Take Five #128: Industry experts weigh in on what it takes to make it in EtA, and more
Top five must-reads this week in the world of SMB acquisitions and operations
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Take Five #128: Industry experts weigh in on what it takes to make it in EtA, and more
1. 4 distinct models for building value in acquisitions
Four models to build value in acquisitions.
Like any endeavor, building value through acquisitions requires that you have a strategy and a plan. In general, there tends to be four distinct models buyers use when looking for a deal.
1. The turnaround.
In this model, buyers are looking for a business that is in complete disarray with the plans of turning its fortunes around. Buyers are able to create immediate value by simply fixing up the existing systems.
Usually in a turnaround acquisition, the person (or people) selling the business are just looking to get out before they lose all of their value. For a savvy buyer, this can be a great opportunity to buy a business with solid foundations for a relatively small investment.
Obviously, this model is best suited for people who know what they are doing. You have to have a lot of confidence in your ability to do what another owner -- an owner who has more intimate knowledge of the business you are buying -- was not able to do.
Read the rest of the post on Entrepreneur.com.
2. All about rollover equity and how it affects a deal
3. Patience and being able to play the hand you’re dealt go a long way in the acquisition game
Finding an ideal business that earns very high returns on capital and continues to generate high returns on incremental capital.
This same company being exceptionally well managed with uncommonly strong economics and purchased at an appropriate price.
With such an acquisition, you are gaining a successful company along with successful management.
But businesses of this sort are exceedingly rare, and it is even rarer to purchase one at a reasonable valuation.
(It bears mentioning that an exceptional business purchased at too high a price will be a poor investment.)
However, there is also a class of businesses that earns satisfactory returns — and substantial cash — but lacks the opportunity to generate returns of similar magnitude on incremental capital.
Considering everything previously mentioned:
You can structure your holding company in a way that makes such businesses attractive because you can reallocate the excess cash they generate to buy other businesses.
That said, again, all this is great in theory, but very difficult to execute.
Therefore, playing the long game — remaining a student of the game while somehow getting struck by the luck — you may get a few such investment opportunities from time to time.
If these are done well, you could end up managing a fund with $100 million in assets.
Potentially...
And IMHO, that's the beauty of this beautiful game of learning, investing and patience.
Read the rest of PrivatEquityGuy’s post here.
4. Watch out for the sellers that won’t sell
5. Industry experts weigh in on what it takes to make it in EtA
“A career move to the Entrepreneurship-Through-Acquisition (ETA) search-fund market may result in any combination of bewilderment, disappointment, wealth creation and self-actualization, according to A. J. Wasserstein, a Senior Lecturer at the Yale School of Management.”
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