On a regular basis, I talk to industry newcomers – brand new operators, seeking advice. In many cases, amazingly, even as they are just getting started as an operator, they are already thinking about a lucrative exit strategy. That type of thinking defines how they do business, and it occurred to me that an operator with a shorter exit timeline might do well to follow the strategy of the newbies.
Meet Jack
Jack is a perfect example: I spoke to him, a young man in his 40’s, in his prime earning years, who was working for a strong independent operator that was bought out about a year ago by one of the “big three.” After the sale, everything changed for him. The expense account was now gone; he was told that he was overpaid, so bonuses were now out of the question. An unfortunate approach by the buyer that has left him feeling unappreciated, motivating him to raise capital, leverage his close client relationships and start or buy his own company.
As the leading sell side broker in the convenience services industry, I suggested that he consider working with VBB Advisors in buying an existing business so he can hit the ground running. While he is considering that option, the available companies in his area are typically lacking the one thing that all new operators recognize as the equalizer – technology – specifically, smart coolers and smart markets – the new generation of micro markets. “If I buy out one of those small operators, I have to re-invest so much in equipment, it is hardly worth it,” said Jack. “If I could find one of those premier companies with great accounts and modern technology that you always write about, I would be all over it – but those are not always available.”
A clear strategy
Jack’s strategy is clear to him. “My boss, who was a great operator, used to complain that the smart coolers were too expensive,” Jack said. “But that was only because he had plenty of micro market kiosks on hand and could not stomach the idea of paying for smart coolers,” he added. “I know better. The numbers are astronomical compared to vending and often 30% higher than traditional micro markets. Plus, smart markets open the door to some fantastic locations – including workplaces that don’t want the theft issue and high traffic public locations where a micro market would have potential theft.”
A ten-year plan
Jack’s plan is to place 30 smart markets a year in 30 great accounts for the next ten years. On the OCS side, he plans to operate state of the art bean to cup brewers along with high end point of use water systems. “After 10 years, I will be ready to sell to the exact same people who bought out my current company and they will be willing to pay top dollar for solid revenue, leading technology, contracted business and great locations,” said Jack. “Sweet revenge for me.”
Some lessons to be learned
By the time I was done talking to Jack, I was practically ready to invest! Jack’s plan is a typical one among new operators. They want nothing to do with vending or anything that would be considered old technology and they look ahead asking the question – “What will this strategy do for me when I am ready to sell?” For an operator that is one or two years away from selling, there are some lessons here to be learned.
While it is tempting to install what you have in the warehouse, especially when you are thinking about selling – investing in the latest technology has its benefits, even if you are only one or two years away from a sale.
· If the investment results in an excellent, high-profile location, the ROI will be there when you sell.
· Smart markets are attractive to the biggest and most active buyers, so the ROI will be there when you sell.
· Smart markets generate more sales volume, so the ROI will be there when you sell.
· The leading bean to cup brewer generates enough revenue to pay for itself in a short time. Buyers love OCS revenue and the rentals. Again, the ROI will be there.
The big question – will Jack have access to enough capital to execute his plan? That remains to be seen.
Positioning is key
For the established operator who is just a year or two away from selling, the resources to invest should be there and the process of positioning your company for sale should be underway. An article I wrote last month for Vending Market Watch, “10 important points to consider when it is time to sell your business,” addressed the importance of positioning a company for sale following an initial valuation.
After the valuation process is completed, we ask – “Where do we want that valuation to be when we market the company and how do we elevate the business to that level over the next 6 to 12 months?’ We then establish key benchmarks to enhance the value of the company along the way. For example:
• We need to have the financials cleaned up by this date.
• We need to cut certain costs by this date.
• We need to raise prices at these locations by this date.
• We need to sell “this many” new accounts by this date.
Our approach gives operators access to our team and our resources. That means quarterly calls to review the financial statements and periodic conference calls to discuss capital expenditure. We are looking at every aspect of the business, positioning a company for sale, taking steps that will make a business as desirable as possible during the marketing process. The goal – exactly what Jack is hoping for 10 years from now – multiple offers.
Take that critical first step. That is often the toughest one to take.
Order my free 2025 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.
Or – give me a call at 704-942-4621
