The art of buying, fixing, and selling businesses, and how The Profit Line helped him stay sane so he could grow the business and sell it at multiple x its original value.
On paper, Steve Divitkos is many things.
CEO and business owner.
Search Fund Investor.
Husband and dad.
His current role is Founder of Mineola Search Partners which Invests in search funds and the companies they acquire. His experience is deep, varied and uniquely positioned in that he has experienced almost every angle of this business himself.
He has had some crazy good success and has also made some mistakes along the way. Not to mention challenging his mental health with the stress and pressure of buying a business.
But, he has applied all this learning in a variety of ways. Some he monetizes through his investments and expertise at Mineola, and some he simply shares in his blogs and his Podcast: In the Trenches which he started a year ago.
One of his lucky charms has been his relationship with The Profit Line as a trusted partner. This partnership started over seven years ago, when, after nurturing a relationship with the existing owner of Microdea, a software company that serves logistics businesses, he bought the business. Steve says that it "had just enough wrong with it, and just enough right with it” for him to be excited and confident that he could grow it and add value. Which he did successfully when he sold the business in late 2020 for a healthy return for himself and his investors.
What was the journey to buying a business?
Steve researched and spent several months looking for a business to buy. He eventually purchased through a search fund. The business, Microdea, was owned by a father and son combo who founded the business 20 years before. They were not for sale,
but he patiently hit them with everything he had to try and convince them to sell over an eight-month period of time. When an owner sells, it’s usually for one of two reasons:
A private equity firm comes along and offers a good price: money is the core reason. Typically, it's a bigger company that does what they do.
An emotional decision: The owner likes the personal connection and the intention to grow the business
In the case of Microdea and the owners felt an authenticity and a warmth from Steve.
They didn’t have to sell, but the personal connection felt right, and everything fell into place.
Why that business? What was the criteria?
20 years of history and a good customer base.
Steve felt he could make first time CEO mistakes and not totally screw it up; great training ground for him.
Good upside: lots to fix and add value.
Software is the core product: the business category he was looking for.
Sold into 5 different end markets: maybe too many. In the second year: Steve focused on the transportation sector, which paid off.
What problem arose that led to needing outsourced accounting help?
In the first week Steve KNEW he needed help. He realized it was a non-accountant doing the accounting work: the Father/ founder was doing it.
With search fund partners to report to he needed audited and compliant paperwork.
There was a higher expectation and an Increase in the sophistication across the board.
Meanwhile as a new CEO, he had 1000 other problems to deal with.
The books were a mess.
He needed to get the financial reporting in shape in 1 quarter.
How did Steve find TPL?
With all the stress and pressure he felt during that time, Steve says he barely recalls how he was introduced to Fern and The Profit Line. He was very overwhelmed and needed help; he put the word out to his network, which produced the recommendation to talk to Fern at the Profit Line. It was a quick briefing and TPL got to work fast.
How did The Profile Line solve the problem?
The lead accountant from TPL took charge, analyzed the scope of the work and began to fix the books and prepare the reporting needed for end of Q1.
She was supported by a TPL Junior accountant as well.
The onboarding period was smooth and seamless.
How did this make an overwhelmed CEO feel?
Early on there was complete hand-over of the books and the trust that went with it.
Steve would analyze and ask questions about the work in order to stay in the loop.
The feeling of relief was the overarching emotion in the early days, followed by trust and stability. The TP team allowed him to focus on the things he is good at.
In the end, TPL was with Steve for seven years until he sold the company.
What's the relationship with TPL now?
You could say he is a fan!
As Steve has shifted to the search fund space, he regularly recommends TPL to other business buyers and business owners.
TPL will also become a sponsor of Steve’s podcast In The Trenches in
February and March 2023.
Advice for people seeking to buy, fix and sell a business?
Of course, listen to the podcast for advice!
Look for a partner like The Profit Line that can help you evaluate the financial health of the business before you buy it. Given the nature and size of the business you are considering buying, there will be room for financial improvement. You will want and need to get your finances and accounting in order quickly, so get outside help if you need it.
What’s Next for Steve?
As a search fund he is now investing in great operators.
Businesses in the $5-30 million dollar size with 100+ employees are his sweet spot.