Proforma’s Greg Muzzillo
On how to gain leverage over the seller in a negotiation
Muzzillo recently started a new business that takes his franchising concept and applies it to the staffing industry.
“As much as I still like growing Proforma and look forward to getting it to $1 billion and more, I was itching to do something new,” Muzzillo says of ProTalent.
Muzzillo sat down with us to share his experience negotiating with sellers and the risk of veering away from your area of expertise in business. What follows is a transcript of the above video, edited for readability.
Put the risk on the seller
So Proforma is about a half-billion dollars on our way to a billion dollars. But today, we’re really just a collection of small businesses. As a franchisor, our franchise owners range in size from a half-million dollars to about $35 million. So our strategy is still to primarily help our franchise owners conclude acquisitions in their own market the same way that I built Proforma back in the day when I was growing my own distributorship. To identify small distributorships, to negotiate with them and to buy them on primarily an earnout basis with very little to no money down, to take the risk out of the deal for the buyer and really put the risk on the seller. Because the seller needs to know and be confident that business is going to continue, even when the seller removes themselves from the operations.
Time makes sellers realistic
The best advice I can give to our owners is to be patient. Of course, everybody is anxious to grow and everybody is anxious to do a deal, but sometimes the best deals are the ones you walk away from. So patience is very important. Many times, when a seller thinks they want to sell their business — even a small business owners reads the Wall Street Journal — they don’t understand they have a small business, they don’t have a big business. They don’t understand how their business is going to sell. Many times, the seller hears the word earnout — I’m not going to get big money, I’m not going to hit the lottery — and they don’t like it at first. I tell our owners, calm down and slow down. Time makes sellers realistic. That seller is going to become realistic because they don’t have a saleable business the way big businesses sell. No. 1, be patient. No. 2, let time make the seller realistic.
Be wary of pride
Most deals come down to those final few details that many times are pride, not necessarily really business. And there are two things that are solutions to that. No. 1, if it’s just one single small issue that’s really like $10,000 or $50,000 or whatever it might be, it’s not really the amount of money. It’s more the pride that neither party wants to give in. There have been a few times I’ll say to people, ‘Let’s flip a coin. Heads, I win. Tails, you win.’ And sometimes people actually said, ‘Let’s do that.’ Right? Because it’s really down to the stupidity of pride on both parts that really want to get a deal done. I’m sure big businesses don’t sell by flipping a coin. But really, sometimes, how do you get past two knuckleheads, two stubborn people and push past it? To get a deal done and to get to the letter of intent — I’m not saying I did this, but it surely is possible. Get the letter of intent, get the deal done, get it on paper. Then go and do due diligence. Then many times, you can find things in the due diligence process honestly, not dishonestly using due diligence to change the deal. But you can find things in using due diligence that can get you where you want to be because now you have the sole attention of the seller.
Mind your own business
Through my years, I’ve seen lots of people think just because they are smart and just because they have money, they can go get into other peoples’ businesses. And I’ve seen them write checks, stupid checks in my view, for businesses they knew nothing about. That was a big mistake many times. On the flip side of that, I’ve seen many people sell their businesses to people that didn’t understand the industry they were getting into. I know of many stories where people were able to buy their businesses back several years later, after the money people screwed it up, for nickels on the dollar. So my advice would be, unless you’re some huge company with money to burn trying to build some big old conglomerate, or some kind of investment bank organization that has a much different view of the world and has lots of affordable experts in lots of different spaces, stay in your business. Realize that everybody else’s business is none of your business.