With the advent of sophisticated vend management technologies such as remote monitoring, dynamic scheduling and pre-kitting, the vending business has entered a new era. The days of route cards and our dependence on the institutional knowledge of our route staff are gone. As we transition the business a question lingers…is my business worth more as a result of the investment of time and money into new technologies?
Sophisticated acquirers assess a business and its value based on several factors which are impacted directly by new technologies. As I have worked through transactions across the country, the following benefits are clear.
Profitability
Understandably buyers are focused first and foremost on profitability. If a business is unprofitable it is very difficult to sell at any price, let alone an attractive one. Consistent, reliable and measurable profitability is paramount to the value of any business in any industry. Successfully implemented vending management systems enhance profits in several ways:
1. Efficiency. A well-run management system enables larger routes, driving fewer miles and maximizing the collections per stop. Higher volume routes mean fewer route trucks and the associated labor savings.
2. Product management. Up-to-the-minute information allows a company to provide the right product in the right location at the right time. No longer is excess inventory sitting idle in route trucks all over town. Better product management also translates into higher inventory turns and better cash management.
3. Asset management. The information now available enables an operator to know definitively the profitability of every vending machine they own. Decisions regarding asset placement, prices and service frequency are now made based on quantifiable information not gut instincts.
Better information
Verifiable information builds credibility in the sales process. In most circumstances the information that you provide a prospective buyer is their first look at your business. If the information requires extensive explaining to be understood or requires weeks to assemble, it is a red flag to buyers. There are multiple benefits to better information through technology:
1. Credibility. Providing buyers with information direct from the source (i.e., machine level) builds confidence that the data is free of any manipulation. Buyers are understandably suspect of information that requires adjustments or explanations. Don’t underestimate the value of your credibility in the sales process. It plays an enormous role in a successful sale.
2. Timeliness. A well implemented vend management system will provide reports and information in a timely fashion. All too often sellers struggle to provide even the most basic reports to a buyer. This obviously doesn’t build confidence in the information or the management of the business. Further, it lengthens the due diligence process which poses risks to the deal and the business.
3. Positive impression. A business that has credible, timely reports creates a positive impression in a buyer’s mind. From their perspective, this indicates that the management is professional and creates an impression that the business is well run. Ultimately this means fewer issues and a reduced likelihood of a price decrease.
4. Facilitates due diligence. The due diligence process is a stressful time for both buyers and sellers. Sellers are concerned that some surprise will crop up and result in a renegotiation of price. Buyers similarly worry that they may be missing something material to the transaction. The better the information the less the stress on both sides of the deal. Sellers will be more confident of the information presented and buyers more willing to accept the information at face value.
Process versus people
Vending remains a service business but many crucial aspects are much less people dependent with a well implemented vending management system. Historically vending has depended in varying degrees on route people, key supervisors and owners. Businesses with well managed processes in place are attractive to buyers for the following reasons:
1. Reduced dependence on the owner. Vending businesses tend to be very owner dependent. Decision making and authority are concentrated. This may work for a small to medium sized business but it creates a valid concern in the minds of buyers. What happens when the owner is gone? Are any of the staff capable and willing to assume leadership roles? A process driven business allays buyers fears providing assurance that the business process can continue without the owner.
2. Replaces institutional knowledge with information. with information. Historically route drivers, supervisors and owners were the keepers of the customer knowledge. The business was dependent on them and their continued employment. This is a tenuous situation for a prospective buyer. Can they be assured of the continued loyalty and willingness of route staff and supervisors? A robust information technology system dramatically reduces the dependence on these people and the risk that goes along with it.
3. Accelerates training. The training process no longer requires a route driver or manager to learn every nuance of every client. Training is now more process oriented and can be accelerated significantly. As the industry migrates towards a more standardized system, route personnel can be more readily integrated into the acquiring business.
4. Eases the transition for buyer. Integrating an acquired business is an expensive proposition. It requires significant time, labor, effort and money on the part of the buyer. A well-functioning vending management system greatly eases the integration and compresses the timeline for completion. This is important to a seller in situations when a portion of the purchase price are held back. The more successful the transition, the greater the likelihood that the seller will get all his money.
Management proficiency
1. Halo effect. Businesses that have up-to-date vending management systems that are well implemented and administered, consistently receive higher offers. For all the reasons above buyers are willing to pay more than they would for comparable businesses lacking the technology.
2. Indicative of ongoing investment in the business. All too often, business owners begin to defer capital expenditures as they approach the point of selling their business. The deferred cap-ex is a future cost for a buyer. A seller that has invested in the latest technology has effectively saved a buyer that cost and the time investment required. It demonstrates that the seller has remained engaged in the business and kept it current.
3. Professionalism. Businesses that lack quality information systems are viewed as throw backs to the days of seat-of-the-pants management. This is not how a seller wants to be viewed. It creates a skepticism in the buyer’s mind and typically translates into lower offers. Alternatively, owners that have made the investment are viewed as sophisticated, proactive business people.
So, is your business worth more because of the investment you’ve made in technology? In short, yes. Your business is of greater value to an acquirer and offers them a lower risk opportunity to realize profits and a fair return on their investment.
Mike Kelner | Senior Business Intermediary, Vending Biz Broker
Mike Kelner is the founder and president of VBB Advisors, a full-service merger and acquisition firm serving the vending, office coffee and bottled water industries. Mike has been a senior business intermediary in the refreshment services industry for over 30 years, representing sellers exclusively. He is a Certified Business Intermediary and Value Builder Advisor.
Mike can be reached at [email protected] or 704-942-4621.
