As you look to purchase a business make sure you are doing it for the right reasons. Don’t just say, “I want to get rich.” That line of thinking probably won’t cut it, unfortunately. You need to make sure you have wisdom, passion, and a sound plan for your new business. Do your Due Diligence!! The timing is right to purchase, in fact 2015 through 2017 may be one of the very best times EVER to buy a business. There are a number of factors that make this the best time in history to buy:
- Supply and Demand
- Capital Availability
- Larger Companies Are Worth More
- Strategic Savings
1. Supply & Demand
As Baby Boomers are exiting their companies – there are lots of sellers, but there are not as many buyers as there were 10 years ago. This makes the selection of businesses to buy better than the past. Also technology has helped in this regard. Most Capital Advisors that provide buy side searches or sell side representation have access to websites that list companies that are up for sale. This makes it much easier to find the demographic fit, niche fit, and value that the buyers are looking for. Therefore, when a business owner comes to a Capital Advisor they are receiving information on numerous companies that are interested in selling, and have more choices than they would have had at any time in the past.
2. Capital Availability
The Private Equity Groups, Private Investors, and Banks have more money on the sidelines that they want to put to use in the marketplace than ever before. Additionally, interest rates are still at historic lows (however this could change slightly in 2016 – so keep an eye on this) – so borrowing capital to buy a business can be done very efficiently.
3. Larger Companies Are Worth More
Acquiring 1 to 3 competitors and building your current company may change the multiple you get on an exit from 4x to 6x of EBITDA. The big difference here is that you may be buying a smaller business for 3x the earnings and later as you combine it with your business and thus resell a larger business in the future, you may be able to get a rate arbitrage on your purchase. Thus, the same business you bought for more than 3x.
4. Strategic Savings
If you already own a company in the given industry and you acquire another one, the savings could be 5 to 25% on expenses for the combined company. Which means you could add more profit and cash flow than the prior owner. There are many different expense categories that would overlap, and when you combine companies you wouldn’t have to pay twice!
For more information on how LBA Haynes Strand Capital Advisors can help you successfully buy a business, click here for your no cost consultation! In the meantime, click the button below to download your free report: “The Essential Guide To Successful Mergers and Acquisitions.”