If you’re thinking about buying or selling a company, there’s a good chance you’ve taken some time to sit down and conduct research on what is involved in the process. You’ve read industry articles and business journals on what makes a company attractive to a buyer.
What you’ve likely found in your research is that there are many “experts” in the field of mergers and acquisitions (M&A) who tend to focus on the financial aspects of a transaction and use words not typically used in the pest control industry — terms such as leverage and liquidity. So at a time when you’re looking for answers, it’s rather easy to end up more confused than when you started.
Through the years, we here at Arrow Exterminators have developed our own list of items that makes a termite and pest control company attractive to us. Let’s take a closer look at each of them:
1. Revenue growth. The best time to consider a sale is when your business is thriving. Very few acquirers want to buy a “fixer-upper,” even if it is available at a discounted rate. Buyers are interested in revenue growth, and proving to a buyer that the company has been growing consistently is a huge step in helping you sell your business.
2. Company culture. Culture is very important to us — and developing an understanding of it, both through ongoing discussions with the owner and through the diligence phase, provides invaluable insight into how the company works. With a clear understanding of culture, the process of integrating new team members and merging the two companies can be well planned. This leads to success, both in the short and long term.
3. Recurring revenue. The relationship between a company and its customers is a huge factor to consider when looking at a company. A company that has a long history of serving repeat customers, with high retention rates, is clearly more attractive than one that is growing mainly through new sales or one-time services.
4. Key people. The daily activities of the owner, along with the tenure of key employees, can help a buyer become comfortable with the transition of team members and customers to the acquiring company. Running the business on a day-to-day basis — and motivating employees to help grow the company — is key to a successful transition.
5. Geographical expansion. There’s an old saying that points out “if you want to catch fish, fish where the fish are.” According to all reports, population in the southern United States continues to outpace the rest of the country.
And finally, a word on profitability. Profitability is typically a moving target, as our profit-and-loss (P&L) statements are heavily influenced by salaries, commissions and production labor. Many companies “control” their profitability by timing their expenses in such a manner to control their quarterly or annual net income, which can be misleading.
So, is profitability important? Yes, it is a factor, but finding a growing company with a family culture with high recurring revenue in a great market is very attractive to us.