Three years ago, our leadership team decided to tap into private equity to grow ATI through mergers and acquisitions. Ultimately, it was decided that I would oversee this department, and I transitioned into the role of ATI’s Chief Acquisitions Officer. What has followed is what I like to describe as trial by fire.
When we first started, our strategy was simple: buy full-service companies, meaning they have the capability to handle emergency services and full-service repairs in markets where we were not present. Our strategy quickly changed, as friends in the industry, our team, and even our ownership pointed out that our initial approach needed refining.
With dozens of successful transactions and discussions with over 500 restoration companies under our belts, I have put together a non-exhaustive list of three essential considerations we make when evaluating whether a company is a good fit for ATI. Whether you are looking at acquiring a restoration company or considering your exit plan, these questions will be helpful to ask yourself.
Why Are They (or You) Selling?
I had an owner reach out to me on social media, and within 15 minutes of talking, their business checked off every box: revenue, growth, stability, and full service. However, when I asked why they were selling, they said that they built the business to sell and wanted to capitalize on the hot market. They were only concerned about the transaction and how much money they could get, showing no concern for their employees’ future. This lack of care for their team was a red flag for us.
When we expand into a new territory, the employees may have no idea who ATI is. If we acquire a business with an owner who doesn’t plan to stick around and a team that hasn’t been invested in by the leadership and doesn’t know who we are, it’s safe to say that they will likely dip out as soon as they catch wind of the transaction. Without a solid leader or the key employees who helped to win, maintain, and perform the work, the business value is essentially nothing.
We look for strong leaders with a clear company vision, a solid understanding of their financials, and an ability to build and maintain strong relationships with their community and industry. These same owners look beyond the financial reward of selling their business and are proactive about investing in their team’s training and development, ensuring their staff is knowledgeable and motivated. We find that the culture and relationships cultivated by these leaders will continue to endure and thrive even after ownership has changed hands.
What About Billing Practices?
One of my important learning moments came from not digging deeply into a business’ billing and A/R practices early on. An ownership group ran this company, and we offered $20M+ for their business and went under a Letter of Intent. Shortly after, we found out they billed their jobs 100% at the time of signing and used a third-party billing company charging 30% of the profit. Initially worth about $20M, the business ended up being valued at more like $12M. Though they improved margins, revenue, and gross profit percentages, the poor billing practices and revenue recognition issues crippled their valuation.
This is not to say that utilizing a third party to help with billing is inherently bad for business valuation. At ATI, we have found that using certain third-party software to help facilitate billing frees up important resources that we can allocate to other areas to generate more revenue. However, when assessing a business, it is important to understand what outside services each company uses to collect payment and the associated costs.
Conversely, an ownership group we evaluated had impeccable numbers, strong collections, and excellent cash management. They initially went under contract for around $7.5M and ended up receiving a check for $8.5M at closing because of their stellar financial practices.
What Does the Client Base and Financial Health Look Like?
In terms of vetting companies, we are much more rigid now than we were when we first started. Initially, it was all about relationships first and financials second. Now, it’s both, but with a strong emphasis on financial health. We’ve learned from past mistakes that it’s not fair to ATI or the owner to invest hours in courtship if they don’t meet our minimum financial threshold, which is around $10M+ in annual revenue. We will consider companies at $5M or greater in certain circumstances.
Regardless of the income, a business has to have a balanced revenue stream and customer base with a reputation for reliability and quality service in their markets. Some of the big indicators we look at to help forecast the post-acquisition success of the business include:
- Non-Recurring Revenue: Too much non-recurring revenue includes jobs or customers that don’t repeat annually, such as storm work. These jobs don’t provide stable value since they aren’t repeatable and are too risky.
- Customer Concentration: One time, we evaluated a company in which a single customer provided 80% of its revenue. We walked away from it because it was too risky, regardless of the relationship.
Financial stability and reliability are crucial. We look at whether revenue, the number of opportunities, the number of completed jobs, and EBITDA and GP% are growing every year. If they are, it shows a healthy organization and will be valued accordingly. The smaller the average job size, the better for valuation and stability.
Another tip I have for companies looking to sell is that the buyer, whether ATI or another investor, wants to write a fair check for your business. Still, it’s your duty to ensure you perform well until the day you close and beyond. The second you lose a key employee, a key customer, or a major subcontractor, your business isn’t worth what someone told you it was before that happened.
Conclusion
Every transaction continues to teach me something new (so stay tuned for more articles). However, one thing remains clear: there is no one-size-fits-all formula for determining if a business is worth acquiring. If you are referencing the same benchmarks or criteria year after year, you will miss out on opportunities in a market that is constantly evolving. It’s important to take a holistic approach that considers relationships, financial health, values, and the goals of your company. Staying open to new ideas and challenging the status quo is essential for achieving successful acquisitions in this competitive and dynamic landscape.
Jeff Moore, CR, WLS, CMP, Triple Master (IICRC)
Jeff Moore is a second-generation restorer and the 2025 President of the Restoration Industry Association (RIA) as well as President of ATI Restoration. He started in the family business as a teenager, organizing the warehouse and working his way through nearly every role – from technician and estimator to executive leadership. Licensed in asbestos at 18, Jeff has managed major loss projects from 9/11 to today and brings hands-on insight into mitigation, construction, and large-loss operations. He lives in Phoenix, Arizona, with his wife, Tavia, and their four children – Tyler, London, Savannah, and Phoenix.
Related Posts
