Green Merger News – June 2011

Commentary – Is it a “Buyers’ Market” or a “Sellers’ Market”?

 

Over the past week or so, I have read two articles with intriguing headlines. One proclaimed “It’s a buyer’s market” while the other suggested that it’s a sellers’ market. The difference between those two headlines really struck me.

The two articles were actually on seemingly completely different topics. The article proclaiming a buyer’s market was reporting on developments in the housing market while the other article was attempting to analyze the business for sale market.

I do not claim to be an expert on the housing market. I do, however, closely follow the business for sale marketplace. My experience has been that there are always more “buyers” than “sellers”. I decided to put quotation marks around both buyers and sellers in the preceding sentence because there is a big difference between a real likely business buyer and a typical person who surfs the internet looking for business opportunities. Likewise, there is a big difference between a potential business seller who dips a toe into the marketplace to better understand the value of his or her business or find out if there may be an easy opportunity to cash out and a business owner who approaches the sale if his or her business as part of a well-thought out and planned exit strategy.

So are we experiencing a sellers’ market or a buyers’ market in the green industry right now? That is very hard to say. It is clear that there are more buyers examining opportunities now than over the past three years. However, for the most part, buyers remain cautious and disciplined in their approach to analyzing opportunities. I suspect that situation will continue for some time to come. On the other side of the equation, we are seeing greater interest among business sellers as well. We suspect that is more a factor of the low number of transactions completed during the recession than a significant increase in sell-side interest.

So where does that leave us? There is demand among buyers for high quality lawn, landscape and related businesses now. There are also quality companies actively considering the sale of their businesses. Is it a “buyers’ market” or a “sellers’ market”? I wouldn’t call it either one. But I would tell you there are good opportunities for both buyers and sellers in this market.

As always, if you are considering buying or selling a green industry business or are interested in exploring the exit planning process, we would be happy to speak with you.

—Ron Edmonds

Planning for the Transition of Business Ownership to a Family Member or Key Employee

 

Jay was struggling as he pondered the future.  His lawn and landscape business had grown to be one of the dominant landscape companies in the city.  He was extremely proud of what he had accomplished in a little over 25 years.  He knew that it was time for him to develop his exit plan, but he wasn’t sure what direction to steer the business,  JPO Landscape. 

Jay had always dreamed of passing JPO Landscape on to his son Adam, but he had some real concerns about that idea.  It wasn’t that he didn’t think Adam had aptitude for the business.  As a matter of fact, he was pretty sure Adam had even more aptitude for the business than he had had at Adam’s age.  His big concern was that nearly all of his wealth was tied up in JPO.  He was counting on it to finance his retirement.  In addition, he had become quite comfortable with the perks that come along with ownership of a successful business.  Jay had been approached a few times with offers to buy his business.  Nothing of those opportunities particularly excited him, but he knew that a third party sale would probably come the closest to meeting his financial requirements as he considered retirement.

Many green industry business owners face a similar  conundrum.  After building a successful business, they would like nothing more than to be able to pass that business on to either a family member or, perhaps, one or two key employees who have contributed to the growth of the business.  On the other hand, many business owners have the vast majority of their resources tied up in the business.  They are dependent on the cash flow from the business to sustain their lifestyle.

Because the business is so crucial to the owner’s financial plans, transferring the business to an insider may seem like an impossible situation.

· Few insiders would have the liquid resources to buy the business out right at a competitive price.

· A transaction with insiders will usually not produce the synergies that can help command the highest price.

· You can’t really judge the insider’s management skills and commitment to the business.

You may lose control of the business before you have been completely cashed out and feel comfortable that the business can thrive under the new ownership.

On the other hand, their may be compelling reasons to consider a transfer of the business to a family member or key employee:

· It is a way to “keep the business in the family.”  Many business owners yearn to see their heirs maintain the success of the business.

· It can be a way to motivate and reward key employees.

· The business owner may be able to gradually scale back his or her day-to-day involvement in the business during the transition process, while maintaining a level of involvement and control.

· A transaction with an insider will often prove far less traumatic for employees and customers alike.

· There is a possibility to structure a transaction that can be tax-advantaged and yield substantial cash flow to the seller over time.

Insiders may be more open-minded than third parties to possible alternative structures, such as a stock sale versus an asset sale.

There are a variety of options to consider in structuring an “insider sale.”  It can involve a sale of stock, a sale of assets, a step transaction over time and, in some cases, may involve an employee stock ownership plan (ESOP).

Planning the sale of a business to a family member or key employee can be a complicated process and one that will take time to successfully execute.  The plan needs to have the following characteristics:

· It needs to meet the existing owner’s financial requirements.

· It needs to be fair to both the existing and new owners.

· It  needs to be structured to minimize the tax burden.

It needs to position the business for continued success under its new owners.

Balancing all of those characteristics is a tall order, but not impossible with a little time, flexibility and the assistance of quality legal, tax, accounting and transaction advisers.  With time, planning and the right advisers, business owners like Jay often have the opportunity to meet their financial objectives while also achieving their non-financial goals for the transition of the business.

The good news for Jay is that he still has options and time to plan for both retirement and the ultimate transfer of his business, whether it is to his son, another “insider” or to a third-party in a sale on the open market.  In order for him to achieve his objectives, however, he does need to begin the planning process and take concrete steps to enhance the value and marketability of his business.

 

 

Recent Transactions

 

The Brickman Group announced its entry into the Los Angeles market with the acquisition of The Dworsky Companies, a leader in the landscape services industry in the Los Angeles market, ranking 85 on Landscape Management’s LM 150.  The acquisition gives Brickman a foothold in one of the least major markets it has yet to serve. [The Principium Group represented Dworsky Services in connection with this transaction.]

Sarasota-based Arrow Environmental Services has acquired Tampa-based Young Pest Control.  With the completion of this transaction, Arrow reports that it has grown its annualized revenues to $8 million.  The reported $2 million transaction brings Arrow into Tampa, Lakeland, Fort Myers and Naples.  Arrow offers residential and commercial pest control services as well as lawncare services.  economy regains strength.

In the facilities management sector, EMCOR Group, Inc. has announced that it has entered into a definitive agreement to acquire USM Services Holdings, Inc. (“USM”), a leading provider of facilities maintenance solutions in North America.  Landscape services are a part of the portfolio of services offered by USM.  USM has revenues of approximately $375 million, of which approximately $133 million are landscape services-related.  USM ranked number 7 on Landscape Management’s Top 150 in 2010.

Horizon Distributors, Inc. (Horizon), a full-service distributor of landscape and irrigation products, today announced its expansion into the Florida market with the acquisition of certain assets of the Kilpatrick Companies (Kilpatrick), a Boynton Beach-based distributor of landscape and irrigation products and provider of equipment services with sales throughout South Florida and the Caribbean Basin.

New Hampshire-based Natural Technologies, Inc. announced that it has acquired  Fire Belly, Inc. and its Fire Belly® Organics, a unique six-step, natural, organic lawn care program, offered to both lawn care companies and the do-it-yourself market.

Hines Growers, LLC has entered into a letter of intent to sell assets from its Fresno, California, Chino Valley, Arizona and Fulshear, Texas nurseries to Colorspot, Inc.  Colorspot is based in California and has growing facilities in California and Texas.  Hines says it will increase production at its three remaining nurseries in Fallbrook and Winters, California and Forest Grove, Oregon.

 

 

Exit Planning Assessment

A Cost-Effective Way to Get Started on the Exit Planning Process

 

An Exit Planning Assessment from The Principium Group is a confidential, cost-effective first step in the exit planning process.  Here’s what it includes:

· We will develop an understanding of your business, your personal situation and objectives.

· We will make an assessment of the value and marketability of your business.  (This will not be a formal business valuation for third-party use, but will give you an idea of the value your business could bring under current circumstances.)

· We will provide concrete recommendations for improving the value and marketability of your business as you make plans for your ultimate exit.

We will provide feedback on your objectives and how to develop a plan to achieve those objectives.

Contact us by email or call us at 888-229-5740 today to discuss scheduling an Exit Planning Assessment for your business.

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