The Strategic Acquirer’s View
Scott Parker, Owner, Parker Lumber
We spend a lot of time reviewing deals like this all over the country, as we are always in the market to acquire small, one-unit operations, all the way up to a medium-sized chain of stores. If we are lucky enough to find a business like this, I can tell you first and foremost, we care about the quality of the people inside the organization. We’re not afraid to pay for a group of stellar performers, and in this case we feel we have that.
Next, we want to further understand the value we are receiving for the price: How is the location — are we buying an old, outdated operation that needs a lot of work? Or is this business turnkey? What is the competitive environment like, and will this market provide significant upside in the future? Since the location here is above average, there is moderate competition, and we see significant upside in Southern California’s future — we have sufficient to favorable outlooks on all of these points. Albeit not perfect, these dynamics won’t bring down our valuation, but aside from the latter, they also aren’t reasons for us to go completely crazy on the valuation, either.
No deal is complete without addressing the numbers, of course. Initially, we want to see whether or not the business is profitable. This particular business is cash-flow positive, which is good because if a business isn’t cash-flowing, our valuation is significantly different because of the risk involved, and depending on how bad the losses are, we might not even look at it.
If we were to come across a deal like this, we are looking at a net book value deal, plus a slight bit of good will in the form of a non-compete for the selling owner. We feel this valuation is market, it’s fair, and we feel Parker can make a sufficient return on investment at a reasonable level of risk.
We will purchase cash, inventory and fixed assets. We will also come to an agreement on assuming the current liabilities, less debt. We typically don’t buy accounts receivable but will help the selling owner collect for a certain period of time.
We will also need to discuss the real estate. We approach real estate on a case-by-case basis, as it is the hardest thing to put a price on in today’s market. In this case, since the owner owns the property in a separate company and doesn’t want to sell today, we would look to sign a market-rate lease with them and negotiate a purchase option at an agreed-upon price.
Ultimately, we feel we are the best group out there to sell to. We feel so strongly about this, we even encourage sellers to speak with those who have sold to us in the past. We have a track record of treating people in a fair and equitable manner, and will look out for your employees once they become part of the Parker Lumber family. That’s worth a lot among the many horror stories out there.
Parker Lumber is an 18-unit chain of home centers headquartered in Beaumont, Texas. The Do it Best dealer has locations in the southeastern region of Texas and in Southern California.