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Focus On Value Drivers To Get To A Big Payday

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The acquisition market continues to be very strong. In the 12 months ending August 31, 2013, $881.7 Billion was paid to acquire 9,499 US companies. This represents an 8.1% increase over the $815.9 Billion paid to acquire companies in the previous year.

Importantly, during this time, the average EBITDA multiple paid for Middle Market firms (companies valued between $1 million and $500 million) was 9.1. This means that if your company's EBITDA (earnings before interest, taxes, depreciation and amortization) were $2 million, that your company would sell for 9.1 times that or $18.2 million.

I'm telling you this important information because selling your company is the ultimate goal for most entrepreneurs, because it's how you achieve significant wealth.

Importantly, not all of the $881.7 Billion paid to buy these companies went to the founders of these companies. Some of it went to investors, employees, and others. But the entrepreneurs who founded them received by far the biggest chunk.

That's why 80%, a full 4 out of 5, of individuals with a net worth of $5 million or more (called "pentamillionaires") are entrepreneurs who started and sold their businesses.

Here are some acquisitions that have taken place in just the last few days:

  • Sega purchased Atlus, a gaming company, for $141 million

  • Xchanging, an outsourcing services company, acquired e-sourcing provider MarketMaker4 for $22 million

  • EnerSys, an industrial battery manufacturer, agreed to acquire Purcell Systems, an electronic equipment company, for $115 million

  • Intel purchased Indisys, an artificial intelligence technology for $26 million and Omek, a gesture-based interface company, for $40 million
  • Google acquired mobile startup Bump for over $30 million (exact amount not disclosed)


And the list keeps going.

Now importantly, I want you to understand why each of these companies was acquired for millions of dollars. Here's why: each of them developed the right value drivers.

You see, whenever a large company considers buying a smaller company, they make a "build or buy" decision. That is, they think, "how long and how much money will it take for us to build what that company has already built." And then, they compare that answer to the price at which they could buy the company.

And when the larger company realizes that buying the smaller company is less expensive (in terms of dollars and time savings), they buy it. And as you read above, they often buy it at a huge price.

Now, what value drivers do buyers want?

I have identified 21 different value drivers they want. Such as the following:

1. Customers: the more customers you have and the more valuable your customers are, the more acquirers will pay to buy your company.

2. Intellectual Property: the more intellectual property you have, such as patents, trademarks, copyrights, and trade secrets, the more your company is worth to acquirers.
 
3. Team/employees: the more talented and trained your team, the higher the price the acquirer will pay for you.

So, be sure to build your company with these value drivers in mind. When you figure out which of the 21 value drivers are most important to acquirers in your sector, and focus on building them, you'll soon get to a massive payday - a big acquisition of your company.


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