The big question we hear: How much will a buyer pay for my business?
It has been a busy year for VBB Advisors, and it appears we will be finishing up deals through the end of December. There is so much demand right now as buyers are keenly interested in quality OCS, vending, pantry and micro market business. That is good news for our industry. All this M&A activity has given me a clear understanding (based on data) of how much buyers are willing to pay.
The big question
Of course, when it comes to answering the question, “How much will a buyer pay for my business? -a question I hear just about every week- there are some important variables to consider. Remember the article I recently did for Automatic Merchandiser and Vending Market Watch? In that article, I listed five key factors, defining characteristics that can elevate your company to the status of “premium acquisition.”
· Location – Desirable markets are a positive for buyers.
· Gross Profit Margin – Critically important. While the selling price might be stated as a multiple of gross sales, buyers are looking carefully at gross profit.
· Technology – Do you have modern equipment? The right technology?
· The general economic outlook – Are buyers feeling confident about the future?
· Quality Accounts – Do you have a strong core of contracted local business?
Not every deal is a premium acquisition, simply because there are some defining characteristics, such as the location of a business, that an operator cannot control. If your business is in Cedar Rapids, Iowa, it will not be as valuable as a business in New York City. That is just the reality of the location factor.
An answer – but it is a range
There is a broad range of what buyers will pay (and did pay) for vending, micro market, coffee service and pantry service operations in the recent past. Looking at twelve deals that would be considered “mainstream,” and these deals were from all around the country - a wide variety of sizes and a wide spectrum of services – here is what the data reveals:
· The businesses had gross annual sales of $79 million dollars. They sold for a total of $61 million dollars.
· The overall average was $.77 cents on the dollar. So, on average, for every $1 million dollars in gross sales, the seller received $770,000.
Additional stats:
· The highest deal was sold on a dollar-for-dollar basis. It fit the criteria of “Premium Acquisition.” It was in Arizona, and it was a seller that planned for nearly a year, worked closely with us to fine tune their operation. This seller had their ducks in a row.
· The lowest deal sold for $.56 cents on the dollar. Not a great business, operating in Tennessee, but still coveted by buyers.
My own observations:
· The deals with the highest multiples did the most amount of preparation with us and as a result, received multiple offers. It should be noted that in today’s M&A environment, we almost always see multiple offers. In some cases, the multiple offers come from highly motivated buyers – the ideal scenario.
· The Southwest and the Southeast are generating the highest level of interest among buyers.
· While micro market and smart market locations are coveted by buyers, vending still has value. The buyers today all have vending routes and are always willing to take on more. In fact, one of the deals in this study was a vending only deal, no OCS, no micro markets. They had great accounts, but outdated technology, so not perfect. Located in Texas. The selling price was over $.70 on the dollar.
· OCS continues to be highly desirable to buyers because of the high margins and the growing reality that more employees are heading back to the office in 2025, whether they like it or not. This will only boost OCS sales.
· Buyers understand that pantry service is high volume and labor intensive, with margins being squeezed on an ongoing basis. Accordingly, while every buyer is interested in pantry service as part of a deal, expect the multiples to be lower if a seller is too heavy in the pantry service channel.
What I expect next year:
Check out the latest article I just wrote for Automatic Merchandiser and Vending Market Watch. “With a new big player entering thegame, 2025 looks very attractive from an M&A perspective.” In that article, I talk about why I believe valuations will jump in 2025. As I wrote in that article, there will be an aggressive new buyer on the scene.
“For convenience services operators who hope to sell their business in 2025, the outlook is promising for several reasons. One factor that will drive the market is the addition of a large entity who will now compete with Canteen, Aramark, InReach and large regional players who have kept acquisition activity rolling along.
While I am not at liberty to share the name of this new player until late November, I can tell you that the company just signed 400 distribution centers from the world’s largest online seller, which will send their annual sales to over $1.2 billion dollars. My sources tell me that this new entity intends to aggressively pursue acquisitions, which will result in multiple offers and potential bidding wars for deals – always good news for sellers.”
Let’s talk about the new buyer –call me
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
