While it may not lack the glitz and glamour of launching a startup, acquisition entrepreneurship is a very viable option – one that is more feasible and affordable than many think.
Instead of launching your own HVAC company, for example, it may be less risky to simply purchase an existing, profitable business and run that one. That is the essence of acquisition entrepreneurship.
With many baby boomers set to retire in the coming years, there are lots of opportunities to purchase successful businesses.
Here’s a look at acquisition entrepreneurship and why modern CEOs should consider it.
What is Acquisition Entrepreneurship?
Acquisition entrepreneurship, or AE as it is often called, is simply purchasing an existing enterprise with the intention of growing and scaling the business.
Although it’s ideal to have some familiarity with the particular industry you’re looking at, it’s not necessary.
You’re looking for businesses that you can apply your unique skill set to make more profitable.
Advantages of Acquisition Entrepreneurship
Here’s a quick look at some of the advantages of acquisition entrepreneurship.
- Less risky than a startup
One of the major advantages of acquisition entrepreneurship is that it is less risky than starting your own business. You are purchasing a business that already has a proven track record and customer base.
According to an analysis in the book Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game, author Walker Deibel estimates that the success rate of acquisition entrepreneurs is roughly ten times higher than those launching startups.
- Open-ended opportunities
Acquisition entrepreneurs are looking for good business opportunities regardless of what industry they are in. You’re not looking to solve a particular problem like a startup, for example.
You are motivated by a desire to take an existing small business and make it more successful.
- AEs gain important resources
One of the biggest benefits of acquisition entrepreneurship is that you are buying a whole business, including its existing customer base and its current staff.
So there is no need to go out and look for clients or to work through a variety of staff until you settle on a successful team.
- Buying into a seasoned market
One of the main reasons most startup fails is a lack of market need. Entrepreneurs often overestimate demand or are outmanoeuvred by a nimbler opponent.
With acquisition entrepreneurship, you will be entering an established market, thereby negating many of those risks.
- Improving what’s already there
With acquisition entrepreneurship, you’re looking to apply your own unique skill set to expand into fresh markets or to grow an already established customer base.
Lots of business owners become stuck in their ways so buying an existing company can allow you to put a fresh set of eyes to the operation, unlocking potential growth that was missed by the previous owners.
- Gaining valuable knowledge
It’s unlikely anyone is going to hire you as a CEO for a big firm without having years of experience and proven track record.
Acquisition entrepreneurship offers a path to gaining valuable knowledge and skills by overseeing a variety of small businesses before thinking about taking over a larger, more lucrative operation.
Strategies and plans for acquisition
Now that you’ve got some idea of the value of acquisition entrepreneurship let’s take a look at how you can find suitable businesses.
A good rule of thumb is to look for a business that has been operating for a minimum of 10 years and between $1.5M and $15M annual revenue.
You’re also going to want to find a business that has a wide customer base, a stellar reputation, and a growing market.
You should also consider all of your funding options. Are you looking to put up all the equity yourself? Are you looking for outside investors?
You should also be very familiar with SBA loans.
Acquisition entrepreneurship and due diligence
Once you have narrowed down your search, you’re going to want to do as much research about the company as you can.
You’re going to want to gather as much information as you can from public sources, including SEC filings as well as online reviews of the company. Try to spot any red flags.
You’ll like have to sign a Letter of Direction (LOI) stating your interest in purchasing the business as well as a nondisclosure agreement (NDA) before getting access to detailed financial records.
Closing the deal
If everything checks out, you’re going to have to eventually settle on a purchase price and close the deal.
This can be a tricky negotiation.
You’re going to make an offer based on what kind of multiples of EBITDA ( earnings before interest, taxes, depreciation, and amortization) are commonplace in that industry.
You shouldn’t discount the personal either. Many of these businesses have been built over many years or decades, and the business owners may have an extreme sense of pride in their operation. They likely want it to succeed as much as you do.
It can also be beneficial to have them around if you encounter any problems, so try to stay as friendly as possible. Acquira’s training will help you determine the way to find a business worth purchasing. The first step is to apply for the Accelerator Program. If you’d like to learn more about how we can help you find and close a business within seven months, schedule a call with one of our representatives. We can help walk you through the ins and outs of acquisition entrepreneurship.