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 way of thinking probably won’t cut it, unfortunately. You need to make sure you have wisdom, passion, and a solid plan for your new business. Do your due diligence!
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
Supply and Demand
As baby boomers exit their companies, there are more sellers and less buyers which makes the selection of businesses to buy better than it has been in the past. Many Capital Advisors that provide buy side searches or sell side representation have access to websites that list companies for sale. This access makes it easy to find the appropriate demographic, niche, and value that buyers are looking for. When a business owner comes to a Capital Advisor for guidance, they receive information on numerous companies interested in selling and have more choices than they would have had in the past.
Private equity groups, private investors, and banks have more money they want to put to use in the marketplace than ever before. Additionally, interest rates are at historic lows so borrowing capital to buy a business can be done efficiently.
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. Consider buying a smaller business for 3x the earnings. Later as you combine it with your business and resell the 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. Some call this the buy-then-sell strategy.
If you own a company and acquire another one in the same industry, you could save 5 to 25 percent on expenses for the combined company. This means you could add more profit and cash flow than the prior owner. There are many expense categories that overlap. When the two companies are combined, you will not have to pay twice.