M&A Q&A with JT Kraai

Buying. Selling. Mergers. Acquisitions. These are the #1 trend in today’s restoration industry, and that trend isn’t likely to change anytime soon.

Have a question about M&A? This monthly column is here to answer those questions and help you make informed decisions about your business.

JT Kraai has more than 20 years of experience as a broker and consultant, and has brokered hundreds of deals in the restoration industry. He is here to answer YOUR questions!

Email him at jt@exitstrategies360.com

Serving exceptional restoration clients nationally.

How Would Outsourcing Affect My Long-term Value?

Q: I’m considering outsourcing a couple services, how would this affect my long-term value?   JT says: First, business value is driven primarily by your Adjusted EBITDA (total financial benefit).  Thus, if outsourcing delivers the following, value increases:   Greater Efficiencies Lower Costs Same or Better Quality Second, this demanding industry often necessitates owners wearing many hats- all at once.  However, just because an owner can do something, doesn’t mean they should.  Outsourcing possibilities include- Estimating, Recruiting, HR, Answering Service, Accounts Receivable, Online Marketing and Social Media.  Many vendors can prove higher quality at

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Is the Market Still Strong Despite the Interest Rates & Tentative Economy?

Q: Interest rates are up, we’re in a tentative economy, and heading into an election year- is the market still strong?  JT says: Since 2007 I’ve specialized nationally in restoration companies.  Over these 16 years there’s been a recession, 4 elections and a pandemic.  The industry has remained strong through it all.    Currently however, elevated interest rates have taken a real toll on businesses below the SBA threshold of $5M in Value.  (Many buyers simply aren’t willing to pay variable rates currently reaching 10.5%.)   Businesses from $6M – $100M in value, ideal

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How In-Depth is the ‘Due Diligence’ Process, and Can I Prepare for It?

Q: How in-depth is the ‘due diligence’ process, and can I prepare for it?  JT says: The short answer-  yes, it’s an intrusive process, it needs to be.  And yes, you can (and should) prepare.  The restoration industry is unique, so DD is required, but not easy.   For confidentiality purposes, not every detail is disclosed when recruiting the best buyers.  After an accepted offer it’s essential buyers gain more knowledge and insight before spending millions.  Via a ‘DD Checklist’ hundreds of questions will be asked along with documents requested, primarily surrounding 4 categories:  Financial, Operational,

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How Do I Best Navigate the Emotional Roller-Coaster of Selling My Business?

Q: I was told selling my business will be an emotional roller-coaster.  If true, how do I best navigate it?   JT says: Having worked with 400+ restoration owners, yes, this is 100% true.  And early awareness is a critical step toward effective navigation.  Why?  Emotional decisions are not ideal, they can be costly when stakes are high.  After years of building a successful business, along with plenty of stress and sleepless nights, there should be a healthy dose of emotion… but not when making critical decisions.   The Exit Strategies process was created and refined

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Why is ‘Quality of Earnings’ Important When Selling a Restoration Company?

Q: Recently I heard the term ‘Quality of Earnings’, why is it important when selling a restoration company?     JT says: Every restoration owner should understand this- your numbers and accounting practices will be scrutinized when selling.   What-  Quality of Earnings (QE) is a forensic accounting process (by buyer) to verify accuracy of the numbers.   Why-  Controller and CPA methods vary widely for:  revenue recognition, WIP, revenue/expenses alignment, large loss and CAT accounting practices, etc.  Thus, restoration numbers can be confusing as GAAP accounting is difficult to achieve (Generally Accepted Accounting Principles). Who-  Most

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Please Clarify the Basic Elements of a Deal Structure when Selling a Restoration Business?

Q: Please clarify the basic elements of a deal structure when selling a restoration business?   JT says: Based on seller’s preferences, requirements, transaction size, financial trends and perceived risk (by buyer), deal structures may contain some/all of the following:   Cash:  Funds received at the closing table.   Fixed Notes:  Referred to as a Seller Carry-Back Note (SCBN), these are guaranteed fixed payments (including interest) over a certain number of months/years.   Earnouts:  Agreements allowing the Seller to receive additional payments if the business achieves certain financial goals in the near future.    Holdbacks:  A

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When Considering a Sale, How ‘Clean’ Do My Numbers Have to Be?

Q: When considering a sale, how ‘clean’ do my numbers have to be?   JT says: The definition of ‘clean’ takes many forms, allow me to substitute ‘defensible’.  Defensible means, ‘can we prove the numbers are what they appear to be’?  Initial responses are ‘of course’.  However, our industry has unique challenges surrounding consistent accounting methods, revenue recognition (correct time periods), WIP adjustments, collections, overhead allocations, etc.  Add-in large loss / CAT work, accounting gets tricky.   After an accepted offer and in due diligence, buyers will conduct a Quality of Earnings (QE).  This forensic accounting

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What Does a Valuation & Analysis for Restoration Co. Owners Entail?

Q: On a podcast you mentioned taking restoration co. owners through a Valuation & Analysis, what does that entail?   JT says: Restoration contractors call me when they’re thinking of selling.  They have many questions but few answers. An insightful and educational tool, the Valuation & Analysis first looks at the numbers, then 12-15 intangible variables effecting the value of every restoration company.   The process answers dozens of questions and offers numerous insights for the road ahead, allowing you to plan and make decisions with confidence:   What’s my business worth, and why?   Where

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I Received an Inquiry to Buy My Restoration Business, Should I Entertain It?

Q: I received an inquiry to buy my restoration business, should I entertain it?    JT says: With continued industry activity, fair question.  Responding (out of curiosity) gets you one buyer, with one opinion.  When contemplating a sale, multiple buyers is always infinitely better. Why? Depending on the buyer (and type), there’s an array of potential values, deal structures, transaction variables and management philosophies. ‘Best’ buyers will ensure maximization of value, allow an exit on your terms/timeline, align with your culture, and best care for your team and future of the business.  These ‘best’ buyers have

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You’ve Mentioned a Sales ‘Transaction’ vs. ‘Transition’, What’s the Difference?  

Q: You’ve mentioned a sales ‘transaction’ vs. ‘transition’, what’s the difference?   JT says: Transaction:  This is the business side of any sale-  NDA’s, LOI’s & deal terms, negotiations, non-competes, working capital, legal documentation, wealth preservation, etc. These pieces are always present.     Transition:  This is the personal/emotional side of any sale. (*Ignoring these variables allows anxiety/fear to creep in and the ‘transaction’ will be jeopardized, guaranteed.)  These variables consider overall emotional preparedness, desire for answers/planning, family dynamics surrounding a sale, letting go of the status and perks that accompany ownership, relinquishing control of ‘your

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