Five Things About Selling A Service Business
Spring specializes in buying and selling service companies — agencies, design firms, consultancies and development shops.
We are not a traditional mergers and acquisitions advisory firm because we’re not bankers by trade. We are former owners and operators. Our approach to deals is informed by our experience running these unique businesses for two decades.
With Spring, we wanted to tailor the M&A process to our clients’ needs. We began by taking long established industry practices, disassembling them and rethinking every aspect of the client experience and deal-making process. Then we put them back together again.
As we’ve done so we’ve come to believe a few things are immutable.
1) Readiness Is A Multiplier
We work with clients before they’re ready to sell to optimize their financial and operational systems. This increases the value of their companies.
Most acquisitions of service businesses involve earnouts which require years of exceptional performance. For these deals it is essential to have the systems in place to run the business in a predictably profitable manner. By providing a playbook for upgrading financial and operational systems we enable our clients to make the real-time adjustments to remain profitable. Also, better run companies attract better offers.
2) Story = Value
The story we tell about each client’s company is crafted to shift a buyer’s perception of the opportunity from “financial” to “strategic,” thereby increasing value.
In telling the story of a company, our goal is to describe an opportunity to prospective buyers that fulfills their own strategy and aspirations. By doing so we can move the decision from the mechanics of corporate development to the C-level executives. When an acquisition becomes essential to the buyer’s strategy the value of the seller’s company increases.
3) Time is Strategic
Our process is designed to give clients greater control over the deal timeline, reducing risk and increasing their negotiating leverage.
With deals, time is either working for or against you. The most common problem for owners is being distracted from operations by the process of preparing for a sale and meeting with prospective buyers. As a result, they often stumble financially during the process and lose much of their leverage to negotiate. We’ve redesigned the process to tighten the overall deal timeline. We’ve also expanded our role and responsibilities to ensure that our clients’ can stay focused on operations.
4) Matchmaking Over Selling
We believe that a “good deal” is defined more by the alignment of goals, visions of the future and personalities than just about price and terms.
Many transactions involve an earnout structure in which the deal’s total value is determined by the your performance in the years after the paperwork is signed. One risk with this type of deal structure is that a misalignment between the buyer and seller can lead to friction in the operation of the business during those critical years, ultimately reducing the total deal value. We look beyond price and terms to find a good match between buyer and seller and create the conditions for a successful earnout.
5) Negotiation Must Be Artful
A deal’s contractual terms and mechanisms must be carefully designed to preserve the alignment of buyers and sellers financially, operationally and culturally.
It’s not uncommon to hear stories of great buyer-seller matches that are undermined by the contractual terms both parties agreed too. For us, the negotiating process is about crafting legal documents that reinforce the alignment between buyer and seller, rather than undermine it. To that end we often design inventive, uncommon contractual terms and mechanisms to achieve this goal.
If you own a service business and are interested in learning more about your options for getting value out of the company you’ve built we can help.