Jonathan Jay, Money & Me COVID-19 Special

Graham Rowan interviews mergers and acquisitions expert Jonathan Jay from the Dealmakers Academy about the challenges and opportunities in the business world arising out of Covid19.

In this programme Graham Rowan interviews Jonathan Jay, well known mergers and acquisitions expert and founder of the Dealmakers Academy about the effects of the coronavirus pandemic.

The views expressed in this programme are not necessarily the views of the TV channel, it's officers or employees. The value of property and investments can go up as well as down. Always consult an independent financial professional.

Transcript

- Hello and welcome to Money, Me, and COVID- 19 where we talk to subject matter experts about the financial, the economic, the business, and the social impacts of Coronavirus. My guest today has progressed from making a six figure income as a stage hypnotist, in his early days, to becoming one of the UK's leading experts on buying and selling businesses, through his organisation, The Deal Maker's Academy. His name is Jonathan Jay. Jonathan, welcome to the show.

- Oh, , thank you Graham. You're certainly going back. You're going back 25 years with that introduction. Yeah, that's in the dim and distant past, but .

- Well, I'm not gonna let you get your watch chain out and dangle it.

- Oh, okay .

- Well, I did a broadcast, recently, I called "Armageddon or Opportunity," in terms of what's going on in the world, today. As somebody who both operates businesses, but also looks at business opportunities, are you leaning towards this being Armageddon, or opportunity time?

- Well, it's interesting, because my first indicator that there was going to be an economic impact to what was going on, was the day that I was meant to be drawing down on a considerably large loan facility, to finance some acquisitions, some big acquisitions. And I had a phone call from my broker expecting him to say, "yeah, the money's on its way." And the phone call was actually, "no, they've stopped everything. "Jonathan, it's not just you. "They've shut down all lending in the last 24 hours." That was an indicator of sort of a 2008 type of, "there's a recession on the horizon, let's just pause." And, in fact, the message was, "we will review it "in six weeks." So, we'll find out in three weeks, or so. There were a few days, at that point, where I did have my head in my hands , thinking, oh my goodness, I'm investing in children's day nurseries. And it looks like they're going to be closed down. In fact, they were partially. We're still open for the children of key workers. But that can be like two or three children a day. It's not very many. And it really did feel like this is a terrible sector to be part of, at this moment. Which 2020 started so positively, who would've expected less than three months later? However, it's actually turned out for the best. It's turned out absolutely fine. There's some real positives that have come out of it. I think you do have that opportunity. Do you curl up in a corner and hope for it to all be over? Or do you see it as an opportunity to do something you may not have done otherwise?

- Let's start then with your operational businesses, because, clearly, they've been very significantly impacted. You mentioned that you're staying open for the children of key workers. How does that work out economically? Because there are certain ratios, obviously, in terms of staff and so on, you still have to meet.

- Yeah and absolutely. This particular sector has benefited from the government pausing business rates for 12 months. And I think there's a general sense that this should've happened a long time ago in this sector. And it may never, they may never come back. But, at least for the next 12 months, no business rates which is good. And, of course, we operate from large premises. Our nurseries are large ones; they aren't small ones. Then there's the furloughing of staff, which has obviously been very helpful. We haven't had to make anyone redundant. The staff are home and being paid. And then the local authorities actually still pay what they would have paid anyway. On some of the nurseries where we're still implementing a turnaround, we're still at that sort of make a little bit of a loss this month, break even next month, still at that sort of very, that walking a bit of a tightrope with the finances, in actual fact, it's working really well for us. It's giving us that breathing space which we wouldn't have had otherwise. Actual fact, it hasn't been a bad thing. Well, sorry, I'm not trying to make light of the situation. But, compared to some businesses, we're okay. And it's given us an opportunity to do some of the backroom admin around finance and HR that we would have done anyway, but at the same time as operating a busy business. It kind of gets pushed to the side a little bit. Now we've got the opportunity to do some really detailed financial auditing which we wouldn't have had time to do otherwise. And then, on the acquisitions side, that's a whole different matter. But that's actually very positive, as well.

- Well you say it's positive. On the one hand, the funding has dried up. So how are you able to keep the acquisition side going through this period?

- Well, so, in actual fact, if that funding had come through on that particular day, we would have completed on the deal the next day. And now with the benefit of hindsight, we would have massively overpaid. In actual fact, it stopped us from overpaying for a business. And then there was another one a few days later. But, definitely overpaying for that business completing the next day. And, as a result, it kind of saved us from that situation. That, actually, was one positive. But the next is I could go back to all of the acquisitions we had in the pipeline. And, of course, everyone being aware of we've got a semi-close our industry, or in many cases close it completely, all the price points changed. It allowed us to also renegotiate terms. Anything that we might have been paying on completion, we could explain, "well, the bank's pulled our funding, "at least temporarily, at least for the time being. "And, therefor, if we wanna do this "in the foreseeable future, "then we both need to be flexible." It allowed us, actually, to structure better deals. And thirdly, better deals have come on to the market. One business that we looked at last year, half a million in revenue, town centre location, used to be the police station in that town, beautiful, beautiful building. 200,000 for the business inside the building. Not for the property, obviously. And we're actually, we're buying at 20,000 . It's reduced in value by 90%, just because of what's happened. Now, clearly, we've got more work to do, because we need to build the business back up. let's say, September onwards. But, we were always prepared to put effort and hard work in anyways, so it really doesn't make too much difference. We'll get our money back very quickly because of the initial investment is so small, 20,000 GBP, plus some legals. The upside is bigger. So, yeah, it's positive, Graham.

- Okay, because my impression is, obviously one of the things you always look at is businesses that may be getting into some distress and therefor are available at a more reasonable price. I think what we're seeing at the moment is businesses that were already, had seriously underlying health conditions, are the ones that are going under, including some very big, high street names. But I guess the second wave will be businesses that entered this crisis kind of okay, ish, but then, as a result of this lockdown of the economy, that's really gonna cause new issues that might mean, paradoxically, for those that are on the lookout to buy them, there's actually gonna be a plethora of deals available coming out the other end of it.

- This is going to be huge for people who want to acquire businesses. And it means that you're gonna pay a very, very reasonable price. All the inflated prices that you see when the economy feels good, that disappears. You pay sensible prices, you get better terms. If you're interested in buying businesses, out of administration and saving jobs, and saving the business, and those opportunities. One particular IP that I know he's got over 70 deals happening right, well, 70 administrations happening, right now. And that's a lot.

- That's quite a lot, yeah.

- At any one point, he might have 10 or 12. But he got 70 at this moment in time. And all those businesses need to be bought by someone, otherwise everyone loses their jobs, the business closes down, the customers probably lose whatever service or product that they would have bought. The opportunity's very, very large right now. And the fact that funding may have dried up for, definitely, over the next few months. I don't really think there's an issue if you are aware of the ways to structure the deal so that you don't need to put, either your own money in, or maybe very little. You don't need bank borrowing. And you can structure those deals favourably. The big concern might be, well, what if I'm buying a business that is on such a downward decline, that you can never turn it around. But again, that comes down to deal structure. You can protect yourself so that you never, ever overpay. You can pair your lien to performance. And maybe you've got some emotional sellers. You you do something that allows them to share in that heart side, so it's not all doom and gloom; there is some hope in selling you their business for way below what they might have sold it to you three months earlier.

- And if you look at the impact of these measures, they really do cut across the entire economy. But, as you look at it, can you imagine that there'll be certain sectors where there are some really great opportunities, and other sectors where they might be best left well alone as we come out of this?

- Yes, I only know what my clients are doing. And the word on the deal making street, as it were, is that this is a, there are so many opportunities out there that you can go outside of your usual area at very, very low risk. Let's say you were thinking about buying in a particular sector, or it intrigued or interested you, well now is the time to pick up a business for virtually nothing and experiment with it, rather than staying in your comfort zone of what you know. It actually expands the possibilities. I think it comes down to attitude, as much as anything. You've gotta have the skills and the knowledge. You've gotta know what you're doing, and you still have to know how to, you can't be too blunt about this. Actually, I think you need to be more sensitive when speaking to the owner of a business, when you're considering buying it. But I also think that you need to have the right attitude, and that positive, optimistic outlook. You need to look for the opportunity, and be aware of the downside, but say "what might happen?" And if you can protect yourself from the downside, then I'd be saying to people, "well, "if you're gonna buy a business, "why not do it this year, 2020? "Because now is the opportunity with so many options. "Well, why not? "Why not do it now?"

- And do you sense that your own strategy might change as a result? This might mean, for example, either go after bigger groups of nurseries, or move beyond the nursery sector, because you're seeing all these other opportunities?

- Personally, I'm not gonna move out of the sector because we're at the beginning of quite a big growth journey. And I don't want to distract myself. Having said that, there are so many groups which might have been very, nursery groups, that might have been very bullish about value and price three months ago, but now realise they have to be more sensible. And we're noticing, this week in fact, we're getting a trickle of responses from people who had heard of us being inquisitive in this sector some time ago, and now they're coming, they're approaching us where, clearly, before we hadn't been of any interest to them. I think that the deal making is going to accelerate. And I think it's becoming more and more of a buyer's market. And, of course, if you're a buyer in that market, then now is the time to buy, and then become a seller when the economy improves or at least confidence in the economy improves. And that's where you can sell your group of acquisitions that you made during this period, to someone else for a lot more than you bought them. And I think many people will be looking back on this, Graham, and saying that they actually built their group of companies during the Coronavirus period.

- Well that's interesting, but I think that, as we both know, sometimes that the fly in the ointment of getting a business at a sensible valuation is the business broker, the equivalent of the estate agent in the business buying world. Do you think they'll suddenly adopt a sense of reality, a new reality, and stop moderating their valuations?

- Yeah, and how do I know that? It's because they've started calling me .

- Right, so that's--

- They've called the devil. I'm not necessarily the broker's favourite person because I'm quite vocal about how brokers aren't really helping in the, I'm not necessarily the broker's favourite person because I'm quite vocal about by over inflating value. The 20,000 GPB one that I mentioned earlier, when we said no to the owner last year, because he wanted 200,000 GPB, he went off and got a broker. And it was a broker who contacted me and said, "would you be interested in this business." And, first of all, I said, "we've already looked at it, "and we're not interested." And she said, "and they're asking for 19,995 GPB."

- Wow.

- In actual fact, you know something, my thumbs could not type the response to the email on my phone fast enough. When I spoke to her the next day, the broker this is, I said, "so what's happening?" And she's saying "we're telling everyone "they're not going to get the value "they would have got a few weeks ago. "And they need to think of this as 2008 all over again." And I said, "so what's the level of interest?" She said, "no one's buying." And I said "well, I am, so send me anything else "that you've got." And in fact we're looking at another one with her, as well.

- I was gonna say, what advice are you giving to Dealmaker Academy members now, about what they should be doing. Because it sounds like, once you've had that training, and you're kind of up to speed with what to do, to Deal Maker's Academy members now, to go off and look at.

- This is your opportunity to be super successful. That's what it is. And I think we all put excuses in our way, to some degree, as to why we haven't got the time. We haven't got prepared, for some reason, and we're not mentally in the right place. Well, you need to get over that because this is the time. This might not come around again. This opportunity might not come around again in our lifetime. So let's create some positivity out of this, and create a great business out of it. And if we can rescue some failing businesses along the way, maybe keep the business owner on as an employee. I don't usually say that. But maybe that's part of the deal structure, so that they can do what they were gonna do with the business before all this happened. I think that, if now isn't the time, there never will be a good time.

- And I guess a lot of this, if you look at this end to end life cycle of one of these transactions where you're buying a business, an awful lot of that can still be done under the present lockdown conditions, without having to physically go somewhere. Though, ultimately, I suppose, if you've got premises involved, you are gonna want to go and see them.

- Well, yeah, to a certain degree. It really depends whether the premises are critical to the business. If it's a restaurant, a restaurant's quite, obviously, the premise is critical. If it's just an office, maybe it's not, anyway. I'm a big believer in doing things face to face. But we've all got to adapt. And if we need to do things like this, on a Zoom call, then so be it. And solicitors, at the moment, are accepting scanned copies of documents, where a few weeks ago, you'd have to have an original. But now they're accepting scans. We're all adapting, and maybe we won't go back . Maybe we'll discover that this is actually a really positive move, and we can save a lot of time with meetings, and so forth. Maybe.

- Yeah, and I mean, obviously, the government's taken all sorts of steps to help people. But one of the groups of people that really are not receiving any help is directors of small companies who are mainly paying themselves through dividends. Have you got any kind of survival strategies you would suggest for company owners who find themselves in this position where, perhaps, their revenue's taken a big hit. But they can't furlough themselves, they're stuck, they're trying to run the business.

- It's challenging, isn't it? And I listen to LBC pretty much most of the day, it's on somewhere. So I'm very aware that this is a huge topic of discussion. And no one has found a solution. The only solutions are fine with the benefit of hindsight. That always have a cash reserve. Things like that, which is all very well saying after the event. And I suppose, let's be better prepared for next time. It is difficult. I think, though, this is an opportunity for business owners to reinvent their business, and say "how can we sell this online?" I mean, you've see food wholesalers to restaurants and cafes not being able to sell. And then saying, "well, okay, how can we now sell directly "to the consumer?" It's our ability to think outside of the box and say, "look, maybe I've always done this in a certain way "but I'm now being forced, perhaps, "to do this in a different way." You know that I do these three hour introductory seminars around the country for the Dealmaker's programme. And, of course, I can't do them. Beginning of May we're going to be running Dealmaker's seminars online, live seminars, where I can actually interact with people around the country for the Deal Maker's programmer. But of course now we can open up to a worldwide audience. For years people have been saying we need to do something Deal Maker's seminars online, live seminars, and I just really haven't had the time to do that. And now, I don't have that excuse anymore. Maybe this actually is something we do in the future. We don't do those live seminars. I'd say to any business owner watching this, and it's one of those things that's easier to say than to do, but to think, "what could I do differently, "that maybe I've pulled back on before, "that maybe does push me out of my comfort zone. "But if I need to generate revenue, "because I need money to live" Whatever it is a month, "that's what I need." Then necessity is mother of invention, as they say. So maybe this is the opportunity to reinvent the business and think to yourself, "do I need all that office space?" People working from home, actually, before I was very suspicious as to whether there was productivity when people were working from home. But maybe I can use Basecamp to track activity, and I can run my business based upon results rather than how many hours someone sits in a chair in my office.

- Absolutely. And I think the other thing I can see is this becoming a bit of a watershed moment, in terms of people's work life patterns. Because I don't think many people will be missing three hours a day commuting into Central London on crowded tube trains. They're gonna enjoy being home with their family. And, maybe their choice of employer, even the choice of location where they live, could change when they have opened their eyes to a different way of working.

- Well, yeah, absolutely. And I think employers who thought that their staff couldn't operate from home, and discovering that they can, people who, if I don't want to work from home, I want to work from an office, are discovering that there are benefits. Speaking of myself, I've got a routine where I go out for a long walk in the morning, I have a workout, and then I'm ready to go at nine o'clock. And I never would have done that before, because I would have been heading off to a meeting somewhere and getting the train at 8:00 a.m. But now I'm actually doing more exercise as a result of this. And productivity hasn't suffered.

- And I guess the other sort of change we could see from this, and you and I have often talked about how we need to become more entrepreneurial as a society, is that a whole bunch of people, inevitably and sadly, are gonna lose their jobs as a result of what's going on. But could it be that, for them, this is actually the time to switch from being an employee to becoming a business owner?

- Yeah, absolutely. I think that's one of many changes that are going to happen. I think there's going to be a rewriting of tax and how tax works with company directors. I think that there are going to be lots of changes around that. I think we're going to become far more of a cashless society, far faster. I think that homeworking will become the norm, rather than the exception. There are going to be lots of cultural changes as a result of this. I think that all those meetings that people would spend a day travelling to, and then 45 minutes of chat, and then back on the train for a couple of hours, they will go. Because now we are proving to ourselves we don't need to. But definitely, on the financial front, that people would spend a day travelling to, and maybe have a split between being employed and being self-employed, so that there's part of their income comes from the company they're currently working for, and part comes from a portfolio of different clients.

- I think also, having made that suggestion about employees becoming business owners, I should put a little bit of a health warning on that and say that there's a lot of pitfalls for the unwary, when you start looking at buying businesses. And they really do need to get some training and know what they're doing, before they go out into that big wide world and come across these liabilities from businesses that have been trading badly. What would be your summary of what they should be looking at if they're thinking about, perhaps, going into business ownership for the first time?

- Business ownership as in buying a business, rather than starting one from scratch. Yeah, you need to know, quite critically, whether you're buying assets or shares. That is going to determine how much pain you have in the future. You also absolutely need to understand due diligence, and really to get someone else to do it for you. You need to understand what it is that you're buying, and you need to know how to value what you're buying, and then how to structure that value, so that you don't have to go and borrow money from a bank and use your principle residence as a security. There are just so many things that can go wrong. And many of the people that I meet on the programme have a whole litany of challenges that they, people tell me how they bought a business, they thought it was gonna be easy, and the whole thing just crashed and burned because they made some very basic mistakes. I wouldn't be skimping on education or being prepared, because, if you do, that is when it goes wrong. And going wrong can be catastrophic, especially if you've borrowed half a million pounds from the bank, charged over your property, which is the equivalent of a personal guarantee, and, as a result, you lose your home. You really do need to know what you're doing. But having said that, if you buy a business, it's a shortcut to the revenues that might have taken you years to build up if you were doing it by yourself. If it might take you five years to get to a million pounds of annual revenue, but you can go and do a deal this summer and buy a business with a million pounds of annual revenue, you've just saved yourself four and a half years of your life, , which isn't a bad thing to do.

- I think that's a really important part to understand. And I think a lot of people think the only way into business is to have some amazing idea and start something new. When the reality is you can absolutely short-circuit it by buying an existing business in something that people are already showing a demand for. And I would say, just to give you a plug, there's a lot of useful information on the Dealmaker Academy site, and it's worth starting there. If you want to get their heads around what's involved in buying a business. Finally, , excuse me, Jonathan, on the Deal Maker's Academy site, is that, if anything, you're veering towards this being a time of opportunity, and that, really, it could even prove to be a once in a generation chance to buy some really, potentially strong businesses for a very low entry price.

- This is an incredible opportunity. And if you don't look at it like that, then you are, you've only got yourself to blame, really. You have a choice over how you perceive events. And you can choose to be depressed by what's happening and see all the negatives, or you can say, "well, actual fact, "there is a business opportunity here, "and I need to grab it with both hands "because my family will thank me for it." And this is the opportunity to create the wealth that you talk a lot about, Graham. And then you take that money and you reinvest it, and you reinvest it in all the places that you talk about. And you could actually secure your family's future over the next year or so, by being smart with business acquisition.

- Fantastic. Well, that's a great place to end on. Jonathan Jay, thank you very much for joining us.

- Thank you.