Acquisitions: Whether you’re looking to buy a landscape business or seeking a prospective buyer for your business, these deals require strategic preparation and plenty of patience.
There’s a difference between a sale and a transition. Transitions include acquiring a business from family, converting a company to an employee stock ownership plan, or a buyout from management.
Sale options generally fall into these three categories:
- Outright sale: Buyer purchases outright; owner receives payout and will transition out completely
- Partial sale: Buyer purchases some portion of the business and transitions out slowly; they might be incentivized to stay connected to business operations in some way
- Strategic sale with equity roll: Buyer purchases business with some money rolling over to equity in the larger company. In this case, the company owner receives a second payment once the larger company is sold or recapitalized.
The strategic sale is the acquisition type preferred by Property Works, a West Palm Beach-based company specializing in landscape maintenance and janitorial services.
“For any acquisitions or asset, we give that company first right of refusal, and we give them two options, we can continue with the sale, or you can take a portion of what we owe you and roll it into equity in the next organization,” says Property Works CIO, Dana Shaw.
Property Works presents this option to the potential seller as a longer-term relationship beyond the sale. “The entity that you sold to us becomes this future earnout for however long you want to keep rolling the dice with us,” Shaw explains.
“Our goal is always to keep the people that created the golden goose involved as much as possible. And if not involved, then directly a phone call away to have that access.
Fine-tune your processes
Once you’ve selected a buyer to approach, the timeline can vary, but Chenmark, a business holding company, offers these milestone estimates:
- Initial Conversation with Buyer: 1-6 months
- Non-Disclosure Agreements: 1-2 weeks
- Letter of Intent: 2-4 weeks
- Due Diligence: 1-2 months
- Legal Document Negotiation: 4-6 weeks
Many factors can lengthen the timeline of a sale, but coming to the table prepared can mitigate any delays.
On the buyer side, strong relationships with banks and equity partners help show sellers that you have the capital for the sale. Accounting, legal, and industry experts specializing in acquisitions are also necessary for your deal team.
Property Works has submitted to a financial audit in preparation for future acquisitions. It may sound rather extreme to voluntarily open your books to an accounting firm. Still, Shaw says that a certified audit provides an advantage when purchasing and eliminates questions about the company’s finances when engaging with a prospective seller.
Technology makes financing and due diligence easier
When deciding whether to purchase a particular asset or company, would you rather buy a company run on a web of disconnected solutions and workarounds or a company built around an organized and scalable platform?
Palmer Higgins, partner at Chenmark, says, “If (a company) is on Aspire, it is glorious as a buyer. It’s rare to see a business on a system as sophisticated. It puts you in a position to frame your business in a way that can be objectively verified by a buyer that might not know (the owner) or the business.”
The importance of a solid business platform applies to the buyer as well. Jason Batallan, CFO at Property Works, uses Aspire to provide comprehensive financial reports to the various commercial banks that finance the company’s acquisitions.
The organization and efficiency that a business management platform provides can impact a bank’s perception of a company and whether they foresee a long-term relationship. “(Lenders) are looking at the entire package, and they're looking at the relationship they're building for the future and their pricing models,” Batallan says.
Prepare for the unexpected
Property Works typically acquires landscaping businesses run by single owners, often those without an exit strategy. However, this can be challenging in its own right, depending on the owner’s commitment to the business. Property Works’ last acquisition was a year and a half in the making.
Even if your seller is primed to make a deal, issues uncovered in financing or diligence could sour the negotiation. “It's almost like reading a book with plot twists because every time you get through one hurdle, you’re on to the next,” Shaw says. “Ultimately, you have to be prepared for any number of things to fall.”
“Acquisitions are a slow play and a long play,” he adds. “It's 100% networking, and ultimately, when you enter that world, it's a volume game.”
Discover more information about selling your business in our webinar with Chenmark and 3 Point Group.