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Here is why nothing (even a recession) will slow M&A activity in 2023

Conventional wisdom tells us that a recession will damper M&A activity. For our industry, these are unconventional times. Based on what I saw in Q4 of 2022, convenience services will experience a very active M&A environment, for one big reason.

Major players are hungry

When financial analysts talk about recession and a slowdown in M&A activity in the same breath, they are generally referring to public company activity. Some bankers are sure all M&A activity will slow down due to the relatively high interest rates we are seeing now, but they are wrong when it comes to the convenience services industry. The major players in the vending, OCS and micro market channels are hungry for acquisitions.

Huge Q4 deals

Just look at the 4th quarter of 2022 for additional evidence. VBB Advisors acted as the sell side representative on the sale of a large coffee service business in the upper Midwest. The owner decided it was time to retire. We also just brought on two very large clients, one in the $20 million range and the other in the $16 to $18 million range. Operators are ready to act, and buyers are increasingly encouraged by rising sales. Additionally, there is plenty of skepticism on whether a meaningful recession will even happen.

Driving M&A momentum

Adding fuel to the fire is the one big reason that is driving our industry’s M&A momentum: The Tsunami of Baby Boomers who are ready to retire. There is such a backlog of baby boomers that want to retire in every industry, including ours. There are many operators in the 55 to 70 age group who own vending and OCS operations, that are getting in touch with the reality that their kids have no interest in taking over the business.

Risk of hanging on

There is a real risk of hanging on to a business too long when there is no succession plan in place, and I have personally seen some difficult scenarios come to fruition more than once in my career at VBB Advisors.

One scenario that I will never forget was with a company on the East Coast. The operator, who had contemplated retirement more than once, passed away unexpectedly. His wife was not involved in the business and there was no true second in command. She was forced to step in, being totally ignorant of the business. Obviously, the business struggled. We were able to sell it for her, but frankly, it cost them a great deal of money because of the damage that had been done to the business in the interim. It could have been prevented, but there was no exit plan in this case.

Simple questions to ask

On top of the financial loss, there was so much stress on the widow with the combination of losing her husband and having to deal with a business that was suddenly in distress. As the years go on, operators should ask themselves some simple questions.

  • Do I have a “second in command” who could step in and run the company?

  • Do I still love the business the way I used to?

  • Do I have health issues that could impair my ability to run the company?

  • With the valuations as high as they are today – and they are the highest I have ever seen – does it make sense to hang on to your business and just keep putting off retirement?

Our Philosophy at VBB Advisors

“No matter what is going on with the economy or the world, it is time to sell your business if you are ready and we can make the right deal - a deal that makes sense for you, your family and your company.”

Buyers come to me because they know that I serve sellers who have thoroughly and thoughtfully considered their exit strategy with my help. That is the type of seller that you want to be – a seller who has their ducks in order, has taken steps to make their business as attractive as possible and a seller who values their employees enough to make a deal that everyone will feel good about.

Take that critical first step. That is often the toughest one to take.

Order my free Exit Strategy Planner. At the very least, it will provoke some thought, and this is a good time to think about your future.

Whatever your reasons are to sell your company - the timing, a sense of frustration, the desire to enjoy life or an interest in rewarding yourself for years of hard work – VBB Advisors can help you realize your goals.

I am Mike Kelner, the leading sell side intermediary in the convenience services industry. Let’s sit down and have a conversation. Use this appointment scheduler to set up a meeting with me.

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