Capitalization Rates For Business and Real Estate Transactions

Here is a video that shows how real estate investments compare to businesses investments and how they are measured. One can see the big difference in typical market valuations by looking at the capitalization rates, or cap rates, which are very different between the two. Cap rates, which are used more in real estate, correspond directly with our multiples in business...

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What Should I Buy: A Big Company or Small?

Here is a problem I see a lot. A first time buyer is not sure whether he should go big or small when he buys his first company. He doesn’t know what he should be looking for. The first impulse is to raise capital and buy something at the $10-$20 Million level. Let’s define this as a big deal although we know there are much bigger ones out there.. Now I have been down this road many times and had to go back to square one because I did not have my head in the right place. What does it take to buy a big deal at this level? Let me explain it. First, you have to source the big deals. This means you need to have enough credibility to get in the door and obtain the offering documents. This by itself is a more difficult process at the higher level because the gatekeepers (brokers) are tougher on the screening. You will often be interrogated to make sure you can pull the deal off. Now I have been through this process many times and can safely say this is exponentially more tedious at the $100 Million sales level than at the $10 Million level. At $10 Million you can usually get in the door without much problem and at least look at the deal. Second you have to get...

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