July 1, 1999

6 Min Read
Making the Match, Doing the Deal

Patricia-Anne Tom

As president of merger and acquisition consultants MRG Marketing Resource Group, Raleigh, N.C., Steve Goode works with business owners looking to sell or merge their companies, as well as buyers searching for small- to medium-sized companies within their service area to improve their density. Goode and his colleagues garner information from both sides of the fence playing matchmaker - with the goal of facilitating the transaction.

Here's what Goode says buyers and sellers can expect and should look for when examining their own businesses.

WA: The effects of the Allied Waste Industries-Browning-Ferris Industries agreement has everyone thinking about mergers and acquisitions. What factors do you use to determine how to advise an interested seller?

SG: Oftentimes, the sellers we deal with are selling for the first time. Therefore, they have many questions concerning value, deal structure and taxes. One of our first jobs is to assist the seller in putting a fair value expectation on their company. Sellers need to have realistic expectations as they sell their company. No two companies are identical. Therefore, what one receives as a multiple might not hold true for another company - it could, in fact, be more or less.

If a seller decides to proceed after a fair evaluation of his company, the odds are greater that he will sell his company under the right circumstances. Once this has been accomplished, we then look at how to best structure the transaction to suit the seller and his goals.

The structure is very important. Not all sellers sell for the same reason. Some sell because they are looking to retire and this is a method of estate planning. Others sell because they are having difficulty raising capital or simply do not want to put more capital into their company. They would rather sell and be part of the new entity going forward.

We also look at the tax implications of the transaction, because it's not always how much you get, but rather how much you get to keep.

WA: Misconceptions abound. What types of mistakes do sellers routinely make?

SG: Sellers often struggle with the decision whether or not to sell, and getting to that point may take a long time. Once the decision has been made, I believe some sellers are too quick and hasty to sell their company at the first opportunity they are presented with. Selling one's company should be a disciplined process, with the seller being aware of all the opportunities to maximize the value it receives for its company.

WA: Are there as many sellers today as there were a year ago?

SG: MRG remains very optimistic about the opportunities for acquisitions and mergers over the next two to five years. Although there might be fewer large acquisitions at the top, we still see a good number of potential acquisitions between the $5 million and $50 million range. In addition, there are numerous start-up companies that range from $1.5 million to $2 million in annualized revenues. These will continue to grow and provide tomorrow's acquisition targets.

WA: Let's talk about the other side of the equation. How are today's buyers different from buyers a year ago?

SG: Now that the buying frenzy of the past few years has slowed down, today's buyers have more realistic performance expectations about the companies being acquired. Therefore, they are more intent on paying a fair price. This helps to ensure that the acquisition is accretive and does not dilute the company's current operations. Also, buyers today are more flexible in structuring deals to allow sellers to minimize their tax liabilities.

WA: Looking at the industry overall, do you think the number of mergers and acquisitions has peaked?

SG: It is difficult to know whether mergers and acquisitions have peaked. It is true that there have been a lot over the past four or five years. But I also feel that there are ample opportunities out there waiting to happen. Our company alone has identified a significant number of businesses that could be merged or acquired in the future.

WA: How many publicly held companies do you think will be operating in the industry two years from now?

SG: I believe that the number of publicly traded companies [operating] two years from now will be similar to the number currently in operation. Although some of the mid-size publicly traded companies could merge, I believe they will be replaced by new publicly traded companies that do not exist today. The industry is too large and filled with too many opportunities for it to be served by only a few publicly traded companies.

WA: That being said, how is consolidation among private haulers affecting municipal solid waste professionals?

SG: The recent rash of acquisitions and mergers has had little or no impact on municipal solid waste professionals. In most markets, there are multiple haulers - both large and small - that can deliver timely service at competitive prices. I expect solid waste professionals still will be able to obtain excellent service at competitive prices from the private sector.

WA: Speaking of the private sector, how many smaller private haulers have you seen sell their business then go back into business?

SG: I either have seen or heard of a significant number of small private haulers that have sold their business then moved to another location to start another business - with plans of selling that business down the road. Several that I have dealt with personally have sold three or more solid waste businesses in their careers.

These individuals can be very good for buyers because they know how to structure a company to maximize its value, which means the buyer is getting a better package.

WA: What have been some of the more unusual acquisitions you have helped with?

SG: Almost every acquisition we work with is unique in some way. You have to understand all the components to be able to match them up with the right buyer. Small haulers often are products of their market and their competition. Many of them find a niche that the larger companies have overlooked so they use this niche to increase their market share.

WA: What's the most difficult part of your job?

SG: The most difficult part of our job at MRG is convincing small- to medium-sized companies that they can benefit significantly by using a firm such as ours. Often times sellers feel they know the buyers and therefore can negotiate the best deal themselves. But sellers need to look at the total package, which includes more than just purchase price. It includes items such as Non-Compete Agreements, revenue representations and hold-backs, just to name a few. A merger has to be good for all parties.

WA: What is the best part of your job?

SG: The best part of our job is matching the seller with the most logical buyer and structuring a deal that is good for both parties. We would like both the buyer and seller to be realistic in their transactions, with the seller not expecting to overprice his company and the buyer not expecting to undervalue it. When we facilitate a deal that is great for both sides, then we have accomplished our goal.

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