Commentary
Not long ago, I was visiting with the president of a green industry business. He was recounting to me the steps that he had taken to weather the economic downturn. Those steps had included at least two rounds of down-sizing along with other belt-tightening steps. One of the things that he said that particularly resonated with me was what he had not done. Although some of his industry friends and peer group members had urged him to discontinue his design-build business and focus solely on maintenance, he had elected not to do so. He made that decision based on thinking about the services that had built his business to where it was headed into the recession. High quality design-build and hardscaping services had served as the core of his business as he had grown it, and he believed it would have been a step backward to abandon those businesses based on the economic downturn. He concluded that it would be better to make adjustments to be able to perform those services profitably. Now, as the economy is easing out of the recession, his business is profitable, and it is well-positioned to take advantage of design-build opportunities as they present themselves. This conversation reminded me that every situation is different and there is no cookie-cutter approach to structuring your business for success.
As 2010 comes to a close, we are continuing to see increased merger and acquisition activity across most industry segments, including some large transactions in the landscape services segment. While the recovery is developing more slowly than hoped, fears of a double-dip recession are easing, and the general outlook seems to be improving. While many industry business owners continue to be extraordinarily cautious, others see the opportunity to move forward in creative ways.
After the hustle and bustle has passed, the holiday season can be an ideal time to pause and reflect on your future plans. If buying or selling a business is a part of your plans, we would welcome the opportunity to talk with you. This is also an excellent time to work on your longer-term exit plan.
We would also like to take this time to pause and say a heart-felt thank you to our clients, business colleagues and friends. We appreciate our business relationships and are looking forward to continuing them during a prosperous 2011.
— Ron Edmonds
Recent Transactions & Related News
The ValleyCrest Companies reported two major acquisitions in the central Florida market recently, acquiring Nanak’s of Longwood and Raymow Enterprises of Oldsmar. According to Landscape Management magazine, Nanak’s was the 29th largest landscape services company in the United States with $34.5 million in revenues, and RayMow Enterprises ranked 99th with $12.5 million in revenues. These two high-profile acquisitions increased the size of ValleyCrest’s national landscape maintenance business by approximately 10%.
SavATree, a provider of tree, shrub and lawn care services, announced a merger with DeerTech. DeerTech’s service program protects shrubs and plants from deer and combines a patented ultra-sound technology with a proprietary treatment program.
Atlanta-based Arrow Exterminators has acquired Nader’s Pest Raiders of Ponte Vedra Beach and Fernandina Beach, Fla. Nader’s specializes in residential pest, termite and lawn care services and was ranked 79 on PCT’s Top 100 list.
According to its third quarter Form 10-Q, The ServiceMaster Company made in excess of $40 million in acquisitions, principally for its TruGreen Lawncare and Terminix brands, during the first nine months of 2010. The Company stated that it expects to continue its tuck-in acquisition program.
ServiceMaster also reported that it is exploring strategic options relating to TruGreen LandCare, its commercial landscape maintenance business, including the potential sale of the business.
Horizon Distributors Inc. (Horizon), a full-service distributor of landscape and irrigation products, announced it has expanded its presence in the Las Vegas market with the acquisition of Turf Equipment Supply Company (TES)
Insight Equity II LP, a Dallas-based private equity fund, has announced its acquisition of a controlling interest in BFN Operations LLC, which purchased substantially all of the operating assets of the Berry Family of Nurseries, including Tri-B, Zelenka, Judkins and Zelenka West nurseries. BFN is now one of the nation’s largest wholesale growers of perennial and woody ornamental plants, with locations across the country. BFN serves both big-box retail stores and independent nurseries from its thirteen growing facilities throughout the United States.
Exit Planning: Improving the Value and Marketability of Your Business
This article is another in our series on Exit Planning in the Green Industry. Last month, we focused on understanding the value and marketability of your business. This article focuses on steps you can take to enhance the value and marketability of your business over time.
Assuming you are not in a situation of having to take your business to market immediately, there are concrete steps that you as a business owner can take to improve the value and marketability of your business when you do plan to sell it.
Focusing on Earnings and Cash Flows
The most important (but not the only) factor in determining the value of your business is the cash flow that it generates. Cash flow may be defined in various ways, including EBITDA (earnings before interest, taxes, depreciation and amortization), free cash flows (sometimes defined as EBITDA less maintenance capital expenditures) and seller’s discretionary earnings (EBITDA plus seller compensation and benefits). Steps taken to build the predictable sustained cash flow of the business over time will result in higher valuation and marketability.
Focusing on the Fundamentals
In building the cash flow from the business, it is a good idea to focus on the fundamentals of the business. A good place to start is to make a list of the strengths and weaknesses of the business, trying to see them through the eyes of a potential buyer. You can then develop an action plan to take advantage of the strengths and to minimize the impact of the weaknesses. Among the topics that may appear on that list are such items as:
· Service lines – Do the Company’s service lines make sense and will they appeal to buyers? Are there services which should be added and others which should be eliminated?
· Pricing strategies – Does your pricing strategy support your overall business strategy? Do you have a pricing strategy?
· Target markets and customers – What are your target markets and who are your target customers? Do they make sense in the short-term and the long-term?
· Physical locations – Are the business’s physical locations desirable? Should the business relocate or add additional locations? What can be done to make the business’s existing locations most desirable?
· Employees – What can you do to improve employee quality and retention? When prospective buyers take a look at your business, they will want to know who the key employees are, how long they have been with the business and how likely it will be that these key employees will stay with the business after a sale is completed. They will also be interested in knowing how the business will be protected if some of these employees decide to leave and compete with the business.
Making Your Business Less Dependent on You
One key step is to consider how to make the success of the business less dependent on you as the owner. This can often be accomplished by a combination of implementing good systems and having high quality key employees you can empower to act in your absence. Accomplishing this will make it easier for prospective buyers to understand how the business can successfully transition from your ownership to theirs. It may also allow you to take a vacation.
Implementing Quality Administrative Systems and Procedures
One step in making the business run more smoothly and efficiently is to implement quality administrative systems and procedures. This may include such steps as developing a usable policy and procedures manual or implementing up-to-date computer systems.
Maintaining Good Financial Records
Maintaining good financial records is a significant key to the marketability of the business. Good records are both accurate and timely. They document the performance of the business over time. It is extremely difficult to sell a business, especially at a premium price if high quality financial records are not available or are not prepared on a timely basis.
Maintaining a Distinction Between Your Business and Personal Affairs
One step in preparing a business for sale is to identify financial items (both income and expense, but usually mostly expenses) that will not apply to the new owners of the business. This may involve items of expense that are discretionary to the owners of the business and would not be required of a new owner. These items, commonly called “add-backs” are a part of nearly all business sale transactions. However, the larger these items become as part of the business, the greater the scrutiny they will receive, and the harder it becomes to unlock the full value of the business.
Retaining Quality Advisors
Retaining quality legal, financial and other advisors as you build your business will help ensure that you structure your business in such a way that, when the time comes, it is possible to structure as favorable a transaction as possible. Your advisors will also already be available, and you will not be scrambling for advice and counsel late in the game.
These are just a few of the steps that you can take to improve the value and marketability of your business over time. The exit planning process should include an evaluation of your specific situation and a concrete set of steps you can take to improve the value and marketability of your business.
Next month, we will focus on preserving the value of your business.
Making the Best of a Bad Situation
By Richard Helling
We are deep into another spectacular professional football season, and I think we all can agree that the games can be summed up with one word, “What!?” Of course, the “we” I am talking about here would be me and other suffering fans of the Denver Broncos. After yet another loss to the Raiders yesterday and my team putting up scores on several occasions that looked more like they were playing in the World Cup of Soccer instead of the NFL, I’m sure you can understand my enthusiasm or lack thereof. Hopefully, your team is doing better. Unless you are a Carolina fan, your team is absolutely doing better than my beloved Broncos. I bring this up for two reasons. First, it allows me to think about sports while I am at work. More importantly, it lets me give a nod and take a lesson from the heavy weight champions of taking a bad situation and turning it into a positive. I’m obviously not talking about the Broncos, I’m talking about the NFL. Let me explain.
By now most everyone in the world has seen the amazing video of the roof of the Minnesota Vikings field collapsing under the weight of the recent blizzard. After watching this footage, it is not surprising that the field will not be ready for use until next season. For a professional team to not have a field for a Monday night game in the national spotlight against an intra-division rival is the very definition of a bad situation. Enter the marketing genius of the NFL.
Since the collapse, the NFL and the University of Minnesota have been working together to stage an outdoor game at the University of Minnesota’s TCF Bank Stadium. While most people would not view this as a particularly good solution since the game will now be played outside in Minnesota in December, the marketing department of the NFL went the other way with it. The marketing blitz started almost immediately.
This was a throw back game to when football was played outside. This game was going to be like the old NFL games before heated domes and luxury boxes. You know, just like back in the day when players were tough and when football was played in the elements. Some people will accurately point out that there are still a number of teams that play outside in cold weather markets. Green Bay, New England, Chicago and Denver come to mind even though it is painfully difficult to describe what Denver is doing as playing football. However, that isn’t the point. The point is that the marketing department has made the best of a really tough problem, and the NFL has taken this problem and sold it as one of its great stories of the year.
I mention this as a point of reflection and as a lesson that can be applied in the business world. The great story isn’t that an NFL game was played outside in Minnesota in December. The great story is that the NFL put themselves in the best possible position to take advantage of a bad situation. Unfortunately, not everyone has a slick marketing department that can spin things this gracefully, but we all can take a lesson from the NFL. Problems arise, accidents happen and things that couldn’t possibly even be imagined will sometimes occur. The difference between being good and being a real pro is determined by the way you deal with adversity. Now, if I could just get my Broncos to learn this lesson.