virtual
merger
A small stand-alone company faces the challenge of having proportionally very few buyers to acquire it. If it does happen to find a suitor, the likelihood is that the purchase price multiple (companies are usually priced at a multiple of profits or earnings) that a buyer is willing to pay for the company will be proportionately small as well.
A virtual merger is created when several independent companies enter into a contractual arrangement which is functionally, but not legally, equivalent to a merger. In doing so, each of the companies contractually agrees to become part of a larger notional group of companies in order to take advantage of opportunities that are not otherwise available to them as small individual entities. Despite this agreement, the underlying ownership of each company does not change.
A virtual merger does not, unlike a traditional merger, integrate any of the ‘merging’ companies into a group. Instead, each of the companies remain independent of each other. So, from an ownership and operational perspective, nothing changes. Grouping several companies together in this manner is an efficient way of quickly achieving scale. Having that increased scale will make the virtual group much more attractive to a larger pool of potential buyers – who will pay a premium for that scale. Therefore, on exit, the owners of each company in the virtual group can expect to receive a higher price that might otherwise only be achieved by means of exceptional organic growth. Thus, the net result of the virtual merger is an exit price that is maximized for the entrepreneur and done in a fraction of the time of growing a business organically!
A virtual merger has several advantages over standalone independent companies:
Attractive to a much larger buyer pool.
Buyers will pay a premium for a group of themed companies.
Faster way to increase purchase price as opposed to waiting for organic growth.
Ability to cross-sell within the themed group.
Shared synergies and economies of scale.
Increased earnings and profits.
Easier to raise meaningful amounts of capital for a group of themed companies.
Admission Criteria:
Stable management team.
Minimum annual turnover of $500,000.
Minimum annual EBITDA of $100,000.
Low debt levels - no borrowing other than for working capital.
Sector fit for the merger group.
Full commitment to the concept of the virtual merger from all existing shareholders.
Quadra will work together with contacts in its extended network to procure a sale of each virtual group within 12 to 36 months of the group’s creation.
Please get in touch at: info@quadracapital.com.