David Freeman, CEO of Three Six Venture Capital, sees value in treating each deal as unique. That could mean using different metrics to determine value based on industry, using different methods to build a deal pipeline, or listening to the unique concerns of ownership to find the right leverage to get a deal done.

At the Smart Business Nashville Dealmakers Conference this past year, Freeman said it’s fairly typical for buyers to see businesses valued based on some type of multiple of EBDITA. But those aren’t uniform indicators of value. Instead, buyers should to consider the category in the determination.

“I’ll tell you that a couple of the worlds that I’ve been in, for example the waste space, we bought and then sold based on multiples of gross sales, which is an incredibly different metric,” Freeman said.  “And when you get into those initial conversation with potential buyers, it’s critical that before you go too far that you’re at least talking about the same valuation metric. For example in sports franchises, it really has nothing to do at all with multiples of EBIDTA or gross revenue. Those are really more like buying a house — they’re based on comps of what the house next door is worth.”  

Even accumulating a list of targets is very industry specific, Freeman said. Sports opportunities come to the buyer, not the other way around. In the waste business, a regulated industry, Freeman and his associates went to the states and requested a list of their regulated haulers. From that point, he says it was mostly cold calling.

“I think in every industry, you have your own pipeline of how you find folks,” he said.

From the acquisition standpoint, one of the most critical abilities buyers should have is an ability to just sit and listen. He said if buyers can listen closely enough to what your potential seller is telling you, you’ll pick up hints about how to get a deal done. That leads buyers to be a little less focused on price and more focused on what the seller’s future looks like.

“Every seller has unique hot buttons,” Freeman said. “And money is always going to be there. But the ability to structure a deal is critical to be able to listen.”

Freeman says, for example, when dealing with the waste industry, they were acquiring small mom-and-pop haulers. Some were selling because they wanted to go do something else, so it was all about money and getting out. Others were selling because they had grown to a certain stage where they couldn’t handle the next step but they needed a job, so it was less about purchase price and more about you’ve got a job with this salary guaranteed.

With the Nashville Predators deal, he said it became clear after listening to then-owner Craig Leipold that he already had a deal to buy the Minnesota Wild, so the challenge was to get the deal done fast enough so that Leipold could buy the Wild.

“By knowing that, we were able to find the seller who was willing to give us certain concessions in terms of financing and various other things,” Freeman said. “So it’s about listening to your seller and about what’s important to them other than price.”