Any thoughts on pursuing a construction-heavy landscaping acquisition?

searcher profile

May 09, 2023

by a searcher from Northwestern University - Kellogg School of Management in Mexico City, CDMX, Mexico

Hi! In conversations with lenders I've seen a few of them avoid businesses that rely on construction. For example: post construction cleaning, landscaping, etc. I've met with sellers of a landscaping company in Austin TX, a market that has grown like crazy in the past few years but has recently slowed down (albeit less than other markets in the US). The company does almost 100% project based landscape construction. They have been growing steadily and have a good client base. (individual owners and builders of higher-end homes). Does anyone have experience with these types of businesses recently (or in a similar slowdown)? Is anyone familiar with the Austin TX market for these types of services? Would love to chat!

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Reply by a professional
from Villanova University in West Chester, PA, USA
Hi ^redacted‌ I hope you’re doing well!! Congratulations! Yes, I have experience representing clients acquiring businesses reliant on construction activity. There’s a lot you can do from a legal standpoint in terms of structure to mitigate this risk - for example structuring a part of the purchase price as an earn out that’s paid over 3-5 years in which event your loan would need to be a commercial loan rather than an SBA loan which is definitely feasible. You’d want to include these in the LOI, and it’s a great way to bridge the gap in valuation differences. redacted‌ included great questions for due diligence that we often see in the due diligence phase. I’d be happy to discuss this further!
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Reply by an investor
from McGill University in San Diego, CA, USA
Matias... things to consider
1. How is new business created? I would make sure that you have a handle on how important the current business owner is to the business, especially if he/she is leaving. Needless to say, if they are sticking around in a BD capacity, and your deal has some structure (like an earnout, business owner rolls equity) you can potentially help

2. Nothing precludes you from bolting on "I cut your grass every monday" landscaping firms, which is more recurring in nature.... You may want to start figuring out how to alter the revenue mix towards work that is more recurring in nature
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