The second in a two-part series about how to ensure the smooth sale of a pest control business. Here, Andrew Usher from Catand Advisory advises how to close the deal and get the sale.
When a pest control business is up for sale, I always tell my clients that a deal is not done until payment is in the bank and they are to run their businesses exactly as they usually would until this happens. Because the truth is, even if your quality of profit is good, your customer profile risk is low and negotiations with potential buyers are going well, it’s important to keep the momentum going, because there are certain sticking points that can derail, stall or even kill a deal completely.
Ongoing business performance
The process of striking a deal to purchase a pest control business can take anywhere from 3-12 months and depends on many factors. This is a long time, particularly in the business world. Typically, a ‘non-binding indicative offer’ is made, which is just that: non-binding. This means a buyer can effectively walk away, especially if business performance is not the same as the previous year. Too often, I have seen in a seller’s eyes and body language that they have sold, even when the deal has not been completed. They need to be reminded that the business is still theirs and theirs to manage and prosper from and until they ‘receive the cheque’, and must be run as it has been in the past.
Always bear in mind that if revenue or profit dips, the buyer’s confidence drops. In this case, the seller’s best case would be to re-negotiate the deal for a lower price, but it would be more likely that the buyer walks away. Ongoing business performance is critical to keep the deal on the table.
Business valuation/expectation gaps
A business valuation gap is probably the number one killer of deals and can cause prolonged negotiations, complex earn-out structures, deal fatigue and the possibility of either party walking away from the deal. It is important to recognise that a buyer is looking for a business from an investment perspective, which means it must have sustainable (recurring) revenue and profits – not one-off spikes – as well as secure employees and strong customer retention.
Knowing the local M&A market and using an M&A advisor is a great way of ensuring that as the seller, your valuation and the buyer’s price expectations are within range to ensure a deal can be achieved.
Deal structure disagreements
In terms of deal structures, I tend to try iron this out upfront when an initial indicative offer is made, so that throughout the process we all know where we are heading. Structural factors that can derail or slow down a deal could be: upfront versus earn-out payments; working capital adjustments; adjustments for employee entitlements; and even retention clauses.
It is somewhat inevitable that both parties will have mismatched requirements from the start – sellers want certainty/cash up-front, whilst buyers want risk-sharing, earn-outs and security.
A clear pathway and understanding from the outset is very important so you start your partnership with the buyer on the right foot.
Due diligence fatigue
Deal fatigue basically means the buyer is losing interest. They might be frustrated by slow response times or inconsistent responses to queries. Perhaps documents are not being prepared correctly, or new ‘issues’ to do with the business keep emerging.
Due diligence is the process a buyer goes through as they investigate the seller’s business, encompassing financials, operational, legal, environmental and all other facets of the business, ensuring that what is being presented is true and/or to identify any potential risks or liabilities that may pop up on completion of the deal.
Ultimately, it is to give the buyer confidence that the valuation and future performance expectations they have placed on the business are correct.
As an M&A advisor, I try to ensure that the preparation is done upfront to facilitate a smooth due diligence process, so we have all the answers before they are asked. This makes the buyer comfortable throughout the process. Also being open and honest, inviting the buyer into the business (confidentially), provides that certain level of trust and helps keep momentum going.
Emotional weariness
This is an underestimated point yet also very real. Selling a business is very personal, particularly for someone who’s spent their life building a successful pest business from the ground up.
Sometimes emotions can enter the picture, impacting the deal. The seller could change their mind halfway through the process, or might get offended by the buyer. Sometimes there is a struggle with the loss of identity that comes from selling the business. All of these scenarios can be real and should be discussed and accepted upfront.
If a buyer is representing a large commercial enterprise, they will do this multiple times a year, so their approach to the situation is somewhat more objective.
It can be challenging to get a potential buyer interested in your business, but once they’ve expressed an interest, it’s important to keep things moving forward. Keep up your high standards of work and remember deal negotiations aren’t personal – it’s just business. Taking professional advice from an M&A specialist is the best way to iron out issues, keep things on track and ensure you get the right price for your pest control business.
Read the first part in this series that looks at how to get buyers interested in the offer.
Andrew Usher, Director, Catand Advisory
