Business acquisition expert Simon Bedard spoke at the recent Business Blueprint Wealth Building Summit, sharing his formulas for successfully purchasing businesses.
As the founder of Exit Advisory Group, a boutique advisory firm that buys and sells businesses every day, Simon has over 20 years of experience in transactions ranging from a few hundred thousand dollars to over $100 million.
As Simon explained, 100 per cent of billionaires made their fortunes in the business world.
“Buying businesses is honestly one of the greatest avenues or channels to building your personal wealth that I certainly know of,” he said.
Whether you’re looking to expand your existing business through acquisitions, find your next venture, or invest in profitable companies as a passive investor, Bedard’s insights can help you navigate the process. Take a look at an overview of his presentation:
Define Your Acquisition Criteria
The first step, according to Simon, is to clearly define what you’re looking for in a business acquisition. “If you’ve got 100 priorities, you have no priorities,” he warned.
Start by considering the industry sectors, products, services, and geographic locations that align with your background and interests.
Beyond the basics, Simon emphasised the importance of understanding business models. “Think about what kind of business models work and don’t work or which models are painful,” he said, sharing his own experience as a business owner in the challenging solar power industry. Factors like recurring revenue, warranties, maintenance requirements and competitive dynamics can make a big difference in a business’s profitability and risk profile.
Do Your Research and Preparation
Once you’ve defined your acquisition criteria, Simon stressed the need to get your own house in order. “If you fail to plan, then you plan to fail,” he said. This includes understanding business valuation methodologies, assessing the key risks in potential targets, and determining your return on investment (ROI) and synergistic value.
“Volatility equals risk,” Simon explained, highlighting factors like financial performance, customer concentration, and supplier concentration as critical areas to evaluate. He shared a cautionary tale of a client whose largest customer represented 93% of revenue, ultimately leading to the business’s demise during a transaction.
Bedard also advised considering the broader market context through a PEST (political, economic, social, technological) analysis.
- Political means laws and regulations. If you rent a pub, you need a license to run your business. So if the laws change, your own licensing that can impact your business.
- Is technology disrupting your industry and does this present a major risk? Many sectors are experiencing this at the moment.
- Once you’ve looked at those big macro pictures, you want to drill more into the industry. What is happening in the tyre sector or whatever it might be and which variables do you need to consider?
As Simon clarifies, if you buy a business, it doesn’t matter how good you are at certain things. “If the market moves on you the market moves, and you can’t control that,” he says.
Maintain the Right Mindset
Emotional intelligence and a problem-solving mindset are essential, according to Simon. “Don’t go in there and be judgmental. Just keep an open mind and be respectful,” he advised.
Building relationships with potential sellers is crucial, as they may choose to work with a buyer they connect with, even if the offer is not the highest.
Simon also warned against the common pitfall of “deal fatigue,” where prolonged negotiations can impact decision-making. “Time kills deals,” he said, emphasising the importance of being ready to strike when the right opportunity arises.
Find and Evaluate Targets
Simon outlined three primary methods for finding potential acquisition targets: online platforms, targeted outbound engagement, and working with business brokers. He cautioned that online listings may not always present the full picture, and brokers can be stretched thin, so it’s essential to have a clear process and timeline.
During the evaluation stage, Simon advised establishing initial interest, determining valuation, and conducting thorough due diligence. “It should be confirmatory, not exploratory,” he said, recommending that you aim to complete the due diligence process within eight weeks.
Structure the Deal
Understanding the differences between share sales and asset sales is crucial.. While sellers often prefer share sales for tax reasons, buyers may prefer asset sales to mitigate certain risks. “There are very sound, well-worn pathways to deal with those risks,” he said, reiterating the importance of working with legal counsel.
Simon also discussed the various deal structure components, including cash, deferred payments, earn-outs, and equity. He cautioned against overly complex earn-out arrangements, as they can often lead to litigation.
Negotiate Strategically
Negotiation is one of Simon;s favourite topics, and he shared a valuable framework for approaching it. “Don’t just look at, ‘one plus one equals two’. Look for the ‘one plus one equals three’,” he said, explaining the importance of finding leverage and understanding what’s truly important to the seller.
Simon’s final advice to anyone looking to buy a business is to create a checklist of deal-breakers. “I will ask, what are the things I can’t live with, what can’t I live without and what am I willing to compromise or negotiate on? I write these down so that the emotion is removed and I have a thorough process for reviewing.”
Want to join our next Wealth Building Summit? This two-day event is available exclusively to Business Blueprint members. Book a call to find out more.
