Service Industry Now Top Seller

By Steve Michaels
September 2004

Right now the service industry, including outsourcing call centers and telemessaging services, is the hottest selling business sector, according to an article entitled, "What's Your Company Worth Now" in the August issue of Inc. Magazine.  The multiple for service businesses jumped in 2003, meaning sellers received a higher sales price than they had in recent years and call center owners are taking a fresh look at the possible sale of their business.

This increase in value is partly a result of a new type of buyer.  An independent person, planning to run the business much like his predecessor, may not be willing to pay as much as an "acquirer," a large company that's rolling up call centers.  The large company has a greater ability to reduce costs with economies-of-scale and has the financial wherewithal to pay more.

A recent call center sale to a larger company sold for a premium because the seller's equipment was current and their marketing and sales were utilizing advanced, lead generating techniques, which enabled rapid growth.  But more notably, they increased their profit margin by automating the messaging portion of their business.  The owner had groomed his business for possible sale by upgrading his service levels, taking out discretionary expenses, eliminating family members who were nonessential, and keeping financials current to show the growth and potential to prospective buyers.  He was also willing to stay on for some time to transmit his unique feel for the business to the new buyers.

At TAS Marketing, I frequently receive inquiry calls from potential sellers who, using historical information, determine that their call center must be worth a certain amount because several years ago there was another business that sold for that amount with comparable billing.  They don't realize that there are many factors that go into the valuation of a business.  When I valuate a call center, I pay particular attention to the location, size, equipment, employee tenure, automation, and Website, but most of all, I attend to the bottom line.  This is because when a buyer pays a premium price, they need to be reassured that there is enough money coming in to retire the debt.

Historically, sales of telemessaging services have been based on a multiple of monthly billing.  But a fairer way to evaluate a business is on an EBITDA (earnings before interest, taxes, depreciation, and amortization), which bases a company's value on profits earned, not monthly billing.  In the teleservices industry, the average EBITDA to pay for a business is between two and a half to four times.  It could be lower if the operation is in a distress mode.  A word of caution is warranted when it comes to business valuations; value, like beauty, is in the eye of the beholder.

In any case, now may be a good time to consider selling your telephone answering service.  If not, it's always a good idea to put your company through the valuation process so that you may improve your operation, thereby increasing its value.  The process means considering multiple variables and running multiple scenarios, which may involve purchasing new equipment, redeveloping your Website, considering your options using VoIP, or looking at an underserved niche.  Potential buyers will invariably try to emphasize the more pessimistic assumptions and outcomes of purchasing your business to get a lower price, but they may also be able to create grander strategic plans than you ever could imagine with resources and connections you didn't know existed, making your business worth more now than in the past.

Steve Michaels is owner of TAS Marketing, a business broker firm that specializes in mergers and acquisitions for the teleservices industry.  For more information, visit www.tasmarketing.com or call 800-369-6126.

Return to the List of Articles || Go to the Directory of All Articles