(smaller = annual revenue 750K-$2 million)
1) Smaller ‘Sellers’ offer a fast, effective strategy for ‘Buyers’ to diversify their business or specialize in a vertical market.
If a ‘Buyer’ is looking to diversify and enter the hospitality vertical, for example, buying a $1 million LSP with this vertical specialization will help them accomplish this strategy. Or, if a ‘Buyer’ already has a vertical specialization, buying a smaller vendor with the same focus, immediately improves the buyers positioning in this vertical.
2) Buying a smaller ‘Seller’ can be a cost-effective and efficient method of establishing a regional presence.
By buying a smaller language vendor in the US, ‘Buyers’ in Europe or Asia can bypass many challenges related to entering the US market. These challenges include hiring and managing a remote sales team, locating office space and managing legal costs connected to incorporation. Buying a ‘seller’ in the US assures the ‘buyer’ of a client base and immediate revenue generation.
3) Lower purchase price of smaller vendors present a less risky option and good training for ‘first time buyers’.
For owners who would like to grow through acquisition, but do not know where to start, buying a smaller acquisition is a good first option. Owners gain knowledge of what works for them. Buyers get exposed to the inherent risks and rewards involved in the integration process. This allows them to adjust their future buying strategies. And if the deal goes south, the loss is $300K and not $3 million.
4) Hiring vs Buying: Purchasing a smaller vendor with a solid client base is usually a faster, more reliable method of growth than hiring a sales person and waiting.
Sales cycles are long, new sales people struggle and the competition is fierce. Buying a smaller vendor provides the ‘buyer’ with an immediate client base and network to work with.
5) Buying a smaller vendor makes it easier to secure funding from financial institutions.
Getting a loan for the purchase of a well-established $750K vendor is often easier than getting a loan for a $7.5 million vendor. With the former, owners may not even need to get a loan from the bank, if their cash flow is sufficient. This further simplifies the M&A process for the buyers.