What’s it Worth? Valuing Your Company
Host: Dominic Tidey - EuRA COO ⏐ Speaker: Patrick Oman - Oman Consulting
Over the last decade our industry has seen a great deal of consolidation as companies merge and acquire. Patrick Oman has built and very successfully sold three companies during his career in mobility. He founded and built Oman Moving, a business which was to become Ireland’s largest HHG firm, servicing domestic and corporate clients. In 2006 he sold the entire business by merging with his direct competition and not a moment too soon. The financial crash which hit Ireland particularly hard, was devastating for the HHG industry as the housing market collapsed. Meanwhile he was involved in the start up IrishRelo and sold OASIS, a storage related company via a management buyout.
When we discussed the idea of a succession session based on selling your business, there was clearly only one man for the job!
Patric highlighted five major milestones when preparing to sell a business, starting with;
Succession
Where exactly does valuing the business fit in when an owner is looking at succession? His advice was to consider all the stakeholders in the business and they impact on the value. Your team is the largest asset you have in a mobility business. Relocation companies are difficult to value, but it’s vital to emphasise to the bury the tangible nature of your staff as an asset. Make sure they are trained - qualifications hanging on the wall mean there is a proven investment in the professionalism of the team and that adds value. In terms of a management buyout, the team value is fully understood and realised.
Motivation
“It can be a huge struggle to actually leave the business, the social circle, the friends and the lifestyle so it could be worth asking – why sell if you like it so much?
And you’ve really got to think about how much the business pays for which you’ll have to then pay for yourself if you sell it; the car, the holiday you’ve wrapped around the EuRA Conference, the short term lettings you direct into the couple of apartments you bought with your Pension fund – there are lots of ‘perks’ to owning a relo business which have a value to you and which will not be reflected in the valuation for the purpose of a sale. “
Preparation
You can’t start too soon, in fact Patrick highlighted how he built IrishRelo with an eventual sale in mind. You must have fully flushed out accounts and contracts as these will define the value of the business. You must also assure the purchaser that the continuance of the business isn’t wholly dependant on you! you must not only have them up to legal standard, you must have ALL your employees files in order and be able to show that there are no disputes or claims or anything that would indicate anything other than a well-oiled machine, which is geared to churning out the work. Having the management able to do this and the business not relying on the owner to keep it going is well worth a point on the multiplier scale.
Valuation
Ah the wholly grail of the sale! Simply put this is a multiple of the earnings usually an average over the past three years. The difference with a mobility business is you don’t have the same quantifiable assets that you would have if you were selling commercial property or apartments with a proven rental stream. In a DSP business there are no tangible assets and assets that exist are already depreciating - hardware, cars, furnishings etc are all worthless. Patrick again;
And the income isn’t exactly recurring – you wait for initiations, sometimes must haggle for a rate, do the job for a variable cost and hopefully remember to invoice; then wait to be paid – not very dependable always, is it?? Now you begin to see why the advisors to the purchaser want the assurance of proper structure supporting professional management to give you a multiple of anything over zero! So let’s assume that your management and processes are in place (and validated by your EGQS recent audit!) and you have a solid and recurring profit that is showing steady improvement year on year, then as we’re a service industry with no assets, we’re looking at somewhere between 2 and 5 as our multiple with outside factors such as the buyer’s special reason to purchase needed to get it to near the 5 or even beyond it.”
Implementation
When you’ve built your company from scratch, you are loyal to it and your people, therefore to implement the process of selling, get someone else in to handle it! It’s impossible to be dispassionate about a company you have raised like a child, so don’t try. Find someone who’s done it once or twice and trust them to get it done!
Patrick Oman