Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game

by Walker Deibel

An existing company with legacy systems and an outdated path to success has just as much need for innovation as a startup does. As a result, those who can recognize and execute this can capitalize on the benefit of an existing platform to build in the “new company” they wish to run.

It’s the combination of innovation and existing customers that wins in the war of disruptive technologies.

While considering acquisitions as an investment, keep three fundamentals in mind: return on investment, margin of safety, and upside potential.

When evaluating a potential acquisition, the cash flow the company generates is what sets the sale price of the company. It’s the driver behind the valuation and ultimately what you’re paying for. Anything outside of the company’s ability to generate cash is commonly not worth paying for at all. At its core, what you are buying is an asset that provides cash flow.