Web Exclusive: Are you ready for an acquisition?

By |  July 10, 2017

Editor’s Note: For our July print issue’s 5 Questions (p. 80), we interviewed Michael Broder, owner of BHB Pest Elimination, New York, N.Y., about making his first acquisition this spring. He generously provided the following quiz for other pest management professionals wondering whether the time is right for them to buy in the industry, too:

Tri-County's Anthony Merk, left, shakes hands with Michael Broder.

Tri-County’s Anthony Merk, left, shakes hands with Michael Broder.

  1. Can you afford it? First and foremost, you need to be financially fit. Many companies feel anything that increases sales is worth the risk. I never felt that way. If you are not making money in your current business, simply adding sales is not going to magically change your financial situation. And on a weak financial footing, taking on new financial commitments could be unsustainable for your business.
  2. Why do you want to buy this company? Take any increase in sales out of the picture. There’s a risk in everything we do. Ask yourself the honest questions, what am I really buying, and is this really worth the risk?
  3. Are these customers I would pursue in my current business? Our acquisition of Tri-County answered all our main requirements. Take a good look at your wish list, and make sure this company meets your wish list.
  4. Can your company handle this? Acquisitions are time-consuming, from beginning to end. You may need to hire additional administrative staff. You are going to be away from the office a lot as you are working out all the details. Can your current business deal with that? What are the additional expenses going to be? There are so many factors that could vary from one company to another, and you must look for and prepare for every potential obstacle.
  5. Are you prepared for the worst? What if that great manager or technician you thought was part of the deal, quits and starts his own company? What if their biggest customer cancels service? Everything looks beautiful on paper and in your dreams, but in the real world, nothing is guaranteed.
  6. How much should you offer? This is absolutely the hardest part, and it takes longer to figure out than I expected. I think every one of us believes our company is worth more than a buyer is willing to pay, myself included. To figure out what to offer, you shouldn’t simply look at total sales. You really must break everything down: What has been the sales history over last few years? How much is the average service call? How much of sales is recurring compared to one-shots? How long has the average customer been with them? Do customers have contracts? All these questions play a huge part on what to offer.You can look at five companies with $200,000 in sales, and come up with five dramatically different offers. Here’s where a lot of time is spent getting to know the seller, their company and their customers. Hopefully, your offer will be close and negotiations will be fair. If you’re far apart, try to explain reasons for valuation, but this is also the time you have to be willing to walk away with a smile and a handshake.
  7. How are you going to pay? Once you agree on a price, the last bit of negotiations is how you are paying for it. Maybe you have the money in the bank, or you both agree on a set payment schedule. I recommend you keep this as simple and clear as possible.A few years ago, I sold a route based on percentage of sales, and this went very badly, very quickly. But it did give me something very valuable: an understanding of the seller’s needs. In our agreement with Tri-County, we agreed on a set price spread over two payments. This allowed both of us to prepare, as we know exactly what amount is due on what date.
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