In acquisition entrepreneurship, we often talk about big deals and big growth…
But it’s not always the wild stories of Herculean effort that helps to generate wealth.
Eric Pacifici demonstrated this in one new post on LinkedIn:
Despite the headaches involved, buying a business is gaining popularity because even with zero growth, a fairly standard SMB acquisition can create millions of dollars of net worth for the buyer in a few years.
You do not necessarily need to:
Double revenue…
Have fatter margins…
Or another buyer to show up and pay a higher multiple…
Just buy a good business…
Keep it alive…
Maintain the earnings...
And use the cash flow to service the debt and pay it down.
Every dollar of principal that comes off the loan is another dollar of equity.
A buyer can put in a few hundred thousand, keep the status quo, and end up with millions of equity a few years later.
The big picture
You may know Pacifici as @SMB_Attorney on X.
He started his career with large M&A firms, where he was part of hundreds of closed deals…
Eventually, he quit to start his own boutique firm — SMB Law Group.
As someone who gets eyes on a large volume of deals, it’s valuable to understand his perspective on the more “simple” deals that still deliver results for the owner.
Here’s the infographic he posted, which lays out the straightforward “buy & hold” numbers:
Some added ideas
Buy proven cash flow, not just a story. The company has to cover debt service on day one, and still have something left if the year is slow.
The loan does the compounding; you do the staying-alive. In a startup, equity shows up if you create something that was not there. Here it shows up if the loan shrinks.
Growth and a higher multiple are upside, not the underwriting. If revenue rises, you win twice. If a strategic pays more than you did, you win again. Do not put either in the model you use to decide whether to write the check
What to do with this
If you are underwriting something this week, try this:
Hold revenue flat for 5 years.
Hold margins flat.
Hold the exit multiple where you bought it.
After debt service, write down what the equity is worth in year 5.
If that number does not change your financial life on its own, you may need a lower price or a smaller loan.
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Ross Tomkins has nearly 20 years of entrepreneurial experience, which includes 20+ deals and 6 businesses scaled over $1M. He invests in, mentors, and advises business owners aiming to scale to 7 or 8 figures.
Find out more here.
Michael McGovern is an investor, business advisor, and direct-response marketing pro from California. His company - Relentless Growth Group - invests in, helps grow, and acquires American businesses in multiple sectors. Get in touch via his email newsletter: The Wildman Path.
Len Wright has 35+ years in entrepreneurship, specializing in bolt-on acquisitions, M&A, and business growth. He has founded, scaled, and exited 4+ ventures, and is the founder of Acquisition Aficionado Magazine - connecting a vast network of experts in buying, scaling, and selling businesses through strategic alliances.
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