The phone rings. It is someone calling out of the blue, offering to buy the company you have worked hard to build. You wonder, should I sell?
To answer that question, you first must ask yourself others. You have worked hard to build your rental fleet, anticipating a future time when you would sell or transfer the business to the next generation. But is this the right time? Do you know what your want out of the sale, whether you plan to retire outright or if you are looking for a partner? In either case, what is the true market value of your company? And might there be other potential buyers who also would be interested in making an offer?
While it may be tempting to try and answer these questions on your own, in the long run it could be far more profitable if you ask for help. Consult an industry expert, with a solid track record of financial transactions and the experience of buying and selling companies in the portable storage industry who understands the players and can guide you through the process. An advisor who has years of experience can help you determine if this is truly the right time to sell, and if so, how to optimize the value of your rental fleet. And if not, how you can improve your company to make it more appealing to prospective buyers
Developing and maintaining good will with potential buyers will pay off financially. To avoid developing illusions that are unrealistic and which could sour a deal, rely on outside advise to help you define your terms.
For instance, an advisor can help you assemble the necessary data to write a prospectus that describes your company in the most accurate and positive light. An advisor should also be able to identify and attract other potential buyers to make sure you get the best price based on market conditions. And an advisor will help navigate the trickiest financial aspects of the deal to make the process a smooth one, all the way to the day that money changes hands.
Determining the value of your company is one of the most important aspects of the process. Although it may be tempting to start by asking your accountant’s opinion, remember that determining a valuation is not as simple as basing your price on the intrinsic value of the physical containers,the bottom line of your P&L or the size of your balance sheet. The value of a container rental company is the cash flow from the fleet of containers on rent as well as the future potential revenues from customer lists and market presence from advertising, promotions and signage in place.
To figure out what your company is really worth, you will need to consider three factors: the quality of your containers, your rental revenues and the relative strength of your local market.
First, to determine container quality, you will need to evaluate your fleet’s physical condition. Is your fleet made up primarily of one-trippers? Or do you also have a substantial percentage of refurbished containers? Are they clean and neat? What percentage of your containers have signage that identifies your company and makes it easy for prospective clients to contact you? Based on your answers, an advisor can help you calculate an average overall value of your fleet. Be as accurate as possible; an experienced buyer will be able to confirm, with one on-site visit, the physical condition of your fleet.
Next, look at the sizes of the containers in your fleet and at the utilization rates . What are your average rental periods and at what rates? Also, assess the fleet to determine what percentage of the containers are part of the rental fleet and what percentage you consider as sales inventory . An advisor will use the information to prepare the documentation that supports your calculations and correlates with the revenue on your P&L
Typically a business sells for 3-5 times cash flow.Be prepared to show details of your rental revenue, your equipment inventory and your customer base compiled in the formats that the buyer has requested. Most often transactions of this type are asset purchases meaning that the seller keeps the company the buyer gets the asstes. Thereforedo not show a prospective buyer your operational financials, unless you are selling the shares of the company. It is up to a buyer to estimate the costs of operating the business. Depending on the business model and size of the buyer he can operate in your market differently and take advantage of economies of scale that the small operater typically can’t do.
Appraising the strength of your local market is the final step in the equation. You probably have a good general idea of whether you are in a growth area — like, say, North Carolina or Texas, where population increases are boosting demand for portable storage containers– or whether you are in a geographic region that is past its period of tremendous growth. A seasoned advisor will add to this perspective by offering detailed knowledge about the macro economic climate in your area.
There is no rule of thumb about how much premium a prospective buyer may be willing to pay to gain a toehold in a particularly desirable local market. An advisor can help you assess the situation by approaching other potential buyers to determine their level of interest and comparing that to an existing offer.
If you decide to respond to a buyer’s offer, then the fun starts. The initial negotiations is just the first step. After a letter of intent comes a non-refundable deposit of a substantial amount of money and the buyer is on the hook now. An experienced advisor knows how to play the mental game necessary to complete the negotiations successfully and helps you work through the due diligence. Keep in mind that after the buyer takes over, the negotiations still continues. Without a doubt there will be a hold back for an extensive period of time, often in the range of 10-15%. The buyer will look to maintain as much of that amount as possible while it is in your interest to collect as much of as you can.
Keep in mind that you visit the doctor when you need help with your health and you consult your CPA when you need help with your taxes. It takes a long time to sell a business, it is emotionally draining so make sure you get help from an industry expert.