Company: Apartment Guardian, dba “PanicTap” has become the personal safety device of choice for many multifamily leasing staff and offices with operations in 47 U.S. states and 2 Canadian provinces.
Engagement: Transact Capital was tasked with sell-side advisory and investment banking services to Apartment Guardian.
Challenges: Without exception, Apartment Guardian presented unique challenges in the marketing of the company and maximizing enterprise value:
- Should the company be presented on a recurring monthly revenue multiple, or an EBITDA multiple?
- Proprietary administrative software greatly increases operating margins – how do we present this in an advantageous manner? What is the software worth? Is it scalable?
- Multiple file locations, decentralized contract databases, and other somewhat typical “heavy-lifting” items. Can Transact polish and professionally present the company in a short period of time and still meet client expectations?
Solutions
- RMR vs EBITDA Multiples: Not all revenue is created equally. In this case, a lot of administrative burden was automated, and the company produced a disproportionately high EBITDA on a given dollar of revenue, as compared to its peers. Understanding the margins, setting the right expectations between parties, and tactful negotiations are keys to success. Often the answer is somewhere in between.
- Proprietary Software: This is quite likely one of the most asked questions from clients. Roughly half of lower middle-market companies with which we speak have spent significant resources developing internal software. We have seen this go both ways. In some situations, this is a detractor for a large strategic or private equity buyer because the systems conversion can be very expensive and time consuming. Larger buyers create efficiencies and cannot manage multiple platforms for sales, scheduling, or billing regardless of whether you own the source code. They will need to convert the company to their system. Transact has seen cases in which the buyer really appreciated the software, but it served as an attractant to bid more so than additional value or an “extra turn”. Frankly, there are only rare circumstances in which the software will be valued separately from the company, so please consider this carefully and strategically as you grow your company. In this case, the buyer had a level of appreciation for the software, it contributed greatly to the bottom line, and was sold as an asset to the business.
- Company & file organization: Hiring a good investment bank means they will ask the right probing questions about financials, personnel, and other items that will ultimately come up in due diligence. It is important to share all information, the good the bad and the ugly, prior to going to market. Investment bankers are experts in mitigating risk and dressing your company up for the party, so to speak. It is imperative that they set good expectations with potential buyers and maintain a level of trust and competence throughout the process. Nobody likes surprises – from either the buyer side or seller side. In this case, Transact organized thousands of contracts, recreated the internal P&L from the trial balances, determined the customer churn/creation multiple, along with other housekeeping items prior to and during the process.
As always, Transact sold the upside by focusing on the many strengths including a strong gross margin, recurring nature of revenue, low client touch and low turnover. Furthermore, our analysis on future growth and untapped adjacent markets was a valuable technique and important to the buyer pool.
Outcome: Successful negotiation and sale of the Company.
