Selling Your Service Business: What Matters Beyond Valuation

Private equity firms are showing an invested interest in field service industries like lawn care, pest control, cleaning and other sectors, while M&A activity is skyrocketing across these industries at the same time.

Sources cite the resiliency of essential services, predictive recurring revenue and business model growth opportunities enabled by technology, training and development as being reasons behind the interest. 

In fact, Lawn and Landscape’s most recent roundup of the top 100 green industry companies (based on revenue) dedicates a bulk of the report to highlighting a year’s worth of mergers and acquisitions within the industry, showcasing how these investments are a critical method of scaling high-quality businesses, accelerating growth and diversification of services. 

But entering the private equity landscape can be a complicated subject for many field service companies to broach. How do you know your company is ready? What should you consider before selling your business? Of course topics like due diligence, deal structure and valuation matter, but are there other variables you should be factoring into the equation outside of the money?

These are questions only someone who has been through the process can really answer. 

Senske is known for being a national leader in both lawn care and pest control services, and has experienced impressive M&A activity in recent years, while being backed by PE-firm GTCR since 2022. We interviewed Jordan Cano, Director of Mergers & Acquisition at Senske, to dig into a real-world perspective.

WorkWave: Where should you start if you are looking to sell your business?

Cano: Many companies are open to the idea of growing by gaining investments through private equity, mergers and acquisitions. But it can be tricky to know where to start. Before diving into the selling process, it’s critical to familiarize yourself with, and fully understand, your industry’s landscape. Doing so requires thorough qualitative research. I’d recommend reaching out to active strategic buyers per sector. For the lawn care sector, for example, you’ll want to connect with brokers who specialize in the field. Then, it’s important to stay informed about acquisition news through reputable industry publications. Lawn & Landscape, PCT and BSCAI all monitor private equity deals and M&A news within the lawn care, pest control and cleaning industries, respectively. This market awareness can help provide you with insight into market trends, including which types of businesses are being acquired by whom and – in some cases – at what valuation. From this, you can begin to benchmark your company’s valuation, identify potential buyers and even gain contacts as you begin exploring a company sale. 

WorkWave: What parts of your business bring the most value to the buyer?

Cano: From the buy-side perspective of a private equity deal, profitability is key. When it comes to determining valuation and purchase price, there are typically two main criteria used: 

1. Earning Before Interest Taxes Depreciation and Amortization (EBITDA)
2. Growth metrics, like revenue growth and profitability growth

As an owner or executive, you must understand these criteria to truly understand your profitability and growth drivers. Some common methods that help ensure your understanding might include digging into financial performance and indicators, like: 

• Breaking down EBITDA components to understand how they each individually contribute to profitability. This might include an analysis of revenue, cost of goods sold, operating expenses and non-operating expenses. By identifying where improvements can be made, you can enhance your EBITDA margin.
• Analyze your revenue and profitability by service, product line or other segments your business operates.
• Cost structure analysis: Break down operating expenses to understand what’s driving costs – both fixed and variable – and how they impact profitability.
• Cash flow management: Ensure your business has sufficient liquidity to support operations and growth initiatives by analyzing cost flow patterns.

WorkWave: How does your software play a part in a successful M&A transaction?

Cano: The software a for-sale company uses plays a crucial role in any M&A transaction. The better the software is, the easier it is for the buyer to understand the business data. Every buyer will do a deep dive into the seller’s business during the due diligence process to better understand and confirm their valuation assumptions. It helps to speed up the diligence process when the selling company operates on a system that is widely used throughout the industry, such as RealGreen for the lawn care industry. Reporting features within the software can also make it much easier for the seller to pull accurate financial statements, inventory data, and customer or revenue analysis-type documentation faster.

WorkWave: What role does vision play when it comes to creating a successful partnership?

Cano: The vision for the company’s future is one of the biggest initial factors that draws a seller and buyer together. Not everyone’s vision is going to align – and that’s okay. 

Without a shared vision, you could experience misalignment in strategic direction, operational decisions, investment objectives and priorities long-term. This can have financial implications, as well as simply make the day-to-day operations of your business more difficult, all of which can impact long-term value and create dissatisfaction from both viewpoints. 

The goal in the selling process is to find the right private equity buyer whose vision for the future of the business aligns with your expectations.

After that, any successful partnership relies on trust and communication throughout the process to ensure that vision is sought after.

WorkWave: How important is trust and transparency during the due diligence and negotiations processes? Is that an indicator of a successful PE relationship long-term?

Cano: The selling process is a life-changing experience that requires trust. That’s why transparency in M&A negotiations is so critical. Trust is built on transparency. That starts with your business being open and honest with your vision and goals for the company, just as much as you want the buyer to be open and honest with their vision and goals for the company. You should never feel like your private equity partner is hiding something from you, or putting in any “gotchas.” The negotiation and diligence process can be daunting already – you need to be able to trust your private equity partner will do right by you. 

Always remember that no partnership can be successful if trust isn’t present. 

WorkWave: What is some advice you would give business owners looking to be acquired?

Cano: My first piece of advice in preparing your business for acquisition is to do a deep dive into the data that drives your business. 

Take the time to know key metrics – things like profitability, revenue growth, customer churn, etc. – inside and out. Doing so will help ensure your business is prepared to be acquired from a management perspective. My second piece of advice would be to think about your goals regarding management teams’ succession planning.

All private equity buyers want businesses with good employees and great leaders.

If you plan to retire, it helps to ensure you have a plan in place for your employees to be transitioned, and that they have leadership in place to continue to drive the success of your company as a part of a new relationship. 

Are you interested in learning more about private equity, mergers and acquisitions, and other strategies for expanding your business and maximizing its value? Keep an eye on our content channels as WorkWave digs into the topic, curating firsthand advice and expertise from professionals on both sides of the table.