Wanted - Considered Dangerous
Known for Separating Business Owners from Their Money

This is the heading of a flyer I received from a broker shortly after I give a presentation to the California Association of Business Brokers about recent scams on owners desiring to sell their businesses. I gave the presentation because I had been involved with one of my “business owner” clients and the FBI for the prior month regarding one of these scams. The three  scammers I am aware of, two teams, and one individual, all have the same basic m.o., and you should definitely be aware of their practices. I sent an email to 293 M&A Source members, asking if they had ever heard of two particular “PEG’s” I was dealing with, and their three principals. Within 24 hours I had five emails that all said “call me!” One IBBA member had just been involved with these guys within the past month, and another described what had happened to his former client, and he provided me with a name and telephone number of the FBI agent that had worked on the case.

Basic m.o. (varies by scammer): They contact businesses for sale, usually via listings on the internet, they act as a Private Equity Group (PEG) or a small investment group, get initial information, make a full price offer, get the intermediary out of the way as soon as the intermediary starts asking questions (they communicate directly with the seller, convince the seller their broker is getting in the way and is a hurdle to getting the deal done), they offer full price paid over a short buy out period (6-10 month), with maybe 10% down AND as a stock sale (all sellers and their CPA’s love this, for tax reasons). The seller holds all the stock as collateral, and of course, the sale includes Accounts Receivable, cash, Accounts Payable, etc. (the entire balance sheet). Then, they give the seller his initial down payment, take control of the company (while the seller is “training” them, and around most of the time), they factor the A/R’s, clean out the cash, run the credit cards up to the max, may sell off some or get loans on the fixed assets (vehicles, etc.) and do not pay any payables/liabilities, and sometimes fire employees, usually never paying any of the business’s (or employee’s) payroll taxes or other taxes. Then, they disappear in a month or so.

One company sold for about $1.8 million, and from what I can put together, between cash, A/R’s and credit cards, they left town in a few weeks with about $ 1 million, leaving the seller with no working capital, no payables paid, and larger liabilities (credit cards, payrolls, taxes, etc.). And, they even convinced the seller to let them take over the business with nothing down, because “their funding was a day or two late, but on the way.” Think no one would fall for this? Well, it sounds as if many business sellers have, since at least three of these “teams” have been working the U.S. for years, and this is how they earn their living. One team is comprised of two brothers and their mother from the Midwest. Another is an individual working with two brothers.  The ring leader of the group I got involved with was arrested by the FBI in Texas, and the two brothers that worked with him were arrested a few days later as they were boarding a plane for Brazil. At least two of the five M&A Source members that contacted me had clients that either fell prey to this group I was working on, or they were extorted out of money for not completing the transaction.

Bottom line - (1) these scams really do exist, and (2) thanks to the IBBA and its M&A Source members we were able to nail at least one group - ah, the value of being an IBBA member!!

Ron Johnson is president of ABI Business Sales, Mergers & Acquisitions in San Ramon, CA (established in 1984), past president of the CABB, and 2007 Chairman of the IBBA.,  Ron@ABI-MA.com