How to position your company for a an acquisition!
With decades of facility service divestiture and acquisition experience, our team has spent countless hours working with entrepreneurs and PE firms on the buy and sell side. Our methodology is proactive; albeit, we have discovered that while no two buyouts are completely alike, there at least seven key factors that all companies should consider when positioning themselves for an acquisition:
1. Start preparing years before you want to sell. Two plus years if allowable!
True, advance preparation isn’t always possible, but quick sales usually generate lower multiples and non-favorable purchase terms. Not only will planning help you target your firm to strategic buyers, but likely Increase the enterprise value, hence making your business more attractive. Take the time to address all of the small details which, if improved upon, will make your business sellable. While acquisitions can sometimes happen very quickly, most buyers discount recent reductions in a company’s cost as a firm who is trying to maximize its value, and some buyers see as a sign to perform a more thorough due diligence, and it can take months for the entire process to close — if it does close at all.
2. Before you shop your company around, finding a reputable broker can help, but not as much as having a clear company value proposition that differentiates you from the other companies for sale.
No one wants to buy a company before it’s ready. Positioning your firm not only means the financials are in order, but strategic marketing, value proposition to customers, excellent operational methodology, supported by a differentiated sales and marketing focus will offer you the greatest returns. Document your policies and procedures so that whoever takes over will immediately know how to run the business. Understanding the buyers’ market, either to someone from the industry or a PE, determines how a company is viewed and what are the keys components of value to each respectively.
Ask yourselves these simple questions:
- Is your job mix focused, how many vertices do you serve?
- Is operations and sales aligned?
- Has the decision matrix been pushed down through the organization?
- Are your process and systems well documented?
- Besides company financials do you have operational job costing reports, dashboards for operations.
- Can you replicate your successes over many markets? If not, why?
- What differentiates you from your competitors?
- Do you have the right customers that allow you to upsell, and or expand service disciplines?
Hire great accountants and lawyers to make sure your business is in order. Build strong teams; invest in systems to track key metrics. Build the business to run without you. Use this preparation time to make yourself expendable or a value-add to ensure continuity for a long-term success.
3. Reflect on the past two years.
What changes, trends or differences has the business experienced? Are your sales trending up or down? Are your customers loyal or is there a lot of churn? The most attractive companies are predictable and steady. If your buyer is convinced that he or she can assume operations and continue the same or Increased EBITDA, then you’re in a great position. Even with companies’ valuation is based on trailing twelve months, It’s the forward-looking margins they are willing to pay over market numbers for.
4. Focus your company so that someone will want to buy it.
Attractive companies are profitable and reliable. You’ll get the most money from the sale of those types of businesses. If you’re trying to sell your company because you’ve been under-earning and you don’t really know how to run it well, you may find it difficult to attract a buyer willing to invest the time and attention to turn it around.
5. Determine what you’re really selling.
There are several ways to value a company. Are you selling your customer list, or your locations or recurring revenue? Sure, you have a name, a brand and some customers, but most of that has very little value. What would an investor be interested in? Focus on that and make it as attractive as possible.
6. Look for strategic fit in a buyer.
What is your company particularly good at? What does it need from a buyer? Is your culture laid back and collegial? If yes, that may not gel well with a severe corporate environment. Does your buyer have a vision like the one the company was been built on? Poor fits between sellers and buyers turn into drains on resources, time and morale. Bad fits usually spell disaster for everyone involved, accompanied by a loss of revenue, customers, employees and time. Be willing to walk away from a buyer who seems like a poor fit.
7. Be prepared to air your dirty laundry during the due diligence process.
Take a good hard look at systems, culture, protocols and personnel. position your firm to be attractive to your targeted buyers, as we suggested in step 1, you won’t have any dirty laundry to air, but you will need to expose yourself and your company. So do the work necessary to make yourself as transparent as possible with potential buyers.
These seven steps will help you make your business more attractive for acquisition. And that’s the whole point, right?