How do I find and acquire other firms to grow?

Start from the gap, not the listing

The buy versus build chapter of the 2020 book describes how strategic acquirers decide: they are usually filling a gap, and they weigh buying against building on time, cost and probability of success. It describes urgency as the deciding factor, with a large consultancy buying cybersecurity firms because the gap was too urgent to build. The grow through acquisition answer on this site covers that decision in depth.

As an inference, the search should start from that gap. Write down what the acquisition must give you, such as a capability, an industry, a geography, a client base or a team, and what it must not bring with it. A firm that happens to be for sale is not a target until it fills the gap better than building would.

Build the market map from the buyer side

The universe of buyers chapter tells a seller, working with an investment banker, to build a market map that highlights all the firms in the space and the firms in adjacent segments that might want to be in it, and to make the list exhaustive. Its example is a bookkeeping boutique whose best buyers turned out not to be other bookkeeping firms but investment advisers, who had learned that keeping the books for a client kept that client from leaving.

As an inference, a buyer can build the same map in reverse: every firm that fills your gap, including firms in adjacent markets that do the work under a different name. The bookkeeping example shows why the obvious candidates are rarely the only ones. The chapter also notes the supply side of the equation: when many similar firms are available, prices fall. Knowing how many firms like your target exist tells you how much leverage you have.

The chapter also tells sellers to add the private equity firms active in their segment to the map. As an inference, a buyer should map them too, as competitors for the same targets. The exit essay describes large strategic buyers now acquiring aggressively because AI is moving faster than they can build, so the best targets in some niches will have more than one suitor.

Write a rationale for each target

The chapter tells sellers to develop a custom strategic rationale for each possible buyer: opening a new market, strengthening a value proposition, competing better against rivals, diversifying revenue, solving client concentration or supporting higher prices. As an inference, write the same rationale from your side for each target. If you cannot say in two sentences why this firm, rather than the next one on the map, makes your firm more valuable, it is not yet a target.

Screen before you engage

The de-risking chapter of the 2020 book lists what makes a boutique quick or slow to buy: five years of audited financials and tax returns, industry-standard accounting, few add-backs, personal finances separated from the business, no lawsuits, industry-standard contracts with clients, employees and suppliers, and regulatory compliance. It tells the story of a media buying firm that never sold during a roll-up because its books were tangled with personal expenses, and the acquirers simply bought cleaner firms instead.

The cash flow chapter shows the Capital 54 team screening on project-level cash flow, passing on a commercial photography firm because cash flow varied so much from project to project that the delivery model was clearly not standardized. The intellectual property chapter, as the acquisition answer on this site describes, warns that a firm without real intellectual property is a body shop you cannot leverage.

As an inference, use these as a first screen: clean financials, stable project economics, real intellectual property and standard contracts. Each failure is either a reason to pass or a cost to price in.

Check what the operating model brings with it

The exit essay describes exits across three operating models and says the model of a firm determines how cleanly value transfers. In labor-based firms, revenue is tied to people, clients are loyal to individuals, and the founder is the clearinghouse for decisions and relationships. Client outcomes after a sale are driven by client concentration and founder dependence in client relationships, and churn spikes most often in labor-based firms. It also warns that labor-based firms surface unresolved partner tension at the point of sale.

As an inference, a buyer inherits all of that. Before price, ask who holds the client relationships, how concentrated the revenue is, what happens to delivery if the founder leaves, and whether the partners agree on the sale. The acquisition answer on this site adds culture fit as the primary risk.

Approach through someone credible

The universe of buyers chapter makes a point about outreach. The bookkeeping founder could not have approached buyers himself credibly; the banker had the reputation to get calls returned. As an inference, the same applies in reverse. A founder writing cold to another founder about buying their firm can come across as opportunistic. An advisor, a mutual relationship or an existing partnership often opens a better first conversation, and partnerships can let both sides test the fit before a deal.

The 2020 book is also clear on advisors at the sell side: hire the best ones money can buy. As an inference, a first acquisition is a reason to do the same on the buy side.

What we do not prescribe

Collective 54 publishes no target list, sourcing service, valuation method for targets or acquisition checklist, and gives no legal, tax or financial advice. The published positions are buy versus build on time, cost and probability of success, the exhaustive market map including adjacent segments, the supply side of pricing, a custom rationale for each counterparty, the de-risking criteria, project cash flow as a test of standardization, intellectual property as the line between an asset and a body shop, and the operating model, client concentration and founder dependence as what transfers with a firm.

When this answer flips

If the gap is urgent and a strong target is clearly available, as an inference, a broad map matters less than moving before a competitor does.

If your own firm is labor-based, fix that first, because the acquisition answer on this site warns that a labor-based target brings its fragility with it and two fragile firms do not make a durable one.

And if the main goal is talent rather than clients or capability, the hiring answers on this site may be a cheaper path than buying a firm.

The short answer

Start from the gap the acquisition must fill, then run the sell-side playbook from the 2020 book in reverse. Build an exhaustive market map of firms that fill the gap, including adjacent segments, and note how many similar firms exist, because supply sets price. Write a two-sentence rationale for each target. Screen on the de-risking criteria: clean financials, few add-backs, no litigation, standard contracts, stable project cash flow and real intellectual property. Check what the operating model carries with it, especially client concentration, founder dependence and partner alignment, since the exit essay says those transfer with the firm. Approach through a credible intermediary or an existing relationship, and hire the best advisors you can afford.