Acquisitions made easy
Acquiring a company is nothing more then marketing for customers. When you dole out your money for a Yellow Pages ad, a direct marketing piece or any other conventional marketing tactic, what are you expecting in return? A customer, right? Well, I think conventional marketing can be a risky business, especially if you don’t have a savvy and seasoned professional guiding you along the way.
A contractor has no guarantee that a marketing investment will pay off. Some swear by Yellow Pages ads and have had great success, while many others are trading in the ink in a book for a click on the computer so they’re not left in the dust of changing times and technology. Trends are like tides; they come in and they go out. You have to pay attention when charting your course.
If you believe marketing is a risky business, give acquisitions a try. Acquisitions are the safest marketing tactic you can use for your company. Why? You’re buying “repeat” customers - they close better than first-time customers and they are better customers. Repeat customers are the lifeblood of the service business. Also, you’re getting hundreds, even thousands, of customers at a time. I don’t know about you, but I love repeat business.
You may be surprised at how simple acquiring a business can be.
Market for a prospectStop sending direct mail to your conventional customers. Instead, send direct-mail letters to all the contractors in your market area. The object of this letter is to put them on notice that you are expanding into their territory and looking for companies to join you. A sample letter could be as simple as this:
“Hello Mr. Contractor,
“As you probably know, our company has had fabulous growth in the past few years. The growth is part of our plan to become the largest service provider in the area. One of our strategies will be to acquire a company in this service area. I’ve heard you may be looking to get out of the industry or just looking to sell. I would be interested in presenting you an offer for your business. I look forward to speaking with you in the near future, or even today. You can reach me at xxx-xxxx.
This letter is intended to start a buzz with contractors in your area.
Send these letters out when your business slows down. Everyone has slow times during the year, including your competitors. You want to catch them when they may be thinking, “My business sucks,” or “There’s got to be a better way to make a living.” Being the capitalist that you are, you want to be there for them.
The first meetingWhen the phone rings with a contractor interested in selling, schedule a meeting with the owner. At your first meeting, get your prospect to do all the talking. Your job is to ask questions:
- Why are you looking to sell?
- What is your time frame?
- What are you asking for the business?
- How many customers do you service in a year?
- How many technicians do you run?
- How much of your business is resi-dential service?
- What are your plans after you sell?
- Are you asking for a lump sum or would payments work?
At this point you have set the stage for the offer.
Review service invoicesSet up a second meeting. The purpose of this meeting is to count the past 12 months of invoices. I repeat: You need to physically count and review all the company’s invoices for the last year. Do not shortcut this step.
Break your count down by service department: plumbing service and HVAC service. If you run across any commercial, installation or remodeling invoices, do not include these in your total count. Keep your eye on the prize. You want service invoices only. Commercial is not part of this game, and installation and remodeling invoices … well, the money’s already gone.
Now you have a count of all the residential service invoices. Here’s where math assumptions come into play. You can use these assumptions:
Let’s say you counted 625 plumbing service invoices and 1,000 HVAC service invoices. You could assume the business will generate $775,000.
So, what do you offer?
Determine your offerBased on $775,000 in potential revenue, you use the following thought process when considering your offer:
It’s important to know what your maximum will be, but you don’t start there.
Presenting the offerYou will now meet and present your offer. You know from your first meeting that the owner wants all cash, but the stage was set to disappoint. Always lead with your offer to make payments. The questions you asked in the initial meeting can help you in negotiations now.
Give your payment offer first. “I am willing to purchase the company name and phone numbers for $60,000.” Don’t say another word!
The owner will come back and say, “My inventory is worth $30,000.” You agree with him and say, “I agree with you, you should keep that.”
“My accounts receivables are worth $80,000.” he says. “I agree, you should keep that, too,” you respond.
He will continue this line of thinking by saying, “My trucks are worth $20,000.” Again, agree with him: “I agree, you should get that much for those vehicles.”
Do you see what’s happened here? The offer was $60,000. The owner is expecting $190,000 for lock, stock and barrel.
Don’t argue with the man about the value of his assets. That’s not the first order of business. Your priority is to buy the company name and phone numbers.
After he’s done spitting out the net value of all his assets and he realizes you aren’t interested in them, he may ask you: “What are you buying?”
You respond, “I just want the company name and phone numbers. I will pay you $1,000 per month for the next 60 months, starting the day you transfer the phone line into my name.” If he balks at the price, you know how high you are willing to go.
An owner once told me he wouldn’t take less then $1 million for his business. I said, “OK, I will pay you $1 per day for the next million days.” He looked at me and said, “Are you nuts?” I said, “I would be if I had to pay it all up front.”
We chuckled and made a deal - I gave him about $75,000 over five years. He kept all his other assets and sold them off.
The conclusion here is to buy only what will generate service phone calls. The phone number is the only thing that is unique about any business. Every company has 10 unique numbers that customers call.
If done right, the draw on your financial resources will be small and the payoff will be big!