It’s hard to pick up a serious business journal without seeing articles about major corporations targeting substantial M & A activity in the coming year. Interest rates are still at historical lows and a number of valuable acquisition targets are beginning to become available. As a result, all of the big boys are heavily involved in “buying” growth through strategic acquisitions. As a matter of fact, our firm is seeing a strong flow of sellers positioning to exit due to baby boomers and delayed exit strategies post the 2008 recession.
Strategic Acquisitions take planning and time. At A Neumann & Associates, LLC, a leading New Jersey M&A / Business Brokerage firm, we experience intimate access to hundreds of companies that are positioned as prime sellers.
Yet, the small business owner tends to get caught up in the daily management of the business. Fear and complacency sets in as the business hits a plateau, however, stagnant growth and sluggish sales may be overcome by acquisitions. Small businesses typically seem to hit the wall below the $5 million revenue range and don’t grow from there.
It is here that the small business owner needs to take a page from the playbook of larger corporations, who have learned how to overcome stagnant growth and sluggish sales through acquisitions. Yes, it’s true that strategic acquisitions take planning and time. But taking that time and doing that planning can be enormously rewarding. And right now, there are many lenders offering creative financing options for purchasing a business, and seller financing is often available – thereby enabling acquisitions even for smaller businesses.
As a first step, have an outside accredited third party, appraise or value what your business is worth and any opportunities you may have to leverage your assets to take on a purchase of a like business. “Don’t get caught up internally valuing your business as your decision making may be be clouded” says Michael Feite, Managing Director, Eastern Pennsylvania. “A certified business valuation by a third party is the only way to accurately determine true market value.”
As a second step, brainstorm on possible strategic acquisition targets and/or synergistic partners. Think 1+1=3, for example, buying a business that has the same distribution channels or minimizing substantial overhead.
Finally, develop a mid-range business plan. Take the time to finding value through the advantages of acquisition. Look at prospective businesses and its value drivers early on in your planning process. A typical list of value drivers can include
- Historic Growth
- Profit and Margins
- Customer Diversity
- Product & Service Mix
- Five Projections
- Outside Risk Exposure
For a thorough discussion and to learn more about opportunities in buying a business (or selling a business), business valuations and value drivers, please contact any one of the firm’s Managing Directors or visit us at our upcoming workshop on May 15, 2014 at the Marriott, Teaneck.