Rosset Report: 2022: Full speed ahead for M&A

July 11, 2022
If the economy gets much worse, time will tell whether buyers will pull back on acquisitions as most did in 2020, but for now, it’s full speed ahead on mergers and acquisitions.

There’s a famous quote from Mike Tyson, the former boxing heavyweight champion. He states, “Everyone has a plan, until they get punched in the face.”

And everyone I speak to has opinions on how they are trying to handle those punches that have been thrown at them in the first half of 2022. From the higher costs of fuel and goods to supply chain headaches to the inability for most to easily replace employees that retire or quit, this year is shaping up to be one of the most challenging I’ve seen since beginning PVC Inc. in 1995.

Many have decided that they don’t want to deal with these issues anymore as acquisitions of operations in our industry have skyrocketed. So far this year, I’ve sold more operations in a six-month period than ever before. In speaking with so many in the industry on a regular basis, I’ve heard of numerous deals that have already been completed and others that are sure to get closed in 2022.

Haven’t we faced these headwinds before?

So why is this year different? Since my start in the industry, I’ve seen operators confront numerous battles and industry changes and still, most flourished. I can go as far back to when cigarettes were banned out of most vending machines, obesity in schools became a thing and forever changed what products operators could offer in their machines, 20-oz. soda became a rage and micro markets and telemetry became the big disruptors, (and in most cases, the savior) of the industry.

I was here for the 2001, 2008 and 2020 recessions that were caused by, respectively, the dot-com crash, the housing crisis and the worst pandemic since 1918. At different points along the way, many choose not to fight the fight, as evidenced by the huge consolidation in the industry in the past 20+ years.

Many others, instead, decided to implement new technologies as a way to increase productivity with fewer employees and reorganize their operations to be more fluid and responsive to the needs of their clients.

According to most economists, we will very soon enter into another economic recession, although I personally feel we are already in the grasp of it. The war in Ukraine, our poor relations with China and the continuing pandemic, which have all caused upheavals in fuel costs and disruptions to the flow of goods, definitely is taking its toll on our economy. But again, why is this period more difficult than many poor economies in the past?

Where are the employees?

In speaking with so many operators, from the largest nationals to the locals, many of their concerns are focused on their issues with finding qualified new hires. The reasons for lack of workers are many and would take numerous pages to define what is happening to our socioeconomic situation. Many are convinced that the younger population wants to get paid to sit behind a computer and the fact that with our national drug epidemic and the new laws making marijuana legal, along with other issues, have made the availability of good job candidates scarce.

An operator from Colorado mentioned something I had not thought about. He feels that with the lax laws regulating the legal use of marijuana in Colorado, he’s not sure how easily he can find someone who can pass a drug check. Multiply his situation by all the states that currently have made (or are about to make) marijuana legal, and you can start to see the problem this is causing now and in the future.

For many years, finding good qualified employees has been difficult. Ten years ago, I remember a friend in Chicago telling me he continuality has an ad for drivers and mechanics running in all the local and online job websites. He never takes them down. Even when he is fully employed, he worries every morning that a driver may not show and a route goes unserved. I have sold five operators this year alone, where the lack of a full lineup has forced them to sell. They had finally given up on trying to find enough good people.

I don’t have any great advice to bestow on how to right the problematic employee situation you are all facing. If I did, then I should be president. For now, I would advise, as I did during the worst of the pandemic, that if your revenues start to slip because of a new pandemic or a worsening recession, try not to lay off good people. Many may have laid off drivers during the pandemic, and now, when they need them, they are nowhere to be found.

For those who are thinking of an exit, it’s a good time to pull the trigger

An operator I’ve known a long time (he sold the prison half of his business about 10 years ago) contacted me recently. He tells me he is about to sell as he can’t find enough employees, etc. I asked him what was holding him up, as the company who bought his business before would love to finish this and is willing to pay him a premium to do it now.

I thought it very telling when he stated that “I’m on the edge, or rather, I should probably say I’m on the ledge.”

For many, the saving grace of this difficult situation is that the typical cash buyers I deal with, are paying some of the highest prices I’ve ever seen. Earlier this year I sold a $12 million operation for the highest percentage of sales I’ve ever obtained. I won’t state that valuation here, as many may ask me to get that amount for them. Not all companies operate the same, have the necessary technologies or type of accounts that these buyers are paying premiums for at this time.

If the economy gets much worse, time will tell whether these buyers will pull back on acquisitions as most did in 2020, but for now, I can say it’s full speed ahead on M&A.

So, what exactly is your company worth?

When I began selling operations 30 years ago, if I could get someone 35-40% of revenues, not only did I do my job, but also the sellers were ecstatic. Right now, if I valued a company at only 40%, I would possibly not even list them, because at a value of 40%, they most likely won’t have the type of business that the buyers would be excited to own.

Then again, earlier this year I sold a very small company in a very rural area that had no cashless machines, no telemetry, their newest snack machine being an AP 113 and their largest account was doing only $12,500 annually. What did they get? 50% of sales, plus inventory and coin! Go figure.

No deal is exactly the same, although most are pretty consistent with historic terms, price and conditions.

For instance, virtually every deal has inventory and coin of the seller paid separately on top of purchase price. Another is that there is a term sheet (or some say, Letter of Intent) negotiated and agreed to that will be the roadmap for finishing the deal. There are over 35 such conditions I can name here that we use to determine the value and complete the deal.

The most important issues are:

  1. How close are the two warehouses (assuming this is a fold-in) and will employees of the seller easily be able to get to the buyer’s facility?
  2. How closely do the two parties’ telemetries and other technologies match up?
  3. Does the seller have any contracts with their largest accounts and are they transferable?
  4. Is seller paying all commissions owed or is it R-factoring?
  5. Does the seller have any third-party vend management accounts and will the buyer be able to assume them?
  6. How much debt under lien does the seller have? (Although buyers normally do not assume debt, how much is owned will determine how much the seller actually pockets at close).
  7. Will the seller be available for a period of time after the close to help with integration?

The more positive answers to the above and a few dozen other questions determine how aggressive the large cash acquirers will be on the deal.

So, if you are on the edge, or the ledge, hopefully this article will provide you better insight as to what is going on with acquisitions in our industry. As entrepreneurs, we all prefer to be optimistic. But if the time is nearing where you seek an exit, it helps to know that you can currently sell with dignity and finally be able to punch back.

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 over $900 million since 1993. Rosset has played a key role in helping to establish industry-recognized guidelines for the value of operations in the industry. He can be reached at [email protected] or (312) 654-8910. 


Marc Rosset is founder and president of Professional Vending Consultants Inc., a specialized intermediary for acquisitions of full-line vending, foodservice and office coffee companies in the U.S.

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