How To Decide On An Acquisitions Consultant

July 7, 2014
Understand the process for buying and selling an operation and who can help.

Not all business brokers are created equal. When it comes time to sell a vending/office coffee service operation, there are many things to consider. One very important consideration is in whether to enlist the help of someone else. If an operator does not have a potential buyer in mind, the marketing power of a business broker can provide increased exposure. Most brokers take a seller’s listing and advertise to find a buyer. They ensure sellers aren’t exposed to competitors who aren’t really buying, but just looking. They would also screen for unqualified buyers who don’t have the ability to finance an acquisition.

A seller may find more buyers for an operation that is one route or smaller by advertising or listing with a general business broker. However, if the vending business is larger, or the seller feels competitors may take advantage of a publically announced sale, an operator might instead want to enlist the help of a more sophisticated type of agent such as an acquisitions consultant and intermediary. This type of agent negotiates between known buyers and sellers, sets prices, handles documentation and sets up a mutually beneficial business transaction.

Marc Rosset, founder of Professional Vending Consultants, Inc., explains the role of an acquisitions consultant and intermediary, “I'm first asked to evaluate a fair, realistic appraisal of a company’s value. Then I'm tasked to find the best buyer to pay that fair price.”

Intermediary Vs. Broker

Rosset explains that an intermediary is more specialized than a regular business broker. An intermediary must have years of experience in the industry and know how to do the research necessary in order to find the correct buyer for a particular deal. This is especially important in today’s market because as new technology and procedures are introduced, current rules for vending are rewritten every day. The intermediary needs to understand how the seller’s operation will fit into the buyer's existing operation. A best match will result in a successful completion.

"For instance, if the seller has older equipment, much of it without MBD, if he has too many top accounts with vend management companies or let's say his SBA covenants will not allow him to separate his building debt from the company debt, these can be deal killers if you go to the wrong buyer," Rosset said. “One may have too much expense to convert the older machines to their networked system, while another won't want the building. It's critical to know the right Buyer for each individual deal.”

Evaluation of the financial history, service area, type of accounts, type of equipment and a host of other information is also an important function of the consultant, according to Rosset.

"Understanding the important elements about the operation the owner wishes to sell and the probability of finding the right buyer always come well before I'll list the company for sale," Rosset said.

Professional looking financials

An intermediary should also assist with providing appropriate documentation. It’s important for a seller to provide information for the last fiscal year as well as year-to-date information in four categories: Financial, Assets, Customers Info and Employees, indicated Rosset. A good intermediary will take this information in whatever format it is and present it to the seller in a professional looking spreadsheet. All customer names will be changed to numbers, for example Customer #1 and so on and employee names or SS#'s won't be asked for at this juncture.  

"When I first started I would get disjointed, and very unprofessional looking information that many times was handwritten and incomplete. I decided to provide the spreadsheets and other forms that needed to cover everything necessary at this critical stage,” said Rosset. "You have understand what the buyer wants to see and when you can give the buyer the answers to his/her most obvious questions, before he even asks, that not only gives him/her confidence in the deal, but usually results in a better offer and a quicker closing. My average deal closes within 90 days from listing and I believe this is due to the initial information and presentation at the beginning.”

After a short period of review, an intermediary will give the buyer suggestions concerning price, terms, conditions and timing. Rosset reports that having this additional third party involved prevents price shock or unrealistic expectations and the process actually becomes enjoyable for most clients. Fairness in the deal is ensured because the intermediary gets paid by both the buyer and the seller at the close of the business arrangement.

“When I first started combining these competitors 20 years ago, I found a lot of hostility and lack of trust between the principles to the deal,” explained Rosset. “I learned that by positioning myself between them and setting the rules of the deal, the transaction went much smoother. I'd rather they shoot the messenger then argue amongst themselves. The less that they have direct contact until the necessary time, the easier and more successful the deal becomes.”

LOI And Due Diligence

Once an offer is discussed and the basics agreed to, the intermediary will help present a thorough, non-legally binding Letter of Intent (LOI), according to Rosset. The only binding part is the confidentiality and non-compete section. The LOI puts to paper all facets of the deal and what each party is trying to accomplish by a certain date. "Over the years I've probably had less than two dozen (6 percent) of the deals canceled after the LOI,” explained Rosset.

The next phase of the deal is due diligence. Until now the buyer has only seen numbers on spreadsheets and other documents. It is necessary to confirm everything that has been presented. Tax returns, actual collection data, state sales tax worksheets, bank deposits and other items to confirm the gross numbers are provided. Certain employee pay, by position and benefits, account contract info, a Lien Search (which will confirm any outstanding long term debts that need to be paid off at closing) and other items will be scrutinized by the buyer and his legal representative to make sure that all the information is accurate and understood by the buyer.  The buyer needs to feel assured that what being bought is actually in place and the condition of the assets are acceptable according to Rosset.

Holdback Percentage

Because the majority of these transactions are between two competitors, it’s important to mitigate risk to both. In most of our industry's deals the seller has to agree to a “holdback” at close, which is a percentage (generally 10 to 20 percent) of the purchase price so the buyer isn’t taking undue risk. This holdback is held for a predetermined period of time to confirm the accounts and gross sales.

“The holdback allows the buyer to feel more confident with the deal and this usually helps is making an better offer that the seller can readily accept. It also allows the seller the opportunity to sell the company without having the buyer speak with the accounts or employees beforehand,” said Rosset. “Confidentially is one of the seller's main concerns. The holdback is insurance to the buyer that helps accomplish that goal.”

The buyer must also understand that any lost accounts due to lack of providing the service under similar conditions and terms that the account had with the previous vendor (example: raising prices, lowing commissions, reducing the number of machines without account permission) is not the seller’s responsibility. The buyer still owes the seller for those accounts. “Of course, running an operation like vending is a moving target,” said Rosset. “I often tell buyers that it is not the price you pay but the accounts you keep after a number of months after close that assure the success of an acquisition.”

There are other mechanics to an acquisition as well, such as legal documents, tax reporting to the state, payoff letters at close etc. While these are by-products of the deal, they are important. Also, as virtually all these transactions are considered assets sales, versus sales of the company stock; inventory, coin in mechs and changers (not bank accounts or money room), receivables, uncollected cash and some other items are to be counted and paid for on top of purchase price. There are different ways to accomplish these tasks, but the additional services of an acquisitions consultant and intermediary will ensure whatever is decided is put into motion starting the day of close and the details of the sale are stress free for both parties.

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