Entrepreneurship Through Acquisition

If you’ve always wanted to be your own boss, but didn’t have an idea to create a something from scratch, then entrepreneurship through acquisition might be an attractive option. Just look at the guy who started Asurion, the poster child for search funds. The following lists outlines the criteria that make a business attractive for acquisition.

  • Profitability.
  • Growth industry.
  • Predictable, stable, and recurring revenue.
  • High EBITDA margins.
  • Stable contractual relationships.
  • Simple and easy to understand.
  • Reasonable pricing.
  • Enough candidates in the industry available.
  • Financing available.
  • No overly dominant competitor or customer.
  • Limited landscape risk (including technology obsolescence, regulatory risk, legal risk, environmental risk, major cyclically, fads/trendy).
  • Low to medium technology product or service sectors, rather than the high-tech tech sector
  • Industry is profitable, not in decline, and attractive to creditors.
  • Growth potential via follow-on acquisitions, geographical expansion, and/or product/service extension.
  • Competent middle management willing to remain.
  • Long product/service life cycles that are not subject to rapid technological change or obsolesce, and that do not require substantial additional R&D.
  • Product/service differentiation exists or can be created.
  • Cash flow and assets sufficient to attract and service proposed debt.
  • Opportunity for liquidity in 4 to 6 years.
  • The opportunity to create superior returns through revenue growth, operational efficiencies, scale, financial leverage, and improved management techniques.

 

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