How Much Is My Call Center Worth? Examining Value In A Seller’s Market.
By Richard Kommit, Kommit & Company
Over 20 years ago, I sold my call center and got into the business of Mergers & Acquisitions. Since then, I’ve helped call center owners and entrepreneurs navigate the waters of exiting businesses that they’ve spent their careers building. Our firm specializes in call centers and BPOs. Below is some information that you may use when considering an exit, which is information I wish I’d had before selling my business.
The first question every owner asks when considering and exit is, “How much is my call center worth?” While this is a very reasonable and understandable question, it’s first important to discuss the state of Mergers and Acquisitions of call centers / BPOs and how that will impact your future sale. Currently, with the price of money being at historical lows and private investments (private equity) dollars being at record levels, the demand for acquisition of profitable businesses has skyrocketed.
In the call center / BPO arena, the prices and terms of exit have never been more favorable to call center owners. We are seeing many more owner-friendly cash exits, with higher portions of consideration in cash as well as stock, earn-outs, and seller notes. It’s no coincidence that, with increased demand and decreased barriers to entry, the multiples by which call centers are priced have significantly risen. When demand is at its highest, exit deals are at their best.
So, the first part of the answer to “How much is my call center worth?” is that it’s more than in previous years because it’s a seller’s market. The second part of the answer, though, requires you, the owner, to determine worth. For this, it’s important to clarify the owner’s exit goals. Why are you selling? Is it important to keep key personnel after the sale? Do you want more of a cash structure or would you entertain stock, earn-outs, or seller notes? Do you want to stay on after the sale and have another bite of the apple down the road?
Once those questions are answered, an exit strategy would detail a buyer profile of whom the seller would like to work with and how they want to be paid. After that, it comes down to the health of the business, lots of accounting work, a strong marketing pitch, and serious negotiating in order to execute a proper exit strategy that maximizes the price and value of an exit.
Each call center will have its own unique DNA, so any formulaic explanation blanket for all centers isn’t available so let’s rather a go through general overview of how price is determined. Buyers are looking for balanced, healthy businesses that will grow over the short term (3-5 years), and allow them to position for another exit down the road. There are buyers for underperforming call centers as well, although those formulas are less able to be described in short as they are more situational and either relationship, geography, or client based in nature.
Of all the characteristics and metrics a buyer will review when determining a purchase price, adjusted EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization) is perhaps the most important.
Determining a multiple of EBITDA requires an examination of the longevity and history of the business, it’s revenue and profit volatility, strength of client contracts, client concentration, growth prospects, geography, people (management), and technology. Buyers will pay more for a business that has a long and steady history of profitability. Additionally, if the client roster is filled with long-term, name brand clients, the value goes up. Client concentration is a key factor, as too much revenue from too few clients can lead to unpredictability and higher risk which drives prices down. Growth prospects are vital — having a strong pipeline will certainly lead to a higher valuation. Geography can be important, especially if the buyers want to diversify their footprint, or are avoiding certain locations based on employment issues. A strong management team, both upper and middle, is important, especially for a buyer that wants to keep the business as is and run it as an investment. Technology is becoming less and less of an issue, due in large part to cloud based platforms that are easily portable and scalable. For most call center transactions, we’re seeing a 3-6x multiple of adjusted, trailing twelve month EBITDA.
Whether you have identified potential suitors or not, putting your call center into a competitive bidding environment is an absolute must in order to receive the highest possible valuation upon exit.
There are hundreds of strategic and financial buyers who are currently in the marketplace for call center / BPO acquisitions. One key mistake that we see almost every day is the seller who wants to work exclusively and directly with one buyer. This plan of action fails to deliver full value as there are no competing offers to either drive up the price or include the mix of payouts that align with the owner’s goals. Additionally, without multiple interested parties, the owner has very little leverage to increase exit value or to improve the offer in ways that would lead to a better transaction and transition.
Entering into the marketplace without a well designed strategy, well prepared financials, operational efficiency, and carefully curated offering documents will lead to an exit that is bound to leave money on the table.
Every owner has various options when considering an exit: go it alone (without a broker), negotiate with one buyer, or use a broker to solicit multiple bids. In our experience, every buyer is in a far stronger negotiation position and able to achieve higher valuations if they can pit the various offers against one another, resulting in exits that reach owner’s goals in price, methods (cash, debt, stock, etc., choice of buyer (strategic or financial)), timing, and ongoing commitments to the entity.
Negotiating the purchase agreement and navigating the stages that come after can be stressful, and it’s easy to let this stress overtake the responsibilities that come with running a business. However, keeping the business on budget and performing well during negotiations and leading up to the deal closing is crucial. The potential buyer will be scrutinizing the business during this phase and if financial results are down, it could make the buyer think twice about the offer or reconsider the deal altogether.
From start to finish, the sale of a call center / BPO is an intensive but rewarding process that can take anywhere from a few months to a year to complete. The more prepared the business owner is when entering into the process, the better and faster the outcome. With the low price of debt, diversification needs of private equity, scalability of telephony and IT, and demand for live voice and other call center services, call center and BPO owners will continue to see the current wave of acquisitions in the near future. In our over 20+ years of experience, there has never been a better time to consider an exit as valuations, terms, and demand are at all time highs. Cashing in on this wave of acquisition requires a well prepared and carefully curated strategy that incorporates your exit goals.
Richard Kommit
President
Kommit & Company
6178512701