Seven Signs of a Healthy Denver Business Acquisition

COVID may not be behind us, but companies are certainly ready for it to be. We’re seeing a steady increase in Denver business acquisitions, and we expect that trend to continue. If you’re contemplating purchasing a company, it’s more important than ever to understand exactly what you’re getting into—and what shortcomings your deal partner has, because they all have some. It’s easy to be blinded by flashy marketing or big hopes for the future, but how can you truly assess whether a company is a healthy acquisition target? Here are seven signs to look for.

A Healthy Balance Sheet

Strong earnings coupled with minimal debt point to a company that has consistently been well run. This makes it easier for you to take the reins, without any unpleasant surprises cropping up.

Significant Growth

Ideally, you’ll find a business that can boast significant growth over time—ideally in the double digits each year.

A Clear and Unique Product

If the market is already flooded with products similar to those offered by the company you intend to buy, your purchase is a major gamble. Instead, you want a product that is an industry leader, services that are uniquely positioned, or a product that is impossible to get elsewhere.

Recurring Revenue

Recurring revenue is guaranteed revenue, and it offers significant value. The most valuable companies are those with 30% or more of their revenue in a recurring form, such as subscription services.

Assimilation

For an M&A transaction to offer the hoped-for return on investment, the two businesses must be prepared to merge. This requires sharing key values, culture, people, and operating principles. To ensure a good fit, begin planning integration from day one, rather than just blindly hoping it will take care of itself when the time comes.

Revenue Streams

The more revenue streams a business has, the more risk and disruption-proof it is, especially in an increasingly uncertain financial market. Look for companies that are not excessively dependent on a single client, and know that those with multiple revenue streams are inherently more valuable and safer investments than comparable alternatives.

A Plan for Growth

What’s your plan for running the business you intend to acquire? If you’re hoping to grow it and make it more profitable, you have to have a plan for doing so that extends beyond hope. Working with the right advisory team can help you devise a realistic plan that offers an exceptional return on your investment.