Noah Rosenfarb of Divestopedia sits down with John Bly, author of "Cracking the Code: An Entrepreneur’s Guide to Growing Your Business Through Mergers and Acquisitions for Pennies On The Dollar," for an intriguing discussion on acquisition growth strategies for middle market companies.
In addressing build vs. buy, Bly says "Let’s say [...] you’re going to grow by hiring that next sales person and you’re going to invest $100,000 with them in the first year and if you’re lucky, they might generate $200,000 in the first year, maybe they will do really well and they will generate $300,000 or $400,000. What I would say is that with that same $100,000 investment [and proper leveraged financing] in my experience, you could purchase a business [for] between... $700,000 and $1 million. Now, [depending on the type of business], that $100,000 instantly turns into between $200,000 and $300,000 of cash flow the first year[...] If you’re going to invest $100,000, that’s not a bad return. Never mind the future growth of [the business]."
On the topic of negotiating acquisition prices, Rosenfarb added "We say, “You tell me whatever price you want as long as I could set the terms. I’ll pay you whatever you want I just get to decide when.”. Rosenfarb points out, "It’s all in the terms and terms could be very meaningful. [Some] terms that might be important [are] whether it’s the owner contributing, the seller contributing labor at no cost post closing, work and capital adjustment, the actual length of time that the payments will be made, the interest rate on the payments, and the other big term conditions that you’ve seen that have been very influential in getting a deal closed."
Bly attributed a "hot" M&A environment to two key factors; (1) low interest rates (cheap money) and (2) baby boomer business owners looking for an exit.
Bly also discusses how to build a strong pipeline of acquisition targets, keys to successful acquisitions, and more.
To listen to the full interview, check out the post on divestopedia.com HERE.
To buy a copy of John Bly's book "Cracking The Code: An Entrepreneur's Guide To Growing Your Business Through Mergers And Acquisitions For Pennies on the Dollar," click HERE