Buy the businesses you've been watching, with a currency sellers will accept.

For owners and acquisition entrepreneurs whose growth plan runs through acquisitions. As a public company, you can pay with stock as well as cash, close deals private buyers can't, and build something far larger than one business could grow on its own.

Led by Joel Arberman, whose first public company bought another company entirely with stock. 17 companies taken public, several of them his own.

Why private buyers lose good deals

A private company can only pay with cash. That caps every acquisition at your balance sheet and your borrowing, and it puts you up against buyers with deeper pockets on the one dimension where they always win.

It also makes you a hard buyer to say yes to. An owner selling the business she spent 30 years building wants certainty, sensible tax treatment, and often a share of what comes next. Offer her a note from a private company and she becomes a creditor of a business she can't monitor, with no way out. Most sellers decline, and they're right to.

Offer her shares in a public company and the conversation changes. She can look up the price every day, sell some and hold some, and stay in if she believes in the combined company. You haven't made the deal richer. You've made it acceptable.

The arithmetic of buying with stock

Private businesses usually sell for a modest multiple of earnings. Public companies are often valued at a higher one. That gap is the engine.

Take a public company with $2 million of operating profit, valued at 15 times: $30 million, or $1.00 a share across 30 million shares. It buys a private business earning $1 million for 5 times earnings, $5 million, paid entirely in new shares.

• Before: $2.0 million of operating profit, 30 million shares, valued at $30 million, $1.00 a share.
• After: $3.0 million of operating profit, 35 million shares, valued at $45 million, $1.29 a share.

The company issued $5 million of stock and added earnings the market values at $15 million. Every existing shareholder owns a smaller percentage and a larger amount of value.

Hypothetical illustration only, not a projection or promise. The market won't always apply your multiple to what you buy, sellers often want a premium for taking stock, integration costs come out of the earnings you bought, and multiples can fall as you grow. Done carelessly, the same math destroys value just as fast.

What opens up when you're public

• More ways to pay. Stock, cash, notes, preferred shares and earnouts tied to results or your share price, in whatever mix gets the deal done. A private buyer negotiates with one variable; you negotiate with several.
• Sellers who can say yes. Owners nearing retirement who would never take private paper will take shares they can price and sell over time.
• Deal flow that comes to you. Business brokers and sellers' advisers keep lists of credible buyers. A public acquirer with a currency and a stated strategy goes near the top of those lists.
• Capital for the deals that need cash. Raise on your terms, or borrow against audited financials a lender can actually underwrite.
• People to run what you buy. Stock with a market value attracts the operators and integration leaders a growing group needs.
• Costs that shrink as you grow. The cost of being public is largely fixed. Every acquisition spreads it across more earnings until it's a rounding error.

What it takes to do this well

The companies that compound through acquisitions share four things, and none of them is the listing:

1. Sourcing. The best deals come from relationships built before the owner was ready to sell: knowing the 20 or 30 businesses that would fit, and talking to their owners for years.
2. Discipline. A walk-away price set and written down before negotiating, because your own reasoning will move once you want the deal.
3. Integration. Someone whose job is absorbing each business, with the authority and time to do it.
4. Pace. A company with the money for four deals a year and the capacity to absorb one should do one. Do the first one smaller than you want to.

We help you build all four, and we'll tell you plainly when a deal you love isn't worth doing.

Is this you?

A good fit if you

• Own an operating business, or have one under contract
• Work in a fragmented industry with owners approaching retirement and few natural buyers
• Can name the businesses you'd buy first, and why
• Want to build a group over the next 5 to 10 years, not flip one company
• Run clean books, or could get them audit-ready within a few months

Probably not a fit if you

• Don't yet own or have under contract an operating business. Start there, then talk to us.
• Want to buy anything available, in any industry, as fast as possible
• Don't want outside shareholders, a board or public reporting

How it works

Your company is always in one of three modes. The work, and the monthly fee, follow the mode you're in.

1. Raising. Every engagement starts here: every company going public needs more shareholders, and almost every one needs capital too. We organize the company for life as a public acquirer: structure, cap table, financial records and governance. Then we prepare your private placement, sized to your plan: funding a first deal, giving you enough shareholders to list, or bringing advisers and partners in as shareholders. You raise it, from your own network or beyond it, and we coach you through it.

2. Listing. With the capital in place, we manage the process of becoming a public company by the route that fits, usually a direct listing. We bring in and coordinate the auditors and securities lawyers.

3. Building. Strategic advice whenever we're not running a listing: your acquisition strategy and pipeline, deal structure, the financing for each deal, recruiting with stock, and moving up to a larger exchange when it makes sense.

What it costs

Start for $10,000 a month while you're raising. That mode typically runs about two months, so about $20,000. After that, the monthly fee follows the mode you're in and the size and scope of the work. We also hold equity, so we do well only when you do.

Third-party costs such as audit and legal fees are paid directly to those providers, and we'll estimate them once we've seen your financials. We're paid the same whether you do one deal or ten, so our advice on each one is about whether it's right.

You won't be doing this alone

I'm Joel Arberman. A few months after my first company went public, a private equity group called out of nowhere. They didn't want to invest. They wanted us to buy one of their portfolio companies. We paid entirely in stock, with no cash, and the deal brought us revenue, profit and a team that knew how to run an operating business. That was when I understood what a public company's stock could do.

Before that I was an equity analyst in New York and, at 22, a partner at a 700-person investment bank. In more than 30 years across Wall Street, Bay Street and my own companies, I've taken 17 companies public, several of them my own, and advised on acquisitions, financings and the strategy that connects them.

Questions acquirers ask

Do I need to own a business before I start?

Yes. The playbook works for a company with operations to build on. A company with no business whose plan is to buy companies it hasn't identified can be treated as a blank check or shell company, which brings heavy restrictions. If you're still searching, start with the first acquisition.

I financed my business with an SBA loan. Does that matter?

It may. Some loans carry terms affecting changes in ownership or structure. Raise it in our first conversation, and check the terms with your lender and counsel early.

Won't paying in stock dilute me?

Yes, by design. The question is whether each deal adds more value than it costs. Bought carefully, you own a smaller share of a much more valuable company. Bought carelessly, you don't, which is why discipline matters more than speed.

What if a seller only wants cash?

Some will. Being public gives you more ways to fund cash deals too: raising on your terms, or borrowing against audited financials. Many sellers prefer a mix of cash for certainty and stock for upside.

Will the businesses I buy need audits?

Often, for larger deals. A material acquisition can require audited financial statements for the business you're buying, so we look at the condition of a target's records early.

Is this an IPO?

Usually not. Most companies list through a direct listing on the OTCQB and can move up to Nasdaq or the NYSE later.

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