Target selection

A target can be an attractive business yet a poor acquisition for a particular buyer. Price may exceed available capital, the seller may perform an irreplaceable role, or cash may be tied up longer than the proposed debt schedule allows. Selection therefore joins commercial quality with an executable ownership transition. Revenue is useful for scale, but it does not tell the buyer how much management or borrowing the business can afford.

The collection distinguishes asset-rich manufacturing, which may offer machinery and receivables as collateral, from defensible specialist services that can be harder to finance. This is a trade-off rather than a ranking of all sectors. A business collecting customers quickly may have excellent cash behavior while leaving little receivables collateral for an acquisition lender. Watch source

Screen both income statement and balance sheet. Ask how repeatable profit is, who owns the customer relationships, what equipment needs replacing and how much cash must remain in the company. Sey’s caution about low absolute profit is particularly useful: one replacement executive can consume a large part of a small company’s earnings. His preferred sizes and industries reflect a specific acquisition model. They should not be presented as universal entry requirements or evidence that other businesses cannot be acquired successfully. Watch source Watch source

Follow the connections

Customer concentration · Adjusted EBITDA · Management.

Continue in the course: Choosing a target.