🔑 Cash saves the day
Welcome to The Business Academy. Here's what we have in store for you today:
- One of the best and worst deals ever
- Is $25 million enough?
- Interesting Off-Market deal
When I was 25, I was the CEO of my first startup.
I had raised $2 Million for the business.
But I had never been in business before.
I didn’t know anything about hiring.
I didn’t know anything up marketing.
So I scoured the internet for mentors. I emailed hundreds of people and only a few chatted with me for a few minutes at a time.
I would have killed for the ability to learn from the best mentors in the world.
Now that I’ve been in business for 15+ years, I get dozens of requests a week to meet and advise.
Unfortunately I don’t have time to meet with everyone, which is why I share so much free info here.
But now I’ve signed up for Intro and opened up a few mentorship slots every month.
Book Now
Signup using the link above if you want to talk about investing, managing, or buying businesses
🔑 odcast: He Sold His Business for $250m - Now He's Focused on Taxes
I interviewed Ankur Nagpal, a brilliant entrepreneur who sold his business Teachable for $250 million. Now he's running a new business focused on helping people understand how to optimize their taxes. His new venture is partly inspired by everything he wish he know about tax optimization before he started and sold his fist business.
Give it a listen below if you want to learn about scaling a company and optimizing your taxes:
I'm going to tell you two stories today. They're about:
- The worst hospitality acquisition of all time
- The greatest hospitality acquisition of all time
But there's a twist.
Both stories are the exact same deal.
If I asked you the exact worst time in history to do a large real estate acquisition, July 2007 would be a pretty good answer.
In July 2007, Blackstone closed on a leveraged buyout of Hilton for $26 billion.
Just a few weeks later, cracks started showing in the global real estate market. A year later, it had all but collapsed.
A couple years into the deal, Blackstone's Hilton acquisition looked to be in deep trouble.
Revenue was down as global tourism spending declined 7% in 2008 and 6% in 2009.
You know all those fancy spreadsheets private equity firms make to model out their deals? They usually don't have the revenue figure collapsing year-over-year.
Here are the problems Hilton and its new owner Blackstone faced in the first few years of the deal:
- Falling revenue with high fixed costs
- Large wall of debt maturing in 2013
- Two of the lenders on the deal, Bear Stearns and Lehman Brothers, went bankrupt in 2008
Blackstone wrote down the investment by half in 2009, creating a $13 billion loss in just two years.
Here's how the media covered it:
Private equity firm Blackstone Group wrote down its investment in Hilton Hotels by half at the end of 2008, documents obtained by Thomson Reuters' private equity website peHUB show.
The $26 billion deal to buy Hilton was struck at the peak of the buyout bubble in July 2007 and was financed with $20.6 billion of debt and about $5.7 billion of equity. Since then, the hotel market has been hammered by the economic crisis as consumers and businesses have cut back on travel spending.
-Reuters, July 11, 2009
Nobody could have predicted what happened next.
The team at Blackstone went into save-the-day negotiation mode with their lenders.
Here is where they landed:
- Pushed the maturity of the loans from 2013 to 2015
- Blackstone bought back $2 billion worth of debt for just $800 million (lenders took a $1.2Bn loss but were able to derisk a bit by getting cash in exchange for debt).
- Negotiated with the banks to remove another $2 billion of debt by converting it into Hilton preferred stock.
Then the clouds started to part...
And after a tough couple of years, the global tourism market boomed.
Hilton recovered and had several phenomenal years.
Blackstone took Hilton public again in 2013 for $7 billion more than they bought it for.
And they slowly sold off their position over the next five years.
Blackstone netted over $14 billion on the deal.
Not bad for a deal they only put $6 billion of equity into.
The Lesson: A good bet can go bad without the cash to weather the storm. The only reason Blackstone survived is because they had cash on the sidelines to de-risk their lenders, and help in their negotiation.
Always keep cash on the side in case of a rainy day.
🔑 One interesting read: How do you know when to sell your business?
This founder sold her company for $25 million.
But she wasn't sure if it was the "right time" to sell. She questioned her decision to sell even after closing the deal.
This insightful pieces gives a detailed breakdown of her thoughts on knowing when it's the right time to sell a business (hint: You'll never know for sure).
🔑 One interesting deal: A $3.9 million GPS tracking business
A friend of mine is looking to sell their company.
It's a $3.9 million revenue business that sells GPS trackers and software subscriptions to help people track their stuff. Think Apple AirTag, but not just for Apple devices.
80% of revenue comes from the software subscriptions customers pay for to access the GPS data.
Since you're a subscriber, you're getting an exclusive look at this deal (which isn't listed anywhere else).
What I like: seems like it has some product market fit in a BIG market opportunity
What I don't like: I don't like hardware businesses. And on first glance, it feels like there may be a few competitors.
Some more info:
If you're interested in seeing the deck, please reply to this email!
Have a great week,
Sieva
Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.
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