business value evaluation

[ATH]

Has anybody dug into valuing a tree care business? Whether you looked at purchasing or selling...

A common way to value business is to use EBITDA x a factor. Or gross receipts times a different factor. But each industry has its own multiplier factor. What is an appropriate value to use for our industry? Obviously historical growth and potential market size will impact a local number (small market with a stagnant company will use a lower multiplier than a small company that has been growing 15% each year in a city of 4 million people .... ). Just curious if anybody has gone through that process.

 

[Muggs]

Most small arb businesses just end up selling for the value of their equipment. In residential, client lists often matter very little, since there is already not much loyalty among customers, and when a company changes ownership whatever loyalty there might have been goes right out the window, big contracts notwithstanding. I have long thought about being able to sell my business some day for some big multiple of whatever, but I highly doubt it's in the cards. I have no expectation of retiring, ever.

 

[VenasNursery]

Most small arb businesses just end up selling for the value of their equipment. In residential, client lists often matter very little, since there is already not much loyalty among customers, and when a company changes ownership whatever loyalty there might have been goes right out the window, big contracts notwithstanding. I have long thought about being able to sell my business some day for some big multiple of whatever, but I highly doubt it's in the cards. I have no expectation of retiring, ever.

It’s kind of sad after building something your whole life and it’s only worth maybe 50% of the equipment that you have purchased if you’re lucky.

Seems like total fuckery!
But 100% true

 

[Mick Dempsey!]

When I left the UK I tried to sell my business. No dice.
I ended up giving my phone numbers to the girl who worked for me. Her husband is a climber, so they got a few jobs out of it till I ceased to exist in clients minds.

 

[Brando CalPankian]

I knew a guy at a big 3 that did some amazing things. He started out running an office for a big 3. Left to start a company with a loyal cohort from his office. He built it to spec within 3 years to where the big 3 company wanted to buy his new office. He sold to them, ran it for a while, then rinse and repeat. I don't think his kids or grandkids will worry about college.

As far as your initial question, since you do a lot of PHC and specialty consultative work, your "brand" and reputation certainly play into the total value of the total product. I'm sure you get the emails from "investors" looking to buy out companies. It may be worth looking into how they value it. I've talked with a couple, and they have unilaterally preferred repeated PHC, landscape maintenance, and pruning contracts with residential or commercial focus (repeatable and scalable) over heavy removal companies.

There are also larger companies (like save a tree, rainbow, monster, etc) that may be interested in expanding into new profitable areas. The big 3 residential may even have an interest.

By and large, selling to an individual looking to take over your company you wouldn't make what you'd hope. One idea I've had for future planning is to train a successor, and to take royalties off the top of net revenue as consultative and entrepreneur fees for a set time (say 5 years).

When I go back for my masters I'll learn more about business acquisition. Guess I'll raincheck this in a couple years

 

[ATH]

Appreciate the thoughts...I'm not looking to sell my company anytime soon - just kinda wondering what companies are worth.

More likely to buy than sell at this point...but having trouble finding value.

 

[cory]

The big 3

Who are they?

 

[ATH]

Who are they?

Bartlett, Nelson/Asplundt, and Davey?

 

[Brando CalPankian]

Bartlett, Nelson/Asplundt, and Davey?

Yupp

 

[ATH]

I've been doing more digging. Best I can come up with is 2-4 times EBITDA. On a good day a company with over $5MM in gross and in a large market area with strong recurring workload (contracts with commercial clients, PHC repeat clients, etc...) may be able to get 5-6x.

Obviously there are a lot of variables:
*Market size is a big one... serving a population of less than 250,000 is harder to grow than same business serving an area with 2,500,000 population.
*Removal heavy companies often have more $ tied up in equipment but because fewer repeat clients (unless there are good municipal contracts) so lower factor generally applied EBITDA.
*How many employees and how long have they been on board .. experience is good, but if they have all been there for 25 years, a buyer would be concerned how much longer before they all retire and then might have well just bought equipment. High turnover says something is wrong so that's unattractive as well.
*Age of equipment (partially will be reflected in the depreciation part of EBITDA). But if it's all ready to be replaced that is going to lower value even if using EBITDA and not book value.
*How active are the owners? More active in the operation means the transition will be a little more bumpy as new owner needs to replace the work they were doing. Applies to both on the ground work and business management. So if you are thinking of long term planning start training your replacement and you can show a potential buyer it will be a seamless switch.
*How long as the company been established and what is the reputation?