Everyone is aware of the difficult times that we are in and there are likely to be more difficult times still to come. How does this affect you as the owner of a security business? Perhaps you are approaching retirement or you and your partner want to move in different directions, and want/need to sell now. Or you may be thinking of buying. Is this a good time to act?
There are many reasons why acquisitions are made:- to grow more quickly than is possible organically, to expand geographically, to broaden your service/product offering or to gain efficiencies by going further up or down the delivery chain.
Over the last 10 years, I have spent a considerable amount of time valuing, buying and selling security businesses at one of the largest security firms in the country. There have been times when valuations were quite high but in the last few years the focus has become keener and valuations have fallen. So how do you make sure your business is attractive enough to purchasers? If you are considering purchasing, how can you separate the good companies from the not so good?
There are many issues surrounding a business sale, and each business has its’ own unique story. There are however, crucial areas that can make a difference to a valuation and the success or failure of an acquisition.
How diverse is the customer base? If you are dependent upon a long standing relationship with one customer to generate a large proportion of sales and there is no written contract to tie that customer to you for more than say 3 months, then you are leaving any buyer with a big question mark. If that customer is there because the owners are great friends and they have played golf together for years, then what is going to happen when the business is taken over. As a seller, you should look to tie the relationship down contractually for as long as possible or accept that this is going to be an issue that will come out during due diligence, when the buyer looks through your records. Acting in advance to mitigate this, prior to sale, will strengthen the buyers’ position.
Is your customer base of good enough quality? Ensure that you have chased the late payers and have price increases been put through regularly ? Are you losing more customers than you are gaining every year? If you can spend some time marketing and growing the customer base it will be worthwhile.
This is a difficult area for both buyers and sellers and there isn’t a one size fits all approach. The attitiude the buyer has will largely depend on their intentions post acquisition. If they are buying to grow their customer base, then they may well have enough staff themselves and redundancies will take place. From a buyers perspective, key sales people are always important; how to integrate them successfully into a new business requires a delicate approach. Senior engineers are always important for keeping customers’ happy and this personal contact can sometimes get overlooked as a critical factor on the acquisition.
A notoriously difficult one! Too many times deals are jeopardised by gossip about who is buying who. The buyers’ staff find out prior to the deal completing and then the sellers’ staff get to know, the seller is rightfully angry about this as it can be unsettling for their staff. When it does happen, I have found that the best approach is to discuss it with staff openly, and try to reassure them as much as possible. Outright denial usually fuels further suspicion. Once the deal has completed then there are the legal procedures to go through in notifying staff and transferring them across to a new company. As important as this, is open communication. The workplace is bound to change and successfully managing that change can make a large difference to the value of the deal 12 months down the line.
Communication with customers has to be thought through carefully. The larger customers need to be handled with a considerable amount more care than the smaller ones. Again, this is a key area which needs to be planned in advance of the deal completing. After the champagne corks pop and the deal is signed, the work must continue to ensure that the deal generates the required return.
If this is the first time that you have sold or bought a business then it will probably be more time consuming and stressful than you would have imagined. However, there are ways to minimise the stress but these require careful planning to try and prevent expensive mistakes further down the line. You may be asking at the end of reading this, why do it? Money deposited in the bank doesn’t even cover inflation, so if you can access finance ( a whole other article!) and are already running a successful business, what are you waiting for?