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how much is a "SPRINKLER COMPANY" worth?

Discussion in 'Irrigation' started by greenworldh20, Apr 27, 2005.

  1. greenworldh20

    greenworldh20 LawnSite Senior Member
    Messages: 659

    we are always looking to purchase accounts to grow our business. a local person is now selling his company. the man is retiring. he has a 'friend' brokering the deal. this is the breakdown of the accounts:

    186 residential accounts
    76 commerical accounts

    person wants $165,000 for all accounts.

    he also has 2 vans, a pipe puller and misc. inventory for sale. this equipment is not included in the asking price.

    we countered his offer with this: we will pay one years activation and closing for all accounts. we will deduct a mutually agreed upon dollar amount for clients that do not have him open system. we will also deduct a mutually agreed upon dollar amount for accounts that do not stay with us for the season.

    our offer was in the neighborhood of $25k.

    seller's friend said he will not sell for that price.

    so i ask the board, what is this company worth? the owner is retiring, will sign no compete clause. he is basicly a 'one man operation'.

    to me, a company is worth only what is guaranteed: activation and closing. service calls, installs...that is all 'sales' work. meaning, you have to 'sell it'. it is not guaranteed. maintenance work, is guaranteed. that will always be there unless you screw up royally.

    so, what is the value of this company?

    brian :confused:
  2. AceSprinkleRx

    AceSprinkleRx LawnSite Member
    from Wyoming
    Messages: 95

    1.5 to 3 times the gross revenues is a rule of thumb for many businesses.

    His price might be high or it might not. Negotiations are a key role in any sale. But... If I'm doing he selling I'm not dropping MY price based upon your belief of what should or shouldn't be guaranteed.

    If my biz is bringing in 'X' amount of dollars in gross revenues, the fact you can or can't sell is of no concern to me. I want my 1.5 to 3 times the revenue bank for my biz. You just might find you "sell" better than the previous owner whom never upsold or cross-sold any products or services. In that case this could be a diamond in the rough.

    Just like McD's.... Would you like that biggie sized? Always be selling.
  3. DGI

    DGI LawnSite Member
    from SE Mich
    Messages: 173

    :confused: I'm not sure what you mean. Gross revenues? I assume you mean net.

    To me, the value has to be based on the PROFITS. And those are the true profits, which are a bit difficult to determine in this case since the person who owns the company is also doing all of the work. You would have to deduct the rate of a #1 technician from that.
  4. greywynd

    greywynd LawnSite Member
    Messages: 132

    ok, with a little math, assuming each account is 'equal', that's approxiamately $630 per account. I have to admit that I don't know a lot about the sprinkler business, but, if that's only closing/activating and the repairs/maintenance, wouldn't it take a long time to have a return on that, especially when you factor in all of the overhead, labour, inventory costs.... In my opinion, for that sort of price, I'd be doubtful that he could sell it. Anyone with $100-$165K is more apt to buy equipment (which he doesn't include), start up on their own, build up their own business, and be 'poised' to take on extra accounts when the guy finally retires without selling (or lowers his price to something more reasonable)
  5. DanaMac

    DanaMac LawnSite Fanatic
    Messages: 13,221

    brian - $165k is very high. Think of it this way, what would it cost you to advertise more and get that many accounts? $165k? $25k? Probably not. Buying/selling a service biz is tough when it is primarily a customer list that can bolt any time they want.

    When I bought a retiring guy's list a few years ago I paid him $20 each time I started up or repaired, and $15 for winterizing for any of his customers, first year only. I paid him around $3k. Some of the people in the list have never called me, some won't use me again :D , and some never called the first year but have called 2-3 years later.

    It's only worth what you are willing to pay. Don't over pay just to expand.
  6. DanaMac

    DanaMac LawnSite Fanatic
    Messages: 13,221

    Now on the other hand, I don't know if I would have agreed to what I paid, if I had been selling. Maybe $xxxx of money up front, plus the fee per job worked on the first year. And it was a trust deal. He trusted me to figure out and list the jobs I worked on. Which I did. I didn't screw him on that end.

    there were a few that I charged minimal amounts and told him "hey I only charged so-and-so $30 for 15 minutes so how about $10 to you?". And he was ok with that.

    The next year I bought all his inventory. A lot of stuff I will never use, but I bought it all and threw out what I wouldn't use - Toro rotors and sprays, T-Birds, partial rolls of pipe that may have been in the sun for years, etc.

    Oh and there is one company here in town that last I heard was asking $250k. And they send work to me everyday that they can't handle. They are service and install and one of the oldest.
  7. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    Heh Heh Heh...if a company that had that many customers is worth that much...I am a friggin millionaire.

    Heh Heh Heh..if I could get 1.5 to 3 times my gross revenue....I wouuld be a millionaire.

    A business is only worth what someone is willing to pay for it.
    A service business is rarely valued at 1.5 to 3 times its revenue, unless there are assets.
    Is a client an asset? Surely...but out of the 5 thousand customers I have, who knows how many are an asset and how many are a liability?

    I wouldn't pay someone the cost of an activation + the cost of winterization for a client...around here that is about $110 per client yes?

    Give me 10,000 to spend on marketing and advertising...I will easily get more than 90 clients....I think the last I looked my cost per client obtained in Arizona was about 35 dollars.

    However.....it is a very painless way to expand your company...I would offer him 50 bucks per client and call it good. At his price, he will never sell it.
  8. AceSprinkleRx

    AceSprinkleRx LawnSite Member
    from Wyoming
    Messages: 95

    Within the insurance industry I do know an agency is valued by it's premium written and generated within it's 'book of business'. And typically when buying or selling it's valued based upon gross revenues to the agency. Not net revenues or profit.

    Profit or net revenues can be +/- depending upon the past and future management team and/or owners.

    What 'one old man' can or cannot do is independent of what a young, energized, ambitious, goal oriented, success driven person or partnership can do.

    In dealing with many commercial contractor businesses, I've seen them come and go, start up and fail, begin from scratch to become multi-million dollar companies as well.

    I've seen people buy a failing business only to turn it into a highly successful money generating business and I've seen people take a thriving, expanding business and drive it into the ground.

    You need to look at the opportunity buying a business allows you and not solely focus upon the price tag. But just as DanaMac says, I may not have sold something for what I bought it or. That is the American way, buy low and sell high. Profit and capitalization driven.

    I know if I'm selling, I'm selling based off my gross revenues and then tweaking the selling price from there. Whether the equipment is included or not, is something else outside of the asking price. You must negotiate the price and terms. I'm wondering why the equipment isn't being sold? If it isn't going with the business, just what is and where is the equipment going to go? And will it be used in competition with you?
  9. greenworldh20

    greenworldh20 LawnSite Senior Member
    Messages: 659

    thank you for all your replies...suffice to say i have not heard back from the 'contact' person.

    if i had $165k in the bank i would have purchased apartment buildings and lived off the cash flow.

    i would never invest that kind of money in a green industry business. i believe my offer was fair. and it also protected me. we have purchaed irrigation accounts before and it was not pretty, so we now must protect ourselves.

  10. Mdirrigation

    Mdirrigation LawnSite Gold Member
    Messages: 3,755

    I would have to look at the value in a greater sense. First you are buying the name and good will associated with the name. Second you are buying a second phone line and adverising . ( I have 2 sprinkler businesses its amazing that I dont get many duplicate calls for estimates) This basically doubles my exposure. Signed service agreements are guarenteed funds. A service customer over the course of 10 years will produce , 10 start ups at $ 75.00 , and 10 blow outs at $ 75.00 , they will need 1 head a year minimum , $ 100.00 includung service call , 1 break every 2 years , 100.00. 1 out of 3 will need a controller 300.00 . 2 out of 10 will need an addition to the system 500.00 . And all will recomend you to potential new customers.

    Each customer has the potential for over $ 3000.00 over 10 years , plus referals .

    As far as determining price that is subjective to area , and the businesses reputation thats being purchaced.

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