Mergers and acquisitions update: is 2021 the time to sell your vending or OCS business?

by Mike Ferguson–

In my last mergers and acquisition report, published in November, there were two major pharmaceutical companies that had announced the development of effective COVID-19 vaccines.

As of mid-April, there are now three vaccine providers and almost 75 million Americans who have been fully vaccinated (and about 187 million total doses given). This is good news for the vending and coffee service industry as office personnel can return to their workplaces where they patronize vending machines and micro markets –and consume free coffee, compliments of their employers.

During the difficult and uncertain times of 2020, I urged operators not to sell amid pandemic fears (and yes, I make a living selling vending operations). Last year, the value of most vending businesses diminished due to prolonged shutdown periods.

However, 2021 be the right time to sell your operation, if you are willing to table the risk and investment, as people start to return to workplaces. There are some interesting and creative ways to address sales that haven’t returned moving forward, in hopes sales will return over the year.

Hopefully, your business is surviving through the pandemic and sales are climbing back up. They may not be as fast as you would like, but sales going up is always better than sales dropping like they did in 2020.

Time to rebuild, add value

Many operators took advantage of the slower times to refine their operations. Many made improvements to existing operations such as price increases, converting vending accounts to micro markets, implementing LightSpeed Automation to speed up the pre-kitting warehouse picking process and payroll reductions.

If you invested in and deployed LEVEL, Lightspeed’s advanced inventory system that helps get costs of goods sold under control, then you likely added even more value to your business.

So, what does managing inventory have to do with selling your business? A lot! If you have no control over your inventory, and your method is based on “trust,” then your profit margins are likely not as good as they should be, thus, reducing the business’ worth.

Your inventory, or costs of goods sold, is your highest expense by far. It represents 30% to 70% of your sales (depending on margins). Yet, most operators do not have accountability. Inventory of candy bars, chips, pastries and drinks are the same as $100 bills sitting on your shelves.

Inventory = CASH. A strong bottom line creates value for your business when the time comes to sell.

Proper valuations 

I recently spoke with an operator who asked me if I could do a valuation of his business. He told me, “I paid an accounting firm $10,000 to do a valuation and they said [my business] was worth close to zero.”

Needless to say, he was upset with the accounting firm’s valuation. This is the first mistake some operators have made. While the value may be worth nothing to an outside industry investor or advisor, generally this is not the case when we sell an operations to another operator.

Most valuation reports might include: 

1. Market value
2. Asset-based valuation
3. ROI-based valuation
4. Discounted cash flow
5. Capitalization of earnings
6. Multiples of earnings
7. Book value

Business brokers from outside the industry may base a valuation on EBITDA (earnings before interest, tax, depreciation and amortization) or a multiple of EBITDA.

Vending is a different business in that assets are spread out: trucks, micro markets and non-contracts for clients, for example, and it is mostly a cash business. Some vending operators may not report 100% of their cash in sales figures.

Additionally, many vending businesses do not have an EBITDA to report. So, to get a true valuation of your business, you should use a vending industry expert who can discuss this with you.

Your business may be worth more to a local operator who can tuck it into their operation, thus, cutting the overhead, salaries and expenses, and thereby generating ROI. I do have some buyers who are looking to expand into new areas.

I have even made deals in which the purchaser also buys the seller's business real estate and keeps the owners and employees to continue to grow the business. Acquiring talent is one of the best parts of an acquisition, and many buyers are seeking experienced staff.

To risk or not to risk?

You survived the pandemic. But are you ready to table the risk and exit?

If the answer is “no,” then I would recommend that you make enhancements to your business. Improve its profitability so when the time comes to sell, it will be ready. 

If the answer is “yes,” and you’re ready to sell, then reach out to an industry expert to perform a proper valuation of your business.

There were several acquisitions that took place towards the end of 2020 and in early 2021. If the time is right for you to make an exit plan, you should make arrangements to get the most out of your business.

About Mike Ferguson

Mike Ferguson is owner of VMAC Solutions LLC, a brokerage firm serving buyers and sellers of vending, micro market and office coffee service businesses. Ferguson is also a former operator. VMAC is also an authorized LightSpeed Automation sales agent. Ferguson can be reached at (713) 569-6463 or [email protected].