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INDUSTRY ISSUES


Pandemic Economy Continues to Drive Mergers and Acquisitions


By Jill Odom


COVID-19 HAS DISRUPTED MANY ASPECTS OF LIFE AND BUSINESS. Mergers and acquisitions are no exception. However, this doesn’t mean landscaping companies have stopped buying or selling. Tom Fochtman, CEO of Ceibass Venture Partners, and Jeff Harkness, partner at Three Point Group, weigh in on the current situation and share what buyers and sellers should be aware of moving forward.


SELLING AND WHO TO SELL TO Both Fochtman and Harkness agree that we’ll see a lot of landscaping company owners selling their businesses.


“Most owners of small to mid-size businesses do not have an exit strategy,” Fochtman says. “They are too busy working. But this life-changing pandem- ic, especially for baby-boomer owners is a game changer. This kind of thing wears anybody out and especially busi- ness owners.” Fochtman acknowledges that the landscape industry has been fortunate to be deemed “essential,” but the events of 2020 will give some owners enough


incentive to consider lifestyle changes and retirement.


Harkness says there hasn’t been a consistent slowdown with mergers and acquisitions, but rather some pauses and delays. He says the amount of money in the space between strategic buyers and the private equity groups, and the continued desire to grow and add talent has allowed for continued movement with acquisitions despite the general doom and gloom on the news. As for who these landscape compa- ny owners can sell to, it depends on a number of factors including the compa- ny’s size, geographical footprint, client portfolio and growth trends. Fochtman says private equity buyers entering a market want revenue and a footprint. “The majority of landscape compa- nies in the U.S. do not fit what a private equity buyer is looking for,” he adds. “Most private equity buyers want at least $3 million (that is low) to $5 million in EBITDA before they will consider you as an acquisition candidate. 90 percent of the landscape companies in the U.S. do not meet that criteria.” For smaller businesses that do not meet this criteria, they can still appeal to strategic buyers who are looking to acquire talent or enter a new market. Fochtman points out that buyers are looking for companies that have unique value proposition and best-in-class companies to purchase.


“There’s pros and cons with each,” Harkness says. “It’s still people-driven and I think people matter whether it’s strategic or private equity. You get in a room with folks and you start talking about strategy, you start talking about growth plans, you start talking about the day-to-day. Sometimes it’s enough to say, ‘Hey the strategy doesn’t line up’ or ‘I just don’t see myself personality-wise working with that group.’” Whether it’s a good time to sell your landscape company is debatable. Focht- man says due to COVID-19 derailing the economy it is not a great time to do so, but it’s not terrible either. “If I were a potential seller, the size of my company would dictate my actions,” he says. “If I’m a smaller landscape company, in the $1 million to $5 million range I think I would stay the course. Get a strong 2020 in my books and see what the economy is looking like in 2021 and going forward. Let the dust settle a bit but be working really hard on my growth, processes and pro- cedures and generally building a better company. Get my company ready to sell even if I’m not technically ‘for sale.’


If I


intend to sell and my company is $10 million in revenue or higher, I’d have my advisory team assembled and put a plan together to go market. This whole selling process frequently takes 12 months so if you are a larger company and have a desire to sell, I’d be working my plan now.”


Harkness says it’s still a good time to sell just due to the sheer number of buyers and capital available in the space. “We’ve been in the business in the industry well over 20 years and there was a time when there might have been one to three buyers out there,” Harkness says. “We have 45 to 50 groups in our Rolodex that we know have expressed an interest in our industry. We still think that with the market conditions and the tax environment and the number of buyers available that it’s still a strong time to consider an exit.”


14 The Landscape Professional //September/October 2020


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