Demystifying Acquisitions

By Cole Jackson

Many landscape company owners pursue the strategy of growth via acquisition. Whether you are considering this strategy for your business or have been approached by a larger company looking to acquire your company as an add-on (also known as a bolt-on acquisition), the process may seem like a black box — complex and unfamiliar. 

As a private equity firm with investments in the landscape industry, our goal is to demystify the acquisition process. The following are some considerations for evaluating potential buyers, as well as information for those of you wishing to pursue add-on acquisitions for your own company. 

Being acquired

When evaluating potential buyers for your company, it is important to understand whether a buyer is viewing your company as a platform investment or as an add-on acquisition. While much of the acquisition activity in the industry is focused on the latter, some buyers (typically financial buyers) may be looking at your company as the basis for a larger consolidation or roll-up platform.

Buyers interested in your company as an add-on could be independent strategic buyers, such as public corporations or other founder-owned businesses. Or they could be private equity-backed strategic buyers looking to add on to a platform investment. These buyers may be motivated by revenue accretion, cost synergies or a combination of the two. 

Before considering an offer from either type of buyer, think carefully about your transaction goals. Are you looking to retire? Are you hoping for meaningful or full liquidity so you can diversify your assets? Do you want to preserve the legacy you built? Do you have major growth plans for the company that require significant capital or other resources? Answering these questions can help you determine which buyers align with your goals. 

Platform investment

Typically, buyers viewing your company as a platform investment will want you to continue to run the company (or already have a solid succession plan in place) while they also offer significant liquidity and accelerated business growth. Buyers proposing to acquire your company as an add-on can provide meaningful or even full liquidity along with access to more resources. Founders are typically able to fully retire post-transaction. 

If acquired as a platform investment, you may keep more operational control and have a larger voice in future decisions; you’ll likely have a board seat if the buyer forms a board of directors post-closing, for example. There is typically more flexibility for the structure of the deal, such as the percentage of ownership you’re selling (for example, if you are only interested in growth capital for a minority stake). Thinking about your employees, the buyer might want everyone on your team to stay in place to ensure the continued success of the business. Lastly, for financial buyers, there is usually a second, later exit. Many owners who retain some partial ownership of the company (also known as rolling equity) will have the opportunity to get a bigger “second bite of the apple” when the investor sells the company to a future buyer. 

Add-on acquisition

When your company is acquired as an add-on, you’re less likely to have the ability to roll equity. Depending on the structure and size of the buyer, you may not have a board seat, and you will likely have a boss if you continue to work at the company after the deal. This can be a difficult transition if you’re used to working for yourself. It’s also critical to understand a buyer’s plans for your employees early in a transaction. With add-on acquisitions — particularly if plans include merging the employee bases post-closing — jobs might be eliminated or benefit plans could change. 

Regardless of whether the buyer is viewing your company as a potential platform or add-on investment, the qualities of the company likely remain the same. Buyers in either case typically look for a more diversified customer base, past financial performance, and future growth paths. The due diligence process will also look similar in both cases, which involves a heavy lift from you to provide all of the requested data and explanations. The process could be more streamlined if the buyer is a strategic buyer (e.g., a larger landscape company), as they already have a baseline level of expertise in the landscape industry. Consider all the pros and cons of sharing information if the buyer is also your competitor. 

Acquiring a company

Rather than being acquired, your company may be in a position to acquire another business. Acquisition can boost your revenue instantly if the add-on company brings new customers, unlocks new sales channels, adds new products or services, or expands your geographic footprint. For example, a landscape enhancement company may look to acquire a landscape maintenance company to access more recurring revenue. Or a company specializing in vegetation management in Montana may look to acquire a company in a warmer climate to take advantage of their usual winter lull. Cross-selling or upselling opportunities can also increase revenue. The diversification of revenue is an added boost here, reducing your company’s reliance on historic customers. In some cases, you may want to incorporate another company’s technical capabilities, patents or even equipment to spur further growth.

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From a cost perspective, combining two or more companies can result in overall cost savings through economies of scale. You can achieve this through merging back-office functions, leveraging internal sales and marketing resources rather than outsourcing, or through more favorable pricing due to improved negotiating positions with suppliers. Some owners find that integrating parts of their supply chain into the company — such as purchasing a smaller but key product supplier — also creates cost efficiencies.  

Your goals

First, define exactly what you’re looking to acquire. What are your goals for the transaction? Is it to gain more equipment? Are you looking to add specific customers or channels? What is the target size or geography? Be specific as to what you want to buy and what you don’t want to buy. 

Once you have a clear idea of what you’re looking for, it’s time to actually find the company you will acquire. You may choose to hire an investment bank or broker to identify and reach out to targets. If you have a capital partner, they may have the resources to lead these efforts. You can look at your competitors or others in your supply chain or ecosystem and gauge their interest in a sale. Networking in your industry and asking for referrals can help you identify potential opportunities. After you’ve created and narrowed your target list, you begin the diligence phase. 

The diligence for an add-on acquisition is similar to any kind of business sale diligence, though the scope depends on the size. For example, smaller transactions may not engage a third party to conduct a quality of earnings review. During the due diligence phase, dig in and ask the right questions to understand the business, identify potential concerns and confirm that the reasons you wanted to acquire the company in the first place are true. You should assess the company’s cultural fit with yours — especially if you will be merging employee bases. Ensure that the company’s values and mission fit with yours, and have a plan in place to combine these with minimal friction. 

Whether or not you hire an intermediary to lead the search, you’ll need advisors to assist with the transaction to protect your company and interests. The most important of these is a good attorney with experience in mergers and acquisitions. Depending on the complexity, you may want to engage a specialized accountant. 

The merge

Post-closing is an exciting time for both your company and the acquired company, but also one you should navigate with care. Your messaging to both groups of employees is important, especially if you were competitors. Think about it as “marketing” the acquisition or merger to employees, as well as customers and suppliers, with the goal of reassuring all parties that business will be even better than before. Along with the message, you should have an integration plan in place prior to closing the transaction to ensure nothing falls through the cracks. For example, set up all benefit plans before closing to cover employees on day one. 

Beyond the immediate transition, we recommend implementing a 100-day plan after closing. This plan should include consolidating financials and executing on other operational integration action items. This period can be fragile, so you’ll want to keep a sharp eye to ensure your key people and customers are with you and that you’ve covered all administrative tasks.  

Cole Jackson is senior vice president at Montage Partners. Previously, Jackson was a senior manager at Accenture Strategy, where he worked with clients across industries to improve operations and develop and implement new operating models. Jackson holds a bachelor’s degree in Industrial Engineering from the University of Oklahoma and a master’s degree in Management Science and Engineering from Stanford University.

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