Tornadoes, hurricanes, floods and wildfires — these are just a few of the recent crises that have left destruction in their wake. Due to the immense amount of media coverage, many homeowners have come to realize that they need to be better prepared for future disasters. Thus, many have taken proactive steps by purchasing insurance or building savings accounts in case of a catastrophic event.
Many industries are seeing a decrease in demand, but restoration and remediation businesses remain popular because of increased capital spending on property repairs by the insurance industry.
As M&A advisors, we have witnessed firsthand the recent spiking interest in restoration and remediation (R&R) space acquisitions. Many companies in this burgeoning sector are ripe to be sold — there's no doubt about it. Whether you're thinking about a sale or perhaps in the exploratory phase of a search for a potential buyer, below are five reasons why now could be the best time to sell your restoration business.
“Dry Powder” at Record Levels
As an asset class, equity in privately owned businesses continues to see new record levels of demand. The pool of capital ready to be deployed steadily grows even as rates increase. The abundance of this “dry powder” in the industry means that there is pressure on investors to identify growth opportunities and make investments quickly.
Strong Demand for “Defensive” Industries
When we last brought a restoration company to market, we received more than 45 bids from a diverse group of buyers. The ultimate buyer paid a multiple of earnings before interest, taxes, depreciation and amortization that was among the highest we saw all year. The icing on the cake? The deal closed in record time and was the second-fastest sale in our 30-year history.
In an uncertain macroeconomic environment, all kinds of investors want to put their resources into recession-proof industries. Demand for restoration and remediation is not tied to the broader economy. These companies are immune to the gyrations of the stock market, making them particularly appealing to those with cash to invest and a desire for diversification.
Ample Lending Capacity
While rising interest rates have put financing pressure on Wall Street’s large-scale M&A activity, we have not yet seen this impact Main Street. With high levels of capital and strategic reasons for continued expansion, buyers — especially strategic buyers — are willing to cut leverage to get a deal done now. Private equity firms can always add debt later when rates come off or find other creative solutions to bridge the gap, such as seller’s notes. We have found that with the stable nature of businesses in the R&R space, banks are eager to fund deals even when debt is a necessary part of the capital stack.
High Margins and Strong Networks
R&R investors want to partner with companies with a strong track record and an appealing growth story. Many firms in the remediation space have high margins, which is an attractive feature when investors of all stripes are screening for potential opportunities. Those who can demonstrate their network's strength to continue building a broader customer base are at an even further advantage over their competition.
There is one area where business owners can stand out from the crowd: the quality and timeliness of their financial statements.
Buyers and investors make decisions based on accrual-based financial statements — in-depth monthly statements must be available. Lacking information causes delays, and time kills. The restoration and remediation industry has few players with significant market share across the country. Many investors see this as an opportunity to scale up their best practices and back-office functionality as they partner with a growing number of businesses nationwide.
Fragmentation Within the Space
As an increasing number of private equity firms back “platform” businesses in the space, R&R companies have the green light to expand organically and through acquisition. Firms often compete in different arenas, even within the industry. Groups are looking to expand with third- party administrator program players and groups growing by the acquisition of non-TPA-focused firms.
This diversity within the market makes it even more seller-friendly, essentially doubling the amount of potential demand for your business. In turn, this environment creates even more upside for an advisor who can cast a wide net and facilitate a competitive auction to maximize your company's value.
The Strategy for a Successful Sale
As the world grows, natural disasters continue to be a threat. While we can't control Mother Nature, we can control our response. Industries that help support others after a tragic event are a vital component of our society, and more investors than ever are using their resources to support noble causes that help the community.
Regardless of whether the market is up or down, companies with exceptional business models are always worth a look from those seeking to grow their money.
If you are entertaining selling your restoration business, you should consider capitalizing on that sooner rather than later. I’ve given you five of the best tricks of the trade I’ve learned in my years of working in the M&A industry. Whichever route you're thinking about pursuing, if you're open to exploring the possibility of selling your business in the near or long-term future, we encourage you to consider the reasons we've outlined above to make your sale a significant success.
