Connecting retiring owners with buyers wanting to grow an established business

Blog

Tips and Articles for Entrepreneurs: Selling or Buying

Building a Personal Empire, Step-by-Step

There is a brilliant entrepreneur that has purchased several businesses from our firm. "Tim" has developed a repeatable plan for strategic acquisitions, connecting synergistic businesses into a portfolio of his own. He agreed to let me share some of the basic principles he applies:

  1. FOUNDATION: He locates his "anchor tenant" - a bigger, predictably profitable business that acts as the foundation for the rest of his work. He assigns his best General Manager to run the business day-by-day while, after a year or so, he seeks related acquisitions

  2. SPIN-OFF: His second purchase (usually once the first is into a 2nd year) is either: a) A supplier or b) A business that can be run by the same GM. He may also consider geographic diversity and cross-functional employees in the equation. He may repeat this step several times to gain more of the supply chain or take advantage of opportunities for new acquisitions if they are too good to pass up or if the business isn't attractive to most buyers stand-alone.

  3. DIVERSIFIED AUDIENCE ACQUISITION: At some point in any business life cycle, there is usually a plateau, even in a high-performing business. To burst through that still period, Tim makes an acquisition to acquire a business purely based on its target customer. He looks for businesses that have contracts with customers that are the Collection's next likely purchase and lets those customers help define the new direction for the conglomerate. "The audience acquisition purchase is usually a nimble company with the ability to adapt to a new scenario. It might be a strong sales or marketing team, a home-based business, or one with few large assets," Tim advises.

The beauty of a diversified portfolio is that every investment decision is made on the margin, meaning that each investment that is to be considered a sunk cost in one business can be leveraged with ZERO incremental investment in the 2nd, 3rd or 4th business.

I thought it would be fitting to supply this strategic plan with a few real-world examples of businesses that are for sale at the time of this writing. One small and one large example:

SMALL BUSINESS ACQUISITIONS

ANIMAL-CENTRIC: You may be following the immense market opportunity of pet-centric businesses in America. Today, a strategic buyer could pick up 3 or 4 related businesses, all affordably priced, and connect them with shared resources and audiences:

  • Dog training company: Asking $150,000. This is your anchor business with the longest history of predictable earnings. A single trainer earns the company about $180,000 with low overhead and a proven, repeatable technique for training.

  • Pet Supply Delivery: Asking $30,0000 - This acquisition would give you a distribution mechanism and connect you with more prospect clients. Be sure to enable the staff to share leads across businesses. This business can be relocated.

  • Retail Pet Food and Supplies business: Asking $55,000 -- This business gives you an anchor Seattle location from which to dispatch the rest of your services. You may consider adding another location in Bellingham for $300K once the core businesses can help fund it.

  • Dog walking business: Asking $45,000 - This company doesn't have huge earnings, but fits the portfolio by supplying a regular stream of customers over time. Think of this business as the new customer acquisition arm of the company.

So, for under $300,000 (for which you may only need to drum up $50-60K on your own), you have acquired 4 related small businesses, all synergistic! None of them (except the anchor business) is perfect as a stand-alone acquisition so you'll probably get a great deal.

HINT: The bank will more easily lend on the collection and see the connections with your master plan.

LARGE BUSINESS ACQUISITIONS

FIRE PREVENTION: Today there are, coincidentally, 3 businesses for sale that service the fire prevention market. Most of the details on these businesses are confidential, but contact me for an NDA and I can step through them with you.

You have a choice of two potential anchor tenants here:

  • Sprinkler and Related Installation: Commercial customers who are either building, remodeling, or bringing themselves up to code. Solid, repeatable business. Large-scale.

  • Commercial Insulation: Supplies the "sealing up" of a commercial building with fire-resistant insulation and asbestos removal. The business has been earning consistent revenues for over 20 years. Large-scale.

  • Fire Extinguisher Maintenance Services Business: This is a relatively small acquisition that makes obvious sense combined with the others. Low overhead but a few vans, tools, and expert employees.

  • Commercial HVAC Company: This company is also selling its commercial property with the business so it will be easier to obtain funding with an asset-based loan. They also feature a full- sheet metal shop for custom projects which would come in handy for both of the other businesses above.

As you can see, there are some incredible puzzle pieces to fit together making the sum of the whole FAR more profitable and fundable than any one individually. I'd be happy to work with you and connect you to funding sources who favor this approach whether large or small.

Kris FuehrComment