M&A Imagineer: A Flip Merger Strategy
Some businesses are not worth buying and others not worth selling – especially if owned and operated by a solopreneur or a teeny tiny partnership, where the “business fortunes” are wholly dependent upon them alone with or without support staff?
Such micro/small businesses may only routinely generate sufficient nett profits in order to give the owner/partners and core staff a modest annual income – but not much more?
The idea behind a Flip Merger Strategy (or “Reverse Tuck-In”) is to collate various complementary (mostly) micro-businesses that would ordinarily be closed down by the owner/operator, introduce professional centralised fractional management, “leverage” the combined group to acquire a “core” SME business into which the various “subsidiary” parts can be fully integrated or “tucked-in.”
Random examples:
A Book-Keeping Business; Payroll Administrator; Credit Control Firm; Debt Management Practice; Business Planning Service; Tax Advisory Firm; Secretarial Services Provider; Virtual Assistants Agency and so on – all “acquired” and then fully integrated into a target Management Accountancy Practice.
A Steel Fabricator; Engineers Merchants; CAD Design Practice; Steel Stockholder; Toolmaking Engineers; Prototype Developer; Electrical Engineering Firm and so on – bought and then merged into a larger Precision Engineering Company.
At a practical level this will mean taking out legal options to acquire the aforesaid “Tuck-In” firms, then prioritising the acquisition of the “core” business (Management Accountants or Precision Engineers as above), exercising the options and then formally integrating the “Bolt-On” Firms.
Being micro-firms the legal “consideration” for the small businesses could be an equity swap between the core business and tuck-ins, a “commission”/royalty arrangement for any customers that formally “stay on the books,” a modest monthly retainer, a notional seller loan(s) note (with or without interest), or a mixture of the aforementioned?
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Such firms would ideally need to be within the same locale/region, and have sufficient or be in a position to acquire more working space within the existing premises (allowing for some hybrid-working.)? However, businesses “doggy-paddling” or merely “treading water” should probably be best avoided for the time being at least?
Alternatively the tuck-ins could be, after a little investigating and negotiating be integrated into a larger trade (“core” business) competitor – in return for equity in the “acquiring” (trade competitor) firm.
The strategic objective is to keep such small firms, post “acquisition” operating and thereby, to some extent, “cushion” the local/regional economy – after a period of consolidation, proceed to grow.
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Kip
The EBO Guy
…Acquiring businesses for employees
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