Beacon Exit Planning is regularly approached by specialty contractors in the roofing, electrical, and mechanical industries who are interested in selling their company and asking us for advice.

Our first question is, “What are your personal, business, legacy, and financial goals?”

Read prior RC Exit Planning columns like Why a Roofing Company Becomes a Target for Acquisitions and Your Sale Options in a Roofing Exit to help align your goals with the four key exit options.

Private Equity (PE) will make sense if your goals are to:

• Grow your business and participate in the value of that growth
• Maintain an opportunity of ownership for your management team
• Obtain a partner who will invest in your growth
• Take some chips off the table, continue to work for the next three to five years, and get a second bite of the apple
• Reduce your business risk exposure, but continue to have operational influence in the direction of the company

What does the sales process look like? It begins with signing the sell-side agreement with your broker or M&A Adviser. They will be your guide through each stage of the sales journey, assisting in maximizing the business value and supporting you through the negotiating process.

Choose a specialty adviser who understands the special contractor business, roofing contractor marketplace, and types of buyers.

The advisor will lead the sales process and allow the business owner to keep their foot on the accelerator to drive the business' continued performance. The owner does not need to be distracted by the daily emotional minutia of the sale.

Preparing the Business for Sale

Valuation: The valuation should be completed by an experienced appraiser so you can have a realistic starting point in the negotiations. The process should include examining normalization and strategic adjustments while arriving at EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization). The EBITDA will be one component of the equation.

Multiplier: The second component will be the multiplier. This process is more subjective and typically where your advisor will shine. Getting the highest multiple is a direct correlation of managing the risk to a buyer. The lower the risk, the higher the multiple.

Financial Documentation: The sellers’ financial statements will be thoroughly reviewed, much like an audit, to cast an accurate picture of revenue, profitability, and potential growth. The documents would include all financials, including income statements, balance sheets, and tax returns.

Marketing the Business for Sale

Teaser or Executive Summary: The first marketing document the buyer receives is an Executive Summary. This short, concise, visually appealing, impactful one-page document anonymously attracts potential buyers to inquire further.

NDA (Non-Disclosure Agreement): Potential buyers must sign an NDA to proceed further. This legal document between parties outlines what information is confidential and how it can be shared. This protects the confidentiality of the seller’s information sent to the potential buyer.

CIM (Confidential Information Memorandum): The CIM is a “book” that provides the buyer with a comprehensive review of the business’s financials, market position and strategies, operations, and sales. This is released after the NDA is signed.

Identifying and Targeting PE Buyers: Specialty M&A professionals will have a proprietary database in the construction marketplace. Several dozen identified PE firms are active in the roofing space. Other newer entries can be reached by broadcasting the Executive Summary to a pre-qualified list of PE firms that have declared an interest in “roofing contractors.”

Initial Contact with Targeted Buyers

Initial discussion: The buyer will request an NDA before reviewing the CIM, and then the seller’s representative will follow up to answer the PE’s further questions. This is an opportunity for the buyer and seller to learn about each other.

IOI (Indication of Interest): This is a non-binding proposal expressing the buyer's general interest in acquiring the company at a specific price with certain terms.

Management Meeting: Interested buyers will then request a meeting with the owners and sometimes the management team. This allows the buyers to observe the company firsthand and gain deeper insight into historical operations and strategic growth opportunities.