Buy Then Build

Deibel, who has acquired several small companies, argues that buying an existing business is a better route to entrepreneurship than starting one, and sets out how to do it.

The argument rests on risk and time. A startup must find a product, find customers, build operations and reach profitability, and most fail at one of these. An existing profitable business has already done all of it, so the acquirer begins with revenue, customers, employees and cash flow, and can direct effort at improvement and growth rather than at survival. He calls this acquisition entrepreneurship and distinguishes it from both venture-backed startup and from passive investment, since the buyer intends to operate.

The practical content covers the process. Deibel explains the market for small businesses, which is dominated by retiring owners with no succession plan, and argues that the demographic wave of these owners creates persistent supply. He covers deal sourcing through brokers and direct approach, the assessment of what makes a business acquirable, particularly the degree to which it depends on the owner personally, which is the single most important variable. He covers valuation using multiples of seller's discretionary earnings, the structuring of a transaction using Small Business Administration lending in the United States, seller notes and earnouts, and the diligence process including quality of earnings, customer concentration and the reasons the seller is selling.

He is direct about the constraints: the buyer must be able to run the business, the financing structure requires personal guarantees, and the transition period after closing determines whether customers and employees stay.

The book is oriented entirely to the United States, and the Small Business Administration financing structure it depends on does not exist elsewhere. It is practical rather than analytical, and Deibel's own record is the evidence.