Return on Investment

Addbacks and Adjustments 

Addbacks and adjustments represent the expenses (or revenues in some cases) historically incurred by the business that will not continue after a transaction. These often include perks and expenses enjoyed by the owner like life insurance, car payments, travel and other personal expenses. The end result is what is known as a “normalized profit and loss (P&L),” which reflects the performance of the business on a go-forward basis. 

What Affects Sale Price and Terms? 

Numerous factors affect sale price and terms including:  

  • Profitability 

  • Number, type, size and market segment of customer accounts 

  • Customer concentration 

  • Strength of leadership team  

  • Continuity of leadership team post-close (is the seller exiting?) 

  • End markets 

  • Barriers to entry 

  • Customer contract terms and duration 

  • Customer retention  

  • Employee retention 

  • Historical and projected sales growth 

Deal Terms 

Specific deal terms vary depending on the situation of the seller and the buyer, but typical deals often include: cash at close; earnout or seller note; and rollover or reinvestment by the seller into the buyer.  

Rollover or reinvestment is a great way for sellers to continue to benefit from the growth of both their business and that of the acquiring business. Often times, rollover investments end up being worth as much as or more than what a seller sold their business for originally. Earnouts are a way for sellers to increase the value they receive for their business by continuing to grow and outperform after a sale. 

Plan and Strategize 

The decision to engage in acquisitions is not one that should be taken lightly. While acquisitions offer myriad benefits, from expanding market presence to adding new products and services, acquisitions are also inherently risky and, if not careful, can result in value destruction rather than expansion.  

Navigating the acquisition process requires a strategic approach and a deep understanding of the nuances involved. Crucially, successful acquisitions hinge on establishing trust and ensuring mutual benefit for both parties. Sellers require empathy and reassurance that their legacy will be honored post-acquisition.  

Whether pursuing opportunistic or strategic acquisitions, meticulous planning, thorough due diligence and clear communication are essential. Moreover, crafting fair deal terms that accommodate the needs of both buyer and seller is paramount for a successful transaction. Ultimately, acquisitions represent a complex yet rewarding avenue for growth, where careful consideration and thoughtful execution can lead to long-term success for all parties involved. 

Tim M. Murch, CBSE, is CEO and managing partner of 4M Building Solutions, a 45-year-old janitorial services company with sales just under $200 million operating in 26 states with 6,500 team members. Murch and 4M have successfully completed 32 acquisitions to date. 4M partnered with O2 Investment Partners at the end of 2022, with 4M being the platform company leading acquisitions and further organic growth. 

Andrew Rust is head of corporate development and M&A for 4M Building Solutions. Rust is an expert in acquiring and partnering with founder-owned businesses, having closed more than $690 million of transaction value in his career. 

 

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The Acquisition Process, From Start to Finish



POSTED ON: 8/13/2024