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5 Tips For Seizing One Of The Greatest Investment Opportunities Of Our Lifetime – Forbes

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With all the uncertainty that 2020 has brought us, figuring out where to invest your money has become increasingly difficult to figure out. Most financial advisors would tell you to invest in publicly traded companies or mutual funds, but both are heavily overvalued right now.

Thankfully, there’s a better alternative out there: buying a small business.

One of the best books I’ve read recently is Walker Deibel’s Buy Then Build. Walker, who’s the Founder of Acquisition Lab, takes readers through the process of acquisition entrepreneurship. As the title suggests, this process is all about buying an existing business and growing it from 1 to 100, rather than trying to start one from scratch and growing it from 0 to 1.

Look at these mind-blowing statistics about businesses over the next decade:

  • 45% of the economic engine of the U.S. resides with the Baby Boomers.
  • As Baby Boomers retire, over $10 trillion in business value will change hands.
  • Each year, about 418,000 businesses under $1MM in revenue will need to be sold.

There’s a reason that Walker calls acquisition entrepreneurship one of the “greatest investment opportunities of our lifetime.” We’ve hit the tipping point with online marketing, but there’s a whole other asset class out there of businesses that found product-market fit before the internet existed. As those owners look to sell and move on, you can be there to take the reigns of that business and continue to grow it. It’s a simple process, but it’s not easy.

In his work helping buyers find businesses to purchase, Walker knows what works best and what doesn’t. Here are his five biggest tips for getting into acquisition entrepreneurship.

#1: Know What You Bring to the Table

Before you ever start searching for a business to buy, you need to understand yourself. I’ve written before about your Investor DNA, which is where your abilities and skills overlap with your interests. You don’t want to buy a business that doesn’t match your DNA. For example, I know that my investor DNA doesn’t include real estate, so I’m not looking at those businesses.

As we’ll see in just a moment, it’s important to look at yourself as the CEO of the company you’re considering buying. What do you bring to the table? Being able to answer that question will help narrow your search to only the businesses that would be a good fit for you.

Walker says the best thing he did after getting his MBA was NOT running out to buy a business. Instead, he worked for someone else to discover where his passion and skills were. He “broke things on someone else’s dime” before he bought his first business.

Sure, you might get paid less than you want going this route. But you’re getting paid in insight and on-the-job education, which will pay off as you move to the next phase.

#2: Sell Yourself, Don’t Look to Be Sold

Once you know yourself, you can sell yourself to business owners, which is something that so many buyers get backwards. Walker says most buyers approach this process like investing in a startup. They (metaphorically) put their feet up on the desk and ask, “Why should I invest in you?” But acquisition entrepreneurship works the opposite of how angel investing does.

This isn’t “sell me on the opportunity, then I’ll invest my money.” Instead, look at the process like you’re interviewing to be the CEO of the company. In most cases, the seller built their business from scratch and it’s their baby. It’s put their kids through college. They love this business.

Yes, money is a big part of getting a deal worked out. But sellers are also going to make decisions based on the qualitative things that they see. Nobody wants to sell their business to someone they think is going to run it into the ground. So, make sure you do everything you can to instill confidence in you as the buyer and your ability to grow the business.

#3: Work with a Sense of Urgency

Walker says nine out of ten people who start looking to buy a business never pull the trigger. The mindset of “sell me, then I’ll invest” mentioned above is part of the problem. The other part is that they don’t work with a sense of urgency. Their general attitude tends to be, “This will happen when it happens. I’m waiting for that perfect business to appear.”

This thinking does nothing but stop you from taking action. Walker compares it to when you’re a kid and you think there’s only one person out there for you to marry: your soulmate. When you get to be 40, you realize there’s probably a dozen or so people with whom you could make a marriage work. (As a romantic, I want it noted I disagree with this notion!)

Instead of waiting for things to happen, work with urgency. Tell yourself, “I’m going to buy a business in the next six months.” With that kind of aggressive timeline, you’ll have to find a business within ninety days in order to start the closing process and wrap up on time.

Walker has seen it countless times: people who operate like that find a business to buy.

#4: Do Your Due Diligence

Once buyers get to a letter of intent (LOI), many of them make a fatal mistake: they stop doing their due diligence. They already know they’re going to buy the business, so they take a laissez-faire approach to financially, legally and operationally vetting the company.

Don’t get lazy in the home stretch, because when you do, here’s what happens: you’ll get to the closing table and get cold feet. For a reason you can’t articulate, you won’t feel good about signing the paperwork. There’s a level of discomfort there you can’t get past.

That discomfort comes from not doing your due diligence! There’s always going to be a leap of faith when you buy a company, so you will feel some nerves. But when you jump in and do a thorough job examining every aspect of the company, you will be comfortable when it comes time to put pen to paper. Nervously excited? Sure, but not uncomfortable.

#5: Don’t Assume Ill Intent by the Seller

It’s safe to assume that 99% of people who are selling their business are not evil. They’re not trying to hide something, or get out the door before a tidal wave crushes them.

But many buyers make these assumptions about sellers. After all, if things are as good as the seller says they are, then why would they be selling the business?

Here’s why: entrepreneurship has a life cycle. If you’ve ever started a business, you know this to be true. You start one company, your growth reaches a steady point, and you start planting seeds somewhere else. At some point, you realize the seed you planted has the chance to turn into something really big, but to get it there, you need to sell the business you have.

So, you exit the company and let someone else come in who can take what you’ve built to the next level. The same thing will happen with the business you’re leaving this one to focus on.

And that’s not to mention that some business owners want to retire! They want to enjoy the fruits of their labor and step back from the day-to-day operations. As we saw in the introduction, Baby Boomers control almost half of this country’s economic engine, and by 2030, all of them will be at least 65 years old (i.e. the age by which most people hope to be retired).

So, don’t assume ill intent by the seller. That’s a quick way to kill a prospective deal.

Where to Find Businesses

Be mindful of these five tips and you’ll be way ahead of the curve compared to other acquisition entrepreneurs. As you start to search for deals, I recommend working with a business broker like Walker, who could also be called an intermediary, investment banker, or M&A advisor.

There’s a lot of buzz out there about “proprietary deal flow” (i.e. finding off-market deals), but the truth is that trying to buy from someone who hasn’t spoken with a business broker is likely to be difficult because they’ll have an inflated sense of what their business is worth.

In Walker’s experience, it’s not uncommon for a business owner to assume their business is worth 20 times EBITDA (earnings before interest, taxes, depreciation and amortization). That’s true for publicly traded firms with a billion dollars in revenue, but for the million dollar in revenue companies you’re going to be looking to buy, it’s closer to 2.5 to 4 times EBITDA.

In other words: you can go shopping yourself, but be very careful.

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More China coal investments overseas cancelled than commissioned since 2017

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More China-invested overseas coal-fired power capacity was cancelled than commissioned since 2017, research showed on Wednesday, highlighting the obstacles facing the industry as countries work to reduce carbon emissions.

The Centre for Research on Energy and Clean Air (CREA) said that the amount of capacity shelved or cancelled since 2017 was 4.5 times higher than the amount that went into construction over the period.

Coal-fired power is one of the biggest sources of climate-warming carbon dioxide emissions, and the wave of cancellations also reflects rising concerns about the sector’s long-term economic competitiveness.

Since 2016, the top 10 banks involved in global coal financing were all Chinese, and around 12% of all coal plants operating outside of China can be linked to Chinese banks, utilities, equipment manufacturers and construction firms, CREA said.

But although 80 gigawatts of China-backed capacity is still in the pipeline, many of the projects could face further setbacks as public opposition rises and financing becomes more difficult, it added.

China is currently drawing up policies that it says will allow it to bring greenhouse gas emissions to a peak by 2030 and to become carbon-neutral by 2060.

But it was responsible for more than half the world’s coal-fired power generation last year, and it will not start to cut coal consumption until 2026, President Xi Jinping said in April.

Environmental groups have called on China to stop financing coal-fired power entirely and to use the funds to invest in cleaner forms of energy, and there are already signs that it is cutting back on coal investments both at home and abroad.

Following rule changes implemented by the central bank earlier this year, “clean coal” is no longer eligible for green financing.

Industrial and Commercial Bank of China, the world’s biggest bank by assets and a major source of global coal financing, is also drawing up a “road map” to pull out of the sector, its chief economist Zhou Yueqiu said at the end of May.

 

(Reporting by David Stanway; Editing by Kenneth Maxwell)

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Bank of Montreal CEO sees growth in U.S. share of earnings

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Bank of Montreal expects its earnings contribution from the U.S. to keep growing, even without any mergers and acquisitions, driven by a much smaller market share than at home and nearly C$1 trillion ($823.38 billion) of assets, Chief Executive Officer Darryl White said on Monday.

“We do think we have plenty of scale,” and the ability to compete with both banks of similar as well as smaller size, White said at a Morgan Stanley conference, adding that the bank’s U.S. market share is between 1% and 5% based on the business line, versus 10% to 35% in Canada. “And we do it off the scale of our global balance sheet of C$950 billion.”

($1 = 1.2145 Canadian dollars)

 

(Reporting by Nichola Saminather; Editing by Leslie Adler)

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GameStop falls 27% on potential share sale

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Shares of GameStop Corp lost more than a quarter of their value on Thursday and other so-called meme stocks also declined in a sell-off that hit a broad range of names favored by retail investors.

The video game retailer’s shares closed down 27.16% at $220.39, their biggest one-day percentage loss in 11 weeks. The drop came a day after GameStop said in a quarterly report that it may sell up to 5 million new shares, sparking concerns of potential dilution for existing shareholders.

“The threat of dilution from the five million-share sale is the dagger in the hearts of GameStop shareholders,” said Jake Dollarhide, chief executive officer of Longbow Asset Management. “The meme trade is not working today, so logic for at least one day has returned.”

Soaring rallies in the shares of GameStop and AMC Entertainment Holdings over the past month have helped reinvigorate the meme stock frenzy that began earlier this year and fueled big moves in a fresh crop of names popular with investors on forums such as Reddit’s WallStreetBets.

Many of those names traded lower on Thursday, with shares of Clover Health Investments Corp down 15.2%, burger chain Wendy’s falling 3.1% and prison operator Geo Group Inc, one of the more recently minted meme stocks, down nearly 20% after surging more than 38% on Wednesday. AMC shares were off more than 13%.

Worries that other companies could leverage recent stock price gains by announcing share sales may be rippling out to the broader meme stock universe, said Jack Ablin, chief investment officer at Cresset Capital.

AMC last week took advantage of a 400% surge in its share price since mid-May to announce a pair of stock offerings.

“It appears that other companies, like GameStop, are hoping to follow AMC’s lead by issuing shares and otherwise profit from the meme stocks run-up,” Ablin said. “Investors are taking a dim view of that strategy.”

Wedbush Securities on Thursday raised its price target on GameStop to $50, from $39. GameStop will likely sell all 5 million new shares but that amount only represents a “modest” dilution of 7%, Wedbush analysts wrote.

GameStop on Wednesday reported stronger-than-expected earnings, and named the former head of Amazon.com Inc’s Australian business as its chief executive officer.

GameStop’s shares rallied more than 1,600% in January when a surge of buying forced bearish investors to unwind their bets in a phenomenon known as a short squeeze.

The company on Wednesday said the U.S. Securities and Exchange Commission had requested documents and information related to an investigation into that trading.

In the past two weeks, the so-called “meme stocks” have received $1.27 billion of retail inflows, Vanda Research said on Wednesday, matching their January peak.

 

(Reporting by Aaron Saldanha and Sagarika Jaisinghani in Bengaluru and Sinead Carew in New York; Additional reporting by Ira Iosebashvili; Editing by Sriraj Kalluvila, Shounak Dasgupta, Jonathan Oatis and Nick Zieminski)

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