In the second
part of his M&A series, Jeremy Hall looks at how to make a
broker worth buying
I
recently met a broker, a one-man business trading for many years
with fewer than 1,000 customers. Approaching retirement he asked
me: “How do you value a broker?”
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All his deals were
hire purchase, with no staff and no brand. He was running a
lifestyle company. The customer and supplier relationships were
born out of years of hard work and good service – all from him, and
without him there to service these accounts, they could and would
quickly walk.
He already knew
that his business was nearly valueless. There was a value on an
earn out basis, but, if he wants to retire, that would defeat the
benefit to selling the company. A list of customers who have leased
in the past has little value, especially if there are good-quality
company records and they recognise the ‘brand’ name. But then you
will be amazed how few brokers hold good records on their
customers, often not having a copy of the lease document or
recording conversations.
So, if you are a
broker and you want to build value, think about the
basics:
1.
Minimum (the preference) or fixed-term lease rental agreements –
assuming you have a trading agreement in place with the lessor –
will provide a future income stream that has a value, unlike hire
purchase.
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A quality database. Prove to any potential acquirer a regular
calling pattern over the preceding years detailing conversations,
activity and details on the customers and suppliers.
3.
Keep copies of the lease agreements and associated
paperwork.
4.
Sign up trading agreements with lessors and suppliers.
5.
Show the acquirer a road map. “Our research show if you do XYZ you
will make £X over the next few years.”
6.
Ask yourself: “Who am I to sell to, how much will they pay, when
will I sell the company and why would they buy it?” Build these
questions into your strategy immediately.
7.
Build a brand, create a name for yourself. In most acquisitions I
see, the acquirer terminates the original brand in the first year,
so one would argue this is irrelevant. However, they have got to
find your company in the first place; they have to feel proud about
buying the business.
8.
Sign up new suppliers. Keep wining those new lease agreements off
the competition. Think, talk and believe in growth.
9.
Your niche. Having a portfolio of 100 agreements for IT equipment
will hold a greater value than 200 mixed-asset contracts when you
are selling to another IT leasing company.
10. Keep staff turnover low, ensure your
team is correctly incentivised, build a culture of loyalty and
commitment. A good team is often hard to find, so this alone could
make the difference between achieving a low and high
price.
As for my broker,
he resigned himself to working for another five years.
I hope in 2017 he’s not in the same position.
Jeremy Hall is chief executive of WestWon
Limited
