Mergers and Acquisitions: An
Insider's Perspective on Selling Your Screening Company
by Ann Turnbull
Navigating the road to a successful merger or acquisition
can be tricky. If you're contemplating selling your screening company you probably have questions like, "How can we get the
maximum value for our company?" and "How do we find the serious buyers and avoid the 'tire kickers'?" In this article we will
help you with the answers to those questions and give you tips on how your company can be in the ideal position for a sale
and what to expect from the process.
Q: When do we begin the process of selling the
company?
Ideally, you should begin preparing to sell your
business as soon as you start the company. Every decision you make about your company affects the value, and if you map out
a solid business plan, with clear steps for managing growth and change, you'll be in a stronger position than if you had less
clearly defined goals.
When it comes time to actually sell your company,
there are some important initial questions to ask yourself, like: Why are you selling? Do you really want to sell? How many
people do you have? Do you want them protected or taken care of in a specific way? Does it matter to you if the new owners
keep your current style of management and business practices? Do you want to
stay on and run the company?
Selling a company you founded or have been with
since its inception can be more emotional than an outsider might think. You are relinquishing control over a project you have
worked on for years, possibly even decades, and a change like that can be difficult. Make sure you fully explore your thoughts
on any potential merger or acquisition so you know where you have firm opinions and where you can be more flexible when negotiating.
Q: Should we hire a consultant, and if so, when?
A good business consultant can help you plan for
the future and avoid mistakes. Hiring a consultant on day one of your company is an investment that might pay off when it
comes time to sell. If you weren't able to foresee this need when your screening company was just getting of the ground, you
can still benefit from a consultant's services.
We contacted Bruce Berg, the president and founder
of a successful consulting firm who built and sold his screening company and now specializes in mergers and acquisitions in
the employment screening business, and asked him how you can ensure you make the best deal. He informed us that the greatest
challenge during this process is maintaining your business operations and growth. It can take from three to twelve months
to get a buyer to the table, and if you've been trying to handle the sale yourself, you might have been making the mistake
of neglecting your company. If your sales and productivity decrease while you are distracted with the selling process, you
run the risk of seeing your valuation decrease. In Berg's experience, "One day spent hiring a consultant can save valuable
time and resources down the line." Hiring a consultant to manage the details of finding and screening potential buyers and
then supplying them with your company information in the most positive manner will allow you to focus on the details of running
your company. A consultant can also examine your expenses and suggest ways for you to cut costs and streamline your company.
When you meet with your
consultant for an initial interview, you can expect them to go over sales and profits and make sure everyone's expectations
about selling are reasonable. Berg reminds clients that selling their company "is akin to selling your child," and is sure
to ask, "How will you feel when someone else takes over? Are you truly ready for this?" After asking the basic questions,
your consultant will probably go deeper into finances, looking over the numbers for the previous three years and the projected
statement for the upcoming year. Then they will discuss how you conduct business, paying special attention to points of strengths
and uniqueness so they know how to best position the company to prospective buyers.
While a consultant does initially get the buyer
interested, no one can sell a company like its owner, who has invested countless hours toward its success and knows the ins
and outs better than anyone.
Q: What determines what my company is worth?
A business appraiser, accountant, or consultant
will be able to help you determine your company's general value, which will then be used as a reference point when searching
for buyers. Generally, the pricing range in the screening industry will fall somewhere between 0.7 and 2 x sales, or between
3 and 10 x ebitda (an acronym for "earnings before interest, taxes, depreciation and amortization"). A buyer that's seriously
interested in your company will perform due diligence to make sure your numbers are accurate.
There are numerous factors that affect the price
you might be able to get for your company, like size, infrastructure, what products and services you offer, and pricing structure.
Other important factors relate to your customer mix, geographical diversity, concentration of sales by customer, synergistic
opportunities the buyer may see, and what portion of your sales come from long term contracts. Ultimately, the value of your
business really depends on who the buyer is and what unique aspects of your company are attractive to them.
Q: How do we get the best buyer?
Buyers are looking for a company that can offer
something unique, whether it be an impressive client list, strong management, or a special service. What they seek to gain
from acquisition will vary. Some buyers will want to keep your location, while others will only want your customer list; some
will expect to keep your management team, while another will want a complete overhaul. The key to maximizing your sell price
and to finding a buyer quickly is to match your unique business attributes to a buyer that is looking for those attributes.
While the aforementioned factors like size and
client list have an impact on your company's value, you'll still have to work to position your business properly and interest
the right buyers at the right price. The more flexible you can be with the terms of the deal the better. For example, if you
stipulate that there must be a certain percentage of managerial retention you may lose the interest of buyers that want to
insert their own people.
Finding the right buyer is a matter of matching
your conditions of sale with a buyer's conditions of purchase. This is where having a knowledgeable consultant is important.
They will be able to evaluate the field of possible buyers, weed out companies with histories of reneging or being difficult
on deals, and bring a good match to you. On your end, the way to best position your company is to increase your revenues and
come to the table with the strongest product you can offer.
Final Thoughts
The process of selling your screening company is
a lengthy one, filled with many difficult decisions. Finding the right match between buyer and seller isn't fate, but it certainly
requires a deep professional knowledge of the screening industry and preferably experience in mergers and acquisitions. When
it comes time to offer your business and negotiate a deal, be honest and open about your terms with your deal broker and any
potential buyers and once the deal is finalized you'll have fewer surprises, a smoother transition, and a more successful
merger.
_____ _____ _____ _____
Background Checks in Focus was written by Anne
Turnbull, deverus content writer and industry researcher.
info@deverus.com
http://www.deverus.com
888.690.9297
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