Acquiring two businesses at once
February 22, 2022
by a searcher from Pennsylvania State University in Philadelphia, PA, USA
Hi all, I am speaking with two companies in the same space in the same geo. One is a brokered deal and the other is proprietary. They're both relatively small and simple businesses with 8 employees each, but together they would create a platform a nice platform of scale. Independently, they are valued at 3.2x and 3.4x, but together I believe they are closer to 4.5x. They make a lot of sense together. They establish a foothold as the largest player in their sector and geo, the platform would have around 40% recurring revenue, it would add more talent which is very hard to come by, and I would have a key role filled for a few years at least. I am trying to get creative on how to structure a deal like this and the SBA and most traditional investors would most likely shy away from doing two deals at once. I have already heard, "we'd like to see you do one deal successfully before going after another." This is sound advice but the brokered company will be gone by then and I need to move fast. I could create significant equity appreciation day 1 but this will be a tough sell to investors.
Has anyone tried to do this before? If so, do you think investors would go for this?
from The University of Chicago in Chicago, IL, USA
How will the employees react when they learn they aren’t just working for a new owner but also with a whole new group of coworkers who come from their main competitor?
Are customers generally sole supplied or will they look for a new supplier to add to the mix when the two main options merge? IE can you expect the revenues of newco to equal the prior sum of the two initial companies?
Will either owner break off discussions with you if they find out what you are planning? There can be some history you don’t know about. I imagine they will at least try to get you to pay more when they learn that their business is worth more to you now that you are a “strategic” acquirer.
Finding financing is probably not going to be your issue. Be careful on being over optimistic on your performance assumptions around 1+1=3.
from The University of Chicago in Chicago, IL, USA
Post-closing execution risk is there whether you buy one or more. I was involved with one (non-SBA) deal with 14 simultaneous closings. Ultra-successful transaction; M to B in 5 years. Feel free to reach out.