[Cover Story] Preparing to Sell

Editor’s note: The following article is based on Pam Jordan Wolf’s presentation at the PCT Mergers & Acquisitions Seminar in December 2006 in Orlando, Fla.

One of the biggest mistakes a prospective seller (or buyer) can make when buying (or selling) a pest control business is to not know what they want. And not knowing what they want makes it difficult to get there.

Pam Jordan Wolf’s father founded Arab Termite and Pest Control in Tampa, Fla., and she ran the business for more than a decade. When she sold it in 1989, the company had 13 branch offices covering the entire state and it was generating $15 million in revenues, a five-fold increase from when she took over.

She now operates the mergers firm Acquisition Strategies, and offers this advice to other owners who are ready to sell their business.

PUT YOUR HOUSE IN ORDER. When a prospective buyer takes a look at what you and your company have to offer, she said, make sure you put on a good presentation. Don’t spend all your time on the great things you see in the future; focus on the tangible things you’ve done in the past.

“They’re going to want to see that record. Even though you want to demonstrate what’s possible in the future, I haven’t met a buyer yet who pays for the future,” Wolf said. “They pay for what you have to sell them. (The company) better have future potential or they’re not going to want it, but they’re not going to pay you for what’s going to happen tomorrow.”

Wolf said it’s best to compile three year’s worth of numbers on the company’s growth and profits.

FIND A GOOD FIT. One of the best predictors of a successful deal — and a company being successful under new ownership — is how similar the two firms are to begin with.

Try to find buyers that already offer the same service lines or have a similar business model, Wolf said. Don’t court a giant company that does only pest elimination in large commercial accounts if you’ve built your business on servicing general pest control for single-family homes.

She said one of the most important things to a buyer, though, is often the hardest to quantify: your company’s corporate culture — or just the way you operate things. “It’s one of those soft, squishy things that’s kind of hard to put your finger on,” Wolf said. “But it’s of critical importance to buyers today.”

KNOW WHAT YOU'RE WORTH. Don’t ask a question you don’t already know the answer to, and don’t enter into negotiations — even the early stages — unless you have a good idea of what your company is worth. 

Wolf said there are two primary ways a business can determine its value: The first is based on your customers and revenues, and focuses on the types of work you do and how much of your revenue is recurring.

This method also factors in what Wolf calls “off-balance-sheet factors” — your employees, your corporate culture and other important, but intangible, things.

Wolf said a company should have at least 75 percent of its revenues recurring. “If you have 50 percent or less (recurring revenue), you are seriously devalued,” she said.

The second model of valuation centers on your company’s cash flow and earnings valuation.

“You can make (either model) as complicated as you want, but you don’t have to,” she said.

KNOW WHAT YOU WANT. In the end, Wolf said, a seller needs to know just what he wants out of the deal. Having an ultimate goal — whether it’s a high selling price or security for employees — will help keep you focused throughout long, and sometimes emotional, negotiations.

She advises sellers to write down their goals at the outset of the entire selling process and determine which of the goals are most critical. “Deals always require give and take and it is unlikely that you will get 100 percent of the things you want,” she said. “But, if there are things that you must have to make the deal work, know what those are going in and don’t waiver.”

The author is assistant editor of PCT magazine.