BUYER ACQUISITION CRITERIA AND STRATEGY
There exists today much competition to acquire profitable and growing businesses. We help Buyers develop acquisition criterion. Picking an industry or business category is the most critical part.
The type of questions one should ask in order to develop criteria should fall under the following categories: general, operating, and financial.
General
In terms of general criteria, there are many important questions to consider. Is retaining management important? How important is the geographic location of the target? Are there merger considerations? Are the corporate cultures compatible?
Operating
When thinking about operating criteria, what products and industries are you interested in? Is market share important? What kind of distribution channels does the other company have? How advanced is the acquisition candidate’s technology?
Financial
With regard to financial criteria, one needs to be clear on the objectives. What kind of revenues and growth rates are you looking for? What is an acceptable debt-equity ratio? What kind of multiple are you looking to pay and is that a multiple of EBITDA, revenues, etc.? How are you looking to finance the acquisition? Would you be willing to pay an earn-out? Does the acquisition need to be accretive right away
BUSINESS VALUATIONS AND CALCULATIONS
The three main approaches to valuing a business are:
Asset Approach
You total the value of the assets of your business including buildings, machines, inventory, raw materials, and any intangibles.
Market Approach
You look at businesses in your industry that have recently sold and are comparable in size and sales. Yearly cash flow is a standard (earnings before interest, taxes, depreciation) (EBITDA) plus discretionary owners’ adjustment.
Income Approach
You forecast future expected revenues and costs.
Consider All Variables
Many factors can affect the value of your business, some of those are:
- Location
- Size
- Competition
- Growth rates
- Industry trends
- Quality of books
- Ease of transfer
- Debt
