Take Five #139: Is it better to sell a business or keep it and hire a CEO to run it, and more
Top five must-reads this week in the world of SMB acquisitions and operations
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Take Five #139: Is it better to sell a business or keep it and hire a CEO to run it, and more
1. Podcast Interview: “Merging Cultures: Challenges In Home Service Acquisitions”
Nathan Lenahan, co-owner of Bart's Heating and Air, discusses scaling his HVAC business from $1M to $10M through strategic acquisitions, as well as how he’s overcome challenges with company mergers, culture integration, rebranding, and balancing acquisition growth with organic expansion.
2. 10 forms of leverage in business that can help you achieve more with less
“Leverage” is one of those concepts that tends to be interpreted as being more complex than it actually is. The simplest way to define leverage might be “the ability to do more with less”. Or, re-worded to include the requisite dose of corporate jargon, “the ability to generate more output without increasing the number of inputs”.
Though the concept of leverage is most commonly associated with the use of debt to finance the acquisition or operations of a company, there are countless other forms of leverage that we ought to be aware of, given that all of us have to contend with the reality of finite time and resources.
Instead of asking what else they should be doing to achieve their goals, entrepreneurs and investors might instead consider asking: “How can I magnify the impact of what I’m doing, without doing more of it?”
Read Mineola Search Partners’ post here.
3. Is it better to sell a business or keep it and hire a CEO to run it?
4. What makes a deal worth your time and effort?
Long story short — even though the smaller deal may be a great deal, “the juice isn’t worth the squeeze” to a $1 billion PE fund. The opportunity cost of your time & focus is too high.
This isn’t just a theoretical conversation — I’ve been in the room having this exact conversation with investment committees many times over.
But how does that relate to ETA / small business investing?
When searchers are looking to raise equity capital for their deals, they also run into the issue of investors wanting bigger deals so they can write larger checks, for all the same reasons as a PE firm listed above.
In fact, it’s a well-known pattern in traditional search — traditional searchers find great deals, but they’re just too small to make sense for their investors.
In self-funded search, it’s even harder to write large investments. A $750K EBITDA business may translate to a $3.5 million deal size (including deal fees & working capital).
With an SBA 7(a) loan, the total equity need may only be $300K after the searcher puts in some equity themselves. An investor wanting to write even $100K minimum checks is going to struggle to get a full allocation in the self-funded search ecosystem.
This begs the question — why should an investor focus on self-funded search deals at all?
Find the rest of Big Deal Small Business’s post here.
5. The Winner’s Curse: The highest offer might win the deal but also leaves minimal margin for error or market fluctuations
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