The Biggest Acquisition I Walked Away From

Not every acquisition is worth making.

In this episode of Owned and Operated, John Wilson shares the story of one of the biggest acquisitions he chose to walk away from, even though it had the potential to double the size of his business. What looked like an incredible opportunity on paper quickly unraveled as the due diligence process exposed problems with customer concentration, company culture, cash flow, and the financials.

John explains the acquisition framework he uses to evaluate plumbing, HVAC, and electrical businesses, why revenue and EBITDA rarely tell the whole story, and the common mistakes first-time buyers make when they become emotionally attached to a deal.

Sometimes the best acquisition is the one you don't make.

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In this episode, John covers:

→ The acquisition that looked perfect—but wasn't

→ The biggest red flags uncovered during due diligence

→ Why customer mix and company culture matter as much as financials

→ How to avoid becoming emotionally invested in a deal

→ What every first-time acquisition entrepreneur should know

→ Lessons learned from the deals John decided not to buy
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Watch this episode early on the John Wilson YouTube channel:
https://www.youtube.com/@JohnWilsonOAO

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John Wilson, CEO of Wilson Companies
Jack Carr, CEO of Rapid HVAC

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Transcript

Why Walking Away Wins

SPEAKER_00 0:00

I bought a lot of companies, but I've walked away from even more. Some of the best acquisition decisions that I've made in my career were the ones that we didn't actually acquire that business. There's some quick red flags that you can identify and say, hey, this one might not be for me, and here's why. So I'm gonna try in this video to help you avoid those pitfalls that I personally walked through as I learned my way uh through growing an MA discipline inside our business. I'm John Wilson and I'm the CEO of Wilson out of Ohio. And we're a plumbing HVAC and electric contractor serving tens of thousands of homeowners every month. So let's dive

A Deal That Looked Perfect

SPEAKER_00 0:32

in. One of the biggest deals that comes to mind that I'm grateful that I did not do was in 2022, a business came along and they said, Hey, we're 12 to 13 million, so it's an equal-sized business. We can grow together and we can sort of merge, and it won't take a lot of cash for you to do this deal. And together we will like be bigger, be better, be all that stuff. You value businesses based off EBITDA. And what was attractive about this business was it's a big size, it's a big business, it's a big team, it strengthens one of our trades. And it was three million of EBITDA, and we were like one and a half, and it was a big, juicy target. Like that is exciting. Like, oh my god, like we can come together and we're four and a half million, maybe with synergies five, and that's a real business with real value. Maybe we can just do whatever. As we sort of like went through uh that process, a few red flags started showing up for me early on this deal that despite the economics and me picturing in my head how glorious this new future of mine would be. I started just picking apart these and taking them seriously, and we

Early Red Flags Checklist

SPEAKER_00 1:41

didn't end up doing the deal. The items were one, they said they were a residential contractor, uh, but it ended up being a tremendous amount of the work was commercial construction. The next one was the way the owner talked about the team. This was a red flag that came up in a deal that we did back in 2021. Anytime the team came up, they didn't have a lot of great things to say, which was kind of astonishing because at its core, a business is a group of people that are coming together to achieve something greater than themselves. And if you don't have that perspective of your team as an owner, then like what does that say about the business need built? Which big red flag because I know that I'm walking into probably a cultural nightmare. And then just cash flow. And this one's a little bit straight like how much cash is this really gonna take to buy and own? And it turned into hey, yeah, the reason they wanted to do our deal was because we were gonna save their business and they needed our cash flow to basically buoy their business back to life, which was not something that I wanted to deal with. On the surface, hey, the business doubles. It's easy, it's so easy to start like getting excited about this thing without really understanding, hey, is this worth being excited about? Like, what are my what's my bullshit checks? You know, like does it treat the team well? What's the work type? What's the industry? What's cash flow feel like? Over the years, I've looked at uh hundreds of businesses, and what I've really come to find is that there are not many companies that I actually want to own. But my first five deals were hairy freaking deals. I mean, there were deals today I honestly would never have done again. But like we did them, and like they're sort of the reason that we're here today. So it's hard for me to like toss a stone. But we've only bought maybe uh two to four percent of the deals because it is harder, it's hard to find a business that fits into your organization the way that you need. So if you're earlier on in your journey, your organization is sort of like whatever you want, but now it's a little bit more complicated, and it's hard to find them with the qualities that that you want in uh in a in a new business. Sometimes the seller's just not ready, the business is not ready, and sometimes the company is like totally fine, it's just not, it doesn't fit your organization, it doesn't fit right into what you've already built. There's something about it that you know when you add it, there's gonna be a little bit of chaos operationally. You just have to decide if that's worth it to you. For me, not really, right? Like we I have enough going on that it's it's complicated to just add something random to our mix.

The Too Good To Be True Trap

SPEAKER_00 4:04

The dangerous deals are the ones that you want to be true. There's actually a pretty public example of this in the industry right now, where a business was growing really, really fast and uh they were preparing to go to market. The growth story was incredible, like un unbelievable. And shortly after them starting to sort of have conversations, a new story broke and it was too good to be true. But like there were people that were taking good looks at that business. If they would have done it, they would have lost like 40 or 50 million dollars. It's a big business. This deal, like it was all green flags, like, oh yeah, fast growth rate, the right customer mix. It's hard when you want to believe it's true, but just keep digging

Due Diligence Beyond EBITDA

SPEAKER_00 4:47

and you're not looking for a reason not to do a deal, but you do need to understand everything about the company that you're trying to buy. Let's talk about the numbers. There's a couple different ways this can go. One, the numbers could look great, but the whole truth isn't out there. And two, the numbers don't look great, but it's fixable. We can fix it, but what's broken? Is there purchasing broken? Is there marketing broken? Is there overhead staffing broken? Like, what's the thing that's preventing the numbers from being good? But turnarounds are a tremendous amount of work. If I'm going to be dedicating my time to anything inside the business, it has to drive actual value to the business. Otherwise, like, what the hell am I doing? The other one is uh numbers don't always tell the whole story. And I think you need to dive deeper into marketing. Like, hey, they spend nine percent on marketing. Okay, cool. You need a lot more information than that, right? Like nine percent on what? So is it Google ads? Is it radio? Is it billboards? Is it mailers? Like, I don't know, but you gotta dig in and find out because numbers don't have all of it. So numbers don't tell you the whole story, and you have to dig in and like let accounting tell you the narrative. Accounting is like it's a story. You can understand a business by fishing through its story. The numbers is the right place to start, and you just have to, hey, is it profitable? Yes, no. Then, like, what else is it telling me? Is it unprofitable? Yes, no. Is it worth my time?

How to Find the Right Deal

SPEAKER_00 6:16

What I would tell someone as they're looking at their first acquisition is you need to nail down like where are you gonna focus? Look at a lot of deals, ask a lot of questions, don't assume you know anything. I feel like I'm learning every day, I am learning every day, and don't fall in love with these deals too early because you could find anything inside there. You want to get close enough to understand the real business. Some of the best operators that I know that have gone on to buy businesses spent like six months, and instead of like just talking to brokers and whatever, they spent six months touring shops and they met with owners for two days and they did ride-alongs in the truck. Some of them we even had someone on our podcast a couple weeks ago, and he like worked as an apprentice and then he bought that company. Pay attention to like, hey, what's the owner doing? Are they working 80 hours a week or do they travel for like four months out of the year? You probably want to buy the latter, right? Like, that's not super dependent on that owner. Know what your unique advantage is, uh, but like know what value you bring to the business. The perfect buyer brings the perfect value to the opportunity. There's so many businesses out there, there's going to be one that fits your skill set. So, like, let's find that one. And lastly, and I think this one is probably one of the most important, is have someone that you can talk to and bounce ideas, but they're willing to challenge you in a productive way. Like, hey, here's why this deal doesn't make sense. But you need someone around you that you can talk to that is giving the positive and negatives of what you're looking at. So, what I recommend is either someone on your team that's a really great thought partner, or like peers that like join a peer group. We have peer groups on Signal, uh, but like join something where you can ask people like, hey, what do you think of this deal? Yes, no. I've learned a ton over the years from all the companies that we've bought, but I've learned just as much from the ones that we have not. And some of those were painful to lose because we invested in illegal or accounting or like real time and energy, but they were just bad fits and they would have dragged the whole organization down if we still did it. You don't need every deal to happen, you just need the right ones. If you like what we talked about here, make sure you check out owned and operated.com. We have a terrific podcast, we have a weekly newsletter, and we have events, including our breaking five workshop, coming up this September.