Partnering with Operator?
May 28, 2024
by a searcher in New York, NY, USA
I'm pursuing a self-funded search within commercial / residential services with the ultimate goal of relocating and becoming a full-time owner / operator of the business, but have run into some situations where the Seller is the only person in the organization with the licenses needed to qualify the business (e.g., Master Plumber License, electrical license, etc.).
Does anyone have experience with finding and partnering with a local operator during the due-diligence phase of the deal who has the necessary licenses to continue qualifying the business post-transaction? Are there any other creative ways to solve for these circumstances assuming the Seller is not open to continue qualifying the business post-transaction?
from Creighton University in Los Angeles, CA, USA
2. Transition period with seller: Negotiate a transition services agreement where the seller remains engaged for a defined period (e.g###-###-#### months) to allow time for you or a new hire to obtain the licenses. Structure compensation accordingly during this period.
3. Acquire the seller's license: Some licenses may be transferable from the seller to the new owner through the relevant licensing body's processes. Explore this option as it could simplify the transition.
4. Hire licensed staff pre-close: During due diligence, identify and hire licensed individuals to join the team, contingent on the deal closing. This ensures you have qualified staff in place immediately after acquisition.
5. Obtain licenses yourself: If the required licenses are attainable within a reasonable timeframe, you could pursue them prior to closing, though this adds risk if the deal falls through
Finally, once you get to the SBA funding stage, I can help. I co-founded Dealwise to be the easiest and fastest way to get an SBA loan for a business acquisition. In a nutshell, we connect borrowers and SBA 7(a) lenders, functioning as an automated loan broker. You can check out our website here: [https://godealwise.com/beacon]
in Houston, TX, USA
Much of what I would recommend has already been suggested.
One of my business partners and I run into this issue in the architecture/engineering space and our preferred way of structuring it is to see if they have a key employee who has the required licensing/credentials.
If so, we are open to offering them a minority interest in order to overcome this challenge. It can also help with the company culture during the transition period - as long as it's done well and all parties are aligned with the best interests of the company moving forward.
If that's not available, then we explore what the next best option is for that specific business. If the licensing is something my partner can get fairly easily, we prefer to go that route (since she's the operating partner).
If it's not, then we weigh the pros and cons of getting another operating partner with the required credentials vs going after another target that doesn't require specific licenses.
Ultimately, I believe it comes down to personal preference. Is it easier for you to get licensed or deal with a new operating partner with the licenses or to manage a key-employee who holds them or to go after a different type of business that doesn't require licenses (maybe one that works with the company that does require licenses)?
Each option comes with unique challenges. Which one do you feel best equipped to take on?