As Twin Cities Startup Week came to a close last week, we were able to reflect on our session with Showcraft, "Skip the Startup: How to Buy and Build a Company Through Acquisition Entrepreneurship." They brought together a panel of local players in the acquisition entrepreneurship space including Andy Schornack with Security Bank & Trust Co., Adam Rao and Silas Morgan with Showcraft, Havell Rodrigues with New Majority Capital, and Karen Spencer with Searchfunder.com.
Here were the biggest takeaways on ETA:
"ETA is not a shortcut."
— Silas Morgan, Showcraft
Starting a business from scratch requires a lot of time, a lot of money, a lot of preparation, and comes with a lot of risk. Which is why acquisition entrepreneurship attracts investors across all walks of life and experience levels. BUT, it is not the easy route to owning your own business.
ETA requires a lot of searching. Most likely weeks, months, and years of it.
You have to find and vet potential acquisition prospects, explore financing options, and negotiate with sellers all before even thinking about the final close — which will ideally be at a reasonable price.
"Buy the right business, not the perfect business."
— Andy Schornack, Security Bank & Trust Co.
Security Bank's very own President, Andy Schornack, was able to provide great insight and lessons learned through his acquisitions of all 6 branches. Assuming there even is such a thing as a perfect business, it might not always be perfect for you, your needs, and your leadership style. A good way to find the right business is Hadley Capital's ideal acquisition characteristics:
- A minimum of 10-Year Operating History
- ~$1.5m to ~$15m in Annual Revenue
- A minimum 15-20% EBITDA margin
- Outstanding Reputation and Brand
- Loyal Customers
- Pricing and Location Advantage
Since the purchase of Flagship Bank in 2013, Flagship has seen an asset growth of over 327% in less than 10 years.
" Do your due diligence."
— Havell Rodrigues, New Majority Capital
Due diligence is your greatest asset in acquisition entrepreneurship. On your search of finding and buying the right business, you must evaluate every facet of a potential company in immense detail. So, in addition to the search guidelines you will already be on the lookout for, ask yourself the following:
- Is it profitable?
- Is it an established business?
- Are its revenues and cash flows in the desired range?
- Do you have the skills to manage it?
- Does it suit your lifestyle (location, hours, need for travel, and so on)?
- How enduringly profitable is the business?
- Is the owner serious about selling it?
"Do you want to be rich or be king?"
— Adam Rao, Showcraft
A question posed by venture capitals and acquisition entrepreneurs everywhere.
Before you get too excited about closing the deal, you need to think about what kind of CEO you want to be. Are you more comfortable solely in an investor role, and handing over the the day-to-day operations oversight to someone else? Or would you rather have your boots on the ground, fully involved in every success and every failure, calling 100% of the shots? Ultimately there is no right answer. It all depends on what kind of business and what kind of lifestyle you want to create.
"Focus on people more than infrastructure. Empathy is important."
— Karen Spencer, searchfunder.com
Navigating small business acquisitions and mergers is no easy task. Doing so with the people at the forefront of your mind is even more difficult. But necessary. Anticipating and addressing future organizational anxiety and emotions sets the foundation for seamless acquisition. Failing to prepare for operational and cultural change can lead to poor business performance, critical talent loss, and sustainable synergy loss. Protect your deal's sources of value by protecting the people at its center.
Additional note: While focusing on others, don't forget to check-in with yourself. Allow yourself some grace throughout the acquisition process.
Final thoughts on acquisition entrepreneurship from our panel of experts:
"Everyone thinks that the only way to innovate and disrupt an industry is to launch a start-up. We think that’s wrong. Acquisition Entrepreneurship is an emerging global movement that empowers entrepreneurs of all backgrounds to transform companies and industries through strategic acquisition of small businesses."
Looking to tap into the acquisition entrepreneurship space? Contact one of our experienced lenders or check out one of our many free resources:
- Guide to Business Loans
- Guide to Investment Real Estate
- Guide to Personal Loans and Mortgages
- Guide to Treasury Management
