PREPPING A BUSINESS FOR MARKET Harkness says companies that are considering going to market need to understand valuation, the due diligence required and the different priorities and philosophies of different groups. “Preparing your company to sell sometimes is a six to 12-month pro- cess,” Harkness says. “It can be emo- tional. Sellers can overcome emotion by getting clarity and facts on what the process is going to be like and what their business is worth.”
Business owners need to ensure their accounting is accurate, that employee files are compliant and there are strong processes and procedures in all aspects of the business. A strong middle-management team, well-main- tained assets, and a well-organized facility should be in place. Fochtman says if you are a maintenance con- tractor, you should have a minimal 90 percent renewal rate and ideally own your marketplace.
Even if you’re not ready to sell the business anytime soon, Fochtman en- courages all business owners to have their companies in tip-top shape and ‘ready to sell’. “What happens if the phone rings from an interested party and they are willing to pay what you would consider top dollar for you company?” Fochtman says. “Have it ready. It is best to run your business in such a manner that it is ready to sell.”
A GOOD TIME FOR ACQUISITIONS On the buying side of things, Fochtman and Harkness say now is a great time to acquire.
“If I was an operator today, I would be looking at acquisitions as a growth strategy,” Fochtman says. “Grow my footprint, add talent to my team, maybe add additional offerings and leverage the transaction with very inexpensive money.”
and leverage inexpensive
Harkness says the biggest driver for growth through acquisition right now is the access to capital and low interest rates making it an affordable venture for companies.
gest driver for
on right now is low interest
“There has never been a better time to carry debt,” Fochtman says. “I doubt we are able to rent money again this cheap in my lifetime. This is the perfect time to leverage, invest in your compa- ny or companies and take on debt.” Harkness and Fochtman say banks are underwriting loan candidates a little
able venture a better time
says. “I doubt ey again this
s is the perfect n your compa- e on debt.
an say banks ndidates a little
harder right now, but it is lessening. “The reoccurring revenue model of landscape maintenance is still fundamentally strong,” Fochtman says. “Private equity buyers will for sure be looking and they are now. Landscape and in particular commercial landscape maintenance have never been so viable and essential, which the investment community loves.”
BUYER BEWARE While it’s a good time to invest and consider acquisitions, it shouldn’t be taken lightly. Fochtman says some of the ques- tions that a landscape company buyer should consider are things like: Will this acquisition expand my geo- graphic footprint?
Am I getting a great management team?
Am I buying a great brand that will make my brand only stronger?
Am I getting a facility that is well located and will make us more efficient?
Does this company offer a viable service that we don’t currently offer?
Fochtman says the acquisition needs to fit the long-term strategy of the buyer.
“Probably the biggest thing that we’re seeing is there’s additional due diligence being done by lenders and buyers related to the different market segments that green industry compa- nies service,” Harkness says.
An example of additional scrutiny would be determining which compa- nies’ client bases have been negatively affected by COVID-19, such as restau- rants. He says buyers should also be mindful that potential companies to acquire have continued sales and if customer payments have slowed. “Groups that are acquiring still want to see reoccurring revenue,” Harkness says. “So, contracts are always import- ant. I’m seeing a lot more diligence around growth plans. Does the com- pany have an organic growth strategy, before being acquired, over the ne one to three years?”
customer payments have slowed. “Groups that are acquiring still want to see reoccurring revenue,” Harkness says. “So, contracts are always import- ant. I’m seeing a lot more diligence around growth plans. Does the com- pany have an organic growth strategy before being acquired, over the next one to three years?”
Another aspect of acquisitions that has been affected by the pandemic is the site visits. Harkness says visiting sites was more of an issue in March, April and May but now that good practices have been implemented with social distancing, he says buyers once
Another aspect of acquisitions that
has been affected by the pandemic is the site visits. Harkness says visiting sites was more of an issue in March, April and May but now that good practices have been implemented with social distancing, he says buyers once
National Nat onal Assoc ation National Association of Landscape ssociiation of Landscape Profess ona andscape Professiionalls rofessionals 15 5
“The reoccurring revenue model of landscape maintenance is still fundamentally strong. Private equity buyers will for sure be looking and they are now. Landscape and in particular commercial landscape maintenance have never been so viable and essential, which the
investment community loves.” - Tom Fochtman, CEO of Ceibass Venture Partners
more have the ability to get in and visit the facilities. Fochtman says buyers being unwill- ing to travel has been an issue, but you have to visit a property before buying the company. “Look at the quality of work that is being provided,” he says. “Look at the facility. Meet with key employees, if that is allowed in due diligence. Buying a landscape company is classic ‘kick the tires’ sort of stuff. Look at the equip- ment.”
Harkness warns not to get caught
up in EBITDA numbers, but be mindful of the broader aspects of the business such as the leadership and company culture. “We’re seeing a lot more time being spent on the geography, the culture, and the go forward energy,” Harkness says. “Can you grow it organically in this marketplace? Can you do acqui- sitions in this marketplace? I think all that comes into play and the pandemic has put a premium on those types of analysis points.” “(This is) uncharted territory for all of
us,” Fochtman says. “But the landscape industry is considered essential and the fundamentals of a well-managed landscape contracting company are still very solid. Great time to be acquiring an essential business.” TLP
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