Peter Nevile, Partner at Nevile & Co Commercial Lawyers, shares expert tips on how to prepare your business for sale.
During the past five years, we have had discussions with a significant number of pest control companies in most states of Australia. We have been successful in negotiating sales with excellent results, ranging from the biggest independent pest control companies down the scale to some smaller ones. In the course of these negotiations, we have dealt with the three major international players – Rentokil, Orkin Australia and Flick Anticimex – as well as a number of other prospective purchasers.
I believe it might be useful for me to share the key points for consideration for any pest control companies contemplating the sale of their business.
At the beginning of any sale discussion we are invariably asked, “How much my business is worth and what price range could I expect?” It’s normally not possible to provide an answer on the spot, as a number of metrics are needed to be able to give a ballpark range. Without more detailed information about the financial situation and the operation of a business, it is basically impossible to forecast a potential sale price with any certainty. In general terms, it normally depends upon a multiplier of normalized EBITDA (earnings before interest, taxes, depreciation and amortization). That is, removing all personal and non-recurrent expenditure that impacts the bottom line and affects profitability.
In the sale of any business, including pest control companies, the operational aspects and structure of the business are critical. An ideal business is one that is corporatized i.e. where the seller is simply transferring an organisation that runs independently of the individual to the buyer. If the business is dependent on a particular personality, then experience shows that a lot of customers will not necessarily remain when that person leaves the business. This is neither in the interest of the seller nor the buyer.
In addition to the profitability of the business, the revenue per technician is often a topline figure of interest. When digging deeper into the business, buyers are also looking for good operational procedures, clean transparent accounts, minimum bad debts and timing of payments. Retention of experienced staff is another important aspect. Other factors such as information regarding vehicles, equipment, and stock, are generally of lesser importance.
To commence a sale, both the financial and operational details need to be available. The way we work with prospective sellers at Nevile & Co is to provide them with our terms of engagement, including a cost disclosure and confirmation that our fees are entirely success-based. That is, if we do not effect a sale, then there are no costs whatsoever to the intended seller. However, potential sellers should be mindful that there is little point in having unrealistic expectations of a sale price that is simply commercially unrealistic. Competition in the marketplace will provide the best indication of price.
As lawyers, we are very aware of the need for confidentiality. We do not place a great deal of faith in confidentiality or non-disclosure agreements. While we need to provide high level financial and other data, we do not provide any customer information to a prospective buyer until an agreement as to price has been reached. This is always subject to a due diligence process.
We are also seeing potential buyers having an increasing appetite for on-the-job data, which can be provided by sensors and barcoding, to provide information on pest activity and service delivery. Such information is of value to both the pest business and end customers. Not only does this indicate a more professionally run business, but many potential buyers already have such systems in place. If you are looking to sell in the future, look to integrate some of these added value systems now.
Pest management business owners can have a private, obligation-free discussion by contacting me through the Nevile & Co website.
Peter Nevile, Partner, Nevile & Co Commercial Lawyers
