Acquisition Entrepreneur

Definition

An acquisition entrepreneur is someone who focuses on acquiring established businesses rather than starting a company from scratch. These entrepreneurs aim to leverage existing resources, operations, and market presence of a business to grow or turn around the company, rather than taking the risks associated with a traditional startup.

Why it Matters

Acquisition entrepreneurship is an increasingly popular approach to becoming a business owner because it allows individuals to buy a functioning, cash-flow-positive business with existing customers, employees, and systems. Rather than building everything from the ground up, acquisition entrepreneurs take on the responsibility of improving, growing, or optimizing the company post-purchase. This can often be less risky and quicker to profitability compared to starting a business from scratch, where success rates are typically lower.

Key Characteristics of an Acquisition Entrepreneur

  1. Risk Mitigation: Acquisition entrepreneurs mitigate risk by purchasing businesses with proven track records and existing cash flow.
  2. Strategic Growth: They focus on improving the operations, expanding the market share, and enhancing profitability post-acquisition.
  3. Capital Leverage: Many acquisition entrepreneurs use financing mechanisms, like SBA loans, seller financing, or equity partnerships, to buy businesses, minimizing their upfront capital requirements.
  4. Operational Improvement: These entrepreneurs often bring fresh ideas, processes, and leadership to enhance efficiency and profitability.

Process of Becoming an Acquisition Entrepreneur

Finding Acquisition Targets

The first step is identifying a business to purchase. Acquisition entrepreneurs often target businesses that are stable but have untapped potential, such as those with outdated operations or underutilized assets. This phase can take months of research, networking, and conversations with brokers and potential sellers.

  • Business Brokers: Brokers are professionals who specialize in connecting buyers with sellers. They play a key role in finding suitable businesses that match an acquisition entrepreneur’s criteria. Brokers can provide essential information on valuation, industry trends, and negotiation.
  • Online Marketplaces: Websites like BizBuySell, Flippa, and Empire Flippers have become popular platforms for finding businesses for sale, ranging from small local businesses to online companies.
  • Networking: Many acquisition entrepreneurs find businesses through their personal and professional networks. Reaching out to retiring business owners or connecting with industry insiders can lead to off-market deals.

Evaluating Opportunities

After finding potential targets, the entrepreneur must evaluate the business’s financials, operations, and market position. This involves:

  • Financial Analysis: Review profit and loss statements, balance sheets, and cash flow statements. Determine the business’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to gauge profitability.
  • Operational Evaluation: Assess the company’s operations to identify inefficiencies or areas for improvement. Can processes be automated or streamlined? Are there opportunities for cost-cutting or revenue expansion?
  • Market Position: Understand the competitive landscape. Is the business in a growing or shrinking market? What is its market share, and how is it positioned against competitors?

Due Diligence

Once the entrepreneur has identified a potential target, the next step is conducting due diligence. This process involves an in-depth review of the business’s legal, financial, operational, and market standing to ensure everything is in order before finalizing the deal.

  • Legal: Ensuring that the business has proper licenses, contracts, and intellectual property protections.
  • Financial: Verifying the financial health of the business, ensuring there are no hidden liabilities or inaccuracies in financial reporting.
  • Operational: Reviewing the daily operations, including the performance of key employees, vendor relationships, and customer retention.

Due diligence is essential to understanding any potential risks before the acquisition is finalized. This is often the phase where many deals fall apart, as unknown issues can surface that might change the buyer’s perspective on the business.

Financing the Acquisition

Acquisition entrepreneurs rarely use 100% of their own money to buy a business. Instead, they leverage a variety of financing options:

  • SBA Loans: The U.S. Small Business Administration offers loan programs that allow entrepreneurs to purchase small businesses with low down payments. The SBA 7(a) loan program is particularly popular, offering favorable terms and interest rates.
  • Seller Financing: In many deals, the seller agrees to finance part of the purchase price. This means the buyer pays the seller a portion upfront, and the rest over time with interest. Seller financing can be an effective way to reduce the buyer’s capital burden while maintaining the seller’s interest in the business’s ongoing success.
  • Equity Partnerships: Some acquisition entrepreneurs partner with investors, offering equity (ownership stakes) in exchange for capital to fund the acquisition.
  • Leveraged Buyouts (LBO): In an LBO, the entrepreneur uses the business’s assets and future cash flows to secure loans that fund the acquisition. This method allows buyers to acquire businesses with minimal upfront capital, but it comes with the risk of heavy debt.

Taking Over Operations

Once the acquisition is finalized, the entrepreneur transitions into managing and growing the business. The first 90 days are crucial as the entrepreneur establishes credibility with employees, stabilizes operations, and begins implementing improvements. Key steps during this phase include:

  • Building Relationships: Forming strong connections with key employees, suppliers, and customers to ensure smooth operations post-acquisition.
  • Quick Wins: Implementing immediate improvements that generate quick wins to build momentum and demonstrate the new owner’s capability.
  • Setting Goals: Defining long-term objectives for growth, profitability, and market expansion.

Scaling and Exit Strategy

The goal of many acquisition entrepreneurs is not just to run the business, but to scale it and eventually sell it for a profit. Strategies for scaling include:

  • Expanding Products/Services: Diversifying the business’s offerings to reach new customers or meet existing customers’ needs more comprehensively.
  • Geographic Expansion: Opening new locations or entering new markets.
  • Mergers and Acquisitions: Acquiring additional businesses to grow the company’s reach or diversify its portfolio.

Exit strategies vary depending on the entrepreneur’s goals. Some plan to sell the business to a larger company, others to private equity firms, while others may pass it on to family members or partners.

    Examples of Acquisition Entrepreneurs

    1. Walker Deibel: Author of Buy Then Build, Deibel advocates for buying existing businesses as a path to entrepreneurship. He’s successfully purchased multiple companies and grown them by improving their operations.
    2. Codie Sanchez: An acquisition entrepreneur focused on buying “boring” businesses like laundromats and service companies, Sanchez has built a strong following by showing others how to acquire low-glam, high-profit businesses.

    Common Challenges

    • Cultural Integration: Managing the transition in leadership can be difficult, especially with existing employees who are used to the previous owner’s style.
    • Financing Pressure: Acquisition entrepreneurs must manage debt carefully, especially if they’ve leveraged the business to complete the purchase.
    • Time-Intensive: The process of acquiring and managing a business is demanding, often requiring the entrepreneur’s full attention, particularly during the early phases post-acquisition.

    Conclusion

    Becoming an acquisition entrepreneur offers a compelling alternative to the traditional startup model. It allows entrepreneurs to bypass many of the early-stage risks associated with new ventures and focus instead on improving existing businesses.

    With the right approach, acquisition entrepreneurship can be an effective way to generate wealth, create stability, and grow a portfolio of successful companies.