- January 7, 2019
- Posted by: admin
- Category: Accounting Advice
Regardless of the stage you are in your business, it is important to stay informed about how pest control acquisitions work. As a growing Pest Control company sometimes we run into situations where there seems to be a good deal on the horizon and the idea of purchasing a competitor is appealing. And depending on what stage you are in life, selling your firm might also be appealing. But how is it done? As in any large decision no matter who you ask, they’ll have an opinion.
Problem: If those opinions don’t come from qualified professionals, they can be drastically wrong and end up costing you a lot of money in terms of purchase price, payouts and or taxes.
Solution: You need to consult a good lawyer or CPA who specializes in merger and acquisition structuring. These professionals can be expensive, so we recommend you familiarize yourself with the process so you can communicate your vision before you seek out this advice. Let’s do a run-down of how the process works:
Pest Control Acquisitions: Buyer’s Perspective
Confidentiality Agreement / Info Request
- Avoid risk of competitors trying to steal the deal or driving up the price if became known that Seller was selling the business
- Need to know more information about seller’s business strengths & weaknesses, (e.g., personnel, customers, equipment)
Letter of Intent / Due Diligence (D/D)
- Agree on major deal points such as price and structure of proposed deal (stock or asset purchase transaction)
- Verify accuracy of Seller’s financial and non-financial information about the business
- Timing, access to records, cost and proper talent to conduct D/D
Financing the Deal
- Small down payment as possible to reduce the risk of loss
- Pay balance due seller over a long period at a low-interest rate
- Use bank and/or investor money
- Use future earnings of Seller’s business to pay balance due Seller
Purchase and Sale Contract
- Want as many representations and warranties as to all aspects of the business being purchased
- Want Seller to retain all liabilities prior to closing the deal
- Want to eliminate any chance of risk for items not discovered during D/D
- Want to withhold 10-20% of the purchase price in escrow for the first 1-2 years after closing the deal.
Other Considerations
- Any employees not being retained
- Is the Seller’s office lease being assumed
Closing the Deal
- Ensure any open issues are satisfied and free/clear title to business is conveyed
Pest Control Acquisitions: Seller’s Perspective
Confidentiality Agreement / Info Request
- Ensure trade secrets and customer lists are protected & not stolen by Buyer
- Give as little information as possible other than positive aspects of business
- Keep lawyers and accountants fees in check given deal may not proceed
Letter of Intent / Due Diligence (D/D)
- Agree on major deal points (same as Buyer)
- Posture business for highest valuation
- Negotiate and minimize the volume of business records to provide under D/D
- Give Buyer short window to do D/D
- Seek break-up fee from Buyer if LOI is terminated by Buyer after D/D process
Financing the Deal
- Large cash down payment as possible in case business stalls after selling
- Obtain guarantees and collateral to secure any purchase price being paid over time
- Do not act as the bank for the Buyer but if so then a short period and high rate of interest
Purchase and Sale Contract
- Give a few representations and warranties about the business and make them precise and narrow in scope
- Make sale of assets on “AS IS” basis
- Provide as little indemnification as possible on potential contract breaches
- Reduce or eliminate any proposed escrow holdback from the purchase price
- Shift as many business liabilities to Seller post-closing
Other Considerations
- Negotiate L/T employment agreement
- Employee liability for any terminated
Closing the Deal: Ensure Buyer cannot terminate deal before closing, get the money
Pest Control Acquisitions:Conclusion: Expanding your firm through acquisition or selling your firm to harvest the fruits of a lifetime of work can be a difficult decision with all kinds of roadblocks and risks. Prior to embarking on a large decision such as this, the Pest Control Operator should understand the elements of how a purchase or sale is crafted then consult a qualified CPA and attorney to help guide him through the process in order to minimize the tax consequences, legal issues and help negotiate the best deal. For more information about pest control acquisitions visit our Merger & Acquisition division, PCO M&A Specialists
