By Chris Frevert, Managing Director
I was blessed to have a great Christmas holiday spent with my family. Part of that was having my 88 year-old mother in attendance and, as at every family gathering, she asked me how the real estate market was doing. For nearly twenty years I’ve been doing mergers and acquisitions and have tried to explain to her, to no avail, that M&A is not real estate. I’ve now learned that she is probably never going to understand the difference between what Citadel does and what a local realtor does but it did get me thinking about one of the few similarities that exists between these two professions – “painting the trim”.
I would imagine that when you’ve sold a home in the past, you’ve fixed a few things here and there in anticipation of showing the home to prospective buyers, maybe even literally painting the trim. The same should be done with your business.
I have visited hundreds of oilfield service companies over the years and have been shocked in both a positive and negative way about how companies present themselves to prospective partners and customers. Let me give an example of the financial impact this can have on your business.
A couple of years ago, I was introduced to a company that was looking to exit at, what was then, the height of the market for their services. The owner had a well-run company with clean, updated facilities and equipment. The shop and offices were clean and organized and the personnel were friendly and professional in their appearance and interactions. It was clear that this company was going to get a premium to what the market was paying for similar companies at the time. After a couple of months of preparation, we were ready to take the company to the market.
It turned out that the owner of this company had a personal relationship with a similar company who was also looking to exit, and they ultimately decided to sell together. That would be fine in most instances, and potentially beneficial to both parties had the second company not been the complete opposite of the first. Yes, they had a profitable company with a good reputation, but this was overshadowed by their disorganized and rough appearance. Their office, shop, and yard (complete with broken down camper and “scrap metal”), and staff was quite simply not fit for presentation.
There were a substantial number of offers from both strategic and financial buyers for the companies. However, when the select group of potential acquirers were invited to management meetings and site visits, the visitors made it clear that this “tale of two companies” was going to have an impact on valuation.
In the end, the two companies did sell together. Unfortunately for the owner of the first company, the mandate to sell together took out many of the ideal partners for his future growth and cost him millions of dollars.
So, as you start this new year, take a look around your operation for areas of trim in need of painting during this slow period.
- Are your offices and shop clean and in good repair?
- Can the same be said for your equipment?
- Are your employees presentable and trained to interact with potential visitors?
- Do you have company uniforms? And, are they cleaned on a regular basis?
- Do you have a website? If so, is it up-to-date and relevant?
In the next newsletter, we’ll talk about less superficial (but equally or more important) items that you should be working on – think of these as structural improvements.
If you’d like us to take an objective look at your company and give you some pointers on where to start your “painting” project, give us a call.