What Exactly Do Business Brokers Do?

If you’re considering buying or selling a business this year you may be evaluating various advisors to help you.  

While most business owners have hired accountants and attorneys in their lifetime, most business owners have never hired or interacted with business brokers or M&A advisors.  This makes sense, considering that most business owners have never bought or sold a business, and that is exactly what business brokers do.

Business brokers play an important role in the world of business transactions. Similarly to how commercial real estate brokers assist buyers and sellers of real estate, business brokers and M&A advisors help their clients purchase and sell businesses.

Business Brokers Assist in Buying and Selling Businesses

BUsiness brokers are professional intermediaries who help business owners buy and sell their companies. The primary function of a business broker is to assist clients in buying or selling a business. This is a complex process that requires a great deal of knowledge and expertise, and business brokers have the skills necessary to guide clients through this process.

Business Valuation

The first step in the process of buying or selling a business is to determine the value of the company. Business brokers are experts in this area, and they use their knowledge of the market and the industry to determine the fair market value of the business. They will also help clients determine the best price for their business, based on their goals and financial situation. 

Prepare for Selling a Business

Once the value of the business has been established, the broker will help the client prepare for the sale. This includes helping the client prepare the necessary financial statements, providing guidance on marketing strategies, and assisting with the negotiation process. Business brokers are skilled negotiators, and they use their experience to help clients get the best possible deal.

Maintain a Confidential Process

Another important aspect of the business brokerage process is confidentiality. Business brokers understand that selling a business can be a sensitive matter, and they take great care to keep the details of the sale confidential. They work with clients to ensure that the sale is conducted in a discreet manner, and they use their expertise to minimize any negative impact on the business or its employees.

Purchasing a Business with a Business Broker

In addition to assisting with the sale of a business, business brokers can also help clients purchase a business. They use their knowledge of the market to help clients identify potential acquisition targets, and they help clients evaluate these businesses to determine if they are a good fit. Business brokers can also help clients with the negotiation process, making sure that they get the best possible deal.

Summary

In conclusion, business brokers are important intermediaries in the world of business transactions. They help clients buy and sell businesses, and they use their expertise to guide clients through this complex process. Business brokers are skilled negotiators, and they use their experience to help clients get the best possible deal. If you are thinking about buying or selling a business, contact us for a free consultation.

Small Business Mergers and Acquisitions Market in 2023: A Growing Trend

Small business mergers and acquisitions (M&A) have become an increasingly popular trend in 2023, especially with the approaching silver tsunami of retiring baby boomer business owners. According to recent reports, an estimated 80% of small businesses are currently owned by baby boomers, who are expected to begin retiring in large numbers over the next decade. This presents a unique opportunity for entrepreneurs and investors to acquire well-established businesses with a proven track record and a loyal customer base.

One of the main drivers of M&A activity in the small business sector is the popularity of entrepreneurship through acquisition. Rather than starting a business from scratch, many entrepreneurs are opting to purchase existing businesses as a more straightforward and less risky path to entrepreneurship. Buying a business can provide a faster return on investment, established revenue streams, and a proven business model. This can also be an opportunity for entrepreneurs to acquire valuable industry experience, intellectual property, and other assets that can be leveraged to grow the business and increase profits.

Another reason why more entrepreneurs are opting to buy a business instead of starting one from scratch is the increasing difficulty of securing funding for startups. With the ongoing economic uncertainty, traditional funding sources, such as banks and venture capital firms, are becoming more risk-averse and are providing less funding to startups. This makes it more challenging for entrepreneurs to launch and grow new businesses, which is leading many to consider acquisition as a more viable alternative.

In conclusion, the small business M&A market in 2023 is set to be a growing trend, as more entrepreneurs are opting to acquire existing businesses as a more straightforward and less risky path to entrepreneurship. With the impending silver tsunami of retiring baby boomer business owners, there will be a significant number of businesses available for acquisition, providing many opportunities for entrepreneurs and investors to acquire well-established and profitable businesses.

The Basic of the M&A Roll Up Strategy

A roll-up strategy is a merger and acquisition (M&A) tactic in which a company acquires multiple smaller companies within the same industry, with the intention of creating a larger, more efficient entity that can be grown, sold, or taken public. This strategy is often employed in industries with fragmented markets, where there are many small players that lack the resources and scale to compete effectively.

An entrepreneurial company, individual, or private equity group, is often the driver of a roll up strategy, and can be deployed across a number of industries.

The roll-up strategy can provide a range of benefits, including operational efficiencies, capital efficiencies, increased valuation and profitability, and the ability to enter new markets. Let's take a closer look at these benefits of M&A roll up strategies in more detail to see if this is right for you.

The Origins of the M&A Roll Up

The M&A roll-up strategy has been around for many decades, with its origins dating back to the early 20th century. However, it was during the 1980s and 1990s that the strategy became more popular and gained widespread attention. During this time, private equity firms and corporate raiders began using the roll-up strategy as a means of consolidating fragmented industries, often with the goal of taking advantage of economies of scale and creating market dominance.

One of the most famous examples of the roll-up strategy was the acquisition spree by Tyco International in the late 1990s. Under the leadership of CEO Dennis Kozlowski, Tyco acquired over 1,000 companies in just a few years, including well-known brands such as ADT Security Services and SimplexGrinnell. The roll-up strategy allowed Tyco to become a diversified conglomerate with a presence in many different industries, but it also led to controversy and scandal, with Kozlowski later being convicted of fraud and other charges related to his leadership of the company. Despite this, the Tyco example remains a prominent case study of the roll-up strategy in action.

The M&A Roll Up Strategy: Not Just for The World’s Biggest Companies

The M&A roll up is not just for the world’s largest public companies like Tyco. Today, both small and large private equity firms continue to use the M&A roll-up strategy as a means of consolidating fragmented industries and creating value. Small private equity firms may focus on niche industries or geographic regions, where there are many small players that lack the resources to compete effectively. By acquiring and consolidating these smaller companies, a small private equity firm can create a larger, more efficient entity that is well positioned to compete in the market.

Large private equity firms, on the other hand, may pursue roll-up strategies in larger industries, where there are still many smaller players, but the potential for economies of scale is greater. These firms may also pursue roll-up strategies as a means of diversifying their portfolios and creating new revenue streams. For example, a private equity firm that specializes in healthcare may acquire multiple companies within the same industry, such as hospitals or medical device manufacturers, in order to create a diversified healthcare portfolio.

Operational Efficiencies

By acquiring multiple companies within the same industry, a roll-up strategy allows the acquirer to consolidate back-office functions such as finance, human resources, and IT, which can result in significant cost savings. The acquirer can also leverage economies of scale to negotiate better pricing from suppliers and reduce costs associated with marketing and advertising.

In addition, the roll-up strategy allows the acquirer to pool resources and expertise from the acquired companies, leading to operational synergies and increased efficiency. This can include shared technology platforms, distribution networks, and sales channels, which can lead to faster product development and go-to-market strategies.

Capital Efficiencies

In a roll-up strategy, the acquirer can use its own stock as currency to acquire the smaller companies, reducing the need for cash. This can allow the acquirer to complete multiple acquisitions quickly and efficiently, without needing to raise significant amounts of capital.

Furthermore, by acquiring multiple companies within the same industry, the acquirer can benefit from increased bargaining power with suppliers, leading to better terms and prices. The acquirer can also use its increased scale and market share to negotiate better financing terms from lenders.

Increases in Valuation and Profitability

By acquiring multiple companies within the same industry, the roll-up strategy can result in increased market share and brand recognition. This can lead to higher valuation multiples, as investors often place a premium on companies with a dominant market position.

You see, larger companies typically fetch higher EBITDA multiples than disparate, smaller companies, even if the revenues and profits of these two groups of companies are equal.

Imagine two scenarios:

• Scenario 1)  Investor A owns a portfolio of 10 HVAC companies that generate a total of $25 million in revenue and have $5 million in EBITDA and grows revenues at 5% per year. All of these businesses are well run, have a dedicated staff, and are located in various locations throughout the U.S.  The companies have never been merged or consolidated, and as such they all have their own separate operations, banking relationships, supplier relationships, benefit plans, and professional service providers. 
  
  Valued separately, the entire portfolio is valued at 4x EBITDA of $5 million, for a total valuation of $20 million.  Not a bad portfolio.

• Scenario 2) Investor B has acquired a portfolio of 10 HVAC companies with an aggregate of $25 million in revenue and $5 million in EBITDA  and grows revenues at 10% per year. Unlike Scenario 1), these businesses have all been merged under one parent company umbrella and share the same brand, adjacent service areas, and have a centralized administrative center that handles all aspects of finance, marketing, HR, customer support, vendor management. The combined company is vastly more efficient, scalable, and soon to be, more profitable.
  
  Valued as a combined entity, this portfolio is valued at 8x EBITDA of $5 million, for a total valuation of $40 million.

Same revenue and EBITDA, yet twice the valuation. How is this so?

You see, Investor A’s portfolio of separately operating companies, while still valuable, is worth considerably less than its consolidated and integrated portfolio, because it has redundant employees, cost centers, and multiple points of inefficiency, and even failure, compared to Investor B’s portfolio.

Investor B’s single, consolidated company is more likely to grow faster, have minimal duplicative positions, and have significantly more scale and leverage on its operations, suppliers, customers, and capital, than Investor A.

New Markets and Sales Efficiencies

The roll-up strategy can create cross-selling opportunities between the acquired companies, leading to increased revenue and profitability. By leveraging the expertise and resources of the acquired companies, the acquirer can also develop new products and services that can drive growth and profitability.

The roll-up strategy can also provide the acquirer with a means of entering new markets quickly and efficiently. By acquiring companies with a presence in different geographic regions or product segments, the acquirer can expand its market reach and diversify its revenue streams.

In addition, the roll-up strategy can provide the acquirer with access to new customers and distribution channels, which can help to drive growth and profitability.

Summary

In conclusion, a roll-up strategy can provide a range of benefits for companies looking to consolidate their position within a fragmented market. 

Regardless of their size, private equity firms that pursue roll-up strategies must carefully evaluate potential acquisition targets and develop a solid integration plan in order to create value. This may involve consolidating back-office functions, streamlining operations, and developing new products and services that can leverage the expertise of the acquired companies. Successful execution of the roll-up strategy requires a deep understanding of the target industry, strong leadership and management skills, and a willingness to take calculated risks in pursuit of value creation.

By acquiring multiple companies within the same industry, the acquirer can benefit from operational and capital efficiencies, increased valuation and profitability, and the ability to enter new markets. However, executing a successful roll-up strategy requires careful planning, due diligence, and integration of the acquired companies.

Three Ways To Find Businesses For Sale

Finding a business for sale can be an exciting but overwhelming process. With so many options available, it can be difficult to know where to start. Here are three of the top ways to find a business for sale.

Online Marketplaces

Online marketplaces such as BizBuySell, BizQuest, and LoopNet have a large number of businesses for sale listed by brokers and business owners. These marketplaces make it easy to search for businesses based on industry, location, and price range, allowing you to find a business that matches your criteria. Use the search criteria to find the perfect business in your idea industry, geography, revenue and profit profile, and to find a franchise or independent operation.

Business Brokers

Business brokers are professionals who specialize in buying and selling businesses. They have a deep understanding of the market and can help you find the right business for you based on your goals and budget. Brokers can also provide valuable insights into the buying process and help negotiate the best deal for you. They can also send you emails and notifications when they bring new business for sale listings to market.

Networking

Networking with other business owners, industry professionals, and entrepreneurs can be a great way to find businesses for sale. Attend local business events, join industry groups, and connect with people in your network to learn about businesses that may be for sale. By building relationships with others in the business community, you can increase your chances of finding the right business for you.

In conclusion, finding a business for sale can be a challenging process, but there are many resources available to help you find the right fit. By using a combination of online marketplaces, business brokers, and networking, you can find a business that matches your goals and budget.