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Who is The Best Buyer For Your Disaster Restoration Business?

Jonah Pollone

Sellers Seller Articles Seller FAQ

A common misconception many people have is that the highest bid always wins, and while often true, it’s not always the case. Culture is important and so is taking care of employees. 

“Who's going to take care of the employees and legacy of the business when I'm gone?”  

“Who could help grow the business to new levels and offer the team more opportunities than before?” 

These are just a few of the questions we have seen disaster restoration business owners ask themselves. In order to make sure owners get the best results from selling, we discuss their worries and identify the buyer who will be able to help them achieve their goals.   

To help you figure out who you may want to sell your disaster restoration business to, we will cover the current state of the industry, the factors that impact who you can sell to, and the different characteristics of each type of buyer who could buy your business. 

Let’s get started.

The Current State of The Disaster Restoration Industry

The disaster restoration industry is going through a large amount of consolidation. This means that strategic buyers and private equity buyers are interested in buying multiple disaster restoration companies, combining them into a portfolio to sell to a larger company.

This is also especially true if your company is in a strong, growing market. We have seen strategic buyers bid anywhere from 5 to 7.5x multiples on disaster restoration businesses. 

However, before you can get excited about these numbers, you need to ask yourself if a strategic buyer is the right for you, and if your business would be interesting to them. 

To determine the type of buyer you can sell to, you will first need to know the value of your disaster restoration company. 

How Much is Your Disaster Restoration Business Worth? 

The value of your business will impact who you can sell to. The price range a buyer is interested in will depend on the type of buyer they are: 

Individual Buyer - $1 million - $5 million in sale price

Strategic Buyer - $2.5 and up in sale price 

PEG Buyer (Platform Acquisition) - Minimum of $4 million in sale price

By getting a business valuation performed by a merger and acquisition (M&A) advisor, you will be able to gain a better idea of what you could sell for. Once you know what your business could sell for, you need to think about your selling goals. 

Ask yourself some questions about your future. Do you want to sell your business and retire? Do you want to continue growing the company and sell a portion of the business now and then sell the rest in 3-7 years? 

If your business is worth more than $2.5 million, you may be able to find a PEG or a strategic that would help you grow the company. For instance, if your goal is to grow your disaster restoration business to several locations, a PEG or strategic can help you achieve that. 

There are a variety of factors to consider when trying to pick what type of buyer you want to sell to. Speaking to an M&A advisor is a great way to get a clear idea of the kind of buyer that makes sense for your business. 

Buyers Who Could Buy Your Disaster Restoration Company

There are three main buyers who might purchase your business - individual buyers, strategic buyers, and PEG buyers. 

1. Individual Buyers

These buyers will usually purchase businesses in the range of a sale price between $1 million to $5 million. They will also generally receive financing through the SBA 7(a) loan program. Individual buyers will typically have the following characteristics: 

  • They will likely go through the SBA 7A loan process 
  • They usually can't pay more than $5 million (SBA 7(a) loan maximum)
  • They are often willing to purchase the real estate associated with the business
  • They will purchase 100% of the business 
  • They might need to acquire a general contractor’s license in your state, which could delay the sale if they go through the SBA loan process
  • They are more likely to purchase your business via an asset sale 
  • It may be difficult to transition your in-program (TPA) work to them (if the transaction is not a stock sale) 
  • They will likely keep the name of the business the same

2. Strategic Buyers (Backed by Private Equity Groups)

Strategic buyers are traditionally other businesses within your industry that could benefit from a synergy your business offers their current company. Most strategics we encounter for companies in the disaster restoration space doing over $5 million in sales are backed by private equity groups and have the following characteristics: 

  • They are considering acquiring your company as a roll-up or add-on to their “platform” company
  • They are likely able to offer the highest price for your business because they see more value in the company from synergies they will create by combining
  • The larger your business is, the more likely they will be the buyer you sell to
  • They are a company in your industry that lacks locations in your specific market
  • They are usually bigger than your business
  • They are often more willing to purchase your business via a stock sale
  • They will perform a Quality of Earnings on your financials in due diligence
  • They are more likely to rebrand your company to be consistent with theirs (e.g. they may change the name, often by starting to co-brand vehicles and signs)
  • They have more resources to hire employees for needed roles (i.e. General Manager)
  • They are often looking to sell to a PEG 3-7 years after acquiring their platform business and generate a good return for investors 
  • They are best for owners who are looking for an investor to help them grow their current business
  • They are not usually interested in buying real estate 
  • They may require regular check-ins to make sure you’re hitting financial goals
  • They are financially motivated
  • They add a level of oversight to your role in the company

3. Private Equity Buyers (Platform)

Private equity groups who are searching for a platform business will view your company as the base for a portfolio of investments in the space. PEG’s usually have characteristics such as: 

  • They are usually looking to purchase your business as a platform investment (first investment in the space)
  • They are often looking to sell to a larger PEG in 3-7 years and generate a good return for investors 
  • They are good buyers for owners who are looking for an investor to help them grow their current business
  • They will generally purchase a majority or minority stake in the business (e.g. 80% stake)
  • They are often not interested in buying the real estate 
  • They may be active or passively involved in managing the company
  • They can require regular check-ins to make sure you’re hitting financial goals
  • They are financially motivated
  • They will add a level of oversight to your role in the company
  • They are more willing to purchase your business via a stock sale
  • They will likely perform a Quality of Earnings on your business during due diligence
  • They have more resources to hire and are better at hiring employees for needed roles (i.e. General Location Manager)

MIDSTREET TIP

Strategic buyers looking to consolidate and pay a higher multiple for your company are usually backed by private equity buyers. If you are thinking about selling to a strategic buyer backed by a private equity group, you should consider both the characteristics of a PEG and strategic buyer.

 

Pick The Best Buyer For Your Disaster Restoration Business

By knowing the things that impact who you can sell to and the characteristics of each type of buyer, you can start narrowing down who you want to sell to. 

A broker can be an invaluable asset in helping you understand what type of buyer would make the most sense for your business. 

Once you understand the kind of buyers you can sell to, you will want to understand what makes your company more valuable. To learn how to improve your business’s value, read “How to Increase the Value of Your Disaster Restoration Business.” 

Do you want to sell your disaster restoration business but don’t know where to get started? Give us a call today to discuss your selling goals. 

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