't have a, you know, income. I'm not consulting or whatever that is. then.

You know, want to call somebody to move something along, but it's kind of needy. Like, think potentially, yes. And, and I think, it probably went too far as in, in become needy, but like, I don't think it went to the point of like, it didn't do it to point where, you know, it affected the deal per se, but no, it's definitely like, I'm, you know, Patrón go look, we need to get this done, know, and then, you know, my, my, my, guess.

I was really focused on, need to bring me on board. You need to bring me on board. You know, I need to start taking salary because like this is driving on too long, et cetera, et cetera. Hold on one second. Hold on, hold on.

Jon Stoddard (28:23.949)
All right, so where were we at on that? I'll take this. I have to add this later, but let's just pick up where we left off. Yeah, so I think it was like, I was sort of pushing for me to come on board as a consultant. Was that kind of a consulting for equity deal that you'd come in for a percentage or you just

they'd send you cashflow because you needed the cashflow. Yeah, just send me cashflow because I needed the cashflow. But at pretty much every point, both companies rejected it. So I know, the one I was, don't want to bring on board unless the funding's guaranteed. But the way he was trying to do the funding was just, it just wasn't going to work. So that's why, and then the other why with the way it was like he hadn't complied with what we'd signed on and agreed on. Like I had, he'd sent me an employment contract

But then it didn't, nothing happened because it was stopped by this other employee. the boy and then... God, hold on, hold on. Something's going on. Something.

All right, well, so what this I have to ask you about the read of these two sellers. One was doing $4 million, but some guy, one employee was taking $400,000. Why was the owner allowing employee to take $400,000? Well, I guess from his own admission was he checked out. This guy was running the company. This guy had a great reputation. Now.

It was portrayed to me that he'd sold his company in another state and that he's non-compete had just ended in that state and it was potentially up to 10,000 hours of man hours a week available that he would be up to tap into. Now I was like, that's all well and good, but you're not based in that state any longer. They're realistically, you know.

Jon Stoddard (30:32.077)
even if it's really good, you're at five to seven, 7,000 hours. What it came out was later was he'd sold the company in 2002. So I'm like, non-complete don't go for 20 years. We're now in 2022 years. So there's no way this is 20 year non-complete. It just doesn't happen. So certain things started coming out and it started to...

you know, some cracks started to fill in and you know, like all of a sudden, you know, I said like same, the books weren't in order. I mean, essentially you're a threat to him because his $400,000 is gonna go away if you come in and run the show. Yeah. Yeah. So we got to the end of the first LOI and then we resigned a new LOI. But I partnered up with

a US citizen and as my CFO. He's a professor, mergers and acquisitions, business financing type stuff in Southern California University. He's the husband of my wife's friend. So that's how we sort of got talking and one thing led to another. And so we sort of started looking and I gave him the information. look, this looks all right. And then he said, look,

I'm willing to put up my credit and my history so we can, I guess, take the business. So that's when we started looking at even more creative. then we end up going, me and him went up to Vegas and we sat down and went through the books and everything. And we said, look, that's good. It looks on paper, it looks good. However, we want to see the proper books.

The guy that was running the company had his own system, it was online. The accountant hadn't done anything. It turned out like the year of 2020, there was a $1.5 million loss on the IRS books, on the tax filings. And then I'm like, this doesn't make sense. And then I actually wrote a letter to the accountant said, can you please explain this? And he came back with, I've just checked, actually, I made a mistake.

Jon Stoddard (32:55.127)
So I was on the phone to the seller. like, you you've made a mistake. like, was turned out like, think the loss was around 200,000, but that was explainable. But I'm like, that's a $1.2 million mistake. Like that's not a mistake, but you you can afford. So the thing was, so we're like, okay, so what are we going to do here? So quickly are you going to kill this deal here?

What? thing is, we're definitely looking, but the thing is on paper, it makes sense. So I spoke to my partner and he goes, look, I will go in and recreate their books the whole of 2021 and up until April for free. So- he a forensic accountant? I don't know, but he's done this enough to be able to, know, so we've got, because we've got all the back end bank accounts, we've got all the expenses. It's just-

It's nice to be able to just dump that into a quick book or white plates or something like that. then they do quick, they're doing quick books, desktop. he said, we'll transfer it online. then you can do it. Everyone will fix the books up. So at a minimum, even if we don't do something for you, he said, your books will be fixed. So you can go in and sell it to somebody else. Yeah. We went up there on the first week of February. I got women. were they resistant to that? Not initially.

Because anytime somebody resists an audit, this is like an audit. If they resist, you know, there's funny business going immediately. Well, the thing was, so we went up there and there was the owner and the manager was there. then, you know, the manager was like not really, not really interested in the meeting. We asked for some information from the meeting. We got one part of the, the first part of information sent the same day.

We asked for the age receivables and we said we'll have it by this afternoon. Then the next day came, didn't have it. The following day followed up with, where's the age receivables? they haven't been, you know, good enough to date, perhaps update. But turned out that, and before that I had a conversation with someone and said, look, this is not looking good. And it turns out that the manager ended up resigning.

Jon Stoddard (35:19.565)
Now we're asking for the age receivables and he said, look, the book's not updated. looks like the manager, when I told him I was selling the business, it looks like he's checked out in October. But I said, when we looking at the book, how long have the age receivables been It's like nearly 12 months they haven't been updated. So I'm like, that's not checking out when you're selling a business. That's like a long time before. So I said, my issue is that, and I said, you know, and I guess mainly the seller were starting to get, you know, become

acquaintances type friendly. said, Mike and said, this guy's taking an exorbitant amount of salary and like, it's the business not being run properly. So anyway, we sort of agreed that like, anyway, the, the manager left, the owner was left on his own and then basically ghosted me for nearly six weeks. So we started moving on. We're looking at other acquisitions, but he

send me a message once a week or something just to keep me interested. After I think it was about five weeks, he came back and said, he's got another offer. I said, okay, no issue. So basically he said, well, you know, what, can we structure something else? So he basically then came up and then it was his suggestion and said, look, if you come up with $500,000, he said, and then the issue was, yeah, you come up with $500,000.

And then I'll sell a finance to balance. Now I'd already renegotiated the price on the otherwise. the initial price was 2.7 million. Now he, they lost the contract that was, and this is the reason why the manager decided to move on to lost the contract was worth about $800,000. So I renegotiated. Aside from the potential fraud going on with the number one guy, and then the books nine to be in order, there's no way you could offer him what he thinks it was.

Yeah, so we renegotiated and basically the new price was 1.6 million. But then on top of that, I'd pay him the $500,000 salary. So it was about 2.1, if you can say it's total. He said, $500,000 down and you'll sell the finance to balance. So said, look, that's all good, but we need to fix your books. So he was resistant to that. didn't want us to, he said, if I go down this road of, you

Jon Stoddard (37:44.695)
Cause basically, my partner said, we recreate your books and then based on that and using my credit. then since then I was lucky that I ended up getting my credit and everything updated. I ended up getting like a credit score in the mid 700s. So then we had that as well, but he's like, he'll basically, and then also the partners, he'll put down a hundred thousand dollars of his own money. So this sort of was going back and forth. said, like, it's not like,

He's going, look, maybe you just go and find a strategic partner. I'm like, the, the, seller, I'm like, what are you talking about? said, the 500,000 has to come from somewhere. Now, if I build up a strategic relationship with someone like that's not, it doesn't happen overnight. So then we went down the road of anything. like you kept saying, we know you can like maybe find a company in Los Angeles that wants to do acquisition. I said, if that's the case, said, they don't need me. said,

If they were already looking to do his acquisition, they've already got the management team in place and then you've already advertised your business. So if they're looking at acquisitions, especially outside of California or Los Angeles, they're already going to have contacted you. So they're not going to need me. So that's not going to work. So this went back and forth for a few weeks, probably for a couple of weeks. And it was actually becoming quite frustrating. And I was ready to pull a pin and go, you know, this is too much.

Yeah, but you did pull the pin on this one. Yeah, I know. No, no, no. This is the one I ended up doing the deal. Okay. All right. So we still went down the road and then finally he messaged me and said, how much money can you come up down? And I said, look, I'm talking about a hundred thousand. So the initial conversation was he wanted the a hundred thousand down non-refundable, but before we did the books and it's like, this is not going to happen. So we got on a call.

with, and it was the same day he actually told me, and then we got on a call that night with my partner and he had another offer. This was separate to the first time we had another offer. He still had it listed on this by cell or other places. Yeah. So he came up and he basically said that, you know, he'd been given an offer of a million dollars cash, just for the contracts and a million dollars in stock options, which you could turn into cash within six months. Now I said, did you know who the other offer came from?

Jon Stoddard (40:09.037)
I know I didn't. Obviously, was it an OTC company or like a publicly traded company? traded. So this is where the interesting thing came out because I said, in my experience, said, look, I said, in my experience is you're going to get a million dollars cash now and then they're giving you a million dollars in stock options, which you're saying you can turn into cash in six months. said, stock options are a long-term option. They're not going to turn into cash within six months. So I said, I don't believe it.

So I can guarantee you this, they're also going to do this, contingent upon we doing your audit. he's the thing was he said, no, that that was me. So we got on the phone that night with my partner and the partner goes, so this offer, are they a public traded company? And went, And he went, the deal is not real. And then then the seller went, well, what do mean? He goes,

If it's a public traded company, doesn't matter what structure your deal is within 90 days, they've got to provide the SEC with your financials. You don't have any financials because we're the ones who are offering to do them for you. Yes. So I said, then, my partner said, I'm not giving you a hundred thousand dollar non-refundable deposit because I don't know what I'm buying on paper. It looks like this is good, but we need to recreate the books to make sure that what we're buying is what we've got. So we're not doing it. So then we ended the conversation. So.

That was basically the deal done. So I was like, yep. So that was like on the Thursday. so we just left it on the Saturday night at about one a.m. morning. I got a text from him and said, I have a question for you. So I just replied, you guys have a question for you. want to ask you tomorrow. So I just replied, okay, not expecting to hear from something at one o'clock in the morning on Saturday. You've had five bottles of wine, you you think that would get whatever. So, but I had clock in the morning. He texted me and said, all right, you guys have thought about it. He goes, because actually like you're off a better.

Because like the reason is that it keeps him involved and you know, he's in fairness to him, he's developed on paper a really good business over the last seven years. So it keeps him involved to be able to help develop it. while handing it over to me and the reason why he wants out is this is going back into doing other business for the family. So what kind of business? Real estate. Real estate. Okay. Going into real estate, your offer really doesn't help him with

Jon Stoddard (42:32.269)
you know, going into down payments for real estate. I know. it's a family business. he's got, it's structured in a different way. So it sort of makes sense. Okay. So the thing was, so you basically text me the next day and say, look, in lieu of the a thousand dollars down, a normal fundable closet, would you be willing to sign over the exclusive rights of selling your AI technology and your safes to my company? And

I didn't even have to think about it because it was like, if we, cause he basically was said, well, if we go down this road in three or four, three, four months, and then we don't follow through with the deal. then he's, he's got to set him back six, six months. So by me signing over technology is like, have skin in the game, but for me, it made sense because if I sign over the, the, the rights to him, then it gives me the license to be able to sell. even if we don't follow through with a deal or the deal falls through, I still have.

and Avenue to be off to sell my, my safes and my, my, technology. where did he get that idea from? I'm not sure, but he came up with it. So I was like, yep. Okay. We can do that. So then what I did was then I went back and instead of doing a new LR, we did like a heads of agreement. And basically, I put down this, I come on board with a salary starting. So this was a Sunday or was like just about two weeks, you know, as of next Wednesday, I start getting a salary.

I come on board as the vice president of operations. And basically as a consultant through my own company, we then fix your books for you. Then once we fix the books and the books make sense, we'll put down a hundred thousand dollar deposit refundable. And then basically we'll get funded an additional 500,000. And then the balance is self financing. So.

he basically, then said, okay, so when we, get the 500,000 we swap. So he then becomes a vice president and I'll become CEO. and then he takes a salary of a hundred thousand dollars and we have self financing for five years, five years. Yeah. Now, initially I put 3%. And, I sent it to my partner. He signed it. said, yep, I'm happy with that structure. That's all good.

Jon Stoddard (44:57.709)
sent it to the unit and then the, the seller comes back and goes, I'm happy with everything except the 3%. And so, you know, I just put 3 % because 3 % is SBA, SBA, right? So, I rang my partner and said, he's happy with everything except for the 3%. And then my partner started laughing because actually 3 % is a little bit low. So we ended up, said, maybe Stephen got fired. We came back and you said 6 % agreed, 6 % over five years. Then we sort of,

just back and forth on a few things. And it's like, well, you know, I'm a bit concerned about cashflow of the business initially. this is before the books are done. All right. Yeah. Yeah. the agreement was that for the first 12 months, you only take $50,000 as a salary. Then for four years, we'll take a hundred thousand. Then the last year will be 50,000. But I said, but it's also based on him also bringing in new business as well. So,

There was that that we agreed on. And then also the payments on the seller financing don't start for six months after we take over. So, yeah, so basically that was it. I went up there on the Tuesday. We went through all the admin. He showed me how to invoice, showed me all his payroll, signed off on the deal and then Wednesday and then now we're two weeks in. basically the deal's done. So how much do you own?

That's when you're a VP and then you swap. How much of the company do you own? Okay, so I have a deal with my partner that it's a 60-40 split. But then once we take over, the seller is going to keep 10%. Okay. Once the seller financing is paid off, it's also in the agreement that he will sell us back the 10 % at the cost of

one, alcoholic beverage on a boat off the coast of California. Okay. That's cool. So how did, why do you think that deal worked for him? His motivations to where he's going. Well, the thing is, and I think this comes back to, you know, doing a, an alternative deal. as I said, you know, I already mentioned me and him have built up a sort of a bit of a, I guess a friendship rapport.

Jon Stoddard (47:23.949)
No, he's going through certain things. He understands what I'm trying to do. He's, you know, at the end of the day, this is his company. It's his baby. He wants to see succeed. doesn't, you know, he wants to, he wants to succeed. He still, I guess has some sort of emotional touch, attachment to it. is, mean, this is a guy that was employing somebody that, you know, was pulling out $400,000 for that business. Like, he took his eye off the ball.

He did. the thing, you know, I guess the thing is that he's a bit, he looks like, well, doesn't look like he seems to be burnt out, had enough of the security issue, which isn't uncommon. Like a lot of the, businesses I've looked at over the last few years, the main reason is that I'm just like, no, I've had enough security. want to get out. But I think the option of him sort of remaining involved without actually having to do the day-to-day stuff, not having to.

have been involved with security guards not having to be. Yeah. what, how, how is that 10 % and him bringing in business? What does that look like? You require him to do 20 phone calls a week or month or. So the a thousand is basically to maintain the licenses. Yeah. Not only, but so we've got seven, seven licenses in seven states maintain those. So he's the name on those, which is what we need is American citizen.

on the reverse side, if we expand, let's say we go into New York, or we go to Chicago, then he would be that person that would also go onto those licenses. Yeah. Is the guy in California, the other epic guy, he's American citizen, would take that role or what? Yes. Yeah. Okay. So the thing was, so it basically structures, and then it's also that his salary will increase providing he brings in new business. So if he brings in like,

million dollars in business then his salary will go to 150. Yeah cool. But then the good thing is that like and which was his suggestion is that like so he starts at 100,000 on the 1st of January and then if he hits a million then he goes up to 150 but then on the 1st of January the following year it goes back down to 100 and you have to get that million dollars again. it sort of it's all started it all fell into place like you know

Jon Stoddard (49:46.125)
I'd like, you know, you, when you've talked, you know, I'm a bit sarcastic as an Australian human, whatever. So I, I'm into him going, you know, we could've done this six weeks, but you know, at least we're here now. So how did you feel? Well, I guess the question is like, how many times did you feel like giving up over this year? Almost a year or, know, I've had some dark days and you know, there's been some days where, know, I didn't want to get out there and you know, the thing is, but at the end of the day, you know, I came here for a reason and.

You you've got to just keep going. You know, and you and I have been friends for a while and I just remember a couple of times we talking that it's just like, knew on the other side, I go Marcus, geez, man. He feels like, like I'm feeling like he's depressed, but the weird thing about it is you kept going. You kept moving forward. Even though your head was down, it was dark, it's cold, it's snowy. You kept going. And like, there was always, there was always that hope that you could get something going with it.

The thing is, I guess, tapping into the mastermind, was like, you know, there's another Thursday call that we do. he was also on the line and then he made a comment, which made sense to me. And he was like, if I followed that mastermind 100 % how it's portrayed, goes, I'd already be broke. He goes, but you take parts of it and you put it together. Right. this is your partners in that. Yeah. No, no, no. This is what the third guy that does the Thursday call.

yeah, yeah, yeah. Yes, yes. Yes. I agree with that. I know you're talking about. And the thing was, I think it makes sense. Is it like, if you go into any, any of these masterminds, you know, can get caught up in doing 10 different masterminds and actually not getting nothing done. And the thing was you're trying to follow these a hundred percent and they're telling you what they done. We have to succeed in what they're doing and they give you.

this tool and that tool and this tool. You don't have to use all of the tools. You can't. There's so many like this mastermind you're talking about earlier. Somebody asked me, goes, I want to do what he does. Like, well, it's not going to happen because you don't have all the resources, the capital and everything and the experience that he has in place. Yeah. the foundation. So he's like, you know, ideally that initial mastermind was directed at like digital marketing agencies. you know, like it works for any business, you've got to, you've got to

Jon Stoddard (52:06.293)
like really just to yourself. And I think that's what kept me going was, is that if I was following that a hundred percent to the T I probably would have given up on like, because this is not working. There is no way out of this. There's no way putting that as in that is in a box and then putting that box over here into a round hole. But so it was like, I know that if I took these tools and it was the tools that, you know, that I was like, okay, I like this one. can use that one. like this one. Putting those together was what kept me going.

And it was, it's most important that you don't get stuck in the little things of, know, I've got to do this and it's got to be done off. He did a deal in two or three days. The reality is that doesn't happen is because like when, especially when you're doing alternative deals, like, you know, at the end of the day, didn't know this deal was zero out of pocket and zero down. But the other thing is, is people get confused. Zero down isn't zero out of pocket.

Right. Because there zero pockets and zero down. It's somebody else's money. The money's coming from somewhere. So, you know, even though, you know, I've initially done this and I'm in the business now and I'm working towards it and it was zero down and zero out of pocket. But once we get the books done, there's still a hundred thousand going down. It turns out to be zero out of my pocket, but it's still coming from someone. Right. And then you changed on this. I mean, you've been in the arena for a year working a deal.

How have you changed personally? I have to be honest, my health has suffered a lot. Having said that, I've just changed my diabetes medicine and I'm back to what it's supposed to be for the first time. And I actually took it today. Actually, you'll see my monitors on the, I've got this today, put it on and it monitors my diabetes. And it's actually back down to where it's supposed to be for the first time in a long time. That's pretty stressful.

Yeah. agree. My wife had had problems and you know, she almost left me because, know, I packed her up for the U S and you know, we were supposed to be doing this and you know, shouldn't have, you know, what we've been in now was what 16 months and it's taken 16 months. And I think the, the thing that people also need to understand when you're doing this, like don't try and do things that you don't know what we're doing. So like I could have gone down and tried to get a digital marketing agency. could have gone down and.

Jon Stoddard (54:28.909)
done my own podcast, for example, but that's not what I do. I'm a security guy. So I in my lane and that's the only thing that kept me going was because I didn't, you know, I might wake up one day and think, what's going on? This is, you know, this is crazy. It's just not working. But I knew what I was doing where if I was doing something digital, it's like I wake up and go, well, this is not working. And I don't know what I'm doing. I've got to give up too many, too many questions like what you don't know. Yeah. Yeah. So the thing is like,

Once I have my own business, like the security business here in NSDevelop, maybe then acquiring a digital marketing agency might be something to look at, but the digital marketing agency being my first acquisition was definitely not an option. It's almost like, I think everybody thinks that, I want to buy a digital marketing agency. Yeah, but the thing is, I guess there's certain things that you need to pay attention to, you need to listen to in between. like, I'm not sure if you're on the,

There was one time I was still in Australia and we're having a call and I actually asked the guy that was in charge of the muscle. said, keep telling us about all these great deals that you're doing. Can you tell us about your failures? And he went, yeah. And he spoke for the next 30 minutes and it was great. And he said, just by a butt, he turned off the recording because obviously he was mentioning names of how things didn't work and et cetera. But it was good because it put things in perspective that not everything is rosy, not everything is working. And if you listen to certain things, there's other like

Well, maybe you might get 10 potential deals in 102 connections and all those 10 potential deals, know, seven them might be real and all those seven are real, you might end up doing one or two, but the reality is you might end up doing none. And it's just like, yeah, if you look at that funnel and it goes down to one to two and that's over a 12 month period, I mean, you cannot rely on a one to two is going through over. Yeah. Yeah. And the thing was too, and then, you know, like we have that Facebook group and

There's initially you saw the initial guys that were really like, yeah, yeah, yeah, yeah. I've got this deal, I've this deal. But actually in reality, they didn't close any of them. And the thing was, like, as you're right, were like, digital marketing, digital marketing is the way to go. And during the pandemic, digital marketing, marketing was attractive to people because it wasn't, you know, was no face to face and you know, everything's going off, you know, online and everything. But it was like, if you're not in that space and you don't understand it, you know, how do you move forward?

Jon Stoddard (56:54.133)
No, I completely rigged because you don't really know what the bell, how the bell rings. Yeah. And the thing is like, you know, whether you want to call it, zero out of pocket, or if you want to go down the road of trying to get it zeroed down, the issue then comes down to is you have to build up a rapport, which is why it's taken me six months. I've built up a report and, and, know, I want to say a friendship with the seller in Vegas. So the point is that he trusts me that he will give me his business for no money down.

And then a small deposit, which is zero out of my pocket to then take over his business to then be able to give me sell a financing of 1.1 million in a $1.6 million deal. Now they have done, you have to understand what you're doing. You have to show them that, know, what the business is that you're getting involved in. you don't, you know, acquire, if you want to acquire a digital market, and you have no experience in digital marketing whatsoever, why is someone going to

Give you cellophane. Why is someone going to let you take over their business or no money out of pocket? And that's the thing is I think, you know, lot of people, you've got the mindset of this is easy. I'll just go in. I'll digital marketing. No problem. I'll pay. We'll hand over the businesses. It's not the case because at the end of the day is they're selling for a reason. And like they might not, they might have flexibility in when they want their money, but they still want their money. And if they can't pay that you're going to give them their money, then they're not going to do deal with Marcus.

This is exactly why I started the podcast because you know, you get on the masterminds and you're talking to these coaches and you get one question, maybe two, and that's it because there's 50 other people on the call and you're, you're not understanding what it takes to actually make a deal go through with this creative type of finances. So that's why I'm talking to &A entrepreneurs like yourself, like, it took 16 months. It took six months to build a relationship. Him probably testing you a number of times ago. was like,

Like does he get, does this guy know a stop? Like, my God, he's got some AI that I can buy from them and then reverse the sale or, you know, turn it around. Like, do I trust this guy that takes time to think too, he's like, you know, I do believe the other two offers were real offers. but, know, but there's obviously things connected. said, know, like you don't have his book. So that other real, like technically it might've been a real offer. It's not going to go through because he doesn't have his books, but you know, he.

Jon Stoddard (59:17.535)
I believe I just said, he's testing me. Look, if I don't contact him for a few weeks, if I don't agree with what he's saying, is he going to walk away? Because if he's going to walk away so easily, why would I do the seller finance? Because if he walks away easy from this, when it gets difficult, when he's running my business, if he walks away from it, I'm not going to get my money. So it's- Yeah, at some point when he came back with a counter offer and said, let me have-

your AI and then I re-licensed it back to you. There was a point where your relationship turned into a partnership. Yeah. Yeah. And I think too, like actually we had a conversation and I said to him, like, so I was in Vegas on Friday and I said, actually I said, so I've got a contract and I, so I've got a guarding contract, which I've been working here in Los Angeles, but I had no way to put it. So it's sort of in a hole. I just.

Like it's funny how when when things start going right and like, won't say, you know, they're perfect the moment, but like they're starting to turn around, other things start coming back to board. So I'd spoken to this, this, company about taking over the guy in LA and it sort of would be put on hold. And they came back to me last week and said, you know, we've just got our, our grant from the government. Let's have a meeting. So I've got a meeting with them tomorrow. But I said to, I said to the seller, said, I'm at more risk now than you are. said, because.

if I'm, know, I'm, know, cause he doesn't have anything in Los Angeles. He has a license for California, but most of it's up in Oakland and San Francisco said, I'm good. I've got now somewhere I'm going to put this contract with you. So if this doesn't, if we don't go through with this, I said, I can't just take that contract and put it somewhere else. You've got the contract. I said, so I said, you know, and then you've got my technology, which I've sent handed over the exclusive rights to.

No, not that's not that's the big deal to me. said, because it still gives me the licenses to be able to sell them. So, but I said, if this doesn't go through, you're going to end up with a company that has proper books that you can go and sell it properly. You're going to have a footprint in Los Angeles. But you went, but I want to footprint in Los Angeles. Yeah, but if you want to your business, a footprint in Los Angeles is a good thing. So I said, you have a footprint in Los Angeles and you're to have the technology and you'd have good books. So, you know, your company is going to be probably worth more than if this didn't go through on paper than what it.

Jon Stoddard (01:01:43.655)
is right now because the books are done. So it's sort of reverse where he was thinking that he was more at risk than I am, but now it's reversed where I'm now more risk than he is. was risk reversal. You really showed the value to him. So yeah, Marcus, we're already up on the hour. Sorry for the anti-technical problems, but I want to thank you for spending time with me. I know it was good and I really appreciate time, John. And, know, especially like times when you're down, you know, there's certain people you can call on just to have a chat with sometimes, you know.

It helps much more than people realize just to have a chat and get to know Yeah, man, I think you appreciate that too. All right, excellent. All right, take care. Bye, Trump, bye.