From the September 2007 issue of Entrepreneur

Lately, Seth Lippert and Sergio Fernandez de Cordova have been on a shopping spree. It's not exactly what they set out to do, but the co-founders of New York City-based outdoor advertising company Fuel Outdoor LLC accessed millions of dollars to fly coast to coast to snap up their older, larger competitors--plus the billboards, employees and customers that those competitors have been amassing for decades.

In 2002, when the pair quit working for the media company at which they had met, Lippert, now 31, and Fernandez de Cordova, now 32, did not know that in the next year, they would launch a company that would change the face of outdoor advertising nation-wide. In fact, they struggled to secure more than $25,000 from an angel investor to purchase their first billboard lease: the side of a building near Madison Square Garden. For two years, the two men went door-to-door in Manhattan, learning the trade and growing as quickly as they could on a shoestring budget. Their eventual spate of acquisitions was not yet on their radar.

Faster Growth
"Many business owners never stop to consider an acquisition," says Ron Schinik, managing partner of CrownBrook Capital, an investment group that helps small businesses grow through acquisition. "Instead, they slavishly build their own company from scratch, adding customers one at a time. [But] it takes a long time to get your business to a point where you've created a lot of value that way. An acquisition strategy allows you to pick up employees or management, get product lines, add geography, and create synergies on the cost and production side."

By purchasing competitors rather than relying on organic growth alone, a company can grow bigger faster--and often become more profitable along the way. The key is recognizing the synergies of acquisitions and continued organic growth. Lippert says that Fuel expects the synergies it creates to double the organic growth rate of each property it acquires.

Bigger Vision
In their first few years of business, Lippert and Fernandez de Cordova proved they could turn a nice profit and grow at triple-digit rates annually. They started to see the possibilities of moving outside New York City. Lippert recalls with great clarity the moment he shared that vision with his board: "We wanted it all. [A board member] said, 'What do you want to do when you grow up?' and we said we wanted to grow a national company," he says.

By that time, Fuel was what people in the M&A industry call a "platform" company. The founders and executive team had a deep understanding of their industry; their systems and procedures were scalable; and their distribution and sales relationships were solid. Acquiring other companies that offered similar services started to look very attractive.

A good M&A strategy can work in a lot of industries, says Schinik. "There are guys that do it in the auto body industry, electrical contractors, plumbers and tree pruners," he says. "If you're in a fragmented industry, someone will realize that there's something to be had through an acquisition strategy." How do you know if an industry is ripe for an acquisition strategy? Says Schinik: "If you have a dozen competitors, maybe it's not so fragmented. If you have 200 competitors, it's highly fragmented."

Deeper Pockets
The one thing Fuel was missing is exactly what it found next: a financial partner with deep pockets. Fuel caught the interest of a private equity group with lots of cash and an urgent need to invest in high-margin, high-growth opportunities. Lippert, now president, and Fernandez de Cordova, now vice president of real estate, could provide a seemingly endless stream of acquisition opportunities in the highly fragmented but hugely profitable outdoor advertising industry. So even though it meant selling a majority interest of their company to the private equity group, the partners were sure they would end up with a share of a much bigger business.

A private equity group, or PEG, and a high-growth platform business are natural partners, says business broker Matt Bradbury, managing director of Business Acquisition and Merger Associates. Together they can grow faster and more profitably. "[PEGs] will look at almost any size acquisition," says Bradbury. "They're looking for the synergies, and they already have admin, executives and general expenses covered, so anything that would have been spent on that in the past is leveraged by the platform company."

Broader Reach
Of course, successful acquisition strategies are not about snapping up every available opportunity. Because Fuel borrows heavily to complete most transactions, the opportunity must have an exceptional return. Lippert says that Fuel will only consider acquisitions that can generate more than a 35 percent internal rate of return. "We review it as a board and make the decision if the risk and price [are] right," he says. "Each deal is done a little differently."

The other qualification for Fuel is a physical presence in one of the 10 largest U.S. markets. They have made purchases in eight of those markets, including Los Angeles, Miami and San Francisco.

"The primary driver for most business owners is geographic expansion," says Bradbury. But whether a business is driven by geography or not, acquisitions must fit into a larger business strategy. "Know who you are and where you are going," he advises. And get some professional help to identify all the attributes of a good purchase before you jump at the first opportunity. Despite the fact that Bradbury is a business broker himself, he says that "getting professional help" does not necessarily mean hiring a broker. "For the most part, it's hard to find a good broker. I'd say about 20 percent of brokers are pretty decent," he quips. Instead, look for someone who has both owned and acquired one or more businesses. A mentor who has seen the entire life cycle of an acquisition will be more valuable than a whole army of brokers, lawyers and accountants.

Fear and Greed
Even with a large equity fund behind you, making an acquisition strategy work is not always simple. The founders of Fuel recognized the need to have a veteran at the helm and hired an experienced CEO to help the company through difficult negotiations and the period of inevitable turmoil that comes with an acquisition.

"Being successful means working through fear and greed," says Bradbury. "Acquisitions are 80 percent emotion."

But the spoils go to the brave. A successful acquisition strategy can accomplish in a few years what might otherwise take a lifetime: A larger company--with lower costs and more profitable operations--may be just a purchase away. Fuel has used the strategy to become, in only four years, a hot brand in what is known as a rather stodgy and old-school marketplace. From a standing start in 2003, the company now has 47 employees and expects revenue of approximately $20 million this year.

"Adding a client or two is great for your business," says Schinik. "The problem is that M&A is actually a game changer. You're either the acquirer or the target."

David Worrell is author of the e-book Finding Funding.