The “Secret Sauce”
Of course, there is little secret to something that a lot of people know. But the people who know are limited and the knowledge of how to achieve a successful transfer of a construction company is not intuitive. It helps to have accomplished a few of them.
Without divulging all my secrets (why would you hire me? I should write a book, I guess, like everybody else), here are a few clues:
- Start early. Everybody wants cash on the barrelhead. In this industry, that attitude results in No Sale or such a discount that you would be better off having an auction.
- How early? The best results can achieve lift off within a year but the final outcome should take about five years for maximum results.
- How does it work? We have sold to other operators, taken back significant Seller Loans, but the best method involves developing talent over time and achieving a higher price with less risk (the Seller Note) than a simple sale.
- There is a talented owner-replacement who probably doesn’t have much money but has success orientation
- The backlog isn’t too small or too large. Often depends on the industry.
- This includes one of those unique features of the construction industry, Retention. You don’t get paid a portion of the contract price until the job is finished. You need capital to finance these assets.
- You have to have a source of capital to finance the work. You pay your workers but don’t get paid for months, and then there is the inevitable deal that goes sour and you end up either making nothing or losing some. There has to be durability built into the deal.
- The deal has to account for good and bad years. It happens.