How Song Pettus Acquired a $2.5m Accounting Biz

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Today, we’re featuring Song Pettus.

Song has an extensive background in finance and operations at large companies like Apple. In March 2020, Song acquired a bookkeeping and accounting business for $2.5m.

Song’s story is impressive for a few reasons:

1. He ran a successful search while maintaining a full time job at Apple

2. He closed shortly after the COVID pandemic started. Nobody would have blamed him for backing out of the deal, or at least renegotiating terms, but Song told us, “I trusted in my diligence and ability to run and grow the business”. 

3. Less than 4 years and two add-on acquisitions later, Song had nearly doubled the business and decided to sell it to a PE-backed roll-up platform in the accounting space for a 3-4x ROI.

We’ll break down exactly how he did it, including deal structure, financing strategy, the bank he chose to work with, and more.

His Story

Song grew up in Kentucky and studied finance at the University of Kentucky.

After graduating in 2008, he moved to New York where he worked in finance, initially as a restructuring consultant for FTI Consulting and later for Abacus Finance Group, a family office specializing in lower middle market buyout deals across manufacturing, healthcare services, and other industries.

“At Abacus, I started to admire entrepreneurs building these important and super profitable businesses that flew under the radar because they were considered boring”. 

This experience lit a fire under him to explore business ownership, but he felt he needed to gain experience in operations and management first.

He left Abacus in 2014 to pursue an MBA at Columbia Business School with “the intention of pivoting to an operations role afterwards”.

After B-school, he landed a role in business operations at Apple, where he worked for the next 4 years or so, eventually being asked to lead the procurement process for adhesives, a critical but overlooked material used to build Apple devices.

With some operational experience under his belt, Song began searching for deals on the side in early 2019. Given his Apple experience, his initial focus was on manufacturing, logistics, and related businesses. As his search progressed, he gravitated towards business services as they were easy to understand and he figured it would be easier for him to step in to solve issues directly.

Given his background in finance, he was drawn to bookkeeping and accounting businesses, and liked that they had recurring revenue, good customer retention, and he could outsource work offshore and tap a wider talent pool.

The deal he closed received 20+ LOIs. Song ultimately prevailed because he built strong rapport with the seller and spent time with him in person. “Relationships are underemphasized in the SMB space. It’s not just about price. In fact, I know I wasn’t the highest bidder in this case”.

Acquisition Process

As a part-time searcher, Song wanted to make sure he stacked the odds in his favor. He only worked with brokers and avoided cold outreach to ensure he was dealing with serious sellers. He only focused on industries he had some level of experience in. He adopted the mindset that finding a great business ranked higher than maximizing performance in his job at Apple. And finally, he put in the extra time (a lot of 3 AM nights, working on flights, etc.).

• Timeline: Song began the search in early 2019, signed an LOI with the accounting business in late 2019, and closed in March 2020

• Deal Criteria

  • Industry Focus: manufacturing, logistics/distribution, and business services

  • EBITDA: $500k-1m

  • Location: California

• Sourcing Channels: marketplaces and brokers. Song came across the accounting business on BizBuySell. He spoke highly of the broker who represented the business – Bob Grewal.

• Pipeline Stats: Song looked at 100s of deals, sent 7 LOIs, and signed 2, including the one he closed

  • The first LOI was with a medical equipment distributor that didn’t pan out after a quick quality of earnings (“QoE”) analysis showed major discrepancies in Adjusted EBITDA

• Service Providers: Song worked with CLA for financial diligence / QoE and Braden Wayne for legal advice

The Business

• Name: TAABS

• Location: Encino, CA

• Industry: Bookkeeping and Accounting

• Description: Offers bookkeeping, outsourced accounting, bill payment and invoicing, payroll management, and other services to small and mid-sized companies across a range of industries

• Established: 2000

• FTE/Contractors: 18 FTE / 4 Contractors

• Acquired Revenue (2019): $2.3m 

• Acquired SDE / EBITDA (2019): $600k

Deal Structure

Song raised a combination of debt and equity to fund the acquisition.

Most of the debt was in the form of a SBA loan. There was also a smaller seller note which was contingent on the business maintaining its revenue for 12 months after closing (a positive signal from the seller).

In terms of the SBA loan, Song approached 5 lenders but there were 2 in particular (Union Bank and Live Oak) that were a good fit.

Song initially signed a term sheet with Union Bank but they came back and asked for more equity in the 11th hour. This was frustrating, but Song was able to go back to Live Oak and credits them for getting a deal done quickly.

“The best part about Live Oak was that they only had one true covenant in the loan agreement – making the monthly payment”. Most lenders tend to have other covenants (DSCR, leverage ratios, etc.) so this was very favorable.

Song contributed a majority of the equity portion and had a small group of co-investors that included mostly friends and family.

Growth Strategy

• The business didn’t need a lot of marketing dollars for customer acquisition. There was already strong word of mouth and referrals in place from CPAs so Song built upon that

• Hiring cost-effective labor in the US was a challenge so he outsourced data entry and routine tasks to a team in India

• He expanded his ops team to include a Director of Ops, dedicated person for recruiting and another for ops management (onboarding, tech integrations, etc.)

• Tackled low hanging fruit – implemented a CRM to manage leads better, budget vs. actual tracking system, and grew the CPA referral network

• Pursued 2 add-on acquisitions in the Midwest

  • Financed via excess cash, upsizing the SBA loan by $500k and $400k of seller notes

The Exit

By early to mid 2023, Song’s growth initiatives were starting to pay off and he was on track to double revenue and hit EBITDA of ~$1m.

He was not actively looking to sell the business, but in mid 2023, Song was approached by a PE-backed roll-up platform in the space that was interested in acquiring TAABs and making him the COO of the larger company. They were planning to roll up smaller bookkeepers and surround them with stronger leadership and shared functions.

This strategy was appealing to Song, and the PE platform offered a very fair valuation (6-8x forward EBITDA), which would result in a 3-4x ROI for his passive investors and an even stronger return for Song.

He sold the business in November 2023 and is currently the COO of the larger roll-up platform, which has acquired one other business in addition to Song’s and has another under LOI currently.

If anyone is interested in connecting with Song, let us know. He is happy to share more about his experience, as well as offer advice and guidance to anyone considering a similar path.