Thoughts on a small acquisition…

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by a searcher from Emory University
in Saugerties, NY, USA

5mos ago

Thoughts on a small acquisition…

I am looking for some pros and cons of a smaller acquisition. I know the old adage, working in the business not on the business, but more so where do you all see fragility and/or strength. Commercial Landscaping, 200K SDE, 2X Multiple, SBA pre-approved, 15 years in Business. Looking at possibly purchasing with a 2nd identical company. Help me play devils advocate!

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reply by a searcher 5mos ago
from The University of Chicago in Chicago, IL, USA

Here's my perspective: 1) A "bad" deal (bad industry, bad team/culture, too small, not a fit for your skillset, unmitigated or misunderstood risks) is possibly the worst move you can make professionally and personally when you have a single highly leverage transaction and a personal guarantee - it can waste many years of your life in an excruciating setup where you have everything on the line and fight battles you might never be able to win, risking mental health, personally bankruptcy (with everything that can bear such as divorce if you are married), and challenges in finding other employment (especially in this market). 2) From a risk/return standpoint, search makes sense financially only if the target is big enough. When I was searching, I looked hard at a $450k SDE company and the returns in an upside scenario were not attractive enough compared to my current levels of earning. 3) Find a setup where you can wait for the right deal - for me it meant part time search. If you are on a budget, keep a W2 or find a consulting gig. If you cannot find a consulting gig, I wouldn't personally do a small deal or even search honestly - if the deal worked poorly, consulting is what would get you out of a ditch when you are strapped on cash or you need to recover from a bankrupt company. 4) If you have a small budget, get investors in the deal. They can help you with advice and capital. You won't own 100%, but if you do a successful transaction where you own 40-60% of a mid-size company (say ~$1M EBITDA, even if it stayed at that level), is way better than growing a $200k SDE company to $300-500k (especially on a risk adjusted basis where the $200k SDE company has a much higher probability to go to 0 than a bigger one)

reply by a professional 4mos ago
from University of Arkansas at Fayetteville in Little Rock, AR, USA

I have been hired by those types of businesses and there are some key things to look for before you buy one of them. Happy to jump on a call and discuss. My niche is owner-dependent businesses.