Reasons to Sell
There are many good reasons for selling a staffing firm. Many Sellers are thinking about retirement or at least liquefying what is often their largest asset so they can take some chips off the table. Some Owners, as they age, become more risk averse and are reluctant to continue to invest their retirement funds to grow their business.
Others may feel they have grown the business as much as they can on their own and for the business to reach the next level, they will need a well-suited, deep-pocketed partner. Additionally, there are some Owners that would prefer to tap into an acquirers’ existing infrastructure and distribution network then try to create or expand their own.
Other drivers are the lack of available, reasonably priced growth capital, the lack of reasonably priced insurance protection, access to certain volume purchasers of staffing services through VMS or other purchasing methods that can dictate lower margins and less direct customer contact on a staffing supplier.
While not an exhaustive list, these are the general reasons that motivate Sellers.
Why sell to you?
What are the specific reasons that may encourage a Seller to choose your firm? Certainly, a high purchase price, with 50%-70% cash on closing and a good upside potential for growth will be huge plus factors for a Seller to consider.
Sellers prefer notes for the balance especially if they are not active or remaining with the business. Buyers generally prefer earn outs if the Owners are staying on, to share the risk going forward.
Since many current transactions contain earn outs, why would a Buyer propose outlandish, unobtainable earn-out targets; thus, impairing the Seller’s ability to improve gross margin and profits? Properly designed earnouts are realistic, attainable and whenever possible, revolving around the accumulation of gross profit or gross margin dollars and ultimately benefitting both the Seller and Buyer.
In most cases, Sellers make balanced decisions on who’s offer to accept, not necessarily jumping for the biggest number or biggest promise. A fair valuation, with a realistic chance of getting full value for the transaction from a Buyer that is reliable, competent, trustworthy and ethical matters to most business Owners when they sell the business they’ve worked so hard to establish. A wise Seller will look most seriously at the Buyer who offers their business the best opportunity to continue to succeed as they have or better.
It may be surprising that a wise Seller will often choose his acquirer by his/her determination of which acquirer will create the least amount of internal and external changes. Changes mean uncertainty and sometimes disruption that can add to the risk of success for both Buyer and Seller. Change also increases the need for communication so staff members can be sold on the benefits of the change(s). In fact, an acquirer would do well to avoid any change that is not absolutely necessary by law and slowly introduce other “branding” type changes on a scale that the acquired staff can handle without a loss of staff or business.
It is always interesting to see Buyers rave about the staff and culture of an acquisition target firm only to destroy its very value and essence within a short time period post-acquisition by introducing unnecessary changes so the acquired firm will look like all the other branches in the acquirer’s system. This is often precisely the fear the acquired staff had about being acquired in the first place.
When acquired staff is unhappy, they tend to polish up their resumes and dig out the card of their favorite industry recruiter to see what’s available. Of course, the most talented are often the most mobile. Consequently, the acquirer may lose some key performers through their actions and then blame the process on the acquired, or anyone but themselves.
Finally Buyers: please remember that most Sellers are patient and believe there is enough M&A activity taking place in our space, that they don’t need to accept the first offer or any under-valued offer that comes along. We’ve seen some Sellers wait 5 years for exactly the right offer to come along… that’s not typical but is a reflection of the market since 2009.
For a complimentary discussion on any M&A topic, contact us.
Sam Sacco and Brian Kennedy run R.A. Cohen Consulting, a trusted industry M&A advisory service.
For more information: www.racohenconsulting.com