How to Manage for the Eventual Sale of the Company

The mind of the garden variety vending operator is swimming with a jumble of hot topics, day and night, every day:

"Who is going to call in sick tomorrow?"

"What's that new motor for truck #11 going to cost?"

"Is the new contact, at my biggest account, going to test the market?"

"My customers probably won't swallow another price increase."

"Why do my suppliers hammer me with price increases I can't recover?" … on and on.

On a less regular basis, you ponder: "Some day I might buy out my competitor, or maybe some day I'll just hang it up; sell my company to one of my competitors." Not tomorrow or the next day … just some day. That's the way we think of acquisitions and divestitures; it is something down the road.

You must plan for the future
Buying or selling a vending company can be the best thing that ever happened to you or your absolute worst nightmare. As a former executive of a national vending operation and now a business valuation/acquisitions consultant, I have seen more than my fair share of the latter.

I am not going to wax philosophical on the virtues of strategic planning. However, I will suggest that it is strongly in the operator's best interest to periodically set aside some quality time to review the checklist (see below). A couple of times a year should be sufficient.

Make it a formal review. Roll each element around and ask where you are now and how you can add strength and depth to the value of your business. Benchmark areas for improvement and measure your progress.

The core item that drives the entire process is the necessity to prove a sustainable profit; present and future. Everything else is secondary. A business may seem profitable, but this must be verified through the judicious and methodical examination of facts.

The sale price will vary based on the synergies of the acquiring company. For example, a company may own a piece of real estate, but if the acquiring company is going to fold the routes into another facility, the value of the real estate is not part of the deal. The seller then has the task of finding a buyer for the real estate.

Key factor: recasted EBITDA
Most of the items on the checklist are self explanatory. A few of them, however, deserve a little more explanation.

The recasted EBITDA (earnings before income tax, depreciation and amortization) is the first on the list for a reason. Primarily, investors focus on their anticipated return on investment (purchase price) from future cash
flows (profit).

To "recast" is to change the form of something. In this case, EBITDA is changed, or recasted, to reflect synergies or economies of scale that will affect the bottom line of the company being sold. This is usually a fairly lengthy calculation.

The objective of the analysis is to show the company's profitability as it is now and a snapshot of greater profitability in the future. This analysis can be prepared by the seller, the buyer or the broker, or any combination thereof.

The recasted EBITDA measures the positive effects of rolling the newly acquired business into an existing business. These are estimates of available synergies and economies of scale, and the resulting favorable impacts on future profitability. They are major factors in the investor's decision to buy or not to buy.

This may seem so basic as to not need any explanation. Yet, I have seen otherwise intelligent people miss this truth altogether. In reality, if an asset does not add value to the buyer's business, or if it duplicates an asset the buyer already has, it doesn't add a cent to the sale price.

Examples of this are sentimental pictures or old machines that have been refurbished to add charm in the waiting room. Such items have value to existing employees, but not to a company acquiring the business.

The recasted EBITDA is a lengthy, detailed analysis that covers the business's entire balance sheet. It is a time consuming process, which
often requires the assistance of an accountant or consultant.