Jeremy Harbour
All right. We’ll get started in just a moment. We’re just waiting for the last few people to join, and then we’ll get going.
Jeremy Harbour
Yes. Bright and early in the morning here in Singapore. I can show the sunrise over the famous Marina Bay Sands Hotel, over there. This is the first time I’ve spoken today, so if I’m a little bit hoarse, that’s why.
Jeremy Harbour
All right. Let’s get going. I think we’re up to reasonable capacity now. So yeah, I can see everybody dropping some comments in the side there. Please feel free to keep popping anything you want to discuss specifically into that little box.
Jeremy Harbour
It’s 8:00 am here in Singapore. I actually have the Singapore Harbour Club today, so we have a hard stop at 9:00 am as I go and see those guys. Obviously, we are in Miami in May, so if you haven’t already, go to HarbourClubUSA.com and register your interests there. I’ll give you a really quick snapshot overview, and then I’ll dive into some of the questions that people have sent already.
Jeremy Harbour
Look, my background. I think quite a few people who have joined us already understand a lot of this. But just to put it into a concise way, my background was entrepreneurial, so I don’t come from a traditional corporate finance, legal background. But I used to start business and grow them in the traditional way, so looking at sales and marketing, and again, the normal way to grow business. Obviously as most of you know, it’s quite hard. It’s quite slow. You invest your blood, your sweat, and your years into growing a startup to any kind of reasonable scale.
Jeremy Harbour
I did that with varying degrees of success. When I say varying degrees of success, obviously the first ones all eventually failed. But I had a telecoms company in the 1990s, which was growing quite quickly. Telecoms is very acquisitive, so I had lots of people trying to buy me. The thing they had in common is they weren’t going to use their own cash to do the acquisition. They were either going to … It was a deferred deal, a James Morrow kind of transaction.
Jeremy Harbour
I figured, “Well, I haven’t got any money, maybe I should be the buyer instead of the seller.” That was the big tipping point mentally for me. I went out and started looking at businesses that I could potentially acquire. And then really, more by luck than judgment, one of the deals I stumbled across happened to have a bit of a ticking time bomb. They were about to have their offices bulldozed and turned into apartments. They really didn’t relish the idea after 13 years in the same place, investing a whole bunch of money to move to a new location, and so were looking to get out, so they could focus on another business interest that they had.
Jeremy Harbour
I was able to structure a deal with them, basically, where I picked up the business for nothing upfront and just paid them over time. It was a very simple kind of vendor finance type transaction, but it meant that I didn’t risk any of my own capital on day one. That was really the turning point, the epiphany, because it proved to me it was possible. I think if I’d had $15,000.00 of cash in the bank, I would’ve just given the guy $15,000.00.
Jeremy Harbour
But actually, the fact that I didn’t have money was probably the biggest teacher. Because the easiest way to learn how to buy a business with no money, is to start with no money and go and try to buy a business. That was just a massive education in the fact that this is possible, and of course it grew my business by a year’s worth of sales in an afternoon. It opened me up to the idea that there’s a different way to grow a business. A kind of hack, if you like, that you could use.
Jeremy Harbour
If you fast forward 20 years, I’ve done over 100 transactions. Through the Harbour Club, I’ve probably advised on a couple a hundred. More, we created the Harbour Club 10 years ago as a way of dealing with people that were basically asking me to do consultancy work or become a non-exec for them. So I said, “Okay, no. But you can come for a weekend, and I’ll teach you everything that you need to know. And then, if you want to work with me I the future, you can. If you want to work together, you can. You know, no harm. No foul.”
Jeremy Harbour
But since then, it’s really taken on a life of its own. The community is just enormously powerful now. We have business owners, entrepreneurs all over the world who are doing deals together, who have specific expertise or specific industry expertise that you can tap into. The network is very generous in terms of sharing information and giving you help and advice along the way. I’m also available there, as well. I don’t think any other program has this kind of community aspect to it that’s so powerful, and has done so many deals collectively that it actually can give you really good advice. Because there are lots of masterminding groups and stuff like that, but quite often it’s the blind leading blind. It’s a bunch of people who all haven’t done many deals, trying to figure out how to do a deal. So yeah, I think what we created is something really special and it has almost … It’s just taken on a life of its own. It’s evolved in a particular way.
Jeremy Harbour
Obviously, my focus is on businesses doing between $1 million and $5 million of profit. These are well-run, well-established, profitable, often debt free companies. We have a really cool structure to help, effectively extract value from them. Create value for the shareholders and for ourselves. That’s my main core area that I focus on.
Jeremy Harbour
So let me dive into the bits and pieces that I’ve been sent over by the team in the U.S. What are the exact steps involved in buying and selling a business for no capital upfront and without any debt? In the Harbour Club we break this down into a process. Very simply, there’s a sourcing aspect. I guess the best way to look at sourcing is it’s kind of marketing. Anything you would do to win a customer over for a business, you could use to find companies to acquire. We have some very specific things we talk about in the Harbour Club that work relatively consistently. But yeah, the first key is obviously finding the opportunity.
Jeremy Harbour
The next thing is the deal structure that you choose to use. Because, obviously, the deal structure for a company that has some distress or motivation is going to be very different to the deal structure you use for a profitable, debt free, well-run business. The guy who’s sitting there with a bottle of whiskey and a revolver has very different motivations to the guy that perhaps is considering how to acquire his competitor. So it’s about choosing the right deal structure for the right situation.
Jeremy Harbour
And then you get into the legal aspect, putting the contract together and how you close it. Very important to present the agreement in the meeting. If you leave the meeting and just send somebody an agreement, they just assume you’re trying to screw them over. They’ll read every line of that agreement as, “You’re trying to screw me over. You’re trying to screw me over.” Whereas if you’ve gone through the agreement with them, it should be in plain English. It should be super simple if you’ve gone through the agreement in the meeting, then it’s much, much easier to get people to execute it. Even if they’re not executing it in the meeting, it’s being executed it later, much easier if they understood every clause and line and why it’s in there.
Jeremy Harbour
And then of course, what you do with it, because everybody has a different strategy. Perhaps you’re trying to grow your own business by acquisition, or perhaps you want to buy and sell businesses to create capital events and to create what I would classify as real massive income and real wealth. So again, there the approach will be slightly different in terms of how you do stuff.
Jeremy Harbour
But listen, the key thing is that there are just tons and tons of opportunities. So if you’re in the U.S., there’s over 30 million business there. About seven million of those businesses are owned by baby boomers. These are people who are now in their 70s and looking to retire. The next generation is smaller than the last generation. They have no natural succession that can take the business over.
Jeremy Harbour
The businesses that are for sale, aren’t selling. So I think there’s two million businesses listed on Bizbuysell.com, of which 200,000 that were listed year, aren’t listed this year. So you could argue that those 200,000 have either sold or just stopped trying to sell or taken their listing down. It’s a really tiny percentage of the total of the people that are trying to sell. So that’s on that side. And then of course, there’s all the businesses that aren’t trying to sell, that could also be pivoted into this kind of structure.
Jeremy Harbour
The next question here is, “Why would a business owner sell a business for no capital upfront?” There’s a number of reasons. The biggest one is necessity. This is a buyer’s market. They don’t have tons of other options that they can explore. The next generation want to be in blockchain marijuana app web three application type business. Because when they go out and tell their friends, that sounds really cool. They don’t want dad’s air conditioning company or some lift engineering business or something like an elevator maintenance company or something. So there is a dirth of potential buyers. There’s not a queue of people waiting to write a check.
Jeremy Harbour
That might sound crazy, because you might think, “Well, look, the return on capital is great. You know? Why wouldn’t somebody do that?” The simple answer is they just don’t. There isn’t a great market for these businesses.
Jeremy Harbour
The other aspect is that, look, you’re not positioning this as, “I want to buy your company and I’m not going to give you any money.” You’re positioning this as how you’re going to solve the challenge or the problem that they have right now. The challenge or the problem that they have right now can probably be solved without the money.
Jeremy Harbour
Also, quite often, getting them to their headline is more important than giving them the cash upfront. We had a great example recently. It was very much a blue collar business. It was a company that did chrome plating. It had been around for about 35 years. It was making about $200,000.00 a year profit. It had $400,000.00 in the bank. It owned it’s real estate. It owned a million. It’s in the UK. It owned a million pounds worth of real estate. The industrial unit sat on. Doing $200,000.00 a year, $400,000.00 in the bank, and a million of real estate, the guy wanted 1.7 million for it, which is a completely reasonable price. It’s the real estate, plus the cash, plus a year and a half’s worth of profit.
Jeremy Harbour
But what happened is, he had it advertised for two years. What happened is everybody just came in and low balled it. They just said, “I’ll give you $700,000.00 or I’ll give you $600,000.00 for the business.” What they were doing is they were approaching this from the traditional leverage buyout thing. They looked at the asset, which is the property, the real estate, and they figured, I can borrow $600,000.00 or $700,000.00 against the real estate, and I’ll just give him that and hopefully he’ll be happy.
Jeremy Harbour
The Harbour Club that approached him actually went in and said, “Look, I can get you to your 1.7 million, but you’re going to have to wait a while in order to get it.” In fact the deal ended up being the full 1.7 million, but over seven years of deferred payments. Now he did offer to put a mortgage in that. To say, “Look, I’ll also borrow some. I can give you a chunk upfront if we mortgage the property. But the problem is the bank then has a charge over all of the assets. If I just pay you over time, you can have a charge over all the assets, so worse case scenario, you get your real estate back. If I default, you get the real estate component back.” So the guy effectively went with that because it met his headline figure. Yeah, it’s a really simple kind of way to do it.
Jeremy Harbour
The next question on here is, “Why is it you shouldn’t buy businesses that are for sale?” Hey, look, you can buy businesses that are for sale. We have several strategies to show you how to do that. But one of the challenges with the businesses for sale, particularly if they have a broker representing them, is that they will have unrealistic expectations around what they’re going to get for their business. Brokers sign companies up by over-promising the valuation. If you think about it, when you’re selling, if one says $200,000.00, one says $300,000.00, and one says $400,000.00, you’re probably tempting to list your property with the one that tells you $400,000.00. The same thing goes with business brokers.
Jeremy Harbour
And then of course, they’ve picked out what they’re going to spend the money on. They mentally checked out of the business. It’s really hard to wind people back from that. If you think about it, real estate people don’t spend their time looking in real estate agents’ windows to do their deal. They find the really sexy, off market transactions. This is kind of the same. It’s finding people who have a frustration or have a challenge with their business, and solving that for them whilst giving you ownership of the transaction. So you never approach somebody and say, “I’ll give you $1.00.” You’re always approaching someone with, “I’ll solve this, and this, and this.” The contractual element is that you end up giving them $1.00.
Jeremy Harbour
I can see there’s some questions arriving on the side. I will get to those. Don’t worry. I will just go through these ones that I have in front of me first, and then we’ll tuck into the ones that are coming through live.
Jeremy Harbour
“How do you do your first deal if you have no experience buying and selling businesses?” Look, everybody has to break their virginity. The first part is you have to learn the tactics and tools to be able to do it. That’s step one. Step two really is that leap of confidence to actually go in and do that first deal.
Jeremy Harbour
One of the advantages that you have in the Harbour Club is that you’re surrounded by other people in the same boat, but also other people who have done deals. So partnering up is very easy to do in the Harbour Club. If you feel like you want somebody to joint venture with on a first transaction, because they have expertise in that industry, or just that they’ve done deals before, there are tons of opportunities to do that. So yeah, there’s just lots and lots of stuff out there.
Jeremy Harbour
“What if you can’t fix a business? What are the risks and liabilities are you involved in?” Okay. When we buy a company, we use what is called an SPV. An SPV is a special purpose vehicle. It’s simply a limited liability company, an LLC that you’ve set up specifically to do the transaction. So we only target LLCs to acquire, so effectively, you’re buying a limited liability company with a limited liability company. The company that you buy is obviously, responsible for its own debt. So if it fails, if it goes into bankruptcy, that doesn’t affect you as a shareholder. You are simply the owner of the business. To create an extra degree of harms length, you own it through another limited liability company.
Jeremy Harbour
Because there is also what’s called contracting party risk, which is obviously any party that’s a party to any entity that’s party to a contract has some liability. So obviously you’re going to enter into a contract with this company to acquire its shares, so you do that contract in the name of the LLC, not in your own personal name. That way, if anybody sues for breach of contract, they have to sue the entity and the entity is just an empty limited liability company. So by using the power of limited liability, we can mitigate a huge amount of your risk.
Jeremy Harbour
And of course, the rest of the risk that we mitigate is by not paying for these businesses. So if you put large amounts of capital into a deal, that’s immediately creates lots of risk. If you’re not putting lots of capital in upfront, then immediately you’re removing most of the downside. Therefore, what you’re left with is upside. So you’re only downside, really, is the opportunity cost and the time that you have to put into doing the transaction. So very simply, if you can’t fix the business, you just close the business. The business is responsible for the cost of its own closing.
Jeremy Harbour
“When should you do a virtual merger, roll up or glomeration?” On the Harbour Club, we have a couple of different roll up strategies that we’ve evolved over the years. In fact, virtual merger, which is something I know a lot of you may have listened to in part of our sales funnel, is not in the course anymore. We don’t actually teach that. But we have two variants that are, we believe, stronger. Basically, roll ups are an incredibly powerful way of building value and scale. We have two great no money down variants that you can use.
Jeremy Harbour
A glomerate is obviously very widely published. You can read all about that very easily online, read the book, and that will give you quite a bit of the detail of the structure for putting a group of companies together under a common public company, which we’ve done a couple times now.
Jeremy Harbour
So let’s get into these questions here. In 2008, antivirus makers … So basically this question is that they’re saying two companies created a operating service agreement, where they remained legally independent but just collaborated together to achieve stuff. Then it’s saying virtual merger agreements aren’t necessarily legally binding with large companies. How are they binding with SMEs, virtual merging structure … Ah. Okay. So like I said, we don’t really teach the virtual merger strategy.
Jeremy Harbour
The virtual merger strategy, the best way to look at it, really, is it’s an option agreement. So effectively, what you’re saying is, “Hey, look. If I can find a buyer, will you agree to sell to us?” With a virtual merger, there’s no kind of the collaboration and synergies part of it. But we do have these two other models, which we call the minority roll up and the glomeration.
Jeremy Harbour
With both of those, again, we create the shareholder value through the scale and the structure. So a lot of the value is created just by the fact that you’re now much bigger, much more diversified, a much more interesting business. I always believed the synergies can come later. The challenge that you have with synergies, and in fact, Warren Buffet even said, “If synergies are the reason to do a deal, it’s a bad deal.” The problem with synergies is that they look awesome in a spreadsheet, and they really struggle to … So Carlos, this is live. They really struggle to exploit those synergies. Yeah. It’s really hard to exploit those synergies when you actually put the companies together.
Jeremy Harbour
The main reason is that owner managed businesses, a lot of the value that they have is in the culture they’ve created for their staff and their customers. So as soon as you start to impose synergies on them, like, “You have to get rid of your bookkeeper, and you have to add a new centralized finance function,” and all of those kind of things, what you end up doing is you end up distracting the talent, the key people in the business. You end up distracting them from what they should be doing, how they’re looking at new companies and running their business, and you shift their focus to, “Why are we getting rid of Deidre? She’s worked here for 20 years. She’s really awesome. You know? I want to protect her.” The force imposing of synergies can be really, really toxic.
Jeremy Harbour
However, if you create a reward structure … So if you put the companies together and then you incentivize the execution of synergies, and they come up with the ideas, then they are awesome. If you come up with the idea, it’s terrible. If they come up with the idea, it’s the best idea ever. So it’s creating an environment where the synergies can be exploited. But be patient with the synergies because it’s not … You can create better shareholder value in other ways, and let the synergies come more naturally. When they come more naturally, they will also be more powerful and add more value. But expect it like a 12 month program, rather than a, “We’ll buy it this week, and next week it’ll be awesome.”
Jeremy Harbour
This is why I think a lot of the mega mergers fail. They have way too high expectations. You merge two multi billion dollar companies that are both publicly listed, and then they want to try and get all the synergies done by the next quarter’s results, which is insane amounts of work that they have to try and do. So it’s [inaudible 00:22:59] work.
Jeremy Harbour
From Grant, “All the lenders I know here require a minimum amount of equity in the deal before they would lend. Even in LBOs there is some equity required in their finance structure. How do you get around that?” Very simply, don’t borrow money from banks or financial institutions. Don’t do LBOs. The Harbour Club is not an LBO course. If you want to learn about LBOs, look on Amazon. There’s 380 books written on the topic of LBOs, and how to do leverage buyouts.
Jeremy Harbour
There are some interesting sources of capital in the U.S. like the SBA, that you can use for debt. But generally, we don’t do debt. The challenge with borrowing money from institutions is typically the easiest money that you can lay your hands on is working capital finance, so things like receivable finance and that sort of stuff. Receivable finance is basically taking your forward cashflow. You’re taking next month’s income and then you’re giving it to your best employee to leave. That creates a toxic environment.
Jeremy Harbour
In addition to that, you’ll often find yourself having to personally guarantee that debt. Now over in the UK, we have personally guaranty insurance, which takes the edge off a little bit. But I don’t believe you have that in the U.S.. So yeah, basically don’t borrow money to do deals. It’s not a great way to do it.
Jeremy Harbour
Then we’ve got, “Does this kind of borrowing require a personal guaranty?” Well that answers the same question. No. Don’t sign personal guarantees. Don’t borrow money from banks or financial institutions.
Jeremy Harbour
“You’re suggesting there’s no upfront capital required, but it costs to shop, due diligence, legal, accounting. How are these covered in your program?” You shouldn’t be incurring due diligence fees, legal and accounting while you’re shopping, unless you’re doing it the traditional way. If you’re looking at distressed deals, then basically what we do is we mitigate the risk that you would normally take on through a transaction by using an SPV to acquire their share capital, without any cash upfront. Then basically you use their team to do the due diligence in the deal. If it’s a basket case and it has no hope, you simply close it down. There’s no liability to you for closing it down, so therefore there’s no need to spend fortunes on due diligence ahead of doing the deal.
Jeremy Harbour
Legal, contract wise, we have our own suite of contracts that we use to close the deals. Lots of the deals within the Harbour Club are done without using lawyers on both sides. If you do use lawyers, there are some fixed fee variants that you can also use to keep the cost down to $1,000.00 for a transaction with no variability associated with that.
Jeremy Harbour
If you’re doing a larger deal, like a corporate finance glomeration or public markets type deal, we normally get due diligence and the finance costs paid on the other side. So we effectively back-to-back the transaction, so we’re buying it and selling it almost at the same time. We get the person that we’re selling it to, effectively, to be doing the due diligence and the legals for the whole transaction.
Jeremy Harbour
Do you use vendor take backs to cover any short-falling or borrowing efforts if you can’t get everything from a single lender? Again, Grant, I think you’re looking at this purely as an LBO solution. We have 12 different field structures. One of them we do talk about is LBO, but most of that in the presentation is why you don’t, why you shouldn’t do them. When we buy companies, we are not borrowing lots of money from banks and financial institutions. We are structuring deals in a different way. I know it’s the norm, to borrow money, because people just assume that deals have to be done in that way. They don’t. It’s … yeah. And then, are you able to raise debt for companies with no assets? Yeah. Again, we don’t raise debt. We are buying these companies without cash and without using capital upfront, without debt. That’s the key differentiator, I guess, between what we do and what pretty much everybody else does, because everybody else has just read the same textbooks. They haven’t been out there, buying and selling companies.
Jeremy Harbour
So Joe asked, “Is that $500,000.00 – $1 million net?” No. There are two target segments that people in the Harbour Club look at. If you’re looking to bulk company onto your existing business, or you’re looking to do a distressed acquisition, or you’re looking to perhaps add a new product or service or whatever to your business, then typically you would do that by acquiring a competitor or another business that fits in with yours. Those businesses tend to be, in revenue terms, somewhere between half a million and five million of revenue. That seems to be a sweet spot where we don’t really have much competition. They’re big enough to have the debt, the management to fix problems, and they’re small enough not to be on anybody else’s radar, so you’re not in a competitive bid situation. That’s half a million to five million of revenue.
Jeremy Harbour
In the bigger deals, so the virtual merger, minority roll up, a glomeration and some of those other bigger strategies, we flip from looking at revenue to looking at profit, so how much cash are they producing on an annual basis?
Jeremy Harbour
We normally use EBIT, earnings before interest and tax. I personally look at deals between a million and five million of EBIT. But they do, they work from $500,000.00 of EBIT and up. So if you have something $500,000.00 of EBIT and up, you can do a no money down deal, but you can make a very nice return on using one of those strategies.
Jeremy Harbour
“Can you give a headline description of three ways you source target companies? Realistically, how many hours do you need to dedicate to achieve steady deal flow?” I mean, yeah, with the sourcing strategies we have a whole bunch of sourcing strategies. Really, it comes down to which one you feel most comfortable with. We have some that have a really light touch, a worm your way into a business, and then we have ones that are way more, have the meeting, try and close the deal type of approach.
Jeremy Harbour
We have a twist on a letter writing campaign, which works really, really well for people that have got the confidence to sit in front of somebody and just close them on one of these deal structures. In fact, lots and lots of the case studies that you would’ve seen, probably came from that letter writing strategy.
Jeremy Harbour
But for example, we also have an option where we do a valuation of the business. We use a valuation tool. We show them the difference in their current valuation to what they would like their valuation to be, and we showed them a structure of how to get there. We have a consulting agreement where we take an equity kicker and then we gradually work our way into effectively doing a full management buyout of the company.
Jeremy Harbour
You’ll have to excuse me. I’m going to get some water because I’m coughing a little bit here.
Jeremy Harbour
So the next question, no. I guess that definitely proved [inaudible 00:30:37] huh?
Jeremy Harbour
So the next one is, “What is this minority variant?” Hang on a second. So what is this minority variant, synergies and employee [inaudible 00:30:59] plan? The minority variant is basically where we have an agreement that we teach you about in the Harbour Club, where it’s like a shareholder’s agreement that you get people to sign, that gives you an enormous amount of control over the company. It gives you control over what happens to the profits. It gives you control over the sale process of the company. It gives you the ability to consolidate the revenue of subsidiaries up into a top holding company. So effectively what it enable you to do is to take minority stakes in lots of companies and put them together into one big holding company.
Jeremy Harbour
So effectively you can, yeah, do … We call it the minority roll up because you effectively create a roll up by taking minority stakes. Because of the legal agreement that they have signed, you can sell the whole thing, which triggers the acquisition of balance, the shares that you don’t own. So it’s really quite a sexy solution because it’s much easier to go and take a minority stake. The challenge with most people taking minority stakes is that they just become passengers in the business. They don’t have any rights or ability to do anything. So our agreement is the missing piece of that, basically.
Jeremy Harbour
“How can I get a copy of this webinar?” I think if you chat to Monty very, very nicely maybe he’ll share it with you.
Jeremy Harbour
Somebody here says, “Dan Pena talks about LBO.” Yeah, I’m not really … I’ve seen Dan Pena’s videos in bits and pieces. I’ve never really heard any of his content around that topic. But most people that talk about MNA, talk about LBOs. It was made very, very popular in the 1990s. That is when pretty much Michael Milken and Drexel Burnham created the idea. It was like the newest, hottest, most exciting thing, and so obviously made a bunch of billionaires or multi millionaires at that time, and people have always looked back at that as being a really sensible way to do deals.
Jeremy Harbour
I personally don’t like debt. I think Warren Buffet said there are three reasons a rich man gets poor, and it’s liquor, ladies and leverage. But really, the liquor and the ladies is just because it starts with an L. It’s really leverage. Borrowing money is not the smartest thing when it comes to doing an acquisition. I think there’s much smarter ways. Like I said, we do 12 different ways of doing deals without using leverage.
Jeremy Harbour
So I mean, somebody’s saying, what sets me apart from Dan Pena? I honestly do not know what’s in Dan Pena’s program, so I really can’t comment on that. But I’ll tell you what you do get from the Harbour Club.
Jeremy Harbour
The first thing obviously is we have a set of sourcing techniques, which I know work and generate you really good deal flow for companies that you could acquire without using any cash upfront. We teach you 12 deal structures, of which one is LBO, but 11 are not LBOs. So we teach you 11 ways you can buy solvent or insolvent businesses without using any cash or any debt, so you can create real shareholder value, real easily. We show you how to do huge deals. So 40 million, 50 million, 100 million transactions, again, without using cash or without using debt, which I don’t think anybody else is teaching at the moment. We go into capital markets. How you can use public companies as vehicles in really interesting ways. I think that’s really not understood by a lot of people.
Jeremy Harbour
We go through business turnarounds, tactics, which are great. You can apply them to good businesses too and just massively increase profit and increase cashflow. These are basically ways of taking businesses that are insolvent in the morning, and literally massively solvent in the afternoon. So you can take a business that was about to go bust, and have something that you’re able then to go off and sell, which is a massive improvement.
Jeremy Harbour
We then go into exits, how you can sell businesses. The great thing is through the Harbour Club community, we have loads of different exit channels. We have our own business broker. We have our own public companies that you can reverse businesses into, so we have exit routes, again, that just aren’t available through any of the other training programs and things like that.
Jeremy Harbour
The key thing to remember is we are, I am a deal maker. I commit very few days a year to doing the Harbour Club. I was just doing four events a year in the UK. I always did them on weekends. So effectively, I gave up four days a year for Harbour Club, for actual, physical, face-to-face teaching. The rest of my time, I’m running a private equity company. I’m buying businesses. I’m selling businesses. So I’m an extremely active deal junky, full time, and the training business is a hobby, where I turn up a few days a year and speak.
Jeremy Harbour
I also reply to a lot of messages from the network. But again, it’s a few minutes of my day, each day just replying to questions that people who are part of the network have.
Jeremy Harbour
The network is the other massively valuable thing. We have literally hundreds of people all around the world that you can partner up with or you can do deals with. Again, I don’t know any other program that has that. We’re just upgrading all of our software in our systems at the moment as well, so we’re going to have a really sexy solution for partnering up with people. At the moment we have a forum, which is very active. But we’re coming up with an evolution to the forum that will really help you do stuff.
Jeremy Harbour
The other thing we have is a wealth section as well. We talk about some private wealth solutions that most people just aren’t aware of, that are through major banks, which can give you fantastic returns on capital and access to debt, extremely low levels, for nontoxic reasons. Not for buying businesses, but for maybe buying real estate or doing other things. I can borrow up to three million euros at 0% interest a year. I can borrow any currency globally at 0.7% above the central bank rate for that country. So less than a percent interest. We show you how you can get access to that, as well, which can be quite powerful. Yeah, but that community, I don’t think exists anywhere else. I think we have created something pretty special.
Jeremy Harbour
Look, this is the big thing. We’re not a training organization. When you come on the Harbour Club, you don’t get pitched to the next thing. There’s no diamond, gold, platinum plan or mentoring program or something like this that you have to sign up to, you do the Harbour Club once. You’re then a member. You’re part of the community. You have access to me. You have access to the other members. You can come again at a much, much lower ticket price, if you ever want to in the future. But we’re not about the upsell. We’re not about getting you onto the next program or the next thing.
Jeremy Harbour
We have a gold inner circle. But the gold inner circle is meritocratic. You only get into that if you’re doing deals and you’re active in the community and helping other people. You can’t buy your way into the gold inner circle.
Jeremy Harbour
We have the wealth circle, which is people who are in this private wealth banking program. But we just want to share ideas and things we’re investing in and things that we’re doing. Again, you get into that meritocratically. There’s not a way to buy your way into the wealth circle.
Jeremy Harbour
So everything we do is about doing deals, not about selling training programs. I think we have a very, very different approach. Like I say, I give up just a handful of days a year, working days per year, to teach Harbour Club. The rest of the time I’m actively doing deals. I’m a deal junkie, not a training guy.
Jeremy Harbour
You’ll also notice that when you come on the training course. Because if you go on a normal training, you go on a normal seminar program, the first day is just telling you how fucking awesome the second day’s going to be, and all the ideas seem to be quite thin on the ground. The Harbour Club, if you speak to any of the past delegates, they’ll tell you, it’s just a machine gun of content. It’s relentless. There’s so much information over that three days. It’s very much designed like the kind of seminar I would want to go to because I’m an impatient entrepreneur. My time is valuable. I want to learn stuff. I don’t want fluff and nonsense. Yeah, and the stuff you quite often get from these kind of things.
Jeremy Harbour
“Do you usually only take a minority stake in the company?” No. We have again, from the 12 deal structures, there’s probably three of them that focus around taking a minority stake. But we take a minority stake with control, so although we have a minority stake, we have control of the operations, the finance, the exit of the company. The rest of the structures are all around taking complete ownership or buying and selling the business. So yeah, not minority stakes.
Jeremy Harbour
“Profit multiple + inventory = business valuation. Is this what the Harbour Club uses?” No. No. Valuations are all made up. Basically there are lots of different valuation models in the world. In fact, Harvard Business School teaches 126 different methodologies for valuing a company. But all of those really are used to justify the number that you made up. So when you make up a valuation, you have to … Somebody will ask you, “Why?” And you have to come up with the why. So those valuation models are really used to … A bit like when you did your math exam in school, and you got one point for the answer and one point for showing your workings. Valuation models are just a way of showing your workings we will use whichever one we can get away with, basically, when it comes to selling a business. Obviously, when your buying a business, you’re basically focused more on structure than value because the key is being able to get the asset without using capital upfront or debt, so you’re more focused around structure than anything else.
Jeremy Harbour
“Realistically, how many hours a week do you need to dedicate to this activity to achieve a steady deal flow?” It’s entirely up to you. Obviously the more you put out in anything in life, the more you put in, the more you get out.
Jeremy Harbour
There was a case study I did with a lady from [Gowrie 00:41:27], and she was working full time as facilities manager for Hugo Boss. Her husband was rowing the Atlantic Ocean in a small rowboat, and she had a two year old son. So in terms of time availability, she really didn’t have very much at all. What she would do is, she would get to her office half an hour earlier everyday, and she would find, through sifting online and doing some research and find 10 companies that she was going to approach. Then every Friday, she would have 50 companies she was going to approach. She would send the targeted letters that we use out to those 50 companies. That equates to about 100 letters a week, because normally there’s two offices on average in each company.
Jeremy Harbour
She did a 4.5 million pounds, so about $6 million electrical contracting business about eight weeks after finishing the course. She bought a 9 million pounds, sorry $13, 14 million interior fit out company in the UK. She bought that in August and sold that in December. She’s now quit that job by the way, so she now has a lot more time on her hands.
Jeremy Harbour
But in terms of if you create the habits, if you do the right things every day, you can create the deal volume. But you do need to have … I think it’s more about consistency than one massive action. So yeah, I think doing something regularly is much, much better. Look, you might not be as lucky as she was and get one in the first few weeks or months, but I think it’s realistic if you set yourself a 6-9 month goal to acquire your first company, I think that’s very realistic. It seems to be around about 20 qualified pitches equals one deal on average. So basically, if you just follow the sourcing techniques, work on the basis that you’re going to have about … You’re going to kiss 20 frogs before you find your princess.
Jeremy Harbour
“Could this be used on financial services companies like banks or insurance companies?” So actually, one of the case studies I do is how I took a share in a bank, a nationally charted bank in the U.S. Again, no money down. Industries where you have to have that capital adequacy, where you have to recapitalize to meet regulatory standards, we have a little hack for that. It’s not included in one of our 12 deal structures. It was something people always ask me about, that you own a bank. So I added a slide in the Harbour Club just to talk through how that structure works.
Jeremy Harbour
But the standard structures, I’ve used probably … They might work in something like the insurance brokers or the finance brokers, but probably not the actual finance companies or banks, or insurance companies. But like I say, we do talk about a structure you can use for taking a stake in a regulated business that requires capital adequacy.
Jeremy Harbour
“How many participants in the Harbour Club have reversed their companies into your public company?” A handful. Five or six so far. We listed. The most recent company was only listed in December. So obviously, there was quite a bit of deviant stuff you have to go through. It’s a fully reporting public company, so we have a big pipeline of deals of that type that are coming through. I’d probably say that we’ve probably got about 20 companies that we will acquire this year into that particular vehicle. We have two more vehicles that we’re just listing at the moment. I think it will be a very popular route for Harbour Clubbers to take well, just their companies, but the companies that they’re finding into the structure.
Jeremy Harbour
“In the last 24 months, how many participants have not done a profitable sale of a company acquired by using your techniques?” Do you know what? I would have absolutely no idea. But I can tell you, the majority of people who do the Harbour Club, I would say over 50% of the people who do the Harbour Club, don’t go on and use it for buying and selling companies. I don’t know why that is. Why you would pay that money to come to the seminar and not use the information, but that just seems to be the case.
Jeremy Harbour
I think some people just do the … They just want the intellectual understanding. They’ve seen these kind of deals. They want to know how it works. Some of them are doing consulting and they just want to implement some of these strategies into their consulting stuff. Yeah. For a whole bunch of reasons, a very large proportion of people don’t go on and do deals. But I couldn’t tell you what those numbers are. We don’t track everybody individually. We just deal with the people who want to deal with us, basically, so we keep in close contact with those who are engaging and asking questions and doing stuff.
Jeremy Harbour
“I have more questions, but you have Singapore Harbour Club in 20 minutes. I guess my questions may have to be held until Miami Harbour Club. Hopefully the content will go over acquisitions and businesses around the world, not just USA.” Yeah. So yeah. We cover … I mean basically the deal structures we use, work everywhere. Most of the idea is based on human nature rather than anything else. Now when I say, everywhere, let me refine that to countries where you can own assets. If there’s a legal ability to own assets, then you can probably use some of these techniques.
Jeremy Harbour
Now where it’s worked really well for us is Australia, New Zealand, Singapore, Europe, UK, U.S., and Canada. They’re all jurisdictions where we know this works extremely efficiently.
And yeah, John, who some of you may have been speaking to is getting married, so he’s not going to make it to the Miami course. So, yeah. What a bit of a shame [inaudible 00:47:21].
Jeremy Harbour
“Milken’s shenanigans from the 1980s private equity firms still mostly use debt to buy all their companies.” Yup. “They take special dividends from the debt, pay themselves, get very rich from that model. Why isn’t that model not worth your time when they get money from pension, blah, blah, blah?” Yeah, look, I don’t think … [inaudible 00:47:53]. Right. This is from Peter. Oh, hello Peter. We’ve spoken before. You’re presupposing that my ambition here is just to get very rich. It’s not. I don’t think there’s any value in ripping people off and scamming people to get very rich. I think private equity companies are destroying small to medium size businesses there. They’re taking great businesses, saddling them with tons of debt, enriching themselves and not adding any value to society whatsoever.
Jeremy Harbour
I think there’s a massive problem with accessing capital from financial institutions into small to medium size businesses. I think if you can unlock global capital and getting into small business, you could solve a whole bunch of society’s problems. I think a glomeration is a great way to do that. It also does have the happy side effect of making me wealthy, but at the same time is actually adding value to people or creating value for those entrepreneurs.
Jeremy Harbour
I think there’s a very interesting part of the Harbour Club presentation, which I hope you get to enjoy, which is about the private equity industry, which is just a massive bubble right now. They’re overpaying for assets. They’re a closed book. It’s probably the next big bubble to go bust. You can read articles that I’ve retweeted on that topic before they were on Twitter. We’ve been talking about this for about three or four years now. It’s getting worse and worse and worse. I think it’s probably the next big financial crisis will be the implosion of the private equity market. But we can discuss it at great length another time.
Jeremy Harbour
“If a glomeration is successfully completed, why not get it listed on New York Stock Exchange, NASDAQ or London?” London doesn’t allow decentralized management. You have to show you have a central management function, and we have a decentralized management function. New York or NASDAQ do allow you to have decentralized management function, but basically if you’re less than about $2 billion of market capital on NASDAQ or New York, you’re not going to be taken very seriously by the capital that you’re trying to attract.
Jeremy Harbour
So the small cap institutional investors in New York are very sharky and scammy, whereas the European exchanges have a very mature small cap institutional patient capital sector. So we probably will list on New York or NASDAQ at some point, but we will probably do that when we’re big enough, and probably through an ADR.
Jeremy Harbour
So an ADR is where you can list up to 20% of the company back onto NASDAQ or onto New York. That’s already a strategy that we have in mind, but we want to get the overall market capitalization to a scale where we can appeal to the brighter kind of institutional investors.
Jeremy Harbour
“A segment of your program discusses fixing businesses you invest in. Can you give an example of some of these fixes?” There’s a whole bunch of stuff we run through depending on how distressed the business is, really. Look, I mean one of the simplest fixes you could look at is accounting. This isn’t really a cash fix, it’s more of a profit fix. Is looking at accounting treatments.
Jeremy Harbour
So accounting treatments are the way that you recognize revenue and the way that you recognize costs. What’s referred to as accruals. For example, small, private companies tend to focus on tax mitigation rather than profit optimization. So quite often they will choose a recognition structure that will keep their taxes as low as possible. So by simply changing the accounting treatment, you can often parachute huge amount of profit back into the company.
Jeremy Harbour
A really good example of this would be the Harbour Club. So when somebody buys a ticket to the Harbour Club, they either pay me up front, or they pay me a payment plan. They then have a choice of which event they attend. So from an accounting treatment perspective, if they pay me on a payment plan, I can choose to recognize that income now, all of it, even though they’re paying me over two years, or I could choose to recognize it as it comes in in stages, or I even could choose to recognize it at the end of that period. I could also choose to recognize the income when they attend the course, or when they’ve given it to me. Likewise with the cost of delivering the course, the hotels and the food and lots of stuff, the $100,000.00 hotel bill I get. I could choose to recognize that when they sign up as a proportion of the ticket sale, or I can choose to recognize it when I pay it at the end of the course.
Jeremy Harbour
Those different variants can really make a massive difference on what you present. For example, you can have the same set of numbers show you a $200,000.00 loss, a breakeven position, or a $200,000.00 profit just based on how you present it. That’s just a simple example I can give you.
Jeremy Harbour
Somebody here is saying, “Yeah, it’s a common problem. Very few people take action.” Yeah, look, action is the differentiator. Some people to self-development. Some people do shelf development. So just decide which one of those you’re going to be.
Jeremy Harbour
“What is the price to attend the Miami seminar? Have you heard of the IEX exchange?” Yeah, I’ve heard of the IEX exchange. We’ve searched loads of exchanges around the world. One of the things that we’ve found was a big challenge was taking advice, is that advisors are always affiliated to an exchange. So if you are, it’s a bit like going to a hairdresser and asking if you need a haircut. Of course you do. If you go to a corporate finance company in New York, they’re affiliated to a particular exchange. In Singapore, they’re affiliated to the Singapore Exchange. In Australia, they’re affiliated with to the Australian Exchange. They give you what they can sell.
Jeremy Harbour
So we had to do our own analysis into the top 30 exchanges around the world by liquidity. We looked at unregulated versus regulated exchanges. Primary markets versus secondary markets, and all that kind of stuff, and really analyze the qualitative and quantitative differences between enlisting in each of those venues to ascertain what is the best place for our model, for our acquisition strategy, for what we’re trying to achieve, for accessing capital, for a whole bunch of factors. The advantage that gives us now, is that when people say to us, “Hey, I’m thinking about listing this company.” We can pretty much say, “Oh, well you should list on this place, because they allow you to do X, Y and Zed.” That can be quite powerful.
Jeremy Harbour
The live event costing and everything like that, so for pricing and any details about Miami, if you reach out to Monty, or if you go to harbourclubusa.com for the USA version. Harbour is spelled the English way. So it’s H-A-R-B-O-U-R, so harbourlubusa.com. Right.
Jeremy Harbour
I’ve got questions that … So I’ve just answered all the questions in the chat. Now we go to the questions in the Q&A section.
Jeremy Harbour
“How applicable is stuff in the Harbour Club USA to the Canadian market?” Yeah, I would say pretty much completely. In fact, there is not … There’s nothing, I think, that wouldn’t translate. There’s a couple of things that we have in the course that are country specific, but most of those are European country specific. The rest of it, all works in the USA and Canada.
Jeremy Harbour
“How’d you find these people?” I don’t know if you’re talking about people that come in the Harbour Club or people that you buy. But yeah, I think I’ve covered some of that question already.
Jeremy Harbour
“Also, is there an LLC alternative for Canada that’s effective?” Yeah, absolutely. It’s just a limited liability company. Important to know, it’s a company that’s limited by shared capital. So not limited by guaranty and not limited partner, so it’s a company that’s limited by shared capital. Every country has its own version. In fact, we give you on the course, we give you a lot of mini guides. This is simple stuff around limited companies, contract law, creating an information memorandum, all of those kinds of things.
Jeremy Harbour
One of the things we talk about is limited liability companies in all the different jurisdictions. In Canada and Japan and all those kind of countries are included in there.
Jeremy Harbour
“So I just negotiated a deal to earn 20% on all new business through sales and marketing, and then receive 50% ownership once we get to gross income requirements. All expenses still run through the business.” You know what? I like that, Joe. This is Joe who is asking that. I like that. The key thing is, if you take a 20% stake in a business, you’re basically a passenger. So the key thing is learning how to turn that 20% into real value. So the contract that we’ll give you on the Harbour Club is the missing piece of your puzzle. Basically we’ll show you how to control that company for 20%. That’s where the magic happens. You’re already getting income from it. You’ll be able to control the sale of the business, and a whole bunch of other stuff.
Jeremy Harbour
The great thing is, the agreement that we have doesn’t suffer from author bias. So every contract, every contract term is win-win. So they have no reason not to sign it. It’s a really, really powerful sets of clauses. It’s funny, there’s five clauses in there, and it pretty much represents the five times in my life I got really fucked over. So it’s a hard fought, hard won bit of content that you’ll get there.
Jeremy Harbour
“Looking at business that serves the well drilling industry, currently I own this primary business in drilling wells, and a secondary related business launched. But without the capacity to actually move forward, it’s a closely held company. I want to take over the secondary business and get it running to its potential. How would you structure a deal to buy from the owners to get fully operational to sell it back to them at a profit?” Okay. Basically, I would say it’s not operational, if it’s not generating revenue or profits, I wouldn’t play around with it. Basically you can only really fix things that have revenue and profits currently.
Jeremy Harbour
Interestingly, you talk about the sport, the well drilling industry, so that kind of … The service is a sector that sits around oil and gas. I think there’s tons and tons of opportunity in that. Again, it’s a place where private equity bowled in and then when oil hit $27.00, it fucked everybody. I think, the ones that remain and the ones that have been fiscally responsible but they’re still, in most cases a little bit distressed or not in great shape, so I think there’s tons and tons of opportunity in that, in the services sector related to oil and gas. I’d be more than happy to chat about that another time, at the event or whatever, because I think we’ve got some really good opportunities in that space as well. That could be a good opportunity to do a glomeration or some kind of partner up with somebody with oil and gas experience to execute on some of these deals that we have.
Jeremy Harbour
“If someone can’t attend your workshop, are there print or video materials that can be purchased?” No. We only do it live. Look, we go into some really interesting business techniques and it’s changing all the time. It’s evolving as we evolve our own ideas. But what we talk about isn’t always black and white. So we want to give you real warts in all case studies and real warts in all strategies that you can go and implement. We don’t really want to publish that information in a way that could perhaps be misconstrued by the media and paints us in a bad light. We believe what we do is completely ethical and we protect jobs and we save people. But you could also look at that through a slightly glass half empty way. We want to be able to share the best stuff with you.
Jeremy Harbour
I think if we had to publish something, it would be a really sanitized version of what we do. So we’ve always just decided to keep it live and not recorded. But we have lots of events. We have events in the U.S., and in Europe, and in Asia, only a handful a year, but hopefully you can make it along to one of them at some point.
Jeremy Harbour
“Can you tell us more about business you approached on the angel site as an investor that turned into a deal?” Yeah, so basically, a lot of the Harbour Club has positioned themselves as investors. It’s just about pivoting, “What do they want the investment for?” Quite often, there’s a way to solve the same problem without giving them the money. The thing I always say is, “You can’t fix a leaking bucket with more water, so let’s figure out how to fix the leaks.” Often, that doesn’t cost anything.
Jeremy Harbour
“With the techniques we’re to acquire companies in China.” This is the last one because I’ve got a really hard stop now at 9:00. So China has issues with foreign ownership. But they do have something called a WOFE. It’s a wholly owned foreign entity. There are certain industries that you’re allowed to own through a WOFE. With those ones, yes, you can absolutely buy those companies if they are WOFEs, so they’re in permitted industries.
Jeremy Harbour
So things like marketing services, for example, are often WOFEs so you can buy those. There’s also some really interesting things we can do with WOFEs and glomeration structure. Lots of people want to get their money out of China. One way they can do that is they can invest in the WOFE, and then we can buy the company through the public company. That effectively gives them shares in a European public company instead of cash sitting in China. So it can be quite an effective way of them investing and then capitalizing on that investment outside of China. So yeah, that’s a reasonably interesting strategy at the moment.
Jeremy Harbour
So I’ll leave it there. Thank you very much for taking the time to come on this. I’ve got to go and dash. I’m looking forward to meeting some of you in Miami in May, or in Boston in September. Just have a chat with Monty to fix that up. But thank you, and see you all again soon. Ciao.
