Navigating the landscaping buyer universe

As any landscaping business owner who has fielded countless emails from prospective buyers can tell you, our industry has become increasingly attractive for investors of all shapes and sizes. While the ever-increasing buyer interest and widespread dissemination of different acquisition models is good for our industry, it can be challenging to understand the differences among prospective buyers. To empower business owners to make more educated decisions when considering the sale of their company, there are a few key areas to explore.

First, we need to level set on the different types of buyers in our industry. Though investment models are constantly changing, for simplicity’s sake, we can put the vast majority of buyers into one of the following buckets:

Private equity buyers

Private equity (PE) funds raise capital from passive investors called limited partners. In exchange for contributing their capital to the PE fund for a defined investment horizon (usually 10 years), the limited partners expect for their capital to be returned plus a profit at the end of the investment horizon. The general partners, or managers of the PE fund, are tasked with finding good businesses to buy, growing them and ultimately selling them again to generate a profit for their limited partners. Though there are exceptions, most private equity funds look to own businesses for three to five years before selling them again. PE buyers are typically looking for a “platform” investment in the industry, which means that they are looking for a company to buy that can become their primary “platform” to grow and use to acquire other businesses.

Strategic buyers

Strategic buyers are companies that are already operating in the landscaping industry. Unlike PE buyers, who are looking to make an initial “platform” investment, strategic buyers are typically looking for companies in new or existing markets to acquire to “add-on.” Strategic buyers can have a variety of capital sources, but in our industry, they are most commonly backed by PE companies (i.e., they were the original “platform” investments of the PE funds that are now looking to grow via acquisition).

There are also other types of buyers, though these are typically less common than PE and strategic buyers. These alternative buyers include:

• Independent Sponsors, or investors who don’t have committed capital themselves, but who look for businesses to buy and then use their network to pool capital from investors to close a transaction.
• Search Funds, or funds led by entrepreneurs who have raised capital to acquire and operate a single business in a leadership capacity, often as CEO.
• Family Offices, or private capital holdings of wealthy families or individuals who are looking to make direct investments in companies.

Once familiarized with the types of buyers, business owners should be asking the following questions to maximize their odds of a successful transaction:

Is the buyer’s source of capital “committed?”

Some buyers don’t have a “committed” source of capital, so they must raise capital on a deal-by-deal basis. For an owner, this can add risk to the process. That’s because if a buyer without a committed source capital is unable to garner enough interest from investors, then it’s possible that a deal could fall apart even after an offer is agreed upon. Other buyers have committed capital from investors, lenders or their business’s bank account that can be deployed in short order, thus reducing the risk of a deal falling apart due to funding issues.

Does the buyer have a good track record of closing deals quickly and confidentially?

When picking a partner, an owner should carefully consider the buyer’s track record of closing deals quickly and confidentially. Going through a sale is a very time-consuming process that can be a distraction to the business, so owners should seek buyers who can navigate the process efficiently. Buyers who have done multiple deals usually have defined playbooks and processes that streamline the closing process and boost the odds of success.

What is the buyer’s investment horizon?

Some buyers have shorter investment horizons than others, and all buyers are focused on making decisions that have a positive return within their targeted investment horizons. For that reason, those with shorter investment horizons may not prioritize investments that take longer to yield a positive return (e.g., building a workforce development program), while those with more patient capital may be able to invest with an eye toward longer-term returns. Given the significant impact that these decisions can have on how the business is operated, owners need to be aware of the buyer’s investment horizon to ensure it aligns with the goals that they have for their team post-sale.

How involved will ownership need to be post-sale?

Some owners want to stay involved post-sale, while others would prefer to step out of the business after a brief transition period. Similarly, some buyers (especially those without industry experience) will require that the owner stay on board for the long-term post-acquisition. Other buyers who have more industry experience may be able to facilitate a transition more quickly if desired. While remaining with the company in a leadership capacity can be an exciting opportunity to grow professionally and personally, it also comes with high expectations and accountability from a new set of owners. This can be challenging for owners who are used to being their own boss. Owners should seriously consider what type of life they desire post-sale and ensure that their goals align with the buyer’s.

Does the buyer operate with integrity?

Above all else, it is critical to find a buyer who operates with integrity. The best way to gauge this is to talk to other owners who have sold their businesses to the buyer. Ask the buyer for a list of owners from whom they’ve bought businesses — reputable buyers will be happy to offer up these references. Here are a few key questions to consider asking those references:

• Did the buyer do what they said they were going to do, both before and after the sale?
• Did the buyer attempt to “re-trade” the deal (i.e., renegotiate a deal late in the process, after terms had already been agreed to)?
• Did the buyer generally try to take the high road, even when things didn’t go as planned?

Most business owners only get the opportunity to sell a business one time — it’s critical that they find a buyer with high integrity to avoid long-term regret.

With all of the interest in our industry from prospective buyers, it can be difficult for business owners to discern the right buyer for their business. Owners should be sure to take the time to understand the buyer universe and ask the right questions to find the right fit. After all, building a great business takes years of blood, sweat and tears, and the decision to sell is not an easy one. Business owners should make sure to approach the sale process with the same tenacity with which they’ve brought to building their business over the years to ensure they make the right decision for themselves, their family and their team.