By Cheryl Higley
This fall, Snow Business asked snow & ice management companies’ thoughts on growth strategies as part of the State of the Industry survey. While adding clients, acreage and/or services was a common response, a subset of respondents—those companies with snow & ice management sales of $250,000 to $1 million—said they wanted to grow through acquisition.
Paul Vanderzon, owner of Denegements Vanderzon in St. Bruno, Quebec, has grown the company through seven acquisitions—in each case being sought out by a seller. We asked his thoughts on the pros, cons and cautions of this growth strategy:
Know your numbers
Whether you decide to purchase someone else’s clients or their entire business, Vanderzon says you must know exactly what it costs to run your snow business. “Without this benchmark, every purchase you consider will be a gamble.”
Why are you buying?
Depending on where you are in your snow & ice management career, your reasons for acquiring new business may vary.
- The opportunity for instant growth has value for younger, newer companies. “It often can take up to five years for a company that begins in snow to become established. With acquisitions, you can avoid some of the growing pains and hard work that it takes to build a client base.” Vanderzon warns that this reason can be risky since company financials and other numbers will not have been tested over a longer duration.
- Long established companies may choose to acquire to increase market share. There may be growing pains or barriers to entry when a company attempts to enter a new market, and an acquisition of a company or its clients can help speed the process. Vanderzon suggests first looking at your current market(s) to see if there are opportunities to increase your share before taking the risk of entering new markets.
- Vanderzon says his company chose its acquisitions mostly to increase route density. This strategy is good for companies new and old.
- Large companies may find value in acquiring to eliminate a competitor.
- Companies of all sizes may consider acquiring to block a competitor from entering the market or to increase market share. “When we were approached to buy out a competitor, we knew we were not the only ones they approached. There was definitely value in blocking a new company from entering our market, or even a competitor from gaining a greater market share.”
- Gaining a brand name may be a cause for acquisition. “For example, our company has been around for 50 years and is very visible in our market. If someone were to purchase it, they would more than likely want to use the Vanderzon brand name,” he says.
What are they selling?
- Some companies, especially smaller companies who are getting out of snow or larger companies who want to exit a market, will sell their client list.
- Acquiring signed contracts has much more value then just purchasing a client list that offers no guarantee of future business. Before purchasing, it is important to find out whether the contracts are transferable, the duration (multi-year contracts bring more value for the buyer), portfolio type (residential, HOA, commercial, industrial, municipal, etc.) and contract type (seasonal, per inch, per push, etc.). Do the contracts being sold make sense for your business? Verify every detail - make sure the accounts are real, that they’ve provided service for the accounts, etc.
- Are they selling their whole business, including name and equipment?
Other items to consider:
- How long has the company had the accounts? The longer that they have been servicing the account the more valuable it is. Vanderzon says he doesn’t put much stock in accounts that have been serviced less than five years.
- What is the company’s reputation? The better the reputation the more valuable the accounts, he says.
- Why are they selling? There can be many reasons for someone to sell: cash flow, leaving a market or the industry, service failures hoping to recoup money.
- Do their numbers make sense? Vanderzon says this is where knowing your own numbers will make the difference. Compare their contract pricing to yours. “If their numbers are too low or do not make sense, walk away. I have witnessed a company increase its snow revenue by $200,000 in multiyear contracts. But they were bid at cost or below, and the buyer—who did not know his numbers—was stuck with contracts that cost him money to service. The company was out of the business four years later.”
If you answer all the questions and are ready to buy, be sure to enlist the services of an attorney, an accountant and a notary. Make sure to include a non-compete clause in the written contract that also releases you from any liability prior to the date of the signed purchase agreement.
Cheryl Higley is editorial director of Snow Business magazine.