- Why you should always be looking at more than one potential acquisition.
- How looking at multiple businesses can help mitigate risk.
- How Acquira’s Investment Committee can help AEs find the right business.
- How potential lenders can help point AEs in the right direction.
Some business buyers are too rigid about certain facets of their investment thesis. Whether it’s a specific industry or the location they’re looking in, being too rigid on certain points can create a big bottleneck for actually closing on a deal.
In terms of industry, many Acquisition Entrepreneurs (AEs) will want to look at businesses that they’re familiar with. If they have a background in plumbing, they’ll likely start with plumbing companies. If they used to be a landscaper, they might concentrate on landscaping companies. This is often helpful on the deal hunt as they are able to use their experience and strengths to make better-informed decisions, but it also runs the risk of locking them into one way of thinking.
It makes sense to look at landscaping companies if you have a landscaping background, but what skills did you pick up in your time in that line of work that might be transferable to another industry? If you learned how to manage a sales team or how to manage the books, those are skills you could use in any home services business.
In terms of location, most AEs begin the search close to home without putting much thought toward expanding beyond a specific radius. If they have school-age children or roots in the community, the thought of picking up and leaving in order to buy a business can seem outlandish.
But expanding beyond a specific geographic scope opens up myriad new opportunities. The more locations you’re willing to move to, the higher your chances are of finding a company that fits your investment thesis.
This is why, in Acquira’s training, we recommend that people only be rigid on one front or the other: location or industry. Never both.
Being too adamant about one or the other will undoubtedly increase the time it takes to find and close on a business. One of the easiest ways to speed up that process is to look at more than one business at once.
This was the case with Ken Lavertu, who recently closed on a granite business in Florida. From the time he started Acquira’s training until he signed the closing documents, Ken set a new record for an Acquisition Entrepreneur closing on a business with Acquira.
Full disclosure: Ken was so taken with Acquira’s process that he also became a partner in Acquira. Because of this, Acquira has more access to him and his business, so we’ll be bringing you regular reports from Ken and his progress. You can watch the full interview with Ken below.
Don’t Get Too Attached
When Ken started looking for a business, he says he was like most AEs: he wanted a very specific type of business in a very specific area. He took the time to call brokers and businesses in those niches but realized quickly that it was going to be very difficult to find the exact right businesses in his own backyard.
Upon that realization, he started expanding his search both geographically and in terms of the industry.
“I started widening what I was looking for, but with the investment thesis of buying a business that was recession resilient,” he explains. “That included many more talks with our business coach Daniel about what that would look like.”
After expanding his search, Ken connected with a broker who found an electrical business and a granite business within weeks of each other. Initially, Ken was more attracted to the electrical business and began digging into the financials of that business, essentially stopping his search.
“But I was given [the granite] business to look at and I just casually passed it to one of our coaches, and he said, ‘you should really go through the exercise with this one, and use this as your first pass with the Investment Committee,” Ken said.
The Investment Committee
Initially, Ken was annoyed by the suggestion. He was already looking at a business that he was likely to buy, after all. But, as he says, no one was trying to be a pessimist.
“They were just trying to help me with the realistic side of finding a business and all the ways that it could fall through. I just tend to be overconfident maybe,” he said.
But Ken’s success coach gently pushed back, saying he’d like to see two businesses at the Investment Committee.
Investment Committee calls are an integral part of Acquira’s process. They are the culmination of our initial training materials. The process is similar to Shark Tank, where Acquisition Entrepreneurs present a potential business and all of the research they’ve compiled on the company.
The Committee usually contains at least one person who understands issues around the deal (ie: financing), and another person who is more tuned into the operations side of the business. The Committee then spends time going over the details of the deal, looking for potential issues, and gives feedback.
At the end of the call the AE will discuss the Committee’s findings with their success coach, whether they want to make any adjustments to their Investment Thesis, including increasing the geographical scope of their search, additional industries they might want to look at, and why.
As a result of his coach’s prodding, Ken began looking at a second business – the granite company that was introduced to him by the same broker who showed him the electrical company. Fortunately, both companies were located in Florida about two hours apart from each other. Briefly, Ken says he even entertained the idea of buying both businesses but was eventually dissuaded from that idea.
Presenting The Deals
Bringing two deals to the Investment Committee required a lot of preparation on Ken’s part. He began by looking at past presentations by other Acquisition Entrepreneurs, going through Acquira’s Investment Thesis calculator, conducting a SWOT analysis, and more.
Most of the information he gleaned came from conversations with the business sellers. He asked them the questions he knew the Investment Committee would ask, which helped him prepare.
“It was good to actually have a formal presentation … and as I'm going through the slide deck, they were saying, ‘hey, back up, let's look at this. Let's look at that,’” Ken explains. “So there was a lot of collaboration.”
After the Investment Committee, it was suggested that Ken should take both deals to potential lenders because financing would likely help push him in one direction or the other.
“I did find out with financing that 98 percent of the lenders, and I talked to a lot of lenders in this process, did not like the electrical business,” Ken explained.
During the height of the COVID pandemic, many home services businesses like HVAC, plumbing, and electrical companies actually fared better. With more people spending time at home, they were looking to make improvements around the house. But the electrical company proved to be a bit of an anomaly on that front and didn’t see any growth in that period. The lenders also weren’t happy with the customer concentration of the electrical business.
“The granite business had the exact opposite,” Ken says. “They're fairly well distributed among all the people that use them and they have a wide variety of customer segmentation. They have retail, they have contractors that use them, and then they have builder programs that use them. And then just referrals. So there's a wide variety of funnels feeding the business, which [the lenders] liked.”
The lenders were clearly more excited by the granite business, according to Ken. “It was very helpful to talk to them, to see how they look at risk.”
Eventually, Ken had to make a decision. Luckily, right before he made the final call, the electrical business called and said they had received a higher offer and said if Ken wanted to buy the business he would need to put in a higher bid.
“And it was a really easy out for me to say I’m not interested,” Ken explains. “So they went with the other offer. So it was very smooth and easy for me to back out of it.”
Of course, AEs should not count on an easy out like this. When entertaining more than one deal they will need to make a decision. But if your investment thesis is strong you should be confident that whichever decision you make will be the right one.
In the end, Ken says he found that looking at multiple deals simultaneously saved him a lot of headaches when it came to speaking with lenders.
“You don't know what's going to stop the deal. It could be nothing. You could know everything and the seller just changes their mind.”
Having more than one option to show to the Investment Committee and to lenders is a way of mitigating risk.
Having more than one option to show to the Investment Committee and to lenders is a way of mitigating risk. If one deal is turned down or given unfavorable terms because of something like risk, market segmentation, or any other number of reasons that a deal might fail, then having another deal to turn to will help ensure you’re able to close on a business acquisition.
Many people might think of business acquisition as a lonely pursuit. If you’re the person with the cash for the down payment, then you’re ultimately the one who makes the decision.
But through each step of Ken’s deal, there was someone checking in on him to confirm whether something was a good idea or not. Whether it was his success coach, the Investment Committee, or the lenders, someone was working to ensure that Ken succeeded.
This is one of the biggest benefits that Acquira offers Acquisition Entrepreneurs: someone to turn to when they have a question.
“It's not like some distant coach that knows a lot of textbook information. It's people who have actually acquired businesses and know exactly what I'm going through,” Ken says.
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- Being too adamant about either location or industry will increase the time it takes to find and close on a business.
- Looking at more than one deal is a way to mitigate risk and speed up the time it takes to close on a deal.
- Looking at multiple deals can help secure financing when it comes time to talk to lenders.
- You should have people at each step of the acquisition process helping to ensure you succeed.
Acquira is a business acquisition in a box service. We help entrepreneurs buy businesses and we invest in them and their chosen businesses. We are here to help ensure that each business we work with is posed to make the biggest positive impact possible for its owners, employees, and community.