This is a conversation I have with a lot of my clients and prospective clients and it’s certainly a valid topic. Who will buy my company? I’m always harping on folks to develop an exit strategy and follow it, right up until the day they sell their company. So when that occurs, who will the buyer be?
The good news is our industry has evolved and matured nicely, and there is a much broader range of acquirers today. There are more than the four groups I’ve outlined here but these four are driving the acquisitions happening today. Part of a sound exit strategy will generally steer you toward a specific type of buyer. Here are description of that range of buyers.
The individual: Individual buyers are usually associated with smaller transactions. They may not have the financial capacity or desire to purchase a mid- to large-size company. They frequently come from another industry and are making a career change. Or it could be someone from the industry; they have some financial backing and are making the purchase as their entry into the business as an owner.
There is a very well-respected residential design/build company in Denver that was purchased by an individual several years ago. It was a career change for the buyer. He had capital, researched the industry and decided he wanted in. He is very engaged in the business and doing quite well today.
The strategic buyer: This term is a little broad but in most instances it is either a competitor or an industry player that is looking to enter your market. Typically, this has been the most prevalent buyer of companies in the service sector. The competitor is usually looking to take out another competitor and normally consolidates the operation to reduce overhead. They are buying a book of business – your business. If you have a strong brand that results in you winning more sales opportunities than most will get a competitor’s attention.
The strategic buyer entering your market is usually more interested in the quality of your management team and your brand.
They may keep your name or fold you into their company brand but they are much more interested in using your company as a platform for future growth and operations. They will grow the business organically and may do some smaller acquisitions to help fuel growth. And this buyer is usually willing to pay a higher price for your company: They normally want “best-in-class” and the best brand company, and will pay for it.
The diversification buyer: That is not the proper phrase for this buyer but the intent is obvious. It is a company from a different or related industry that is looking to diversify, for whatever reason. They may want a new product or service offering or just like the industry and want to enter. Usually, this is a company already in the service sector but not yet in the landscape industry make an acquisition.
An example would be a janitorial or other building services company deciding to enter the landscape maintenance industry. They can offer another building service to their client base as well as bring another profit center into their company. If the synergies are right, these can be very lucrative transactions for both parties. They are really interested in the quality of your brand.
Private equity buyer: This is probably one of the more misunderstood entities in business today. Lots of marginal to bad press abounds about PE firms, quite frequently unfounded and usually with a twist of greed involved. This was evident during this year’s election, with media’s constant focus on Mitt Romney’s involvement with Bain Capital. Generally speaking, private equity firms raise capital from the private sector, specifically to invest in a broad range of industries. Just like all good business people, they are looking to invest in companies that return a handsome profit.
Quite frequently they do have a shorter timeframe in mind and may exit the industry in some fashion five, 10 or 15 years down the road. Or they may become a dominant player in the industry.
The bottom line is they are investing money with a clear expectation of earning a good return on their investment. Well-positioned companies in the landscape management sector will be coveted by this type of buyer.
Tom Fochtman is founder of Ceibass Venture Partners, an M&A consulting group. He can be reached at firstname.lastname@example.org.