Mergers and acquisitions (M&A) can be a simple or very complex process for any entity to consider as it investigates the options and benefits. The purpose of this article is to arm those getting ready to sell or looking to buy with tips, tricks and considerations as they engage in the process. Together, let’s look at a timeline detailing the past, present and future—all impact M&A.
Where we have been, what we have, and visions of the future are not the only questions to be asked when we consider M&A activity. The purpose or intent of why we are at the table must be the focus, and we should always strive to make sure that we don’t lose the focus of our directive.
Claims and paid losses. These are among the most important items to consider and finalize because they are directly tied to your future insurance premiums and because of the impact they may have on your performance. When reviewing claims, we often look for a few key points:
Timeliness of reporting. How long it takes for a claim to be reported, settled, paid and closed.
Open items or reserved claims. These are claims that have been reported and a reserve has been allocated to pay the future settlement. These are extremely important to get a handle on before buying or selling since any open claims will be seen as liabilities or potential lawsuit issues.
Trends and patterns. Past claims and losses give us a deeper dive into the inner workings of a business and its pitfalls, training impacts, and overall performance. These can also show us areas where improvements are needed to increase the performance for years to come.
Good faith. When we look back at what we have completed or accomplished, it is always a selling point to have a proud history or specific unique story that adds value and purpose to what you do.
Equipment. What unique assets do we have and, more importantly, what levels of experience do our employees have using them? Not all equipment purchases come furnished with experienced professionals who are proficient in the operation and use of the equipment. The hours and time saved by not having to train can be a big asset to any company.
Unique contracts. Who we have as clients, what contract language we have adopted, and what we have learned over the years of operations is important. Most contractors have stories for days and will tell you about the life lessons they have learned on the job; however, very few tell you about the time behind a desk. They spend a lot of time fixing the problems and having others fix their contracts to make sure no one has to repeat the solutions.
Relationships. The world is a small place, and in the snow removal business everyone seems to know everyone. What relationships are exclusive to your business, what relationships have you cultivated or do you currently control, and what relationships have you burnt or failed to develop over the years of service and operations? These can be great selling points, or they may adversely impact your evaluations.
Assets. In today’s world of supply chain problems, used and new equipment wait times, and restocking shortages, an itemized inventory and updated equipment list can be a massive multiplier for any business looking to sell, or a quick and fast way to increase service potential and replenish older fleets for buyers. Keeping everything on a master asset list would be a great idea; or spending time itemizing what is on hand would be a great use of some downtime.
Service area. Are you poised or positioned in a market that is unique, advantageous or modeled for future growth? If so, knowing the value of where and how you service accounts and areas is a big-time selling point and can be a swing vote for buyers. Spend some time doing a SWOT analysis of your operations and area to really know the potential you are sitting on.
Relationships. Who you know and who you service are always big talking points at the negotiating table. The people that make and build a company and the way everyone conducts business can help increase your multiplier or overall business evaluation. Keep building those key relationships and keep your key employees happy.
Expertise/employees. The talent and commitment to the day-to-day grind is often overlooked when valuations are conducted; but any good business broker or savvy entrepreneur will tell you that a business is only as good as the people within it. A business’ ability to reinvest in its training, culture, safety and overall services will outpace and outperform its competitors.
Partnership. What is the long-term play by selling or buying a business, and are both parties happy with the conclusion and way forward? Does the path to a brighter future even come into play for the decision-makers, or is this the retirement strategy? Lots of questions about your business’ future also depend on your and your employees’ needs. This tends to be one of the hardest steps to overcome.
Buying power. Scale and size have always been a way to leverage pricing. The bigger you are, the more considerations and favors you can expect from suppliers and services. However, the costs per capita still need to be managed to leverage any scaling benefits, and you should be ready to discuss how this will be achieved through the M&A.
Competitive advantages. How will this alignment help increase service offerings, talent, marketing, or overall competitiveness within our service area? What is being added that we didn’t have before, and what are we sacrificing to align for the future? These are tough questions to answer and harder to ask, but the answers need to be spelled out and clear for both parties.
Diversification. Not the buzzword and definition we all think of, but the idea that snow doesn’t fall equally and is not always fair with who gets hit the hardest. I don’t have to tell you that the more service areas and states a company can work in, the better it is protected from local, regional and continental trends or weather patterns. Most buyers use this to their advantage and will even try to purchase locations where snowfalls are on the rise to ensure future revenues.
Vertical or horizontal integration. This M&A product might be a way to leverage the competition in a region or to lock down pricing for national accounts and multiple service locations, thus creating a horizontal integration. On the other hand, it could also round out the ownership’s portfolio and allow a large landscaper to easily enter the snow business or vice versa. Many venture capital groups like to scale size and offerings when working with seasonal operations—and yours could be just the right piece for their vertical integration puzzle.
Jack Demski is a licensed commercial insurance advisor with Ansay & Associates, specializing in risk management for snow and land contracting. Contact him at Jack.Demski@ansay.com or 414.491.5918.