There’s a steady breeze from the northwest, which cools the warm Caribbean afternoon. Framed between a palm tree and the turquoise water, you notice a man reading. He appears to be working, which seems strange given his appearance: shaggy blonde hair, linen shirt, surf shorts and flip-flops.
You squint and realize the man is Richard Branson and he just happens to be running Virgin Group Ltd., a multibillion-dollar conglomerate. He is working where he usually does, at Necker Island, a 74-acre retreat he owns in the British Virgin Islands.
Branson, of course, is far from a negligent founder, he has managers running the various businesses that make up the Virgin Group and visits his companies regularly, but he does not manage the day-to-day operations of any of his businesses, which frees up his time to think.
The train conductor vs. the thinker
Your role as a CEO can be divided into two buckets: one for managing and the other for thinking.
The managing bucket is where, metaphorically speaking, you ensure the trains all run on time. In this role, you’re establishing goals for your employees and holding them accountable for achieving their targets. You’re making sure your products and services are of a high quality and that your biggest customers are happy.
When you’re wearing your manager hat, you’re scouring your company looking for small enhancements every day. This obsession with continuous improvement is what big companies call “six-sigma thinking,” but you probably just think of it as building a great company.
The other bucket is reserved for thinking and it’s where you create the future of your company. In this visionary time, you get to design new products, imagine new ways of serving customers, or contemplate where you could take your business in the years ahead.
Your visionary hours are spent dreaming and imaging what your business could be, instead of worrying about what it is today.
The most valuable companies
The question is, how much of your time should you devote to each role? If your goal is to create a more valuable business—one that someone might like to buy one day—our data reveals that you should start gradually increasing the time you spend on thinking and hire someone else to do the managing.
For example, after analyzing more than 20,000 businesses who have received their Value Builder Score, we have discovered that companies of owners who know each of their customers by first name (i.e., managers) trade at just 2.9 times their pre-tax profit, whereas the companies of owners who do not know their customers’ first names (i.e., thinkers) trade at closer to 5 times pre-tax profit.
Further, companies that would suffer if their owners were unable to come to work for three months, receive significantly lower offers when compared to companies that would not feel the absence of the owner for a month or two.
Finally, in a recent survey of merger and acquisition (M&A) professionals, we asked who they like to see an owner hire if they can only afford one “C-level” executive. The M&A professionals overwhelmingly identified a general manager/second-in-command as the most important role a founder can fill ahead of a chief revenue, marketing or financial officer.
In short, the owners of the most valuable businesses have found managers to ensure the trains run on time while they spend an increasing amount of their energy thinking about what’s next for their business.
The Davey Tree Expert Co. has acquired the assets of Jones Bros. Tree & Landscape, a residential tree care company based near Memphis, Tennessee.
Jones Bros. has been providing residential tree assessments, tree care and tree removal to its clients in Memphis and the Mid-South since 1938. Davey’s Memphis office opened in 1990, giving both companies a combined 100-plus years of experience serving the market.
“This new chapter of Jones Bros. will help us deliver even better tree care to those in the greater Memphis area,” said Bob Jurgens, owner and president of Jones Bros. since 1975.
Davey and Jones Bros. share many of the same core values, said Jurgens. “We were already aware of Davey’s reputation for integrity, innovation and leadership within the green industry. As we learned more about the company, and its focus on safety and stewardship, a partnership seemed like a natural fit.”
“By aligning with Davey, our entire company will benefit. With access to the Davey Institute, the company’s premier research, development and innovation division, our arborists will be better able to diagnose their clients’ tree conditions. Our 30-plus employees will also have the opportunity to become employee-owners at Davey, one of the largest employee-owned companies in the U.S.,” added Jurgens.
Jim Stief, executive vice president, U.S. residential operations, said Davey is committed to future growth – organically and through acquisitions. “We will continue to focus on high-quality companies with customer demographics that are similar to our own, within markets where we want to grow density,” he said. “Our intent is always to pick up talented, safety-conscious employees intent on providing a high level of customer service.”
Jurgens, a University of Florida forestry graduate, will serve as the district manager of the combined office. He is an International Society of Arboriculture (ISA) Certified Arborist® and holds a commercial pesticide license. Current Davey District Manager Nathan Baker will join Michael Jurgens as assistant district manager. Both Baker and Jurgens are ISA Certified Arborists®.
“Jones Bros. is a welcome addition to the Davey Tree family,” said Stief. “Like Davey Tree, Jones Bros. provides excellent tree care while concentrating on the client experience and quality control. Now, we can focus on sharing our mission with the greater Memphis area – together.”
Whether you want to sell your business next year or a decade from now, you will have two basic options for an external sale: the financial or the strategic buyer.
The Financial Buyer
The financial buyer is buying the rights to your future profit stream, so the more profitable your business is expected to be, the more your company will be worth to them. Strategies that are key to driving up the value of your business in the eyes of this buyer include de-risking it as much as possible, creating recurring revenue, reducing reliance on one or two big customers, cultivating a team of leaders, etc.
The Strategic Buyer
The alternative is to sell to a strategic buyer. They will care less about your future profit stream and more about what your business is worth in their hands, typically calculating how much more of their product they can sell by owning your business. Strategic buyers are usually big companies, so the value of being able to sell more of their product or service because they own you can be substantial. This often leads strategic buyers to pay more for your business than a financial buyer ever would.
For example, Nick Kellet’s Next Action Technologies created a software application that takes a set of numbers and visually expresses them in a Venn diagram. Next Action Technologies was generating approximately $1.5 million in revenue when they received their first acquisition offer; Kellet’s first valuation was for $1 million, a little less than revenue, which is a pretty typical from a financial buyer.
Kellet knew the business could be worth more to a strategic buyer, so he searched for a company that could profit by embedding his Venn diagram software into their product. Kellet found Business Objects, a business intelligence software company looking to express their data more visually. Business Objects could see how owning Next Action Technologies would enable them to sell a whole lot more of their software, and they went on to acquire Kellet’s business for $8 million, more than five times revenue – an astronomical multiple.
In an example much closer to home, lawn care companies sometimes have sold for what might seem like astronomical multiples. This phenomenon developed during a period in which there were very active strategic buyers (including TruGreen, Scotts LawnService and others) actively buying and often competing against each other driving up valuations. Today, TruGreen and Scotts LawnService have combined. For now, they are not doing other acquisitions while they are focusing on integrating the two companies. Finding a strategic buyer for a lawn care company is not very easy right now. Values have fallen because most opportunities are with financial buyers and the competition is lower. Many lawn care company owners have assumed that the value of their business was based on a multiple of revenue that was being paid a few years ago. Those values may be pretty unrealistic today.
Preparing For Every Eventuality
The question is: why bother making your business attractive to a financial buyer when the strategic buyer typically pays so much more?
The answer is that strategic acquisitions are very rare. Each industry usually only has a handful of strategic acquirers, so your buyer pool is small and subject to a number of variables out of your control; the economy, interest rates, the competitive landscape and a whole raft of other variables can all impact a strategic acquirer’s appetite to buy your business.
Think of it this way: imagine your child is a promising young athlete who’s intent on going pro. You know that becoming a professional athlete is a long shot, fraught with unknown hurdles: injury, the wrong coach, or just not having what it takes to compete at the highest levels. Do you squash her dream? No, but you do make sure she does her homework, so if her dream fades she has her education; you make sure she has a back-up plan.
The same is true of positioning your company for an exit. Sure, you may want to sell your business to a strategic buyer in a spectacular exit, but a financial acquisition is much more likely, and financial buyers are looking for companies that have done their homework – companies that have worked to become reliable cash machines.
TruGreen Lawncare has completed its previously announced merger with Scotts LawnService. The merger creates the nations largest lawn care company with 2.3 million customers.
Here is the text of the press release that TruGreen issued.
MEMPHIS, Tenn., April 13, 2016 /PRNewswire/ — TruGreen today announced it has completed its merger with Scotts LawnService to create North America’s premier lawn care company. Scotts LawnService is a former subsidiary of The Scotts Miracle-Gro Company (NYSE: SMG). The merger of two industry leaders in professional lawn service will bring more resources, local experts, enhanced service and innovation to customers, with a shared belief that life is better lived outside.
As a result of the merger, TruGreen is expanding its leading services in lawn, tree and shrub care to approximately 2.3 million residential and commercial customers across the U.S. and Canada. TruGreen President and CEO David Alexander leads the newly combined company, which will operate as a privately held company under the TruGreen brand and remain headquartered in Memphis, Tennessee. Jim Gimeson, former president of Scotts LawnService, joins as Chief Operating Officer, and John Compton, a Clayton, Dubillier & Rice (CD&R) Operating Partner and former PepsiCo President, will continue to serve as TruGreen’s Chairman.
“TruGreen is proud to complete this milestone merger with Scotts LawnService, bringing together the two most trusted, innovative and service-oriented lawn care companies in North America,” said David Alexander, TruGreen President and CEO. “This continues the significant momentum we have experienced since becoming a standalone company, and we’re excited to expand the capabilities we can bring to our customers to help them live more of their lives outside.”
Memphis, Tenn.-based TruGreen is the nation’s largest lawn care company, serving more than 2.3 million residential and commercial customers across the United States with lawn, tree and shrub care. TruGreen believes more life should be lived outside and is committed to providing a beautiful lawn to serve as the foundation for outside experiences and lifelong memories. As the leader in the professional lawn care industry, TruGreen helps define responsible lawn care practices, conducts industry-leading education and training for our people, pioneers new application technologies and educates our customers on proper mowing and wise-use watering techniques. Today, there are more than 260 TruGreen lawn care branches and satellite offices in the United States and Canada.
The post TruGreen Lawn Care Completes Merger with Scotts LawnService appeared first on Principium Group: Mergers & Acquisitions.
Making your business less dependent on you has a number of benefits: you can scale your company more quickly if you’re not acting as a bottleneck; you get more time to enjoy life outside of your business; and a business less dependent on its owner is much more valuable to an acquirer.
Pulling yourself out of the day-to-day operations of your business is easier said than done. Here are three specific strategies for getting your company to run without you.
- Think Like LEGO
Pre-school children can make a collection of generic looking pieces come together in a complex creation by following the detailed instruction booklet that comes with every box of LEGO. Your employees need LEGO-like instructions to execute the recurring tasks in your business without your input.
Ian Schoen is the co-founder of Two Tree International, a design and manufacturing firm that brings products directly from concept to customer. The company was started in 2008 with a $50,000 loan and had grown to sales of over $4 million and a staff of 15 employees when it was sold in 2015. Schoen credits his operating manual for allowing him to sell his business for a significant premium: “We started creating standard operating procedures in the business and had a set of documents that helped us run the business. Basically we could plug anyone into any position and have them understand it.”
- Imagine Hosting Your Own AMA
Everyone from Barrack Obama to Madonna to Bill Gates has participated in an “Ask Me Anything” (AMA) forum where participants are encouraged to ask the featured guest anything that is on their mind.
Now imagine you invited your customers to an AMA. What questions would they ask you? What zingers would your most sceptical customers pose? These are the questions you need to document your responses to in a Frequently Asked Questions document that your employees can leverage in your absence.
- Shine the Media Spotlight on Your Team
It’s tempting to take the call from a local reporter who wants to interview you about your company, but consider inviting an employee to take the interview instead.
Stephan Spencer founded Netconcepts in 1995 and grew it into a multinational Search Engine Optimization (SEO) agency before selling it to Covario in 2010. His first attempt to sell his business in the late 1990s failed because potential acquirers viewed Netconcepts to be too dependent on Spencer himself: “My personal name and my company name were too intermingled. If I didn’t go with the business, nobody was going to buy it.”
Spencer set out to reduce his company’s reliance on him personally and one of his strategies was to position his employees as SEO experts: “I encouraged key staff, various executives and top consultants within the company to speak and write articles, and I introduced them to the editors I knew.”
It can be tempting to run your company as your own personal fiefdom but the sooner you get it running without you, the faster it can scale into something irresistible to an acquirer.
Seabreeze Property Services, Inc. of Portland, Maine
, has been acquired by Chenmark Capital Management, LLC., a family investment firm. James Higgins, Chenmark’s founder, was featured in a New York Times article in September 2015, that focused int their decision to acquire an operating business and relocate from Greenwich, Connecticut, to Portland Maine. Here’s a link to the article.
The post Chenmark Acquires Seabreeze Property Services in Portland, Maine appeared first on Principium Group: Mergers & Acquisitions.
Pure Green LLC, Franklin, Tennessee-based lawn care company, has acquired Turf Team, which was also based in Franklin.
The acquisition, financial terms of which were not disclosed in a release, iPure Green reports that the acquisition of Turf Team will increase its customer count by approximately 40%.
“We are so excited to grow our company and service even more in the Middle Tennessee area that we call home,” according to Nathan Brandon , Pure Green founder and owner. “The acquisition will allow us to serve more customers effectively and efficiently with top-notch products and customer service.”
Pure Green services Metro Nashville, including Franklin, Brentwood and Spring Hill. Pure Green offers a lawn care program that combines organic-based fertilizer products with weed control and other chemicals as needed.
The post Pure Green Acquires Turf Team in Franklin, Tennessee appeared first on Principium Group: Mergers & Acquisitions.
SCG Partners, a Cleveland-based private equity firm, announced that it has acquired an additional landscape business in Florida to add to the three it acquired in the Melbourne, Florida area last year. SCG did not disclose the name if its most recent acquisition, but did say that it was not in the Melbourne area and that is “the leader in its local service area.” SCG also said that ut is seeking additional acquisitions throughout the Southeastern United States.
Here is the text of the press release issued by SCG:
SCG Partners is pleased to announce that it has acquired the assets of an additional commercial landscape company in Florida and is actively seeking additional acquisitions in the landscape maintenance industry throughout the Southeastern US. Financial terms of the transactions were not disclosed.
This marks the fourth acquisition for SCG Partners in the last six months. In October, SCG Partners announced that it acquired three landscape maintenance companies in Melbourne, Florida. The combined businesses currently operate as Green Leaf Landscaping & Irrigation (“Green Leaf”).
SCG Partners’ latest acquisition is outside of the Melbourne area. This company is the leader in its local service area and has operated in the Florida market for over 20 years. The company has over 300 commercial accounts, providing a full-range of services including landscape design, arbor care, fertilization, irrigation, lawn maintenance and landscape installation.
SCG Partners, a leading middle-market private equity fund, is actively seeking additional transaction opportunities in the landscape maintenance industry and plans to make additional add-on acquisitions to deepen local market penetration as well as expand geographic coverage.
SCG Partners Managing Director Jonathan Ives commented, “SCG Partners is very excited to partner with the owner of our latest commercial landscaping operation and his senior team. The entire management staff and employees are expected to remain with the company. This acquisition further expands our presence in the attractive Florida market.”
“We are very excited to partner with such a highly professional and sophisticated management team, who has built a great reputation in the commercial landscape industry.”
Girard provides an essential service to its customers in a very demanding and competitive market. “Girard’s ability to provide an exceedingly high level of service to its customers is largely the result of the development of a strong management team and IT infrastructure.” said David Shapiro, Managing Director of Marquette Capital Partners. “We are looking forward to working with Rick and Randy Girard and supporting the Company’s growth and success in the future.”
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