Your janitorial business is more than just your job or your career. It's your life, your legacy - the result of years of mental, physical, and emotional labor. Your business is a part of who you are and why you get up in the morning.
But there comes a time for every business owner when it's time to make a change. Maybe it's retirement or maybe the business is ready to go to the next level and you need outside help. Knowing when and how to sell your janitorial business is difficult. As with any difficult business decision, there are many factors to consider carefully. The decision will come down to questions like:
There are also questions that are specific to the janitorial industry - like are there headwinds or tailwinds in the janitorial industry, and do buyers find the janitorial attractive?
The answers to questions like these will guide you in selling your business and having a good outcome. It's a mix of personal, business, and market factors. You want to look back and feel happy with the decision you made. When you decide to sell your business, you can't un-do it. If you're ready to think through your exit strategy - let's dig into these key questions and how they apply to your janitorial business.
Every business - even within the janitorial industry - is different, and every business owner is different. There are many personal reasons you might want to sell your business or part of your business. Reasons range from:
These personal reasons are just that: personal. They'll vary from business owner to business owner and are always influenced by many factors, including family members, friends, and employees. They are important to consider as you think through your next steps and whether you're ready to sell. You want to do what's best for your business, but you also want to do what's best for you personally and for your family. You are in control, and you can decide when the timing is right. You should also think through what you would want to do after you sell your janitorial business - would you want to stay on board in some capacity or simply transition out of the business and the janitorial industry?
You might be ready to sell - but is your business? It's important to determine whether your business is well-positioned to take to the market. You want it to be appealing to janitorial industry buyers and investors to increase the valuation and improve the odds of getting a deal done. Here are a few important considerations:
By getting your business ready to sell, you're positioning yourself for success in the deal process, and you're creating value. If your business isn't ready to sell and you go to market anyway - you're destroying value. You may not have a choice, but if you have a choice, you only want to sell when your business is ready.
In some situations, business owners feel like their company can do more with additional capital or resources. You've done the math and know exactly how to capitalize on a growing market, but you aren't ready or able to make that jump yourself. For example, the next evolution of your business may require more funding than you're willing to invest or borrow from a lender.
If your business needs new partners to fuel growth, you should spend some time putting together the business case to help investors see your vision. How much capital do you need? How would you use that capital? How much growth would their investment generate? What other resources do you need? You might want to open a new branch location. You might want to hire new employees or invest in new equipment. Whatever your expansion requires, it's important to put together a clear plan with defined metrics for success.
It's also important to think through what your personal role would be in the next phase of growth. Would you want to remain in charge - or would you like to transition to a new executive to grow the business, which might be important if the next phase of growth requires a skillset beyond your capabilities or interests. New ownership or investors can help inject new capital and new energy into your business, but you want to be able to point them in the right direction. A carefully thought-out plan will make it easier to attract investors and align everyone.
There are many different types of business buyers who might be interested in the janitorial industry, and they all approach deals differently. Here are a few common ones to familiarize yourself with:
Each of these types of buyers has different investment objectives, timelines, and strategies. Some strategic acquirers, for example, may want to re-brand your business on Day 1. Does that matter to you? Some Private equity firms may ask you to "roll over" equity into their deal, meaning you still have money invested in the business under their control. Does that appeal to you as a way to get a "2nd bite at the apple" and benefit from their investment or do you see that as un-appealing? Family offices tend to have longer investment time horizons and hold times with a slower pace - do you think that benefits your business or not?
With each type of buyer, you'll have to consider your priorities and what you're looking to get out of the deal. Here's a framework and exercise that might be helpful. Rank these in order of importance to you:
Here's a scenario to help clarify: the highest offer you get is from a buyer who you think won't be a good fit for your janitorial business. Do you take the offer, or do you take a lower amount from a buyer who you think is a better fit and would protect your legacy better?
As you start talking with potential acquirers, you can interview them as much as they're interviewing you. Ask them about their approach - what would they plan on doing on Day 1? Ask them about how they typically structure their deals, and what role business owners usually play post-acquisition. The more questions you ask, the more you'll understand the way they look at your business, and if you're ready for them to buy your business.
You should also ask to spend some time together in-person with the buyers. Get to know them as people. See for yourself how they operate, what they care about and prioritize, and how they approach other people. Are they respectful to the wait staff at the restaurant or jerks? Do they get the most expensive bottle of wine or drink a local beer? What is their definition of personal success?
Finding the right buyer comes down to a key question: are they a good match for you and your company?
When you're thinking about selling your janitorial business, valuation is top of mind, and for good reason - for many business owners, the majority of their net worth is tied up in the value of their businesses. How much your business is worth is a difficult question to answer – because the truth is that the value of a business depends on a large number of variables that are changing constantly. Many business owners say that they'd be ready to sell "for the right price," but what does that mean?
Let's start by defining the "valuation" of your business. For our purposes, it’s not what the business is worth to you – because of the lifestyle it gives you, the company car, the perks, or the cash it generates for you, or the prestige. It’s also not what you think the business could sell for based on something you heard at an industry conference or what someone told you while you played golf at the country club. Too many owners make the mistake of thinking they can sell their business for the same multiple or valuation that someone else got for their business. This is a dangerous assumption that often leads to disappointment when confronted with reality: every business is different and valuations vary significantly, even within the same industry. Don’t fall into the “country club” valuation trap.
So what is the definition of "valuation" then? There are technical definitions of “fair market value” that are sometimes used by accountants, financial professionals, the IRS, and valuation experts. These more technical valuations can be calculated using several different complex methodologies. These methodologies include income-based approaches, market-based approaches, and asset-based approaches, which all generally involve analyzing financial statements, conducting market research, assessing comparable transactions, and determining appropriate valuation multiples. Even these more technical approaches to valuation are still very subjective. Let’s keep it simple: let’s think of value as what someone else will pay for your business right now.
The best way to get a valuation of your business, is to have a buyer make you a real offer. Short of that, you can look for indicators in the market and advisors to help you at least get a potential valuation range.
Understanding acquisition activity in the janitorial industry and in your local market can also help give you a sense for if valuations are trending higher or lower. Right now, for example, Private Equity buyers are very active and becoming more active, driving up valuations in many of their target industries. Many advisors are expecting to see another uptick in investment as well as private equity mergers and acquisitions in the near future. This type of activity in the marketplace creates higher valuations due to competition for deals and great exit opportunities for business owners.
At DealPoint, we know what it's like to sell your business. That's because, as business owners ourselves, we've done it before. Our deal advisors know what it takes to get a deal done. It's a time-consuming process that can be a stressful, emotional roller-coaster from initial buyer meetings through due diligence. You want to be able to look back and not only be happy with the decision you made - but also with the decision-making process.
We'd be happy to help you how we can with this process. Most importantly, as a buy-side broker, we want to help you find the right buyer for your janitorial business. Email us to get more info. Info@DealPoint.com
We also thought it might be useful to include a "State of the Janitorial Industry" snapshot for your reference as you're thinking about selling your janitorial business.
The Janitorial industry is a vital component of the broader facilities management sector, providing essential cleaning and maintenance services across a range of environments, including commercial buildings, educational institutions, healthcare facilities, and industrial sites. This industry has seen steady growth due to the increasing emphasis on cleanliness, health, and hygiene, especially in the wake of heightened public awareness around infectious diseases. Janitorial services encompass a broad spectrum, from routine office cleaning to specialized services like disinfection and deep cleaning. This report explores the current state of the Janitorial industry, identifies key drivers for its growth, examines M&A trends, discusses valuation considerations, and highlights why now might be an advantageous time to sell a Janitorial business.
The Janitorial industry is experiencing robust growth, driven by several key factors:
Heightened Hygiene Awareness: The increased focus on cleanliness and infection control, particularly following the global health crises, has amplified the demand for janitorial services across all sectors.
Commercial and Institutional Demand: Growth in commercial real estate, coupled with stringent cleanliness standards in institutions such as schools and hospitals, continues to drive the need for professional cleaning services.
Outsourcing Trends: Businesses and institutions are increasingly outsourcing their cleaning needs to specialized janitorial companies to reduce operational costs and improve service quality.
Regulatory Compliance: Enhanced regulatory requirements related to workplace safety and hygiene standards compel organizations to maintain high levels of cleanliness, further boosting demand for janitorial services.
Sustainability and Green Cleaning: The rising awareness of environmental sustainability has led to a growing preference for green cleaning products and practices, creating opportunities for janitorial companies to differentiate themselves with eco-friendly services.
The Janitorial industry is witnessing significant M&A activity, influenced by various strategic and financial drivers:
Industry Consolidation: Larger janitorial firms are acquiring smaller players to expand their service portfolios, geographic reach, and client base, resulting in increased consolidation within the industry.
Private Equity Interest: The stable cash flows and recurring revenue models typical of janitorial businesses attract private equity firms, leading to a surge in investments and buyouts.
Strategic Acquisitions for Growth: Companies are actively seeking acquisitions to gain access to new markets, enhance their technological capabilities, or acquire specialized skills such as healthcare cleaning or green cleaning practices.
Synergy and Efficiency Gains: M&A activities are often driven by the desire to achieve operational efficiencies and cost savings through economies of scale and streamlined operations.
Cross-Border Expansion: Global janitorial companies are pursuing cross-border acquisitions to establish or strengthen their presence in emerging markets with growing demand for professional cleaning services.
Valuing companies in the Janitorial industry requires careful consideration of several factors:
Recurring Revenue and Contractual Stability: Companies with long-term contracts and stable recurring revenue streams are highly valued due to their predictable cash flows and lower risk profile.
Service Diversity and Specialization: Firms offering a broad range of services or specializing in high-demand areas, such as medical facility cleaning or green cleaning, typically command higher valuations.
Client Portfolio and Retention: A diversified client base with high retention rates enhances valuation by demonstrating market stability and reducing dependency on a few large clients.
Operational Efficiency and Technology Adoption: Companies that leverage technology to improve operational efficiency, such as through the use of advanced cleaning equipment or management software, are often valued higher.
Geographic Reach and Market Penetration: Businesses with extensive geographic coverage or a strong presence in lucrative markets are attractive to buyers looking to expand their footprint.
Several market conditions suggest that now could be an opportune time to sell a Janitorial business:
Strong Demand for Cleaning Services: The ongoing emphasis on cleanliness and hygiene across all sectors ensures a robust demand for janitorial services, making businesses in this industry attractive to buyers.
Active M&A Environment: The high level of M&A activity and interest from private equity firms provide ample opportunities for favorable sale terms and competitive valuations.
Shift Towards Outsourcing: The trend towards outsourcing non-core activities, including cleaning services, continues to grow, further enhancing the attractiveness of janitorial businesses.
Sustainability and Innovation Trends: Companies that adopt sustainable practices or invest in innovative cleaning technologies are in high demand, commanding premium prices.
Predictable Revenue Models: The stability provided by long-term contracts and recurring revenue streams appeals to investors looking for reliable and scalable business opportunities.
The Janitorial industry is poised for continued growth, driven by increased awareness of hygiene, regulatory demands, and the ongoing trend towards outsourcing. The dynamic M&A landscape, coupled with strong market demand and opportunities for innovation, makes it an ideal time for owners to consider selling their Janitorial business. Understanding the key drivers of growth, M&A trends, and valuation factors is essential for maximizing the value of their business in this essential and evolving industry.
