1.CUSTOMER DIVERSITY – If too much business is concentrated in too few of your customers, it is a negative in acquisition market. If none of your customers accounts for more than 5% of total sales, that is a real plus. If you find yourself with a customer concentration issue, start focusing on a program to diversify.

2.MANAGEMENT DEPTH –An acquirer will look at quality of management staff and employees as a major determinant in acquisition price. You should make move of assigning your successor a year in advance of your scheduled departure date. If you have a strong management team in place, you should try to implement employment contracts, non-competes, and some form of phantom stock or equity participation plan to keep these stars involved through transition.

3.CONTRACTUALLY RECURRING REVENUE – All revenue dollars are not created equal. Revenue dollars from a contract for annual maintenance, annual licensing fees, a recurring retainer fee, technology license, etc. are much more powerful value drivers than projected sales revenue, time and materials revenue, or other non-recurring revenue streams.

4.PROPRIETARY PRODUCTS/TECHNOLOGY – This is area where valuation rules do not necessarily apply. If strategic acquirers believe that a new technology can be acquired and integrated with their superior distribution channel, they may value your company on a post acquisition performance basis. The marketplace rewards effective innovation and yawns at “me too” commodity type products or services. Continue to look for ways to innovate in all facets of your business. If you create a technology advantage in your company, think what that could mean to a much larger company.

5.PENETRATION OF BARRIERS TO ENTRY –In its simplest form, a large restaurant chain buys a small family owned restaurant to acquire a grand fathered liquor license. Owning hard to get permits, zoning, licenses, or regulatory approvals can be worth a great deal to right buyer. The government market is extremely difficult to penetrate. If your product or service applies and you can break through barriers, you become a more attractive acquisition candidate.

First of all, please recognize that there is tremendous competition at Main Street Level (transaction value under $1 Million) for business acquisition. This phenomenon is result of down sizing and early retirement of mid level and senior executives in their forties and fifties. These people have exited with a war chest of a half million dollars and have vowed to never again be a victim of a corporate restructuring. They want to control their destiny, run their own show, buy and run a business. Most of these people are looking to buy a job.

You and 10 million other buyers:

I am looking to buy a niche manufacturer or distributor with $3 to $10 million in revenue and $500 K to $1.5 Million EBITDA and I don’t want to pay more than a 3.5X multiple. I have about $350 K of my own to put into deal and I have investors lined up for another $1.5 to $2 Million. Pleeeeeeese! Do me a favor. When you have a first meeting with an intermediary and you deliver this message, make sure you are on first floor. I hate to see my colleagues leaping from tall buildings.

Do your Homework:

There are several things you can do to improve your chances of getting and keeping attention of a broker.

1.Be Specific. In example above, category was so broad that you come across as being not focused, not prepared, and wishy-washy. Translation – this guy is a long way away from pulling trigger. Your best bet in getting support from investors, friends and family, and bankers is to purchase business you were employed by or a very close competitor. Specific industry experience improves potential of acquired company surviving and servicing debt. Pick out a sample company of size range and industry you are targeting and present that as an example of what you would like to acquire. Take it a step further and be prepared to articulate your area of expertise and how you would apply that to make this sample business perform at an improved level. This should be a one to two page summary document. Now that’s focus.

2.Funding Preparation. Know exactly what you can put down on business. If you are not prepared to supply your broker personal financial statements, you probably will not get any help. Go and have specific discussions with friends and family (take your sample business and your performance improvement plan). Present your expected returns/equity percentages and ask them what they are willing to commit. A signed letter from these folks describing their backing is a very powerful attention grabber. Do not assume anything. Know your support level before you and everyone else does all work to find a qualified acquisition candidate only to find out your investors did not materialize.

3.You are selling yourself. In a sense you are interviewing for a job. Bring materials that support why you are qualified for job. A resume is essential and written references are good to have. Remember, most of these transactions will require former business owner to carry a seller note. They want to understand exactly to whom they are lending and risks associated with servicing this debt.