Green Merger News – November 2011

Commentary

 

Last month’s GIE+Expo in Louisville attracted a very strong crowd, with estimated total attendance of 17,900, an increase of about 5% over 2010. It’s an important meeting for us with little free time.  (Although we did take the time to see legendary fiddler Charlie Daniels perform on his 75th birthday. ) We’re still following up on all the contacts we made in Louisville.

Planet’s Green Industry Conference theme, Time to Grow, seemed quite appropriate and reflected the interest and spirit of many attendees who are ready to move on after dealing with the impact of a negative economic climate the past few years,

This month, we are switching gears a bit and focusing on the opportunity that green industry business owners have to create value through a well-planned acquisition program.  As a friend of mine  recently reminded me, these are times when it is possible to build a great company.

We’ll be speaking at the National Green Centre (formerly known as the Western) in Kansas City on January 9.  We hope to see many of you there.  We will have plenty of time for private meetings.

As always, if  you are contemplating a transaction or ready to develop your exit strategy, we’d welcome the opportunity to speak with you.

—Ron Edmonds
Email  Me
Find Me on Linked In

Creating Value with Acquisitions

 

Is it possible to increase the value of a business worth $3 million by 50% or $1.5 million by making a $500,000 acquisition?

Here’s a possible scenario:

A landscape services company with $750,000 in EBITDA (earnings before interest, taxes, depreciation and amortization) might be worth, in some circumstances, $3,000,000 (if it was valued based on a multiple of four).

A smaller landscape services company with $250,000 in EBITDA might only be worth $500,000 (based on a multiple of two).

If the larger company is able to acquire the smaller company for $500,000, the starting point for the combined company’s EBITDA would be $1,000,000. If the larger combined company could still justify a four multiple, its indicated value would be $4,000,000.

If the combined company can realize $125,000 in synergies through increased revenues or reduced costs, the combined company’s EBITDA would then be $1,250,000. If the company still garnered a four multiple, the indicated value would be $4.5 million, a 1.5 million in increase in value for a $500,000 investment, a 3-to-1 return and what most people would call a homerun.

There are a lot of “ifs” in this scenario:

The larger company has to have the characteristics that lead to a relatively high multiple.
The larger company has to be able to acquire the smaller company at a reasonable valuation.
The larger company has to be able to integrate the smaller company into its operations, maintaining its business, and still have the characteristics that lead to a relatively high multiple.
The combined company has to actually be able to realize the $125,000 in synergies that have been identified.

All of that is a pretty tall order, but it does illustrate what is possible if everything goes right with acquisitions and that at least considering the possibilities of acquisitions is a very good idea for many businesses.

 

Recent Transactions
A number of significant transactions have been reported since our last issue.  Here are some highlights:

Blondies Treehouse has merged with J. Mendoza Gardens.  These two firms are both based in the New York metropolitan area.  Blonde’s Treehouse is known as one of the largest interior plantscapes businesses in the U.S.  It also provides exterior landscaping services.  J. Mendoza Gardens, which will continue to operate as a division of Blondie’s Treehouse, focuses on New York City terraces and rooftop gardens.

In another example of private equity interest in the green industry, Environmental Landscape Services of Memphis, Tennessee has become a portfolio company of McKinney Capital of Birmingham, Alabama. Environmental Landscape is a leading landscape and grounds management company in West Tennessee. McKinney Capital is a Birmingham, Alabama investment company.

Toll Brothers, Inc., a leading builder of luxury homes, entered the Seattle market through the acquisition of CamWest Development LLC (”CamWest”).  In addition to its development and building operations, Toll Brothers operates a landscape services subsidiary.

 

 

Green Exit by Ron Edmonds

 

Ron Edmonds’ latest book is Green Exit—Exit Planning for Lawn and Landscape Business Owners.
Green Exit introduces lawn and landscape business owners to the basic concepts of exit planning, including defining your objectives, understanding the value of your business, improving and preserving the value of your business and developing a plan for exiting the business.  The book discusses a variety of strategies, including third-party sales, private equity, transfers to family members or key employees and employee stock ownership plans.  Green Exit targets all green industry business owners who either are or should be considering their business exit plans.
Green Exit is available now in print and e-book formats from the publisher, FastPencil.com, and will soon be available from Amazon.com & BN.com.

 

Seven Reasons You Should Sell Now

By John Warrilow

 

It seems to me that we’re at a fork in the road: there are some positive signs that the economy is entering the earliest stages of a long term expansion, but at the same time, if I dare read the headlines, it seems we’re destined to repeat 2008.

It’s precisely because we’re at this inflection point that I see a lot of business owners thumbing the eject button. If you’ve been thinking of selling your business, here are seven reasons to get out now:

1. You’ve lost the stomach for it

A lot of business owners took The Great Recession in the teeth. If you’ve got your business stabilized and the prospect of fighting through another recession leaves you panic-stricken, it’s time to get out.

2. The worst is behind you

Let’s say you were mentally getting ready to sell back in 2007. Then 2008 hit, and 2009 was your worst financial year in recent memory. You cut everything you could in 2010 and now, as 2011 nears an end, you’re starting to see some profit and revenue growth.  With your numbers going in the right direction, now might be just the right time to get out.

3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population.  In the U.S., the capital gains tax rate is set to go up after 2012.

4. Nobody is lucky forever

If you’re lucky enough to be in a business that actually benefits from a bad economy, congratulations. You’ve probably just had the three best years of your business life. But no cycle lasts forever and right now may be a great time to take some chips off the table.

5. The coming glut

As a business owner, demographics are not on your side. As the baby boomers start to retire, we’re going to have a glut of small businesses come on the market. That’s great if you’re buying, but if you’re a seller, you may want to get out ahead of the flood.

6. The closing window

It’s been tough for private equity companies to raise money since 2008; so many firms had their last successful round of fund raising in 2007. Many of these funds have a five-year window in which to invest; otherwise they are required to give the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (larger private equity firms will not go below $3 million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back.

7. A good time to be liquid

The stock market has been swinging wildly lately which is why it would be nice to get liquid. With cash in the bank, you will be able to take advantage of a fire sale on the stocks of good quality companies should the market sink.

If you feel like a gambler at a blackjack table with everything riding on the outcome of one hand, it may be the right time to take a few chips off the table.

—-

John Warrillow has started and exited four companies and is the author of Built to Sell: Creating a Business Than Can Thrive Without You

Click on this link to order from Amazon.com:

Built to Sell: Creating a Business That Can Thrive Without You

Our Travel Calendar
We’d like to meet with you

We plan to attend the following industry events:

Lawn Care Summit, Aventura, FL, December 7-9
National Green Centre, Kansas City, January 8-9
We’ll be speaking at 8:00 am on January 9 and will also be available for appointments.
Green Industry Great Escape, Nassau, March 1-4
If you are attending any of these events and would like to meet, please give us a call or send us an email to schedule a time.

Special FaceBook Promotion

 

The next five people who “LIKE”  THE Principium Group’s FaceBook page will receive a free copy of Ron Edmonds’ new book, Green Exit.

The Principium Group’s  FaceBook page can be found at:  www.facebook.com/principium .

We invite you to visit (and “like”) our page.  The FaceBook page is updated regularly with commentary and links to articles and information we find interesting related to green industry mergers and acquisitions and related topics.

We also welcome comments and questions there which may be of interest to other visitors as well.  We will do our best to respond to your questions and comments.

If you have suggestions for pages for us to include as favorites, please let us know.  We’d be happy to link to your pages in that way.

www.facebook.com/principium

Menu