In this new series I will take a look at situations where it makes sense for an entrepreneur or small business owner to grow via acquisitions.
Opportunistic acquisitions are those that appear unexpectedly or simply when you’re not looking for them. To illustrate, I will share a story about bicycle shop owner I knew long ago. Having been a road racer in a past life, I have always been fond of bicycle shops and at one point dreamt of having one of my own.
One day back in the late 1980s I bought a team issue mountain bike from a fellow named Alan. During the two hours it took to test ride three bikes and pick all my accessories, we hit it off talking about the Tour de France and the best local mountain biking trails. We even went out for a few rides together. Alan wasn’t your typical bike shop owner in that he had a degree in business and had worked for a few years at a Fortune 500 company before quitting to take over his father’s shop. Most bike shop owners are technicians who know how to assemble bicycles as well as how to overhaul and repair them when necessary. Very few of them have any formal business training. The same holds true for the majority of small business owners.
Be open to growth via acquisitions.
One day a few months after we had met, Alan heard that another long established local bike shop was shutting its doors for good. Alan immediately called the telephone company and arranged to have its telephone number assigned to him so that when customers called the old shop he got the calls. This is a common trick used by small business. It’s a cheap and fast way to acquire a competitor’s customers.
Then about a year later Alan found out that another shop was also closing its doors. Alan decided to contact the landlord to find out if he could take over the lease. By month’s end he was the new tenant opening his second location five miles from the first. With two shops selling mid to upper range models, he was beginning to make some good money.
About three years later he received a call from a business broker informing him that one of the biggest bike shops in the city was for sale due to the owner wishing to allocate all of his energies to another business. Alan immediately decided to express his interest and conduct due diligence. Initially he had no idea where the money would come from but was able to put the financing together over 30 days. To make a long story short he bought the shop with a down-payment of about 33% and paid off the balance over three years.
Most small business owners end up with nothing of value to sell when it comes time to retire because they ignore these types of growth opportunities. An acquisition of this type can easily double a small business’s sales in the time that it takes to close the deal. This is often the business equivalent of picking the low hanging fruit.
Opportunistic acquisitions are not just about locations. They can be used to acquire other assets as well such as technologies, technical or management teams, suppliers, and merchandise lines.
The takeaway here for entrepreneurs and small business owners is to simply be open to the possibility of acquisitions as a means to fast growth.
One Response to Growth Strategies: Opportunistic Acquisitions
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For small business owners, I’ve found many of them just have a job that they own and in addition, have a employee mentality. I get emails very often from brokers asking me to introduce them to a Private Equity firm. Most often, the business is junk with very thing EBITDA. Growth by way of acquisition is a foreign concept to many small business owners. I think many believe it’s out of reach and is frankly, too much work. Nothing worse the meeting a small business owner with a junk business but demands premium prices.
What’s unfortunate is, many small business owners are on a day by day plan. They’re not conditioned to think in terms of external growth.
Looking forward to this series.