- What types of businesses Acquira likes to invest in.
- Why Acquira looks for businesses of a specific size.
- Why business size is the most important criterion when looking at growing a company.
Determining what size of business to acquire is one of the toughest decisions an Acquisition Entrepreneur (AE) can make. Assuming you have the funds, you want to ensure it’s big enough to support any growth initiatives you plan to institute. Still, it must also be small enough not to attract attention from private equity buyers.
In a recent interview with the podcast How2Exit: Mergers and Acquisitions, Acquira CEO Hayden Miyamoto talked about what he believes is the sweet spot valuation for a company and why Acquira prefers those types of businesses. He also discussed several other topics, including SBA lenders, investing in a recession, and how assets can hedge against exposure to economic turmoil.
Watch the interview here, and we’ll break down some key points below.
What Types of Businesses does Acquira Invest in?
I would describe the [ideal] business as something that provides a kind of physical product or service with a pretty high average ticket value and a 50 percent high margin to a serviceable market that's at least 100 miles or more. So that's often home service companies like HVAC techs coming to your home. But it could also be granite manufacturers or cabinetry manufacturers. It’s the same concept.
What's the Target that [Acquira Wants] People to Look at?
The target is between $750K and $1.5 million in SDE. That's typically too big for most individual buyers and too small for financial buyers. It took us a couple of acquisitions to realize that, actually, the business size is the single most important [criterion]. Because there is kind of this incremental fixed cost to becoming management-run, and that's what we're all really going for.
The business size is the single most important [criterion].
Moving from Owner-Operated to Management-Run
You have this owner-operator who's accidentally and organically grown a company to the size it's typically bulging at the seams. Typically, these companies have, I would say, between 20 and 40 employees. And that's a weird, awkward growth phase because you're still too small to have any executive layer.
If you think about an efficiently run organization, you will have fewer customer-facing employees. You might have managers who should ideally manage seven to ten of those people each, which means about 50 people. Then, you have enough room to support an executive.
On Getting SBA Approval
We have a 100% hit rate in terms of converting partners who want an SBA loan to an SBA loan. But that might have been after going to two or three banks, in some cases. Every bank has different underwriting criteria. Sometimes, they'll just change it on you all of a sudden.
If You Could Change One Rule from the SBA, What Would it Be?
I would just like some clarity as far as truly understanding their guidelines around minority rights. That’s for me, personally. But if I'm thinking more for the utilitarian good of all people buying businesses, I would say seller retention or seller involvement.
How Assets can Help Hedge Against a Recession
You can hedge against [a recession] if you have high asset value. So one of the things you look at is if this business comes with a purchase price of $4 million. Still, it comes with $2 million dollars worth of equipment and inventory. If a recession hits, you could probably turn that around, even at a discount, and make a lot of your money back. So, if [the business value] drops 50% in a recession but can do this, I've hedged myself a little bit.
- Acquira recommends that our AEs look at businesses valued at $750K and $1.5 million in SDE.
- We have a 100% success rate in getting our partners’ SBA loan approval.
- An asset-heavy business can be an excellent hedge against a recession.
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.