M&A Insights for Background Screeners
Care to know the value of your business in the marketplace?
Want to know how you stack up against the competition?
Do you know the many levers you can pull to directly increase the value of your business?
Selling may be long into the future but maximizing your value and solidifying your position is critical now.
NEW SERIES: M&A INSIGHTS FOR BACKGROUND SCREENERS
Thank you for reading what is the first in a series on M&A insights for background screeners. My goal is to share with you some of the experiences that I have learned along the way with regards to becoming the leading M&A intermediary in the screening space. I also intend to provide you with regular insights or nuggets which can help strengthen your company’s financials, competitive stance and operations.
You may already be familiar with some of the knowledge nuggets that I plan to share, whereas others may be unfamiliar to you. Even if you are aware of a certain topic, are you in fact, addressing it in your business? If not, it’s never too late to start.
IMPORTANT NUMBERS TO KNOW
Are you a numbers person?
Let me share some numbers with you:
25. The minimum benchmark percentage of net profit your CRA should be achieving.
21. Berg Consulting Group has been the #1 Mergers and Acquisition (M&A) intermediary since 2000, 21 years.
31. Number of years of Bruce Berg (company founder) has been a successful leader in the background screening industry.
15. The highest percentage that any one account should represent, of your overall sales.
POINT OF DIFFERENTIATION
As advisors to the background screening space, we often get asked what separates us from our competition when it comes to M&A. Besides the fact that we are the #1 intermediary in the screening industry which means we have helped execute more successful M&A deals than anyone else, we are different because of our dedicated focus on the screening industry. After pouring over thousands of financial statements across hundreds of CRAs and working with numerous stakeholders, I have gleaned M&A Insights that will benefit background screeners.
Several of our clients first attempted to work with local general business brokers and those experiences have never been good simply because these business brokers are generalists with little to no knowledge of background screening. Ask yourself: should your company be valued and sold the same way as a pizza parlor or a gutter company? Answer: not if you want to maximize your value and get your company sold expeditiously.
You should want to work with the people who know your industry inside and out, a company who knows what it means to be FCRA compliant and knows the difference between a National Database Search vs. a County Criminal Search. We feel as though we are that company. But I am not here to pitch you… rather I am here to provide you nuggets of information to help your business.
TODAY’S M&A NUGGET:
My first nugget revolves around customer concentration since it is one of the key phrases you will hear in the M&A world. By customer concentration I mean the percentage (%) that each of your clients represent relative to your overall sales. The higher the concentration, the greater the risk to the buyer and the greater the negative impact on value. When it comes time to sell your business, your customer concentration issues will affect the value of your company.
Why Should I Care About Customer Concentration?
Do you only have two clients who each represent 50% of your sales? Probably not, but if you did, you would have extremely high customer concentration issues creating much more risk to a buyer thereby impacting the value and salability. Why? Because a buyer is always anticipating the loss of some clients during a transition period. If your largest account represents a significant percent of your overall business (i.e. north of 15%) and that account is lost, the deal is sunk for the buyer. So, in the case where you want to sell and you have customer concentrations issues, be prepared for one of two things to happen:
- The buyer will value your company with the assumption that the largest account(s) may be lost.
- The buyer will want a portion of the purchase price held back for a period of time until that specific account has been retained. If it hasn’t been retained, you run the risk of not receiving some or all of those held dollars.
Companies in our space who don’t suffer from customer concentration issues are always going to fare better in a sale because there is less risk associated with their sale.
The key to all of this is to control your customer concentration issues. Don’t get me wrong, it’s great having large accounts… Everyone wants to work with the whales. However, controlling how big the whale is compared to your overall business is what helps you maximize your dollars when it comes time to sell.
And there you have it, the first nugget for you to consider. Please reach out via phone or email to discuss this further or share your feedback.
And, stay tuned for future nuggets or M&A Insights for background screeners. Email or call us to discuss any questions you have.
About the author:
Evan Zatt has been with Berg Consulting Group since 2007 and has led the Mergers & Acquisitions (M&A) and Business Valuations team since 2012. Evan has managed nearly three-dozen successful M&A transactions generating over $250,000,000 in transaction value. He has the expertise to help companies looking to acquire or divest regardless of size. While in his spare time Evan can be found hiking, golfing and at the physical therapist’s office, he can always be reached via his cellphone: (303) 875-1718 and will be available at #PBSA21.