VALUE: After Hours (S07 E36): How to Spot a Good Private Acquisition: Paying Half of Revenue and Scaling Smart

During their recent episode, Taylor, Carlisle, and Colin King discussed How to Spot a Good Private Acquisition: Paying Half of Revenue and Scaling Smart. Here’s an excerpt from the episode:

So, if you were to include in your own comp in that multiple, it would be less attractive. But we stuck to paying half a revenue or 3/4 of revenue and just about everything we’ve done since then. And the real benefit is when you get to this critical mass area. So, as a company gets larger, okay, now I have one person who’s dedicated to running retail and one person who’s dedicated to running ops and one person dedicated to this. So, that scale, it’s a real thing. So, we’ve benefited as we’ve graduated up that curve.

But in the early days, it was highly levered, 10 down, 90 borrowed. In some cases, we had earn-out structures and then really in our last– Let’s see, the last couple deals we’ve done have been more in the 25, 30 down, maybe some rollover equity from the seller and then borrow the remainder.

Tobias: How often are you doing an acquisition? You’ve almost done 15 since 2017. So, a couple a year more than that?

Colin: Yeah, at least one a year. So, we’ve done one every year since 2018, at least one. I would say at this point now, [chuckles] it comes down more to how much bandwidth do you have. So, if we were to buy a new company, it would either have to fit within an existing operating group that we have, so that team could go run it, or if it were going to be an entirely new platform, so to speak, then– We’d have to look at each other and say, “All right, who’s going to run this one?” There’s only so much time in the day, so it has to be large enough that we would have an operator who could take it on. So, yeah, the criteria has changed.

So, last year, we bought a company called Vermont Teddy Bear, which was a pretty sizable acquisition, just shy of $10 million in revenue. And so, that folded within our consumer group. They’re running that business. And the company that we’re closing on here in the next 30 days is an accounting firm. And so, that will tuck within our profit mastery financial training business, so they’ll go hand in hand. So, I’d say most everything we’re looking at now is really dedicated to, does it fit within the portfolio?

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VALUE: After Hours (S07 E36): How to Spot a Good Private Acquisition: Paying Half of Revenue and Scaling Smart

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