We often hear from founders who feel they have hit the ceiling with what they can do with their companies. They are burned out.
Buyer groups in the market see this as an opportunity, and often use one of two strategies when planning an acquisition.
One involves bolting together several smaller companies into a larger entity. Without making many changes, the larger entity theoretically will produce a bigger bottom line.
Another tactic is to buy and build. This is harder to do, but involves seeking efficiencies, building a more sophisticated sales program and tightly managing to achieve higher profitability.
Both tactics can hit the same goal: multiple arbitrage, a process that grows the value by increasing both the bottom line and the multiple that is applied to it.
Here’s a completely theoretical example that may be helpful in understanding: Company A sells for a 3X multiple. After one of the strategies above is employed by the buyer, the bottom line or EBITDA is doubled. The company might now demand a 5X or 6X multiple.
Here’s the point: a larger bottom line attracts higher multiples. Since the company is more profitable, and the multiple is higher, the new transaction value will also go up.
Contact us to learn more about consolidation trends and business transition options[LV1] . By using a good M&A process like the one we use, you may find there is more interest in your business than you expect. A single unsolicited offer rarely produces the best value.
BTS News
Manufacturer Sold and New Owner Expands It
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NH-Based Techinical Manufacturing Company Sold
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Be Ready When You Are Ready
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Looking at a Sale Through the Right Lens
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5 Deal Points from the Trenches
Today I work with clients of Business Transition Strategies who are implementing Growth Through Acquisition strategies. Here are a few observations from working on a wide variety of projects.
Tax Changes Could Hurt Net Proceeds
Changes proposed to the capital gains tax suggest they may need to get 30% more in a transaction in the future just to net the same value they would get today.
Good Ideas From Shark Tank Deal
One of my colleagues in Cornerstone Alliance was front and center in a recent Shark Tank exercise. A business that had been sold was put in front of four potential buyer groups.
Buyer Trends in Lower Mid-Market
Other businesses are a significant market for companies being sold within the lower mid-market.
Case Studies
Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
Water Purification Company and Young Buyers
Owners decided they wanted to retire. They also wanted to be fair to the staff who had been loyal to them. Could the company be sold, the staff retained and the facility remain in use?
Magnetics Company with High Profile Customers
(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.