Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game

The combination of an existing small business’ profitable and sustainable infrastructure with the innovation and drive of an entrepreneur is a magical recipe.

insight on how they “believe” the process works. Ask whether they have a due diligence checklist or, if they were to make one, what would be on it. Finally, make sure they’ll have time to commit when you need it. If you’re wanting to close on May 1st this could put your due diligence period in the middle of tax time.

Even if they do, wait for them to finish and follow up with, “What makes this

on investment, margin of safety, and upside potential.

Rule number one for establishing a purchase price is making sure the business can afford to pay for the business. So much of the first half of this book is focused on you as an entrepreneur, your skillsets, and what you can afford.

We’ve discussed that the assets are only as good as their ability to produce earnings, and

Instead, define the target by the amount of SDE. To review, the Seller Discretionary Earnings (SDE), is a measure of how much total cash flow the seller of the firm has been enjoying. It is calculated by taking the pre-tax earnings of a company, then adding back any interest and non-cash expenses like amortization and depreciation (which will give

This investment model wasn’t invented by acquisition entrepreneurs. This is exactly the business model driving the entire private equity industry.

Typically, they would begin to cut expenses, raise prices, and begin an organic growth model of one kind or another. From there, they may acquire other firms in the industry, either as an add-on or tuck-in to the platform they established.

From there, they bring an entrepreneurial approach to build value. The combination of an existing small business’ profitable and sustainable infrastructure with the innovation and drive of an entrepreneur is a magical recipe.