In our experience, your age has a big effect on your attitude towards your business and how you feel about one day getting out. Here’s what we have found:

Business owners between 25 and 46 years old

Twenty- and thirty-something business owners grew up in an age where job security did not exist. They watched as their parents got downsized or packaged off into early retirement, and that caused a somewhat jaded attitude towards the role of a business in society. Business owners in their 20’s and 30’s generally see their companies as means to an end and most expect to sell in the next five to ten years. Similar to their employed classmates who have a new job every three to five years; business owners in this age group often expect to start a few companies in their lifetime.

Business owners between 47 and 65 years old

Baby Boomers came of age in a time where the social contract between company and employee was sacrosanct. An employee agreed to be loyal to the company, and in return, the company agreed to provide a decent living and a pension for a few golden years.

Many of the business owners we speak with in this generation think of their company as more than a profit center. They see their business as part of a community and, by extension, themselves as a community leader. To many boomers, the idea of selling their company feels like selling out their employees and their community, which is why so many CEO’s in their fifties and sixties are torn. They know they need to sell to fund their retirement, but they agonize over where that will leave their loyal employees.

Business owners who are 65+

Older business owners grew up in a time when hobbies were impractical or discouraged. You went to work while your wife tended to the kids (today, more than half of businesses are started by women, but those were different times), you ate dinner, you watched the news and you went to bed.

With few hobbies and nothing other than work to define them, business owners in their late sixties, seventies and eighties feel lost without their business, which is why so many refuse to sell or experience depression after they do.

Of course, there will always be exceptions to general rules of thumb but we have found that – more than your industry, nationality, marital status or educational background – your birth certificate defines your exit plan.

Wondering if you have a sellable business? The Sellability Score is a quantitative tool designed to analyze how sellable your business is. After completing the questionnaire, you will immediately receive a Sellability Score out of 100 along with instructions for interpreting your results. Take the test here:
http://sellabilityscore.builtosell.com/?advisor=BRETY3HWR57BQ1

Last year’s commentary:

Here are our thoughts about key trends that will impact green industry mergers and acquisitions in 2011:

· Major industry players will continue to seek strategic acquisitions in an attempt to  strengthen their networks.

· Local and regional companies will also seek to take advantage of strategic acquisition opportunities.

· A number of regional consolidation efforts will emerge as companies seek to take advantage of opportunities and strengthen their position  in an increasingly competitive marketplace.

· Franchising and similar programs will to continue to grow in the industry, giving independent operators access to marketing and operational support and reducing risks.

· Financing will continue to be a challenge for many potential buyers.

· Buyers will be disciplined in their approach to acquisitions, partly in response to the requirements of their financing sources.

· Long-term tax policy for capital gains and estate taxes will continue to be uncertain, making exit planning challenging.

· Additional consolidation efforts in both lawn care and landscape services will emerge.

· Although the economy is slowly emerging from the recession, the effects of price competition will impact the profitability of the industry, prolonging the recovery for many.  The combination of the recession and serious competition will cause weaker companies to seek exit strategies.

· Valuations will remain soft and will not return to pre-recession levels for some time to come.  The best opportunities will still command premium valuations, however.

· Over time, landscape contractors who shifted their focus to maintenance as construction ground to a halt will return to their traditional business.

· As the economy strengthens, the focus on all things green will become even more pronounced.  Environmentally-friendly businesses within the industry will be increasingly attractive, including those offering organic lawn care and water-efficient landscaping.

Capital Green Lawn Care, Inc. is owned and operated by Mark Zingaro of Rochester, New York. The existing operations will come under the name of Lawn Dawg in January 2012. “I’m so excited to be part of the Lawn Dawg team,” states Zingaro. “This acquisition gives me the most support that I ever had working for another company in the past or for myself. I feel with all the support and knowledge I’m getting from the Lawn Dawg team, combined with my years of experience, the sky is the limit! I met with Jim Campanella and Tom Bucci for the first time and I told myself this is the team I want to be working for. I’m so happy that I sold to Lawn Dawg. It was the right choice and best decision that I could have made for the present and future.”

President Jim Campanella shares his enthusiasm, “We are very excited about entering the Rochester market as we continue our growth plan to expand throughout the northeast. What makes this even more exciting is that we are bringing on an industry veteran in Mark Zingaro. Mark is a great addition to Lawn Dawg’s management team due to his commitment to outstanding customer service, which is evident in his superior retention rates. Mark has the talent and skills to build a great team and grow our business while maintaining the high level of service that we demand.”
The transaction was facilitated by Professional Business Consultants.

The Sellability Score Software uses an advanced algorithm that weighs dozens of different variables to determine how easy it would be to sell your business.
Developed by John Warrillow, author of “Built to Sell: Creating a Business That Can Thrive Without You”, this innovative software will tell you how your business would stack up if you tried to sell it today.
Once you know where you stand, you can start taking the appropriate steps toward actually selling your business and walking away with the fat nest egg you’ve been dreaming about.
Take the “Sellability Score” quiz now and find out:

• The Sellability Score of your business, including where it ranks on the scale of being easy or hard to sell.
• Your best options for selling your business depending on your score.
• The most important (and often overlooked) questions you should ask yourself to determine if your business is ready to sell.

Take the Sellability Score quiz and you will receive the following things, totally without cost:

• You will immediately receive your Sellability Score with a basic analysis.
• Within two days, you will receive a 28 page report via email that further analyzes your Sellability Score along with suggestions for improving your business’s sellability.
• You will also be able to schedule a  30 minute phone call with a Principium professional to help interpret the Sellability Score for your green industry business.

Click here to take the Sellability Score Quiz today.

As an added benefit, the business owners who complete the Sellability Score Quiz by December 31, 2011 will receive a special gift from The Principium Group.

–n, pl -gies

1. The interaction of elements that when combined produce a total effect that is greater than the sum of the individual elements, contributions, etc.

2. The potential ability of individual organizations or groups to be more successful or productive as a result of a merger.

Have you ever wondered why some acquisitions are successful and some are miserable failures?

In a typical strategic acquisition situation, the case for a business acquisition is built on an assessment of potential synergies that can be realized by completing an acquisition.  Let’s take a closer look at the synergies that an acquisition can produce.

Synergies are usually categorized as either revenue synergies or cost synergies.

Revenue synergies are opportunities to increase revenues as a result of an acquisition.  Revenue synergies arise in two ways.  The first opportunity for revenue synergies is the ability to sell more to existing customers of the two combining entities.  This can be the case when the service mix of the two companies are not the same. For example, a landscape maintenance company might buy an irrigation company, expanding its product line, in the expectation that it will be able to sell irrigation services to its existing landscape maintenance customers.  If the expected portion of the combining companies’ existing revenues are retained and new revenues are generated by selling irrigation services to maintenance customers or maintenance services to irrigation customers, a revenue synergy is realized.  The expectation of such  revenue synergies is often a key driver of acquisition activity.  However,  the possibility of this kind of revenue synergy is often discounted in acquisition valuation analysis because it is somewhat speculative in nature – it depends on successful cross-selling after a transaction is completed.

The other type of revenue synergy arises when a company acquires a service line that it has historically out-sourced.  For example, a maintenance company may have historically outsourced fertilization and weed control services.  If it acquires a fertilization company, it can bring the services previously outsourced in house and immediately realize a revenue synergy.  Because this synergy can be realized by management action, it is less speculative and more appropriate for consideration in valuation analysis.

Cost synergies may arise in a variety of ways.  Duplicate activities can be eliminated.  Facilities can be combined or eliminated. Duplicate personnel can be eliminated. The combined company may be able to exercise greater purchasing power.  Overhead can be spread over a larger base.  Cost synergies can be relatively objective and appropriate for consideration in analyzing a potential transaction.

Why then do many acquisitions fail to live up to their expectations when it come to synergies?  There are really two reasons.  First, it is very easy to over-estimate the value of synergies and the time and process required to realize them.  Second, in many acquisitions, there is too much focus on “getting the deal done” and too little focus on what comes next – the blocking and tackling required to integrate an acquisition and realize its full potential to the combined entity.

Those acquisitions that are successful, sometimes wildly successful, are founded on a realistic assessment of the value of the acquisition to the combined business, including meaningful synergies, and have a well-planned integration plan to make sure the acquisition goes as smoothly as possible and the synergies that were identified in the planning and evaluation process are actually realized by the combined business.

Mr. Kulkarni joins TruGreen LandCare with over 20 years of professional experience in the commercial and industrial sectors, most recently serving as a senior executive at United Technologies Corporation (“UTC”), a publicly traded Fortune 50 company.

“We are delighted to have someone of Vidu’s caliber join the TruGreen LandCare team as Chief Executive Officer,” said Kevin Dowd, Chairman of TruGreen LandCare. “Vidu has an impressive track record of enhancing operations, building strong customer relationships and delivering results. His background and experience are well suited for his new role at TruGreen LandCare as we work to further strengthen our position in the industry. We also thank Mac for his service and leadership in transitioning TruGreen LandCare into a successful standalone company and wish him the best in his future endeavors. ”

Mr. Kulkarni said, “This is an exciting opportunity for me. TruGreen LandCare is a great company and a respected service provider in the commercial landscaping industry. I am delighted to be part of the TruGreen LandCare team and look forward to working with our talented associates to accelerate the Company’s performance.”

Prior to joining TruGreen LandCare, Mr. Kulkarni was President of the Americas, and Australasia regions, for UTC’s Fire & Security business segment, a $6.5 billion division. In these roles Mr. Kulkarni led large branch based businesses providing electronic security and fire safety services to commercial and industrial customers in North America and Australia/New Zealand. Mr. Kulkarni also led the world-wide Field Operations function for UTC Fire & Security, was Managing Director of Carrier India, and was a part of UTC’s corporate M&A team. Before joining UTC, Mr. Kulkarni worked as a strategy consultant at Bain & Company. Mr. Kulkarni has a M.S. in Engineering from the University of Massachusetts, and a M.B.A. from the Amos Tuck School at Dartmouth College.

Chuck Fallon Named President of Terminix

MEMPHIS, Tenn., Dec. 5, 2011 (GLOBE NEWSWIRE) — The ServiceMaster Company, one of the world’s largest residential and commercial service networks, announced today key executive appointments at TruGreen and Terminix, its two largest business units. Tom Brackett has been named president of TruGreen and Chuck Fallon has joined the company as president of Terminix. Both will report to ServiceMaster Chief Executive Officer Hank Mullany.

Brackett has been serving as interim president of TruGreen since May, while holding the position of president of Terminix since May. Brackett moves into his new role after a highly successfully 20-year career at Terminix, including the last five as president and chief operating officer.

Chuck Fallon is a seasoned business leader with a track record of delivering strong results in both public and private companies. Most recently, Fallon was president of Burger King North America, part of one of the world’s best-known quick service restaurant chains, with more than 12,000 restaurants globally, including 7,500 company-owned and franchised restaurants in North America. While at Burger King, Fallon helped continue the company’s successful turnaround after its initial public offering in 2006.

“I’m thrilled that an executive with Chuck’s background is joining ServiceMaster,” said Mullany. “Chuck is a results-oriented leader with more than two decades of experience in driving business growth, transforming customer experiences and developing strong teams. With Tom leading TruGreen and Chuck now taking over at Terminix, we’ve filled the leadership roles in our two largest business units, representing more than $2 billion in annual revenues.”

Mullany credited Brackett for serving in the interim role, and quickly laying out a plan to improve TruGreen’s performance, including the development of new branch standards and centralization of many core activities and administrative functions that are already helping us to improve customer service.

“Tom’s operational expertise and experience at Terminix have been a huge advantage for us as we implemented necessary changes in TruGreen,” said Mullany. “I also appreciate Tom pulling double duty for us in our two largest businesses over the past six months. Now that he’ll be able to focus entirely on one business, I’m confident he’ll continue to identify opportunities to improve performance and accelerate growth at TruGreen.

Fallon brings to Terminix a broad background in business strategy, operations, sales, marketing and network development. Prior to his career at Burger King, Fallon spent eight years at Cendant Corporation, a global travel and real estate company based in Parsippany, N.J. whose brands included Avis, Budget, Ramada, Days Inn, Century 21 and Coldwell Banker, just to name a few. While at Cendant, he served five years as Executive Vice President of Revenue Generation in the company’s Avis Budget Rental Car Group, leading all sales, marketing and revenue management activities.

He began his professional career in investment banking, working at Prudential-Bache Securities Inc. in New York City before moving to London-based Hoare Govett, Ltd in 1990. He later joined Smith Barney Inc., where he spent six years in London and New York City, ultimately as director in their financial institutions corporate finance unit.

Fallon graduated from McMurry University in Abilene, Texas with bachelor’s degrees in accounting and finance. He has an MBA in finance from Columbia University’s Graduate School of Business.

During his career at Terminix, Brackett has been instrumental in helping the business grow, becoming the first pest control company to surpass $1 billion in revenues. He joined Terminix in 1992 as a branch manager in Miami, Fla., and was promoted to division vice president in 1997 and eventually, president and COO in 2006. Under his leadership, Terminix has continued its category leadership — delivering both top and bottom-line growth through a combination of product and service innovation, enhanced technology and operational excellence.

“These two appointments are the latest in a series of key leadership moves across ServiceMaster’s business units and functions,” said Mullany. “With a strong leadership team now in place, we will move forward with our business strategies and take aim at rapidly growing our business by transforming our customers’ experience and delivering best-in-class service.”

The other day I was speaking with a successful CEO in his fifties who runs a heating and air conditioning company generating eight million dollars in revenue and over one million dollars in profit before tax.

Even though he was tired and nearing burnout, he was planning to wait another five to seven years before selling his business because he “wanted to sell at the peak of the next economic cycle.”

On the surface, his rationale seems to make sense. If you speak with mergers and acquisitions professionals, they’ll tell you that an economic cycle can impact valuations by up to “two turns,” which means that a business selling for five times earnings at the peak of an economic cycle may go for as low as three times earnings at a low point in the economy.

The problem is, when you sell your business, you have to do something with the money you receive, which usually means buying into another asset class that is being affected by the same economy.

Let’s say, for example, you had a business generating $100,000 in pre-tax profit in an industry that trades between three times earnings and five times earnings, depending on the point in the economic cycle.

Furthermore, let’s imagine you sat stealthy on the sideline until the economy reached the absolute peak and sold your business for $500,000 (five times your pre-tax profit) in October 2007. You took your $500,000 and bought into a Dow Jones index fund when it was trading above 14,000.  Eighteen months later  – after the Dow Jones had dropped to 6,547.05– you’d be left with less than half of your money.

Even though you cleverly waited till the economic peak, by March 9, 2009, you would have effectively sold your business for less than 2.5 times earnings.

The inverse is also true. Let’s say you waited “too long” and sold the same business in March 2009. And because you were at the lowest possible point in the economic cycle, you only got three times earnings: $300,000. Notice that’s 20% more than if you’d sold at the peak and bought an index fund at the top of the market.

Just like when you sell your house in a good real estate market, unless you’re downsizing, you usually buy into an equally frothy market. Which is why timing the sale of your business on external economic cycles is usually a waste of energy.

External vs. internal economic cycles

Instead, I’d recommend timing the sale of your business when internal economic factors are all pointing in the right direction: employees are happy, revenue and profits are on an upward trend, and there is still lots of market share for an acquirer to capture.

When internal economic factors are pointing up, you’ll fetch a price at the top end of what the market is paying for businesses like yours right now, which means that – for good or bad – you get to use your newfound cash and buy into the same economic market you’re selling out of.

Wondering if you have a sellable business? The Sellability Score is a quantitative tool designed to analyze how sellable your business is.  After completing the questionnaire, you will immediately receive a Sellability Score out of 100 along with instructions for interpreting your results. Take the test here:

http://sellabilityscore.builtosell.com/?advisor=BRETY3HWR57BQ1

Orlando-based Massey Services provides pest control and lawncare services throughout Florida, as well as in Georgia and Baton Rouge, Louisiana. Based in Southwest Florida, American Pest Control Management has been providing services to more than 7,000 homes and businesses in counties from Tampa to Naples.

“American Pest Control Management has been a well-respected company in Florida for the last 20 years.  Their commitment to quality service is an excellent fit with our company,” said Tony Massey, President and COO of Massey Services. “We are pleased to welcome the entire team from American Pest Control Management to the Massey Services family.”

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—–
Ron Edmonds
The Principium Group
Mergers & Acquisitions + Exit Planning + Capital Formation
Serving the Green Industry
901-351-1510

Here’s a possible scenario:

A landscape services company with $750,000 in EBITDA might be worth, in some circumstances, $3,000,000 (if it was valued based on a multiple of four).

A smaller landscape services company with $250,000 in EBITDA might only be worth $500,000 (based on a multiple of two).

If the larger company is able to acquire the smaller company for $500,000, the starting point for the combined company’s EBITDA would be $1,000,000. If the larger combined company could still justify a four multiple, its indicated value would be $4,000,000.

If the combined company can realize $125,000 in synergies through increased revenues or reduced costs, the combined company’s EBITDA would then be $1,250,000. If the company still garnered a four multiple, the indicated value would be $4.5 million, a 1.5 million in increase in value for a $500,000 investment, a 3-to-1 return and what most people would call a homerun.

There are a lot of “ifs” in this scenario.

The larger company has to have the characteristics that lead to a relatively high multiple.
The larger company has to be able to acquire the smaller company at a reasonable valuation.
The larger company has to be able to integrate the smaller company into its operations, maintaining its business, and still have the characteristics that lead to a relatively high multiple.
The combined company has to actually be able to realize the $125,000 in synergies that have been identified.

All of that is a pretty tall order, but it does illustrate what is possible if everything goes right with acquisitions and that at least considering the possibilities of acquisitions is a very good idea for many businesses.