Marc Rosset is founder and president of Professional Vending Consultants Inc.
Marc Rosset is founder and president of Professional Vending Consultants Inc.

Our industry has been in consolidation mode for many years, but the purchase of hundreds of quality operators along with technological advances in the industry have forever changed the landscape for acquisitions.

In 2013 I wrote an article about a 20-year overview of acquisitions from 1993 (when I founded Professional Vending Consultants, Inc.). Here’s an excerpt from that piece that I would like to share and expand upon, six years later:

I believe that within the next five years, the handful of remaining excellent vending industry acquirers will prefer to put more money into improving their own operations than into purchasing companies that still are operating in the past. Most good companies will always find an interested buyer, but at what price? I feel there will come a time when an operator who has not kept up will have very little, if any, value to an advanced competitor.

Those five years have come and gone. That prediction I made and its consequences are in place right now and affecting acquisitions in our industry today.

The largest and most efficient operators in the country now employ the latest technologies, payment systems, automated inventory control, micro markets and other new ways to serve their customers. The vast majority of these innovators are also the most obvious acquirers of other operations. These same companies have always been on the lookout for good acquisitions to fold into a local warehouse or division. But the definition of “good” has changed, and it’s affecting smaller- to medium-sized (up to $5 million in revenue) operators in most areas of the country.

Over the past handful of years, when these new technologies and systems had been introduced to the industry, numerous smaller operators (I would estimate about 35% of existing companies) either waited too long to catch on or decided to not get involved at all.

There are a number of reasons for their decision not to engage. Some were just too set in their ways of the past. Many didn’t have younger, tech savvy family members or other employees that understood the opportunity or pushed them to get on board. Others were close to retirement and didn’t see revamping their entire company as a viable strategy. For some, I can appreciate their thought process and can’t condemn them for their inaction.

Unfortunately, regardless of the reason, this decision not to commit is dearly costing many of them. This conclusion is not about only what they haven’t done, but as much about what the bigger cash buyers have accomplished in that same timeframe.

All the larger acquirers I know have fully endorsed these new methods of operating. They have spent large sums of capital in upgrading their equipment to take credit/debit cards, digital wallets, and other contactless cards and payment systems. They have streamlined their warehouse and delivery productivity with systems such as LightSpeed, prekitting and telemetry.

Experts in the industry will tell you that once you start to employ these systems, your true gains in productivity won’t be realized unless all of your equipment, markets and warehousing are connected. And here we start to see where the smaller operators mentioned above are now in jeopardy. The best way to illustrate this is to give you an actual situation I’ve dealt with this year. And this isn’t an isolated case; I’ve had more than six similar experiences in the past 12 months alone and am working on three others as I write this.

Just in the past week I had an operator call to ask me if I could sell his company to the most likely purchaser in his area. I suggested I would show them some financial and other basic info. I did caution him that I didn’t feel they would be excited by how his company operated.

He was doing over $2.5 million in sales but the red flags were no OCS, no micro markets, 80% of 350 accounts grossing under $6,000 a year, older fleet and too many vending management accounts. After one quick look, the buyer said they would take a pass on this one — no discussion or negotiation.

In another deal, I had an operator call me earlier this year wanting to sell his company. I knew this owner for over 20 years and we spoke often about his possible sale one day. I expressed to him time and again that to not only maximize the value of his operation and to make sure he would even be attractive enough to sell, he had to start to modernize. His isn’t a mom-and-pop company; he is doing over $3.5 million in gross sales. At that point he had only updated some equipment (about only 20% machines had card readers), had decided not to get into markets and at best had some older handhelds as his only real technology. On top of that he was only doing about $50,000 in OCS sales. He said he was expecting at least 50% of sales plus inventory and coin as the purchase price. I asked him why he thought it was worth that much. He said that he knew a larger company had purchased a company (which I had sold to them) in his area five years before and knew they had paid that amount, so his must be worth at least that.

In his area, as in many other areas and cities in the country, larger companies had purchased all of the bigger operators in the counties he was servicing, leaving only him and a few garage type operations left. Now, in some other transactions I’ve done, being the last operation standing in the way of the acquirer’s total domination of the area would normally generate a good premium price. I have two other current deals where that is the case and we are talking huge offers. But not every situation is the same.

In this scenario, our buyer would virtually have to upgrade or replace most of his assets. He was 1.5 drivers short of easily servicing all his routes and had substandard pricing in the field. You would think a buyer would just offer him a lower price, such as 30% of revenues just to get rid of him.

But in this case, they offered him NOTHING. They didn’t want to deal with having to spend all the time and money it would take to modernize, get rid of his 100+ accounts doing under $3,000 per year and face a difficult transition without enough drivers. After being upset that I couldn’t get him what he thought his company was worth, I told him he could go ahead and try on his own. He did speak with a few larger independents in his state to see if any would like to expand to his area but still at 50% of revenues. He didn’t get past the first phone call with any of them. He still owns the company and is running a full route in his 60s.

I currently have other operators, one in the Northeast and one in Texas, who have similar operations. Again, neither has an interest except at a very nominal price.

I continue to implore operators who have not modernized to at least convert a few locations to markets, put readers on as many machines as possible, start or increase OCS, get rid of your r-factoring program and try to sell off or eliminate the smallest accounts with the worst of your equipment. The buyers will see that the owner is at least trying to upgrade and because perception is important, they certainly will have a better chance at a decent offer.

Six years ago, all these companies would have had interested acquirers. Today, as more territories are operated by fewer or, in many instances, only one main competitor, their chances of a good sale without upgrading will be very disappointing. 

This situation will certainly not get better for these operators, as new potential future advances such as accepting cryptocurrency payments, having robotic warehousing systems, using driverless delivery options, and markets and convenience offerings based on platforms such as employee-less Amazon stores will put the smaller operator further behind.

On the other hand, many sales have been record-busters. A good number have sold after they upgraded their companies and received offers they didn’t believe they would get. There was one very large regional operator in the Southeast who had just spent over $1.1 million in converting all his equipment to telemetry and readers. Why would he sell just after he spent all that money? It was because the right buyer also had the same systems in place and would get rid of their biggest competitor in the area and because of the similarities between them, the transition would be quick and smooth. These advantages allowed the buyer to offer him a deal that, as he said, he would be crazy to refuse.

I had another $9 million operator who converted all the accounts he could to micro markets, then sold off the rest of his vending business. He then spent that money on establishing market accounts only and increasing his OCS sales to many millions in revenue. From our conversations he knew these two services were in the most demand by the largest acquirers. He played this strategy right and two years later came to me to sell at unheard of prices. I wasn’t sure we could pull that off (though I was pretty optimistic, otherwise I would not have taken the listing) and we received exactly what he wanted. As of this writing, those are the highest prices that anyone I know has ever walked away with for markets and OCS.

No matter the circumstances or the condition of the company, if you love what you do, then I would suggest keeping it going. If not, and you are frustrated by the difficulty in finding and keeping good employees (one of major reasons many are selling), or you just can’t stay competitive by upgrading and/or downsizing your small accounts, then look to sell before there is little left that a buyer might want.

MARC ROSSET is founder and president of Professional Vending Consultants Inc., a specialized intermediary for acquisitions of full-line vending, food service and office coffee service companies in the U.S. PVC has represented more than 310 transactions with gross sales value of just over $900 million since 1993. Rosset has played a key role in helping to establish industry-recognized guidelines for the value of operations in our industry. He can be reached at pvcinc1@aol.com or (312) 654-8910. For a list of just a few of his many satisfied clients, please click here.

More in Business Brokers (acquisitions and sales)