• Selling Your Consulting Business: Is it Sell-able?

  • Last month I discussed the topic of selling your consulting business, specifically how a value can be calculated using your EBITDA - short for earnings before interest, taxes, depreciation, and amortization - as a measure of corporate profitability. EBITDA along with a sale multiplier negotiated between the buyer and seller can then be used to establish a sale price for the business. This month I will explore the various stages of sellability, and the options and potential buyers that may be available for each of these stages of business.   Thanks again to Scott Duke of Opn Road (www.opnroad.io) for his insight and expertise on mergers and acquisitions in the field of (environmental) consulting.

    Before I get into the business stages and their attributes (note the supplied figures are US-based, but the same concepts are applicable to Canadian firms), consulting firm owners (especially small to medium sized firms) may also have other considerations. Some of these concerns are more emotional, and may not factor in the valuation, including what will happen to employees and clients; what legacy you want leave on your exit; how much work (if any) do you want to continue doing after a sale. Other issues may be more practical and financial in nature, such as – how much money do you need from a sale of the business; how much income do you require moving forward; and are there any outstanding liabilities such as unfinished projects and past or pending litigation. As I mentioned last month, there is a lot of planning needed, and lots of tough questions to answer.

    Stage 1 – Unsellable

    • EBITDA: $0 to $100k; Revenue $40k to $500k; Sale Multiplier 0 to 1 x EBITDA
    • ~88% of all businesses fall in this category
    • Exit Options: orderly liquidation of assets; transfer to family/employees; shut down; build a sellable business and exit in Stage 2
    • Buyer Types: Liquidators, Turnaround experts, Family, Friends, Employees, Optimists

    Many, if not most smaller consultants and personal corporations fall into this category – and in most cases the individual owner or principal IS the company. Be aware that many potential buyers of Stage 1 companies are really looking to expand their client base through the purchase; and often require the seller/principal to remain under contract with the buyer/new firm for a set time period to provide an orderly transition and to add a senior consultant to the buyers existing staff.

    Stage 2 – Sellable

    • EBITDA: $250k to $500k; Revenue $500k to $3M; Sale Multiplier 1 to 2.5 x EBITDA
    • ~7% of all businesses fall in this category
    • Exit Options: sell to 3rd party; transfer to family or internally; increase sellability and exit in Stage 3
    • Buyer Types: Owner/Operator, Individual Investor, Partner, Family, Employees, Competitor/Supplier

    Stage 3 – Sellable to Accredited Investor

    • EBITDA: $750k to $3M; Revenue $3M to $10M; Sale Multiplier 2.5 to 4 x EBITDA
    • ~3% of all businesses fall in this category
    • Exit Options: sell to 3rd party; recapitalization; transfer to family or internally; increase sellability and exit in Stage 4
    • Buyer Types: Private Equity Groups, Financial Acquirers, Family Funds, Search Funds, Competitor/Supplier, Partner(s), Management, Employees (ESOP), Family

    Stage 4 – Sellable to Strategic Investor

    • EBITDA: $3M to $10M+; Revenue $10M to 100M+; Sale Multiplier 4 to 7+ x EBITDA
    • ~2% of all businesses fall in this category
    • Exit Options: IPO; recapitalization; sell to 3rd party; transfer to family or internally
    • Buyer Types: Public Markets, Strategic Buyer/Investor Private Equity Groups, Hedge Funds, Financial Acquirers, Family Funds, Search Funds, Competitor/Supplier, Partner(s), Management, Employees (ESOP), Family

    In a future blog I will explore some of the ways you can strategically increase the value and sellability of your firm.

    Bill Leedham, P. Geo., CESA
    Bill is the Head Instructor and Course Developer for the Associated Environmental Site Assessors of Canada (    www.aesac.ca); and the founder and President of Down 2 Earth Environmental Services Inc. You can contact Bill at info@down2earthenvironmental.ca