Mergers and Acquisitions Criteria

We see hundreds of business acquisition deals a year; scoring each on these 13 criteria helps us focus on the most promising: 1. Revenue Quality - recurring or re-occurring is best, project-based and lumpy is worst. 2. Customer Concentration / stroke of pen risk - less is better. Too high is almost impossible to structure around and almost always deal breaker. 3. EBITDA & Margins - what scale is the business operating at, and is it a low margin, normal (for the industry) margin or high margin operation? 4. Entry Multiple - we’re looking for below 5x 5. Capital Intensity - needing to sink a lot of money into equipment and inventory as a percentage of revenue is a negative. 6. Working Capital intensity - how long does it take the business to collect cash and how much inventory do they need to hold (if any) compared to how much time they have to pay their bills? 7. Industry / Regulatory Risk - Businesses that rise and fall with new construction cycles, or natural resource prices, or interest rate cycles, etc, are less attractive 8. Transition / Key Person Risk - Can the searcher fill the gaps if one or more key people leave? 9. Seller Motivation - the best is “I’m 80 and it’s time to retire.” The worst is “I’m 25 and have other projects I want to focus on.” 10. Deal Structure - The more skin in the game the seller keeps (seller note, earn out, rolled equity) the better. 11. Investor Terms - Are they in line with market norms, or maybe even attractive for being slightly above those norms? 12. Real Estate - Not necessarily good or bad, but important to understand if present. How expensive is the real estate relative to the operating business? Is there a sale leaseback? 13. Franchise / Union - These change the nature of the business and are crucial to make note of. Anything I missed that you’d add as #14?

Just reviewed acquisition criteria from a buyer focused exclusively on profitable SaaS. No VC-speed growth required. No massive scale needed. Here's what they actually want: → SaaS, tech-enabled businesses, marketplaces, or content sites → $200K-$2M ARR → Profitable (not "path to profitability"—actually profitable) → 3+ years operating history → Subscription model → Minimal managed services component → Bootstrapped or venture-backed both work This is the "forgotten middle" of SaaS M&A. Too big to stay a side project. Too small for traditional PE. Growing steadily but not 3x year-over-year. What's interesting: "Growing but not at venture speed or scale" Translation: They don't want to pay for hyper-growth multiples. They want sustainable, profitable businesses throwing off cash. If you raised VC money but plateaued at $1M ARR... you're not a failure. You might be exactly what this buyer wants. The "minimal managed services" requirement matters: Pure SaaS scales. Services don't. They're buying software margins, not consulting margins. If 40%+ of your revenue is implementation or support services, you're out. Why 3+ years operating history? They need proof of retention. One good year isn't enough. They want to see customers renew, expand, and stick around through economic cycles. If you're a bootstrapped SaaS founder doing $500K-$1.5M ARR profitably: You've built something valuable. It might not be a unicorn, but it's an asset. And there's a buyer for that asset. Not every SaaS exit is $100M. Some are $2M-$5M to the right operator-buyer. And that might be exactly what you need. #SaaS #M&A #Bootstrapped #Profitable #Founders #TechMA

The most expensive acquisition you'll ever make is the one that looked almost right. I've watched it sink more platforms than any bad market ever did. Here's how it happens. A founder decides to grow through acquisition. Good instinct. Then deals start crossing the desk, and without a defined target, every one of them looks tempting. The price is decent. The revenue looks fine. The seller is motivated. So they convince themselves it'll work, and they buy it. Six months later they're bleeding cash and management attention trying to integrate a company that never fit the plan. The fix is something I call the buy box. Before you look at a single deal, you define exactly what you're hunting for. Geography, are you extending into new markets or building density in the ones you have. Revenue range, what size can you actually absorb without choking. Customer type, who do they serve and does it match. Owner profile, why are they selling and will the transition work. Strategic fit, what specific capability does this add to the platform. Five criteria, written down, agreed on in advance. And then the rule that makes it work: if a deal doesn't fit the box, you don't open it. You don't take the meeting. You don't run the numbers just to see. Because just to see is exactly how disciplined operators turn into undisciplined acquirers. I completed 58 acquisitions across my career. The ones that built real value fit the box. Every single time. The discipline to walk away from a deal that's almost right is what protects the deals that are exactly right. I would rather miss a deal I should have done than do one I should not have. The math isn't symmetric. A missed deal costs you nothing. A bad one costs you cash, focus, culture, and sometimes the whole platform. Define the target before you hunt. I lay out the full buy box framework inside the Empire Builder Academy. #privateequity #empirebuilding #entrepreneurship #mergersandacquisitions #CEO

𝗔𝗻 𝗔𝘁𝘂𝗹 𝗚𝗮𝘄𝗮𝗻𝗱𝗲-𝘀𝘁𝘆𝗹𝗲 𝗰𝗵𝗲𝗰𝗸𝗹𝗶𝘀𝘁 𝗳𝗼𝗿 𝘀𝗲𝗹𝗳-𝗳𝘂𝗻𝗱𝗲𝗱 𝘀𝗲𝗮𝗿𝗰𝗵𝗲𝗿𝘀. 👇 Enjoy! Financial: - Bookkeeping is solid and up to date - Revenue and profits show no recent downtrend - Accounts receivable aging is not excessive - Owner has not run excessive amounts of personal expenses through the business (it's an integrity flag) Operational: - Owner is not a key party to every transaction - Owner has a management team that has been in place for a while - There has not been excessive employee turnover - Business is not too complex to be learned in less than a year - Standard systems and processes are already in place Risk: - No customer has 25% or more of revenue (Note: there can *sometimes* be a case for as much as 50%) - No open liens or judgments found in public records - All licenses and permits are up to date and are transferable - There are no legal issues with the business Owner: - The reason for sale is well-defined and reasonable - Basic information about the business is not being held back - The price being asked is not unrealistic - The owner is not focused on what price they get, but on finding a good buyer Market: - The business has some real competitive advantages - The industry is not a seasonal one or too sensitive to downturns - The industry has been growing in the recent past (relative to GDP) - The acquisition will not result in debt payments that are too high, relative to current profits.

𝐇𝐨𝐰 𝐝𝐨𝐞𝐬 𝐨𝐧𝐞 𝐚𝐬𝐬𝐞𝐬𝐬 𝐭𝐡𝐞 𝐟𝐚𝐢𝐫 𝐯𝐚𝐥𝐮𝐞 𝐨𝐟 𝐌𝐞𝐫𝐠𝐞𝐫𝐬 𝐚𝐧𝐝 𝐚𝐜𝐪𝐮𝐢𝐬𝐢𝐭𝐢𝐨𝐧𝐬? In #mergersandacquisitions (M&A), it is crucial to report the fair value of the target at the end of each year. This reporting is particularly vital for private equity (PE) funds planning to exit their investment after a holding period of 5-7 years. Limited Partners (LPs) must understand the fair value (FV) of the target at the end of each year to gauge investment success. Having worked with numerous PE funds, I have observed a consistent pattern in their fair value reporting of portfolio investments. For instance, consider a scenario where a PE fund acquires a target company: [1] Acquisition Cost: $100 million, including $5 million in transaction costs. [2] Last Twelve Months (LTM) EBITDA at Signing: $9.5 million. [3] LTM EBITDA at Closing: $9.8 million. [4] Valuation: 10x EBITDA. [5] Day 1 Unrealized Loss: $98 million - $100 million = -$2 million. At the end of each year, the PE fund must revalue the target based on the target's EBITDA and prevailing market conditions. For example: End of 5 Years: The PE fund intends to sell the target. [1] Negotiated Price: $200 million. [2] Transaction Costs: $10 million. [3] FV Calculation: $200 million - $10 million = $190 million. [4] Probability of Deal Closing: 90%, due to regulatory approvals. If the deal does not close, the FV changes from $190 million to $150 million. [5] Adjusted FV: 90% of $190 million + 10% of $150 million = $186 million. 𝐈𝐧 𝐬𝐮𝐦𝐦𝐚𝐫𝐲, funds must include transaction costs in the initial investment value as per Financial Accounting Standards Board (FASB) ASC 946 but exclude them in later fair value assessments. The fair value of an investment can differ significantly from the transaction price, influenced by changes in market conditions, company performance, and risks associated with the deal. This dynamic evaluation requires careful consideration of various factors, including changes in EBITDA, working capital adjustments, and potential deal uncertainties. The Internal Rate of Return (IRR) varies based on different probabilities and assumptions. Initially, including transaction costs, the IRR stands at 15%. Assuming a 100% probability of the deal closing, the IRR adjusts to 14%. However, if we consider a 90% success rate of the deal closing, the IRR further shifts to 13%. This calculation is based on the assumption that all cash flows from year 1 to year 5 are allocated towards debt repayment.

Here’s the truth: Deals win or die by what happens after close. M&A isn’t just about numbers. It’s about envisioning the end state. I’ve seen too many deals get done for the wrong reasons—chasing revenue, ego, or momentum—without ever asking: What do we want this to look like after the dust settles? That’s why Buyer-Led M&A flips the script. We lead with clarity, not chaos. 🔹 Start by mapping the end state. Not just the financials—think operating model, customer experience, and decision-making structure. What does “success” actually look like? 🔹 Then dig into culture. Forget the surface-level values page. You need to understand how decisions get made, how people work, and how priorities shift under pressure. That’s the real culture. 🔹 Now you can start building a joint go-to-market plan. This is your integration thesis. What does the customer experience look like as a combined company? 🔹 Integration planning should run parallel to diligence. Same team. Shared information. Continuous learning. That’s how you get to Day 1 readiness—and avoid repeating diligence after you’ve already bought the company. 🔹 Finally: reverse diligence. Let the target get to know you. This is a two-way street. The more transparency, the more alignment, the more likely you’ll retain the people who actually make the deal work. M&A isn’t a race to term sheets. It’s a race to value creation—and that starts by leading the process, not just following it. This is how I define the Buyer-Led M&A™ mindset. What am I missing? Let me know in the comments. #MergersAndAcquisitions #BuyerLedMA #DealRoom

Navigating Acquisitions: Key Considerations for Software #Startups 🚀💼 Thinking about selling your software #startup? The decision to pursue a merger or acquisition (M&A) is a pivotal moment that requires careful planning and strategic alignment. Based on insights from Volaris Group's The Ultimate Guide to Selling Your Software Company (2025), here are key factors startups should consider when approaching an acquisition: (1) Merger vs. Acquisition: Decide whether a merger (integrating with a complementary business) or an acquisition (operating standalone or absorbed) aligns with your goals. For instance, mergers suit smaller startups seeking access to larger customer bases, while acquisitions are ideal for market leaders with strong brand recognition. (2) Customer Impact: Choose an acquirer committed to maintaining your product and service quality. Ask: Will they invest in your software, or force customers to migrate? Will support remain consistent? Prioritizing customer trust ensures your legacy endures. (3) Employee Development: A great acquirer invests in your team’s growth. Look for buyers with a culture of collaboration, clear talent management strategies, and opportunities for professional development to secure your employees’ future. (4) Strategic Fit and Values: Align with an acquirer whose values and growth strategies match yours. Investigate their track record—do they foster long-term growth through R&D investment, or focus on short-term gains? A shared vision is critical for success. (5) Avoid Common Pitfalls: Don’t wait too long to sell, as market conditions can shift. Ensure transparency during due diligence and prioritize deal structure over price alone—earnouts and contingencies can impact your outcome. (6) Prepare Thoroughly: Build a strong M&A team (CEO, CFO, CTO, legal counsel) and create a comprehensive Information Memorandum to showcase your company’s value. Address technical debt and refine your growth story to boost valuation.

When people talk about mergers and acquisitions, the first thing they focus on is valuation. But in reality, valuation is only one part of the deal. In many transactions I have worked on, deals failed not because of price, but because of lack of alignment. A successful M&A deal depends on how well both sides understand each other. This includes business goals, culture, risk, and long term vision. Buyers are not only looking at your financials. They are also looking at how your business will fit into their larger strategy. If that fit is not clear, even a good valuation will not close the deal. From the seller side, many promoters focus only on getting the highest price. But they do not think about control, integration, and future growth. These are equally important. Another key factor is due diligence. Many deals slow down or collapse because of gaps in financial records, compliance issues, or unclear contracts. This is where strong preparation makes a big difference. Cross border deals add another layer of complexity. Different regulations, cultures, and expectations need to be managed carefully. M&A is not just a financial transaction. It is a strategic decision that impacts the future of the business. If you are planning to explore M&A, focus on alignment, clarity, and preparation. Valuation will follow. #MergersAndAcquisitions #DealMaking #BusinessGrowth #CrossBorder #TransactionAdvisory #Leadership

EBITDA isn't everything. Recently, I had an enlightening conversation with a business owner who was contemplating a merger with a partner service provider. On the surface, the synergy seemed promising — two companies of similar size, complementary services, and a shared history of collaboration. However, as we delved deeper into the financials, we uncovered critical insights that could have easily been overlooked. While revenue and earnings are often the main early focus in M&A discussions, we discovered that the cash conversion cycles of the two businesses were markedly different, one business was using expensive debt (with no returns, revenues were falling), and differing strategies on operational expenses. Key takeaways: 💸 Cash Conversion Cycle Matters: It's vital to understand how quickly a business can convert its investments into cash flow. A lengthy cash conversion cycle can signal inefficiencies that can derail potential synergies post-acquisition. ⚔ Debt Usage is Double-Edged: While debt can fuel growth, mismanagement or the wrong debt can choke it. Analyzing the debt levels and capital structure is crucial to assess the potential risk and financial stability (and potential opportunities) of the acquisition target. 👑 Culture & Strategy are King: These are important topics to explore when considering M&A. While the black and white figures in a P&L are not the full story, the financial statements can be indicators for cultural and strategic differences to explore. For the right acquirer, these areas can be "low hanging fruit," areas ripe for improvement. For a business where owners will now be partners, it could be a source of ongoing tension or worse -- instead of 1+1=3, the businesses are worse off together than when they were apart. This business owner was super sharp, and had a sense of some of the concerns I raised. However, this is the value of having an advisor in your corner. In a few minutes, I was able to outline a handful of areas to discuss deeper or consider fully as they considered this potential transaction. #mergersandacquisitions #finance #entrepreneur #investmentbanking