Are you considering acquisition as a way to begin or expand your business? There are a number of reasons why it is one of the best times to acquire a company:
1. Supply and Demand
As The Baby Boomers are exiting their companies – there are lots of sellers, but there are not as many buyers as there were 10 years ago – so the selection of businesses is better than 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 market place than ever before. In addition, interest rates are still at historic lows – so borrowing capital for an acquisition 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 company 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 5-25% on expenses for the combined company. This 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 would not have to pay it twice.
M&A Tip: As you look to acquire or buy 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 this business. Do your Due Diligence! The timing is right to acquire, it’s just up to you to follow through!
For more information on how LBA Haynes Strand can make your acquisition a successful one, contact our Capital Advisors team!