Why grow by acquisitions?

In the United States (and other markets), many business owners are in their 60’s, 70’s and older. Their kids aren’t interested in the family business. Their grandkids don’t have the background, skill, or capital to run the business. As a result, there are tens of thousands of profitable businesses for sale and currently, very few potential buyers. On top of that, the cost of capital is relatively high which significantly shrinks the pool of potential business buyers.

Public companies have a strong advantage when making acquisitions:

1. Brokers are more likely to show them businesses for sale because the trust, credibility, and transparency of being a public company generally means the entrepreneur has a better chance of closing a deal, something brokers care a lot about.

2. Business sellers prefer dealing with public companies for the same reasons noted above. In addition, business sellers are often willing to be more flexible in acquisition terms, including accepting stock, warrants, preferred shares, notes, and cash payments over time.

3. Public companies generally find it faster and easier to attract any necessary acquisition financing, working capital and talent to make more deals happen.

4. Public companies often buy private companies for 2x to 4x SDE or EBITDA but are typically valued at 8x to 15x (or more) as a public company. For example, an entrepreneur can buy a company earning $1 million for $3 million but that same earnings could be worth $8 to $15 million in public company valuation. This is a fantastic way to build a business and increase valuations.

Entrepreneurs growing by rollup/acquisitions are the perfect client for us.

* This video mentions the cost to start the process is about $50,000. Generally speaking, a company can start the process for $20,000 to $25,000 and if necessary, can raise capital to fund the rest.