Growth through acquisition is a tried and true answer to growing your contracting business. Many of our industry leaders have one or more acquisitions under their belt and attribute these business purchases with assisting in their growth. There is a right way to go about acquiring contacting businesses for growth and it starts with prospecting for candidates.
A business acquisition can be as simple as obtaining a telephone number from a defunct competitor or as sophisticated as buying a profitable going concern enterprise. Before prospecting you have to first define what it is you are seeking to achieve. Some goals for acquisition include:
- Quick additional growth to your existing business – new customers
- Entering into our industry – purchasing a going concern
- New business line – a HVAC business acquiring a plumbing operation or visa-versa
- New market – could be a portion of your market not serviced by you currently or a totally different city
Having an understanding of what you are looking for will enable you to narrow your search. As an example, if you want to add new customers to an already existing base within your core market area, you are more than likely interested in customer database acquisitions versus entire going concern businesses.
With an understanding as to the type of business you want to acquire in mind, you can begin to search for candidates. Contractors interested in acquisitions often ask me how to do this. Consider all four strategies to effectively achieve the goal of a reduced risk acquisition.
- Letter to Competitors
- Building local competitor relationships
- Business brokers
Letters to Competitors
Letters mailed to competitors in your area of interest can be a successful way to reach out to those business owners that are actively selling their business or just considering. The letters are typically generated from lists gathered regionally by SIC Code and mailed directly to the owners of the select businesses. The lists can be modified by several key factors and even narrowed down manually.
It is highly recommended that you consider utilizing a service that specializes in these mailing. Even better is the use of a consultant or third party who can field the calls from the prospective sellers. This involves using the third parties letter head and contact information. By using a third party to receive the calls, you as the buyer remain anonymous. There are several advantages to this approach which include:
- Saves your valuable time – some returned calls can be lengthy and all those answering deserve the full attention and respect that as a busy business owner your cannot afford
- A consultant or third party will know what questions to ask – with an understanding as to what you as the buyer is looking for, a third party evaluator can quickly access the opportunity
- Would-be sellers are typically more open to discuss initial topics with someone other than a competitor
- Avoids any initial local bias that a would-be seller may have against selling to a competitor
- Avoids any local hurt feelings by the buyer remaining anonymous
The consultant or third party fields thee calls and then reports back to you the findings. Based upon the finding you can then take any potential prospects to the next level.
Building local competitor relationships:
Getting to know your competitors, most importantly those competitors that may be at the age of retiring, is essential. The introduction to these candidates may start at a local contracting trade meeting, trade shows, etc. An introduction may even come through the anonymous letter described above. The facts are a vast majority of contractors have no real exit strategy and by gently building an “I am interested when you are ready to sell” relationship today may pay huge dividends in the future. This might include having breakfast or lunch with a few candidates every six months. The future in the case may be more than a year away, but this approach has been proven to work.
This strategy is obvious enough or is it? If it was, more contractors would do it. Communicate to your suppliers that your business is interested in acquiring other businesses. Suppliers will be the first to know who is retiring, who wants out of the business and in some cases, who cannot pay the bills. To be effective your must:
- Reiterate this point with your suppliers continually. Do not think that a busy supplier with a million things to remember will hear you the first time.
- Keep your description of what you are looking for high level. This is a case where too many details are distracting. If you are an HVAC residential service and replacement business seeking additional residential service and replacement business, simplify your request and say HVAC businesses. It then becomes your responsibility to weed out those leads that do not match your criteria.
On-Line Business for Sale Listing and Brokers:
A business broker’s job is to match a willing seller with a willing buyer. They are often rewarded (deservingly) for these efforts by claiming 10% of the total purchase price. Business brokers can be a great resource for potential acquisition candidates; however, as a contractor seeking reduced risk acquisitions it is often the case where the expectations set by the business brokers exceed the fair market value or the value of the business that is for sale.
Business brokers, business owners and consultants list businesses for sale on-line through several on-line “business for sale” web-sites. Sites such as Bizbuysell.com and Bizquest.com are excellent sources to find acquisition candidates. Keep in mind this business can often be priced higher than what a value minded operator will be willing to spend.
History suggests that the best add-on or tuck-in acquisitions purchased at la reasonable price and therefore low risk do not fall into place overnight. It takes a concerted effort to continually build relationships with those highly attractive and most likely owners who are soon to be retiring, stay in front of your suppliers and of course seeking the right professional help in prospecting and completing a transaction. Done wisely small acquisitions can significantly help your top-line and bottom line!
Brandon Jacob’s career spans 23 years and includes extensive experience in business valuations, mergers and acquisitions, profit improvements, finance and accounting. Specific to the air conditioning and plumbing contracting trades, Brandon has 18 years of assisting in the sale and purchase of contracting businesses ranging from $100,000 to $50,000,000 in annual revenues.