Buy at 1x - Exit at 2x in 24 months

Here's what a client of mine is currently working on. (Disclosure: I am in the accounting industry.) Arbitrage is fun if you’re on the right side of it. David is buying a $1.3M CPA firm. He plans to create arbitrage through the following steps: 1. Acquire the firm He partnered with a wealth-management owner to acquire the firm for $0 out of pocket. - 70% SBA financing (10 years) - 25% seller financing (5 years @ 5%) - 5% down (from investor) 2. Reposition the firm Over the next 2 tax seasons (maybe sooner), David and his partner will transform the firm into a wealth management firm instead of a pure accounting firm. The advantage of acquiring is you buy the trust of the client base through the endorsement of the seller, so marketing these services is highly effective and highly profitable. Why this matters: Multiples. Accounting firms usually trade around ~1.0–1.5x revenue. Wealth management often gets ~2–4x revenue. Conservatively, we are using 2x. 3. Scale the firm He will grow the firm to at least $2M in revenue by: a. Adding AI - this will mean less staff needed, maximizing profitability. (Watching AI prepare tax returns is both exciting and a bit scary.) b. Adding wealth management services to the newly acquired client base. (They are projecting to double revenue over 2 tax seasons, but I’m remaining conservative in my calcs.) 4. Exit the firm Once they are at $2M in revenue they will begin to entertain offers starting at $4M. Hope this helps show you different creative ways to acquire and exit a firm.