This article kicks off a new series, Business of Surveying, by Rich Radke, a seasoned business advisor with expertise in advising companies across industries on operating a better business, marketing and preparing for a sale. This month, Rich summarizes industry challenges, private equity’s recent interest in land surveying and an initial transition checklist, with future columns focusing on more details on strategies for a successful exit.
In meetings and conversations with survey company owners, over the years, regarding the sale of their firms, I’ve often said that it’s really like selling any other business—just a lot tougher! But humor aside, the challenge is real. For many years the typical “buyers” were the next generation family member. But in the last decade, as the ‘next-gen’ is often finding other career paths more appealing and most PS employees unable or unwilling to buy, one of the local survey firms have become the ‘de facto’ go to buyer. Surveyors, however, are in short supply and most already have more work than they can handle. Consequently, as Dan Weinman of Weinman Business Advisors notes, “Selling a survey firm takes an average of two years, usually for no more than two times income.”
Fortunately, the past five years has witnessed a discovery of the land surveying industry by private equity (PE) firms. Unlike traditional buyers, PE firms are in the business of buying companies and boast significant capital reserves, enabling them to typically offer higher prices—sometimes two or even three times more for a highly desired company. While larger surveying firms with revenues exceeding $20 million have dominated the initial PE acquisitions, there’s a noticeable shift towards smaller firms. PE often adopts a strategy of acquiring a sizable “anchor” company and then consolidating smaller acquisitions around it to expand. Now, even the smallest owner-operated land survey companies can become potential candidates.
Exciting prospects, indeed! However, appealing to private equity requires finesse. When engaging with potential sellers, I stress the importance of proactive planning. The trillion-dollar private equity industry adheres to unemotional, well-defined acquisition criteria. So, start by objectively evaluating your company as it stands today on these key PE categories:
- Are your profits on an upward trajectory?
- Are your revenues growing and diversified?
- Do you have capacity to grow?
- Are your systems auditable (e.g., accounting, finances, contracts)?
- Do you have modern marketing & technology systems in place?
- Do you have a defined and repeatable operating structure?
- Will your key employees remain onboard post-sale?
If you find yourself answering “no”, to some of these questions, you really need to make plans that will turn them to ‘yes’. The better aligned your company with what private equity seeks, the higher the price it can command. Even if you end up not selling to private equity, following a PE-like model will help you operate a better business and position it for a successful transition to any buyer in the future.
If you own a large surveying company, you most likely have the resources necessary for planning and execution. Work with your board, accountant, advisor, consultant, or another trusted party. For small firms, you might consider sharing an advisor with a friendly firm, and/or consider joining a ‘group selling organization.’ These groups work simultaneously with several small companies for an eventual group sale to a private equity buyer. Typically, this involves standardizing many of the non-field operations for ease of transition, inserting additional technology and may include marketing/growth strategies as well. The best group selling plans have relatively low costs—somewhat like a business broker—they make their money on a successful sale.
These are just a few considerations to get you thinking about the future of your business—the key is to assess honestly and take action. In future columns, we will delve deeper into these strategies and tactics. In the interim, this column is intended to educate and help to address common business themes and inquiries, so please feel free to share your comments or queries with me at rjradke@elevate98.com or connect with me on LinkedIn.
Richard Radke is a seasoned business executive and entrepreneur with a diverse background in strategy, finance, operations, marketing, technology, and business development.