Sanders: I get this question from time to time as I work with sellers when their expected value is apart from the real value. By carving out unneeded expenses, consolidating routes and implementing those price increases that you've been delaying, you can increase profitability and create value.
Another way to gain profitability is by converting your least profitable accounts to higher margin ones. This process can generate quick profits that can be long-lasting. To do this, rank your accounts by profitability and examine the bottom third. If you restructured these accounts by either making less frequent deliveries, imposing a minimum delivery amount, increasing prices or shipping them UPS, what does your profitability become?
You may be able to lower personnel costs, vehicle delivery costs and repairs. Chances are these low-end accounts are not contributing to your bottom line; however, properly restructured, they could add value to your company.
AM: There seem to be several buyers in the market that want seller financing. Can you offer any suggestions in considering seller paper?
Sanders: First of all, I would strongly suggest to seriously consider the increased risk associated with seller financing. In my experience as a banker, I saw many sellers lose considerable amounts of money by buyers defaulting on notes. In a lot of ways, the seller is in a no-win situation since the repayment of the note is dependent on the performance of the company, and he/she isn't in control of the company.
In order to be in control, he/she would have to demand the note and take the company back if the buyer defaults. This takes a tremendous amount of time, and legal fees can be atrocious. Many sellers are attracted to a higher sales price when discussing seller financing, but they should be aware the higher price is reflective of the higher risk.
AM: When is the right time to sell?
Sanders: I think that can be a very personal question and one that differs for each seller. Age, health and management succession certainly are reasons why someone would want to sell. Access to financing and willingness to increase debt are also factors along with competition. Ideally, you would want to sell when your profitability is at its peak, but another factor is the availability of buyers. Several years ago, buyers were having difficulty obtaining bank financing, so acquisitions slowed and companies carried less value. The market has gotten much better now, and more buyers are out there. Currently, I think values are good.
AM: How can you know if a buyer is right for you?
Sanders: Most of the sellers I deal with have built their companies from the ground up and have a tremendous amount of pride in the success of their company. They should be proud of their accomplishments and, in a lot of ways, their business is like a member of their family.
In choosing a buyer, the seller should look at the way the buyer currently does business to see if they are aligned philosophically. How does the buyer conduct himself/herself in the marketplace? How are customers treated? Is equipment kept in good working order? And, is the business healthy and capable of growing financially? These are questions I'd want to know before I turned over something I'd worked a lifetime to build.
Another factor to consider is the experience the buyer has in mergers and acquisitions. A lot of time and money can be wasted if the buyer isn't a sincere buyer. There are a lot of fishermen out there that don't actually close on deals. Experienced buyers will get to the point quicker and the process of the transaction will be more professional. Most experienced buyers guide the seller through the process and fairly negotiate the deal.
AM: How can you ensure a smooth transition?
Sanders: I think if you are dealing with an experienced buyer, you'll have his/her track record to determine this. Sellers should ask how the buyer plans to integrate their company into the buyer's company, and I think it's certainly fair to ask for a planning meeting to map out the integration issues jointly. It is typical that the seller would stay on for a period of time after the sale to ensure a smooth transition, and it's best to plan how this will happen shortly before the close.