Landscape Management, June 2010

JUNE 2010 LANDSCAPEMANAGEMENT NET S23 tional private equity fi rms do These are happening just as often as the deals you do hear about Another big difference between these types of fi rms is a private equity fi rm backed by fi nancing dollars usually is operating on a 5 to 7 year returnon investment window at which time theyll likely make the business public sell it to another industry company or sell it to another private equity fi rm The family based companies dont seem to have these short term exit strategies Edmonds says Industry turn ons Regardless of the type of private equity fi rm the industry businesses they are attracted to today are the same Recurring revenue maintenance businesses YOU MIGHT EXPECT THIS TO EVOLVE INTO A BUYERS MARKET BUT ITS REALLY NOT THE HESITANCE OF SELLERS TO SELL GIVES THEM SOME NEGOTIATING POWER RONALD EDMONDS The Principium Group continue to be more attractive than installation focused businesses industry consultant Judy Guido says In fact many companies today are running around trying to get maintenance work to make up for how much their construction business has fallen off she says Buyers arent interested in construction even if those companies have relationships with home builders and general contractors If they arent building anything so what There is so much overbuilt stuff in commercial and residential will be soft for a while Theres not a lot of intrinsic value there In addition to recurring revenue landscape and lawn care services are tied to real estate which remains one of the most viable assets anyone owns today Therefore maintenance work is a bit recession proof Its something properties have to do to keep up value and appearance and its certainly not something you can outsource to another country Guido adds Sustainability is another buzzword thats driving M A transactions in the landscape industry You cant look anywhere without seeing green or sustainable Guido says adding that companies providing water management and other sustainable solutions have value to buyers Sell sell sell Not only is there more interest on the buying side but more companies are willing to sell today The challenging economy is partly to blame A lot of owners are looking to sell because they feel increasingly vulnerable Guido says The economic challenges brought their shortcomings and weaknesses to the forefront she says So they think they can better protect themselves and their employees if they share the risk with someone Another reason is they want to diversify their net worth A business owner with a bigger company like those on the LM150 realizes he has a dilemma 85 to 90 of his net worth is tied to one huge liquid business Corbett says So diversity in net worth would help insulate him in case of another recession This year is also an attractive year for business mergers and acquisitions because after Dec 31 the capital gains tax rate on selling assets is rising 33 Corbett explains Thats in addition to the new 38 health care mandate for businesses with more than 200000 in revenue So selling now means avoiding approximately 40 in tax hikes These business owners are thinking I can bust my butt to get my business back to where it was before the recession but if taxes are going up that much I wont really get more than I could get by selling now Corbett says One might think the recession would also have an impact on business valuation but most M A experts say this is not the case You might expect this to evolve into a buyers market but its really not Edmonds says The hesitance of sellers to sell gives them some negotiating power Where limits come in are on the fi nancing side Long agrees Valuations are as aggressive or solid as theyve ever been because there are a lot of strategic buyers in the space he says Typically maintenance companies get between 2 and 6 times EBITA and design build companies get between 1 and 3 times EBITA Guido says But she adds the economy doesnt matter good or great businesses will always be contenders to buy or be bought LM