How to create significant wealth by acquiring private companies....

In the United States (and other markets), many business owners are in their 60’s, 70’s and older. Their kids aren’t interested in the family business. Their grandkids don’t have the background, skill, or capital to run the business. As a result, there are tens of thousands of profitable businesses for sale and currently, very few potential buyers. On top of that, the cost of capital is relatively high which significantly shrinks the pool of potential business buyers.

Public companies have several strong advantages when making acquisitions:

1. Business brokers are more likely to show them businesses for sale because the trust, credibility, and transparency of being a public company generally means the entrepreneur has a better chance of closing a deal, something brokers care a lot about.

2. Business sellers prefer dealing with public companies for the same reasons noted above. In addition, business sellers are often willing to be more flexible in acquisition terms, including accepting stock, warrants, preferred shares, notes, and cash payments over time.

3. Public companies generally find it faster and easier to attract any necessary acquisition financing, working capital and talent to make more deals happen.

4. It's easier to attract a highly qualified board of directors and build out a strong advisory board.

5. Public companies can often buy private companies for 2x to 4x SDE or EBITDA but as a public company, they are typically valued at 8x to 15x (or more). For example, an entrepreneur can buy a private company earning $1 million for about $3 million, but that business would typically add $8 to $15 million in public company valuation.... $3 million for a private company that's worth $8+ million in public company valuation. This is a fantastic way to build a business and increase valuations.

Three case studies:

1. Onfolio Holdings had about $250k in revenue when they engaged us. They originally committed to going public by direct listing on the OTC. We started the process by structuring several private placements where the entrepreneur raised $4.5 million through his personal network, professional network and then advertising. The net proceeds were used to make several acquisitions and continue the public listing process. At the time, the equity markets were hot, and we were able to pivot from a direct listing to traditional IPO on NASDAQ. We brought in the investment bankers and the company raised $13.7 million in additional capital. The net proceeds were used to make several more acquisitions. All this in a three-year cycle.

2. SMTP had about $1.5 million in revenue and $75,000 in profit when they engaged us. They committed to going public by direct listing on OTC. We started the process by structuring a private placement where the entrepreneur raised $100,000 from his friends and family at a $3.5 million valuation. The company didn't need the money but needed to have enough shareholders to qualify for trading. After going public, the entrepreneur acquired three businesses. One was just for technology, another was a startup that subsequently failed and the last was a startup that boomed. The company eventually changed its name to SharpSpring, uplisted to NASDAQ, raised about $16 million and a few years later was acquired for $240 million in cash. All this in a seven-year cycle.

3. Open Text was a company our founder supported when he was a partner of a large investment banking firm. As a startup, the company raised about $2 million, commercialized their technology, and raised about $45 million in a traditional IPO. Although they had a great product, they were several years early to fully capitalize on it. The company then pivoted and subsequently made dozens of acquisitions. Open Text trades on NASDAQ with a recent valuation of $10.3 billion. All this in a twenty-five-year cycle.

How are the costs of this process covered?

We can take any size company public, even startups. However, we don't raise capital. We show entrepreneurs how to raise capital from their personal network, professional network and through advertising, and for larger companies, we can bring investment bankers and brokers.

If you're an entrepreneur that has the background, skill and expertise necessary to execute well, and have the personal or professional resources to use our process and strategies - contact us.

Entrepreneurs growing by rollup/acquisitions are the perfect fit for our process.