Your water infrastructure 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 water infrastructure 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 water infrastructure industry - like are there headwinds or tailwinds in the water infrastructure industry, and do buyers find the water infrastructure 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 water infrastructure business.
Every business - even within the water infrastructure 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 water infrastructure business - would you want to stay on board in some capacity or simply transition out of the business and the water infrastructure 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 water infrastructure 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 water infrastructure 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 water infrastructure 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 water infrastructure 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 water infrastructure 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 water infrastructure business. Email us to get more info. Info@DealPoint.com
We also thought it might be useful to include a "State of the Water Infrastructure Industry" snapshot for your reference as you're thinking about selling your water infrastructure business.
The water infrastructure industry encompasses the development, maintenance, and operation of systems that manage and deliver water for residential, commercial, industrial, and agricultural use. This includes everything from water treatment plants and distribution networks to wastewater collection and stormwater management systems. As global challenges such as population growth, urbanization, and climate change intensify, the need for resilient, sustainable, and efficient water infrastructure has never been more critical. This report explores the current state of the water infrastructure industry, key drivers for growth, M&A trends, valuation considerations, and why now might be an opportune time to consider selling a water infrastructure business.
Several factors are driving the expansion and modernization of the water infrastructure industry:
Population Growth and Urbanization: Increasing populations and urban development demand expanded and upgraded water infrastructure to ensure reliable access to clean water and efficient wastewater management.
Aging Infrastructure: Many existing water systems are outdated and require significant investment to repair, replace, or modernize, driving demand for infrastructure development and upgrades.
Climate Change and Resilience: Extreme weather events and changing climate patterns necessitate the development of resilient water infrastructure capable of managing floods, droughts, and other environmental challenges.
Regulatory Compliance: Stricter environmental regulations and water quality standards compel municipalities and industries to invest in advanced water treatment and management systems to meet compliance requirements.
Technological Advancements: Innovations in water management technologies, such as smart sensors, data analytics, and energy-efficient treatment processes, drive industry growth by improving operational efficiency and reducing costs.
The water infrastructure industry is experiencing active M&A activity as companies seek to expand their capabilities and market presence:
Strategic Acquisitions: Large infrastructure firms and utilities acquire specialized companies to enhance their service offerings, technological capabilities, and geographic reach.
Vertical Integration: Companies pursue vertical integration strategies to control more of the value chain, from water treatment technology development to distribution and service provision.
Private Equity Investments: Private equity firms increasingly invest in water infrastructure assets and companies, attracted by stable cash flows and long-term growth potential driven by essential service demand.
Public-Private Partnerships (PPPs): M&A activities often include the formation of public-private partnerships to leverage private sector expertise and capital for public water infrastructure projects.
Focus on Sustainability: Acquisitions of firms with sustainable water management technologies and practices are prioritized as companies and investors align with global sustainability goals.
Valuing companies in the water infrastructure industry involves a thorough assessment of various operational and strategic factors:
Asset Base and Quality: The value and condition of physical assets, such as treatment plants, pipelines, and pumping stations, significantly impact company valuation.
Contractual Agreements: Long-term contracts with municipalities, utilities, and industrial clients provide predictable revenue streams and enhance valuation stability.
Technological Innovation: Companies with advanced technologies for water treatment, monitoring, and management command higher valuations due to their potential for operational efficiency and market differentiation.
Regulatory Compliance and Environmental Standards: Firms that consistently meet or exceed regulatory and environmental standards are viewed more favorably by buyers, reflecting operational reliability and reduced compliance risk.
Financial Performance Metrics: Key financial indicators, including revenue growth, EBITDA margins, cash flow stability, and return on investment (ROI), are crucial for evaluating business performance and determining valuation multiples.
Several market conditions suggest that now could be an opportune time to sell a water infrastructure business:
Growing Demand for Upgrades: The urgent need for modernizing and expanding aging water infrastructure drives robust demand for companies that can provide these essential services.
Active M&A Market: The industry’s consolidation trends and interest from strategic buyers and private equity firms create favorable conditions for owners to achieve attractive exit opportunities.
Focus on Sustainability and Resilience: Businesses that offer innovative, sustainable solutions for water management are particularly attractive to buyers aligned with global sustainability initiatives and climate resilience efforts.
Stable Revenue Streams: Long-term service contracts and essential nature of water infrastructure services provide business stability and appeal to prospective buyers looking for reliable income sources.
Technological Leadership: Companies with cutting-edge technologies and digital solutions for water infrastructure management can command premium valuations and attract strategic acquirers seeking technological advantage.
The water infrastructure industry is poised for significant growth driven by the need to address aging systems, support urbanization, and enhance climate resilience. Owners of water infrastructure businesses are well-positioned to consider selling amidst favorable market conditions, strategic consolidation, and increasing demand for innovative and sustainable water management solutions. Understanding the industry’s growth drivers, M&A trends, and valuation considerations is essential for maximizing the value of their businesses in this critical and evolving sector.
