Carl Allen introduces the “bolt-on acquisition” model, explaining how strategically buying another business can significantly increase the valuation of an existing business. Starting with an example, he calculates the revenue, EBITDA, and valuation of a hypothetical business worth $375,000. By acquiring a similar business and integrating it, Carl demonstrates potential value growth by applying cross-selling and cost synergies. Cross-selling allows the businesses to share products with each other’s customers, and cost synergies reduce overlapping costs, boosting profitability without additional marketing expenses.

Carl emphasizes a conservative approach to these synergies, assuming 20% in both cross-selling revenue and cost reduction. He shows that these changes, once implemented, can elevate the combined EBITDA from $150,000 per business to $768,000, enhancing margins and making the combined business more valuable. As a result, the business gains a higher valuation multiple due to its increased scale and profitability.

With enhanced performance, the merged business achieves a $3 million valuation. Carl shows how, even with debt repayment on the acquisition, the net valuation increase within one year is substantial. He highlights the potential for a 7.29x cash-on-cash return through this strategy, driven by the acquisition and efficient integration of the new business.

The video concludes with Carl reiterating that bolt-on acquisitions provide exponential growth without organic expansion. He encourages viewers to consider strategic acquisitions, underscoring that borrowing to buy and streamline businesses can maximize value.

Full Transcript:

Hey, guys. Carl Allen. Hope all is well. Gonna do a quick video for you to show you what happens when you start doing bolt on acquisitions, which is buying another company that’s strategically aligned to the one you’ve already got.

I wanna show you how you can get explosive growth in valuation. Right? So let let’s call this the bolt on model. I’m gonna do it right in front of your eyes.

I’m gonna literally build the model right in front of you. It’ll take me less than ten minutes. So let’s, let’s put this in the middle, and then let’s blow this up so I know you guys can can see it. Right.

So bolt on model.

Here we go. So we’re gonna start with your existing business. Right? So let’s say you’ve got an existing business, and then we’re gonna buy one acquisition.

K?

So your existing business, let’s say we’ve got revenues.

Let’s say it’s a million dollars.

1. So that’s our revenue.

And then, let’s look at your, EBITDA. So let’s say your EBITDA is fifteen percent margin. So you’re doing a hundred and fifty thousand dollars of profit. K?

So we know our margin is fifteen percent happy days. Right? So then we know that the total costs in that business, which would be cost of goods sold or COGS, and then SG and A or overheads, can be the difference between the two. Right?

So it’s gonna be eight hundred and fifty thousand dollars. Right? So let’s, let’s start formatting the cells here. So let’s go financial.

In fact, let’s let’s go financial on all these things. Right? So let’s let’s make it really nice and nice and posh as we sometimes say in the UK, although I’m in Florida right now as you as you know. So so let’s say that’s our business, that we currently own.

And then what would that be worth in the market? Right? So the multiple for that business, would probably be two and a half x. Right?

So the valuation of that business is gonna be two and a half times the one fifty. So it’s three hundred and seventy five thousand dollars. That is the value of that business. Okay?

And then let’s say we go and we buy exactly the same business. Right? So we’re gonna buy exactly the same business, which is doing a million dollars, million dollars.

Total cost, eight fifty. EBITDA is fifteen percent. The margin is fifteen percent. EBITDA is one fifty. Multiple, two point five.

And that’s gonna be another three hundred and seventy five thousand dollars to buy that business. Right? So now what we’re gonna do is two things. So the first thing that we’re gonna do is cross selling.

And then the second thing that we’re gonna do is cost synergies. Right? So if you’ll be wanna be really, really conservative, then you can download this model and play with it if you want. But if you wanna be really conservative, let’s say we’re gonna cross sell only twenty percent. So cross selling is where you’ve got product a and customer a, which is your existing business. This is here.

And then we’re buying business b, which has got product b and customer b. So now we can sell product a to customer b, and we can sell product b to customer a. And we can do that with no cost of marketing, no cost of customer acquisition because we own these businesses. So, like, we’ve got to go out and run Facebook ads or do a joint venture with somebody. You own both of those customers and you own both of these products now so you can cross sell. So if we’re gonna assume we’re only gonna cross sell twenty percent within the space of, say, a twelve month period, you might be closer to thirty or forty percent. Let’s do twenty just to be conservative.

So the cross selling is gonna be the twenty percent multiplied by the revenue of business a plus the revenue of business b. So twenty percent of two million dollars total is four hundred thousand dollars. Now for now, let’s assume we’re gonna sell that at the same margin. That’s not actually true.

Right? The margin’s gonna be a lot higher because we’ve got no marketing spend, and there’s loads of economies of scale that we can generate through this acquisition. But we’re gonna cover those in cost synergies. So right now, we’ve got fifteen percent of, of profit.

So fifteen percent of four hundred is sixty thousand dollars. So our total costs for that cross sell are gonna be three hundred and forty thousand dollars. K? Right.

Now let’s look at cost synergies. So when we do cost synergies, again, let’s assume twenty percent. So we’re gonna take twenty percent out of all the costs across these two businesses. And there’s gonna be economies of scale around cost of goods sold.

There’s gonna be economies of scale around overheads.

So you only need one CPA. You only need one attorney. You only need one ad account. You might combine two businesses together into one location. You’ve got one set of of of of lease costs, insurance, maintenance, utilities, all those different things.

Some employees, will leave from company b. They won’t like the new culture or whatever. So and you’ll find out that you’ve got existing people in your own business. You don’t need to replace them.

So you’re probably gonna get thirty, forty, fifty percent of cost synergies, but let’s assume it’s only twenty percent. So there’s no revenue, obviously, in cost synergies. And then what we’re doing is, basically, we’re adding up those three costs, and then we’re gonna multiply by the twenty percent negative. Right?

So it’s gonna be an add back. So it’s four hundred and eight thousand dollars is gonna be the total cost of the add back. And then we know that that’s our EBITDA because it’s gonna drop straight to the bottom line. The margin is irrelevant on this.

And then let’s see what happens to the the total. Right? So let’s look at the total now across both of those two businesses.

Now we’ve done this. So our total revenue is let’s just add all this up. Right? So our total revenue is two point four million. It does inform you, actually. Our total cost is one point six three two million.

Our total EBITDA, let’s just check that. Yep. Seven hundred and sixty eight thousand. Our margin now is gonna go up, right, because we’re getting all of those economies of scale.

So our margin is actually now thirty two percent. So we’re fifteen percent before, but we’re taking all those costs out and being super efficient. We’re now at thirty two percent margin. And then that business, the the sales added up, so we don’t have to worry about that.

But let let’s look at what this business could be worth. So you’re now at seven hundred and sixty eight thousand dollars of EBITDA, right, with thirty two percent margins.

You’re probably gonna be able to sell for at least a four times multiple, maybe a four point five times multiple. Normally, we’d like to see EBITDA at a million dollars before we pay five. So let’s pay a four times multiple.

Or let’s say that if we sell this business or we’re interested in what’s the business worth after twelve months, it’s gonna be four, four x. Right? So so four x, our seven six eight is three million and seventy two thousand dollars. Right? Now let’s say when we bought business b, we we paid for it one hundred percent seller financing, or we got all the debt outside from the external markets.

So twelve months afterwards, we’re probably gonna be carrying about nine tenths of that. Right? So let’s say you did it on a ten year deal. We’re probably gonna have about three hundred and thirty seven thousand five hundred dollars left of that loan to pay.

So our end valuation is simply that plus that. K?

So we’ve gone from having a business worth three hundred and seventy five thousand dollars. Let’s say that’s your existing business. You’ve just done one bolt on acquisition.

You’ve not even grown the core businesses actually within the first twelve months. That would add additional profit as well. All we’ve done is take business a and business b, and then we cross sold the products and services between the two yet kept the existing revenues of a and b the same. So flat organic growth year on year.

We’ve added twenty percent of cross selling, and then we’ve applied twenty percent of cost synergies. So now we’ve got a business doing two point four million, making seven hundred and sixty eight thousand dollars of EBITDA, so thirty two percent margin. It’s worth a four times multiple, which is three million and seventy two thousand. We subtract the debt that we’ve incurred, less the first year’s payment.

So three three seven five hundred. So our end valuation is seven hundred and thirty four thousand five hundred. Right? And we know what’s the cash on cash return over that period.

Well, we’ve increased our valuation by seven point three x within that first twelve month period, which is absolutely amazing. Right? So if somebody says to you, yeah, how how do I seven x my net worth? How do I seven x the value of my company within one year?

Let’s go buy another business. Just go buy another business, borrow the money to do it, integrate the two together, cross sell, take the costs out. It’s absolutely amazing. So I hope you found that useful.

I’ll just put a nice little, border around there. So let’s pretty this upright. I’m a bit of a model ninja. I used to work on Wall Street, so I’m, I’m a bit of a bit of a model guy.

I can do these, like, really, really quick.

So there you go. Seven point two nine x cash on cash return on investment. Hope you found that useful. If, you hit like and subscribe, you’ll get all the videos as I post them onto YouTube.

And if there’s a question that you’ve got burning in your head that you want me to answer for you through a model or through a whiteboard or a video in my car or some slides or whatever you want, just hit me up in the comment section. My team will get that, put it back to me, and I will do that video, especially for you. And I know it’s gonna add value to thousands of others as well. So have a great rest of your day, and I will see you soon.

Until then, bye for now.