Imagine the ideal
Adopting an investor’s mindset when you’re looking at any acquisition can be helpful.
“You’re investing a dollar,” Bleyzer says. “Over the next five years, can you turn this dollar into 5, 6, 7, 8, 10?”
That profit results from the risk/reward equation. At SigmaBleyzer, the reward side of that equation gets a shorter time investment.
“We spend some time, but much less time, on understanding the upside potential,” Bleyzer says. “You first need to figure out [if] this is the right business — it’s not obsolete, it’s in the right area, there are companies of a similar footprint that are several times larger, that means that this company could probably grow several times.”
Assessing the potential reward means uncovering the best-case scenario.
“You go in with the assumption that you can create the best-in-class enterprise,” Bleyzer says. “Obviously, you have some assumptions and qualifiers on how you’re going to get there. But you don’t go in with a plan to create another mediocre enterprise.”
Now, that doesn’t mean making idealistic wishes to turn a small company into a Fortune 500 in three years. You’re aiming for achievable success within your geography or scale. To paint that picture, look at nearby success stories within your market.
“Competitor analysis is the key,” Bleyzer says. “Who else is in this space and what have they achieved? Who are the pacesetters benchmarking the best in class? All of this helps you determine: Can you do something different? Are they in a different geography? Are they in a slightly different product mix? What will allow you to compete effectively with the best in class?”
Bleyzer even goes to industry experts and other advisers to ask how reasonable his assumptions are. But he doesn’t spend too much time on this step before moving on.
“If the potential is relatively unexciting, then you don’t really need anything else. That’s just not a good opportunity,” he says. “Now, on the other hand, if you feel, under the right circumstances, it could be (five times the value), then that’s sufficient for this stage of your analysis.”