A business acquisition or merger is the combining of two companies into one. These types of transactions are generally done to consolidate costs and increase revenue.
The First Step in a Business Acquisition
Acquiring a business involves a lot of research and pre-planning. A merger or acquisition is not a guaranteed profit-generating step. Many attempts at consolidation end up costing the buyer in the long run.
To help find out how profitable an acquisition will be, a business valuation must be done. In the valuation process, an independent agent evaluates the worth of a company. There are five common types of valuation that can be done: Earnings Before Interest Taxes Depreciation and Amortization, historical earnings, assets, Shareholders' Discretionary Cash Flow and future maintainable earnings. Respectively, these different approaches look at: how much gross money a company generates, how much a company has made in the past, how much each part of the company is worth separately, how much the owner-operator is paid, and how much the company is likely to make in a set number of years. Obviously, each of these methods only reveals one aspect of a company's profits. Because of this, an agent will do more than one type of valuation for each business.
Navigating the complexities of a merger or acquisition can be difficult. RPI Commercial offers business brokerage services to help facilitate the buying and selling of small to mid-size companies. For more information, send an email to email@example.com or call 1-877-549-5210.