There were over 50,000 Mergers and Acquisitions last year. This was the third year in a row with that many number of deals.
With 136 deals completed everyday, it’s clear that businesses are being bought and sold left, right and center!
So what’s cooking up a storm in the M&A space and why are so many businesses getting hitched?
Diversification is the name of the game. It’s not a world where businesses stick to what they know. They are competing with businesses in other industries more than ever.
Let’s take the big-wigs.
Google, Tesla and Uber are competing with each other in the self-driven car space. Google and Apple are at loggerheads in the mobile space.
Google and Microsoft in the search space.
And Amazon, well, they compete with everybody.
In a world where your own backyard isn’t safe, it only makes sense to diversify and enter new industries to have a chance to survive.
This permeates to businesses of smaller scale as well. Companies are looking to enter new markets and diversifying their offerings.
So what’s the best way to enter a new market?
You have two options, building it or buying an existing business.
Building a Business
Let’s talk about building a business from scratch.
Oh well. As I type this sentence, I can feel an enormous weight in my head. Starting a business isn’t easy. Doesn’t matter who you are and where you’re from.
It requires keeping a very level head while everything is going helter skelter. Chaos is your companion!
Before I give you an existential crisis, let me briefly dissect why building a business is hard.
It takes a considerable amount of time to build a business. Years, if not decades. It takes a lot of sacrifices, personally and professionally to reach a certain level.
There are too many variables that can go wrong. So even if you are very confident about an Industry and its potential, your business can still fail and stop your participation.
I’m not against starting a business, but there are a lot of downsides to it.
So what are we left with?
Buying a business.
Why would you buy a business?
Buying a business takes away a lot of the tougher parts of starting a business and running it.
Validating an Idea : This is the biggest one. Are people willing to pay for your product or service?
Sometimes people say they will pay and when it comes to actually paying, they don’t. Validating an idea is the most important thing an entrepreneur has to do in the initial stages.
So when you buy a business, it comes validated. There are a bunch of people who have paid money for the service, consistently.
Getting the initial traction : You can’t rest easy post validating your idea. People are not going to queue up in front of your stores waiting to buy your product. You’ll need to go out there, speak to hundreds of people, advertise and market in various channels and find a steady channel that brings in paying customers. This isn’t easy and it takes time to build.
When you buy a business, the channels that bring in the money are figured out. The seller has run the experiments and has done the most figuring.
Profitability : The true metric of a business is profitability. This doesn’t come easy. Businesses that attain profitability have figured out a way to maximize their revenue, reduce costs and build a thriving business that makes more dollars than it spends. Companies are not profitable for years, some even for decades. Finding a profitable business to buy is similar to finding a gold mine.
So you’re looking to buy, but why would somebody sell?
And, why would somebody be willing to sell a business that is profitable and makes consistent money? There are a few reasons for this.
A Lump sum payout : A lump sum can financially free you in ways that a constant monthly income cannot. A big payout also is better for investing into new businesses or new ventures or saving the amount for a rainy day.
Serial Entrepreneur : There are entrepreneurs who’s end goal is to build and sell businesses. They don’t want to focus on a particular business beyond a point. They’ll work hard for a couple of years on a business, scale it to a level, sell and move on to their next venture.
Retiring Early : This is the dream for a lot of Entrepreneurs. They want to work really hard for a few years, build a business that sells for a great price and use the money for retirement.
Not every entrepreneur thinks from the perspective of building a business and running it for twenty years and getting it to a valuation of a billion.
Now, the buying and selling is established. Where do you buy and sell?
The Opportunities for Buying and Selling
There is a thriving market for buying and selling websites online. Two names that crop up often are Flippa and Empire Flippers.
Flippa is a non curated marketplace that lets anybody list a business. Here you can find thousands of listings ranging from tens of dollars to tens of thousands of dollars. You can also buy domains on Flippa.
Empire Flippers is a curated marketplace with validated sellers and listings.
They are the largest curated marketplace for buying and selling websites in the world. Empire Flippers have been around for seven years and have brokered deals worth millions of dollars.
In the last 3 months, they’ve sold 90% of the businesses that have been listed in their marketplace.
Their vetting process is detailed and very thorough. They make sure the business that is being sold is legitimate, making the money the seller says it makes, checking all the data and numbers that complete a business.
Curated Vs. Non Curated
A curated marketplace requires no effort from your side as a buyer. They perform all the vetting and they make sure the buying process is seamless. A non-curated marketplace needs you to become a vetting specialist in no time. You need to perform the checks yourself and figure out if the numbers are legitimate all by yourself.
With Empire Flippers, sellers also have to pay a listing fee of $297(For the first time) to make sure the sellers really want to sell and are legitimate. A lot of listings on non-curated marketplaces are just entrepreneurs checking to see how much they can sell their business for without actually wanting to sell them.
Paying the right price
The other aspect of choosing a curated marketplace is the valuation. Empire Flippers value the business and find the right price based on certain parameters. You can be sure that the price isn’t unnecessarily jacked up.
Here is a screenshot of some of the current listings. As you can see, the businesses range from Confectionary to Finance.
So here you have it. Diversifying into new industries doesn’t have to be a new undertaking. There are so many diamonds in the rough, that if polished can generate a lot of wealth.