If you’re looking to grow your company quickly, acquiring your first small business is the fastest way to get there. The most successful transactions result from business owners being intentional and strategic about their goals, following well-established M&A practices, and setting clear deal parameters.
Here’s a step-by-step guide toward acquiring your first small business:
1. Determine your business goals and your criteria.
First, determine what you hope to gain by acquiring another business. This will help you pinpoint which companies are viable prospects and which are not.
Some valid motivations behind an acquisition might be:
- Adding new products for old clients,
- Increasing team size,
- Increasing a client roster or
- Drawing attention to your company, which can build credibility with potential investors.
“If you want to grow fast, you can’t get there just by winning more projects,” says Frank Williamson, CEO of Oaklyn Consulting. “Real, rapid growth comes from doing great work for your clients and buying small companies that serve the same customers.”
2. Develop a list of prospects.
- Once you’ve established clear criteria, start putting together a prospect list using a reputable sales intelligence platform.
- A list should be exhaustively researched, but it doesn’t necessarily have to be long — in a niche or concentrated market, it might include only two or three well-chosen companies.
- Once you’ve included every potential prospect, start filtering through the names to qualify each one. If you have a particular number of desired acquisitions in mind, expand your geographic area suitably.
“Go find every single company you could possibly buy. There shouldn’t be a viable prospect out there that you don’t know about,” says Frank Williamson.
3. Talk to your prospects about what your future looks like.
- Instead of approaching each prospect with a purchasing mindset, adopt a true sales-minded posture that includes all the traditional steps.
- Talk in detail what you’re going to accomplish together after the deal. If you can get to agreement about that, you can design a deal that works.
- Since owners can only sell their company once and the timing might not initially be right, establish a way to track your conversation and stay in touch, doing regular follow-ups to check in.
“When you come in focused on deal terms and EBITDA multiples, you end up in a risky, transactional conversation that runs a high risk of wasting everybody’s time,” says Frank Williamson. “Start with why you’re doing the deal. Real conviction makes everything else fall into place.”
4. Have internal deal criteria and stick to them.
- Once you’ve established your criteria, follow them and don’t make exceptions if a company no longer fits.
- Manage due diligence and negotiations with a clear-eyed sense of when and why you would walk away.
“Communicate your criteria up front, and if a portfolio company isn’t growing at the pace you need, be clear and candid about your need to walk away,” says Frank Williamson. “Not doing so creates a broken situation after the deal that leads to tension.”
How Oaklyn Consulting can help
- If you’re seeking to grow your company through acquiring a small business, Oaklyn Consulting (888-983-1617 or [email protected]) can provide expert, personalized advice.
- We specialize in situations where the ratio of social issues to financial issues is too high for other investment banks and isn’t justified by market transaction fees.
- We don’t typically operate in the market for $100 million acquisitions, but work closely on a referral basis with other investment banks that do.