To become a premium acquisition: Take control of what you can control…
A recent article that I wrote for Automatic Merchandiser’s Vending Today focused on the defining characteristics of a “premium acquisition.” If you are planning to position your company to achieve an optimum selling price (in three months or three years) it is important to control what you can control. Take certain key steps to make your company especially attractive to buyers.
That article, published on August 22nd, was entitled, “Your convenience services company looks great, but is it a premium acquisition?” The premise was clear - For operators, there are certain defining characteristics that make a company a premium acquisition, a company that will generate extreme interest from buyers and ultimately, a higher selling price. Unfortunately, in some cases, the operator has no control over those defining characteristics.
You can’t control location
Example: There is a direct correlation between the selling price and the location of an operator’s business – the market area they serve. An operator in Evansville, Indiana, may not have the same market glow to buyers as a company that is in a booming area like Austin, Texas or Phoenix, Arizona. As an operator, you have no control over your location.
You can’t control the overall economic climate
Another important factor that can impact the selling price of a convenience services company is the overall economic climate. Will the upcoming election winner be seen as positive or a negative for the economy? Will interest rates finally come back to extremely favorable territory? Will inflation stay under control? Again, as a seller of your business, you have no control over the macro economy.
Control what you can control
You can control numerous factors that will elevate the value of your business and bring you closer to that storied position of being an elite, premium acquisition. In this month’s newsletter. I will give you four defining characteristics of an elite, premium acquisition that you can control. Next month, I will give you six more and a case study of what not to do when you are thinking about selling your business.
Please note – when I work with clients who are interested in selling their business, these are the areas we focus on from a fine-tuning standpoint – often, in the case of the most successful deals, that process starts up to one year in advance. Here are some specific things that you can control.
Contracts – Put yourself in the shoes of the buyer. Would you be more attracted to an operator who does handshake deals or one that has 75% of clients under contract?
Here is an example of why contracts are important. Let’s say XYZ company has seven offices in seven states, and you happen to be serving one of them. Your contract calls for liquidated damages, as all operator contracts should, in the event of a breach. They decide to close the office and leave the state. You send them an invoice for 50% of the anticipated sales (gross profit) for the balance of the term and guess what? They have an office closure budget, and you get paid, along with the landlord, the equipment rental company, the copier company and every other supplier who was smart enough to have a contract. Even though you discounted the buyout amount by 25% to make it easy and quick - it is still a sweet deal and an excellent outcome.
That is a very specific example of a reason to have contracts. Another important reason for contracts is to show the mutual commitment that exists between you and your clients. It offers security and buyers love security.
Recurring income – Earlier this year, in another article for Automatic Merchandiser’s Vending Today, I discussed the importance of recurring revenue. That article, published on May 1, 2024, was entitled, “While pantry service, OCS and micro market sales can be glitzy, business buyers love recurring revenue.” The premise: There is a difference between recurring revenue and repeat business. Because operators are running set routes, we enjoy plenty of repeat business, although it is not totally predictable. Recurring revenue is different – it is totally predictable and much appreciated by business buyers.
Since the pandemic, recurring revenue in the form of service charges, equipment rentals, delivery fees, energy surcharges, subsidies and minimum guarantees are absolutely revered by buyers – so keep that in mind as you navigate the direction of your business.
Management business – In this case, less is more. There is nothing like being handed an account from a national account management company. Easy to sell (no selling), easy to operate (just follow instructions) and easy to keep (sometimes, you even end up with the account when the management company loses it – a bonus!)
Here is the reality. When you take that national account business, you are a renter, not an owner. Do not expect it to be a part of the sale of your business unless you have an incredible relationship – (make that a phenomenal relationship) with the national account management company. Your buyer – typically a big player, knows that they can lose the account in the blink of an eye, especially if they are perceived as a threat by the national account management company.
Gross Profit – As I outlined in the August 22ndarticle, operators tend to overlook the importance of GP. There is a misconception that businesses are bought and sold on gross sales. That is not the case. That may be how the value is expressed, as in, “price to sales ratio,” but that is not how the actual values are determined. Valuations look carefully at the net cash flow out of a business. The biggest part of that, the starting point, is your gross profit margin. In today’s world, with inflation so prevalent, GP is critical. Businesses that have a strong gross profit margin and have shown the ability to maintain that against the headwinds of inflation, are positioned as a premium acquisition.
Moral of the story – get your pricing right, get your purchasing right – your gross profit will follow.
Again – these are the types of issues that VBB Advisors focuses on with our clients – often, one year prior to an actual sale. It is important to fine-tune, to set the table, to optimize the positioning of your company, before marketing your convenience services business.
Buyers come to me and my company, VBB Advisors, because they know that I serve sellers who have thoroughly and thoughtfully considered their exit strategy with my help. That is the type of seller that you want to be – a seller who has their ducks in order, has taken steps to make their business as attractive as possible and a seller who values their employees enough to make a deal that everyone will feel good about.
Take that critical first step. That is often the toughest one to take.
Order our free 2024 Exit Strategy Planner. At the very least, it will provoke some thought, and this is a good time to think about your future.
Whatever your reasons are to sell your company - the timing, a sense of frustration, the desire to enjoy life or an interest in rewarding yourself for years of hard work – VBB Advisors can help you realize your goals.
I am Mike Kelner, the leading sell side intermediary in the convenience services industry. Let’s sit down and have a conversation. Use this appointment scheduler to set up a meeting with me.
Or – give me a call at 704-942-4621
