Rollup insights
October 21, 2020
by a searcher from Miami University of Ohio in Barcelona, Spain
I am looking of someone with roll up experience to help me out with deal structure, valuation, and some insights. Here is our situation:
We have 7 home automation installation companies based in Spain interested in merging to create a company with about 14€ million in sales. Our pitch is that we will allow them to continue working as subsidiaries, and push the business out with a franchising model, along with acquiring more businesses to expand the geography.
1.) How would you value them (each does about###-###-#### million EBITDA). Do we give a better valuation to whoever jumps first.
2.) How would you structure the new board, and still give each owner a feeling of decision making power?
3.) Would you structure an earn out early on to let them take chips off the table.
4.) Would you elevate one of the owners to CEO, or hire outside?
5.) What would be your main selling point to any owner who is on the fence?
from Universidad Internacional del Ecuador in Cuenca, Ecuador
1) I'd value them based on an average of the last 3 years' Ebitda. I wouldn't give a better valuation to whomever jumps first, as this could cause resentment from the other owners in the future, especially if that first company to jump on board ends up not performing as well as the others.
2) I'd give one owner a seat on the board, as the member who represents all the 7 owners and their voting rights, but would make the 7 owners choose whom they select to that position. Two reasons why I would do this: a) to "force" the 7 owners to actually work with and talk to each other frequently and reach a consensus before any matter is discused on the Board; and b) since you're planning on adding more businesses into this "holding" company, you prevent any potential demands from new owers wanting to also be on the Board which would potentially create a Board that's too large, unbalanced and unmanageable.
3) I'd approach this owner by owner, determining what's their motivation and ideal outcome. Some may want to take some chips off the table and some may not. Break down any barrier that may prevent them from joining, but do it on a case by case basis... not every owner will want the same thing.
4) Ideally I'd elevate one of the owners to CEO of the group. In small and middle market companies, a CEO is often an operator who knows the industry inside and out. That role is hard to hire outside. As long as you have advisors or a Board that will contribute with strategic direction and oversight, a CEO from inside is the safest bet. Make sure that CEO can relate to and communicate the company's vision the rest of owners and employees.
5) Again, depends on each owner and what's behind them being hesitant about joining. It may be different things to different owners. A separate conversation with each will uncover this.
from The University of North Carolina at Chapel Hill in Austin, TX, USA
2 - Are you giving all of the owners equity rollovers in the entire NewCo? I may be a little confused in how you are thinking on setting this up
3- Could be difficult to get this many different owners/opinions/legal and tax advisors to align, seems complicated and unlikely
4 - Seems like a natural place for synergies / hire area manager etc.
5 - That the multiple / proceeds they would likely receive as the result of being bought as part of a scaled consortium is likely greater than sale of any single unit by itself - this more assumes that there isn't wildly varying performance among each location.