Large Acquisition of Landscape Maintenance Company

Discussion in 'Business Operations' started by G-Jacobsen, Oct 6, 2019.

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  1. G-Jacobsen

    G-Jacobsen LawnSite Member
    Messages: 22

    Hi Everyone, I am somewhat new to Lawnsite. I am looking to get feedback from anyone familiar with a larger business acquisition. We are looking to potentially purchase and expand our operations. Here are the details:

    Landscape and landscape maintenance company (business in question) who specializes in government contracts, city, state and commercial contracts across the state with 13 years experience in those areas. Certainly need to verify that these contracts are assignable. No residential work currently, my business currently is doing primarily residential installs with some maintenance. We have been experiencing 2x growth since I started in 2015. We should do 600k next year.

    The business in question currently has nearly 6 million in contract awards currently for the next few years (we verified these) from various state, federal, and city entities. They are projected to do 4.1 million in revenue this year with 600k cash flow and likely 4-500k net profit for 2019 (all will be verified once we go under contract).

    They have 30 employees with 5 office employees and all are expected to remain. I have experience in every aspect of business and business management so I am not green in these areas. The owner will stay on for 4 weeks intensive training and an additional year to act as a consultant to us.

    The deal structure is for real estate and the business acquisition. Business (pending apprasial is for 1,145,000 million and the real estate is 890k). I am in need of commercial real estate for my business so this checks that box. The debt service coverage ratio with the new debt payment factored in is considered "strong" by the bank and the last 3 years the average is between 1.8x to 2.88x DSCR. That doesn't include our revenue, just the business in question. The current owner takes 150k salary from the business. This business in 8a certified, disadvantaged minority owned, and has certifications with DOT. We expect to retain these certifications because my co owner(wifey) is Hispanic and will be 51% owner under new ownership structure. We will also be woman owned certified as well.

    The business has 750k replacement value (I haven't gotten the full asset list yet) in assets (50% is valuation from the bank) at 375k actual value. The business has updated software and CPU systems and tv's in conference rooms, 16 trucks (some newer, some older), various dump trailers, hydroseeding trailer, spray trailers, 5 skid steers, a mini ex, a dump truck (under 26k no cdl), a john deere tractor, multiple large trenchers, ride on mowers, and several other pieces. They also have an onsite mechanic to repair machines and trucks. The real estate is 8770 building and a little over an acre in size with a secured fence and gate with central location.

    We have been pre approved by the bank and they have reviewed our financials and their financials. We are going to be drafting a purchase agreement this week. I have an accountant and business lawyers in place.

    Recap:

    2019 Revenue: 4,100,000 new business/375k from current business. 6 million in secured contracts.
    750k in replacement valued assets
    8770 sq ft commercial building
    35 employees including key management personnel expected to remain.
    Specializes in commercial and government landscaping.
    Key note: we toured the operation and facility and they appear to be very organized and well established.

    Total asking price is 2,035,000 million. Sorry for the long thread but what do you all think who have experience with this? Good deal? Fair price? Solid business model? Does my business compliment theirs? Anything I maybe wouldnt think of to verify?

    Thank you guys!
     
  2. prezek

    prezek LawnSite Senior Member
    Messages: 576

    I have no real input above and beyond what it looks like through your due diligence you have already done...I hope all works out for you. Seems like a great, yet scary opportunity. 2mm is a good chunk of coin...have you personally met with the in place management? I would be nervous that one of them could always jump ship and hurt not only the day to day operations, but potential employees or customers going with them.

    Hopefully @snomaha can chime in. Not sure if he’s ever done any acquisition this large.
     
    zlandman and hort101 like this.
  3. OP
    OP
    G-Jacobsen

    G-Jacobsen LawnSite Member
    Messages: 22

    Prezek, thank you for the input. Yes, I am very methodical and well researched when I deal with something as complicated and life changing as this. One positive with banks is the "risk aversion" aka pita process they go through for this which helps to ensure I am not overpaying and that the business is viable. I agree about the management part and will look to speak with them once we go under contract. I certainly know enough from my own business to fill in if that happens but certainly a worse case scenario I want to avoid. Thanks!
     
  4. zlandman

    zlandman LawnSite Senior Member
    from Ohio
    Messages: 604

    Looks like you've run the numbers and homework. With regard to the government contracts them being assignable is a big maybe due the MBE issue.
    Getting your wife MBE certified could take 10 months if you don't already have it. Its more of a process than just sending in a form. And without that MBE DBE etc. Those contracts may as well be considered gone. Have an attorney look those contracts over, they're govt record so you can get copy from the agencies that wrote them.
    Currently it seems private work is where the money is so not sure the advantage of the govt. Work other than stability.
    If you can pull it off congratulations sounds like an exciting opportunity.
     
  5. OP
    OP
    G-Jacobsen

    G-Jacobsen LawnSite Member
    Messages: 22

    Zlandman, thank you for the reply. You are correct this deal is going to be very complex to say the least. ALL government contracts will need a novation to assign to the buyers. Our current business is in the process of getting certified. The complicated part is this business has several certifications on state, local, and federal levels which has allowed them to become very profitable in this niche but once we establish new ownership the former entity and its certifications are non existent. We would have to either already have those same certifications and simply absorb that business or recertify which can take quite a while and may put all those contracts in jeopardy.
     
    zlandman likes this.
  6. snomaha

    snomaha LawnSite Bronze Member
    from midwest
    Messages: 1,627

    So if the fair market value of the tangible assets is 375k, you are paying 770k for the goodwill portion of the company? I would want to know the breakdown of landscape install vs maintenance, or any reoccurring revenue.

    Is the seller retiring or just wanting to cash out? The acquisitions we have done, that were most successful, had the seller retiring - little threat to jump back into the same industry after the non compete is up.

    Without knowing the real estate climate where you’re located, tough to tell if that is a fair price for the real estate. We just picked up 46,000 sq ft industrial zoned lot next to our current property and paid $4 a sq ft for it - real estate is relatively cheap where I’m located.
     
  7. hal

    hal LawnSite Bronze Member
    from Georgia
    Messages: 1,793

    This should be in the buying price whether you are able to get these certificates and continue with the contracts, a bargaining tool.
     
  8. OP
    OP
    G-Jacobsen

    G-Jacobsen LawnSite Member
    Messages: 22

    Snomaha, yes the seller is retiring. Its would be 770k for goodwill and current contracts. Nearly all the income is through reoccurring contracts. I think the biggest challenge is the assignment of all the government contracts. That's the scariest part for us. Government can be very finicky and if they're used to this contractor they may view new ownership as a change not in their best interest and terminate it immediately.
     
  9. hal

    hal LawnSite Bronze Member
    from Georgia
    Messages: 1,793

    Maybe the owner can "partner" with you to retain the contracts?
     
    Cam15 likes this.
  10. OP
    OP
    G-Jacobsen

    G-Jacobsen LawnSite Member
    Messages: 22

    Hal, absolutely agree. A line in the purchase contract that states all government contracts must be agreed to be transferred by contracting officer prior to closing. Otherwise contract will be terminated. This is absolutely necessary for a deal like this.
     

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