Size, sector, recurrence, and hidden risks. The four filters that determine whether a company can be sold or not.
Last week I was on the Outliers podcast with Joseph Gelman, talking about M&A from end to end. A long hour where we covered almost everything: why companies are sold, who the buyers are, how pricing is set, what due diligence is, and why deals fall apart.
If you want to watch it on video, here it is:
But if you’re here, in the newsletter, and don’t feel like watching the video right now, I’ll walk you through some of the key points I made, expanded a bit, without the pace of a conversation and without Joseph interrupting me.
Why 95% of companies that contact me are not in a position to be sold
This is the reality that surprises people the most. At Bondo Advisors, out of 100 calls/emails we receive, we only make an offer to two or maybe three companies to take into a process. The rest are either too small, in sectors where there are no buyers, or have structural issues that would derail any process.
The most common problem is size. A company with less than €4–5 million in sales is very difficult to sell in a formal process. Not because being small is inherently bad, but because for the buyer, acquiring is an enormous effort. It usually means a one-year process, €50,000–€100,000 in due diligence if done properly, €30,000–€50,000 in lawyers for the SPA (in small deals), internal teams involved… all of that to buy something that barely moves the needle. It doesn’t make sense for them.
The second most common issue is sector-related. A chain of five tapas bars in Andalusia, with €4 million in revenue and €1 million in EBITDA, is a perfectly good business. But there are no buyers for it. It is a craft business, highly people-dependent, difficult to scale and integrate. The buyer that looks for that kind of asset simply does not exist in the mid-market.
Buyers are not all the same, and that matters more than you think
In the conversation with Joseph, I made a distinction that I think is fundamental and that entrepreneurs often misunderstand.
There are two types of buyers: strategic and financial.
The strategic buyer is another company. It buys because it sees synergies. It has an industrial plan behind it. It believes your company, combined with its own, is worth more than the sum of the parts. In essence, when it makes you an offer, it is running a spreadsheet where it adds your cash flows to its own, adds expected synergies, and discounts everything at a rate it considers reasonable.
The financial buyer is a private equity fund, a family office, a search fund, or another vehicle that buys with the idea of selling at a higher price in four or five years. It does not buy for synergies. It buys for multiples and growth potential.
The practical difference for the seller is that the strategic buyer usually pays more (almost always) when real synergies exist. But it is also more complex to manage. It has its own team, its own lawyers, its own internal agendas, and it can walk away for reasons that have nothing to do with you.
How pricing is really set
This is what I get asked the most, and in the interview I tried to explain it as honestly as possible.
The offer you receive as a seller is usually expressed as an EBITDA multiple. They tell you: “We pay 7x EBITDA” or “We pay 9x EBITDA”, and that becomes the price. But that number is actually a translation of a more complex calculation the buyer has done before even sitting down to negotiate.
What the buyer has really done is project your cash flows 5 to 10 years out, estimate how much you will grow, calculate how much it will cost to run the business, add (if strategic) synergies, and bring everything back to present value. Then they compare that number with your asking price and decide whether it is worth it.
The EBITDA multiple in the offer is just the standard way of communicating that result. It is not the starting point for the buyer; it is the endpoint.
And what drives that multiple up or down? Three things, fundamentally:
The sector. Tech and software companies trade at higher multiples than industrial businesses because they require less reinvestment and have more recurring revenue. An industrial company that constantly needs to invest in machinery has EBITDA that does not fully reflect its real cash generation.
Recurrence. Buyers want predictability. A company where you can look at the last three years and see customers renewing, stable revenues, no major concentration… that company inspires confidence, and confidence translates into higher multiples.
Size. A larger company is worth a higher multiple than a smaller one, even within the same sector. Not just because of volume, but because it is more robust. It depends less on two or three key people. It has more systems. It is harder to break. That is why funds do roll-ups: they buy small companies at 5–6x, combine them, and sell the group at 9–10x. The business is in that gap, in that multiple arbitrage.
The sectors worth pursuing (and the ones that aren’t)
If you ask me what kind of company I would like to get a call from this week, the answer is simple.
Technology, software, and recurring revenue businesses. That is where there are more buyers, more liquidity, and more appetite. These are the sectors we work in at Bondo, and there are reasons for that.
There are also sectors where the conversation ends quickly. Hospitality and restaurants, for example, unless you have a large chain with real estate assets. Mature industries with no growth. Companies heavily dependent on one or two individuals. Craft businesses that cannot be replicated.
It’s not that they are bad companies. It’s that there are not many buyers for them right now—and without buyers, there is no price.
By Joshua Novick - Bondo Advisors
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