One reason I travel first class when the upgrade cost differential isn’t too high is the opportunity to learn from travellers who also sit in the executive seats. Of course, this doesn’t happen all the time — there’s an unwritten code to respect privacy and only engage in conversation when there is mutual interest. But sometimes you can find some gems, even when your seat-mate is in an unrelated industry.
This happened yesterday evening. The travelling companion described his work in acquisitions for a software business, part of a publicly traded company that isn’t that well-known.
He made three points:
- The best opportunities are with businesses serving the enterprise (business-to-business) or government markets, and there are lots of opportunities in the U.S. healthcare/insurance sector;
- The businesses his organization acquires are small owner-founder software companies with solid recurring revenues. In other words, they often earn money through subscription models where clients pay monthly service fees. This recurring revenue can be monetized and calculated for a ROI;
- The acquiring company pays cash, and leaves existing management in place.
These observations provide clues to anyone who wishes to build a sustainable, valuable business. If you have a marketing/business development system that allows you to attract and retain a diversity of clients, and you can systematically manage and maintain this process, you’ll have a business that can grow, generate reasonably reliable income, and be an ideal “acquisition target” from larger organizations observing the business’s annuity value and therefore the return-on-capital potential.