Purchasing Another Building Service Contractor

The cleaning industry is rife with investments. In addition to the typical industry forces, outside investors are becoming increasingly interested in buying cleaning companies. There are four types of buyers that complete the majority of transactions each year. In this tip, I will examine the second type: Existing Janitorial Owners.

Existing janitorial owners acquire other janitorial business as a means to accelerate growth. Acquisitions have a much higher success rate than green field expansion (e.g. startups), and provide an instant boost to the top line that greatly exceeds reasonable organic growth expectations.

Most small owners typically seek janitorial companies in their local market, usually adjacent cities just outside of their reach. This gives them access to new clients and new markets without cannibalizing existing business or expanding too far afield.

Small business owners typically utilize third party financing, and their valuation considerations are very similar to those of individual buyers. It is typically easier for an existing owner to obtain financing than it is for an individual, as he or she can combine a track record of success with an existing business that can be pledged as collateral. This in turn can enable them to obtain a larger loan or better loan terms, if not both.

Small business owners are typically active in their existing businesses, and therefore may not be able to personally replace the seller. Depending on the size and staffing levels of each company involved in the transaction, the seller may still be able to exit quickly upon selling, although longer transition periods are more common than they are with individual buyers. Sellers who want to keep working after the deal closes have a better opportunity to do so when selling to a competitor than to an individual.

Peter Holton is the Managing Director for Caber Hill Advisors and has been in the service industry for nearly 20 years and is well known and respected throughout facility maintenance industry. He manages the firm's practice facility maintenance sectors. Peter offers valuations, exit planning, consulting and buying or selling business. He has performed numerous speaking engagements for organizations such as ISSA and BSCAI. He can be reached at peter@caberhill.com or by visiting www.caberhill.com.