Rory Russell, President of Acquisitions and Funding Services (AFS), tells FSJA what owners can do now to build value, strengthen resilience and prepare for the future.
Regardless of economic conditions, buildings still need to comply with fire codes, inspections still need to be completed and life safety systems have to remain operational. That is something that will never change, which creates a level of stability that buyers find very appealing.
Another major driver is recurring service revenue. Companies that generate consistent income through inspection, testing, monitoring and maintenance contracts provide buyers with predictable cash flow rather than relying solely on new construction or one-time installation projects. That predictability reduces risk and supports higher valuations.
We’re also seeing continued interest from private equity-backed platforms, strategic acquirers and regional companies looking to expand their geographic footprint or service capabilities. Many buyers are looking for acquisitions that allow them to enter new markets quickly instead of building operations from the ground up.
One trend business owners should pay attention to is that buyers have become much more selective. A few years ago, nearly every quality company attracted significant interest. Today, buyers are taking a closer look at customer concentration, employee retention, profitability, compliance records and the strength of the management team. They are asking more questions and conducting more thorough due diligence.
Owners should also recognize that consolidation is creating larger competitors with greater resources. That doesn’t mean independent companies can’t thrive. In fact, many continue to perform exceptionally well. But it does mean owners should think strategically about where they want their business to be five or 10 years from now. Whether the goal is continued independence or an eventual sale, planning ahead almost always creates more options and stronger outcomes.
One of the biggest misconceptions I encounter is that valuation is based only on revenue. Revenue certainly matters, but buyers are ultimately purchasing cash flow, stability and future opportunity. A company with strong profitability, reliable recurring revenue and well-documented operations will typically command a much stronger valuation than a larger company with inconsistent earnings.
Recurring inspection, testing, maintenance and monitoring revenue remains one of the most important value drivers. Buyers also pay close attention to customer diversification, employee tenure, licensing, safety records and the condition of financial reporting. If financial statements are difficult to understand or the business relies heavily on the owner for day-to-day operations, buyers will often perceive additional risk.
The management team is another significant factor. Businesses that can continue operating successfully without the owner’s daily involvement are generally more valuable because the transition is less disruptive.
The best advice I can give owners is to begin preparing several years before they expect to sell. Strengthen your management team, document your operating procedures, invest in your people and build long-term customer relationships. Review your financial reporting and make sure it accurately reflects the true performance of the business.
I also encourage owners to avoid making decisions based solely on taxes if those decisions reduce reported earnings. Saving taxes today can sometimes reduce enterprise value tomorrow. It’s important to understand the long-term financial impact.
Perhaps most importantly, talk with an experienced advisor early in the process. Even if a sale is years away, understanding how buyers evaluate businesses allows owners to make informed decisions that increase value over time rather than scrambling to improve everything in the final year before going to market.
Recurring revenue continues to be one of the strongest value drivers in the fire protection industry because it provides predictable income and strengthens customer relationships. However, buyers are looking beyond the total dollar amount. They want to understand the quality and sustainability of that revenue.
For example, buyers will review contract renewal rates, customer retention, pricing, contract terms and how dependent the business is on a handful of large accounts. A company with hundreds of loyal customers and consistent renewal history is generally viewed more favorably than one where a significant percentage of revenue comes from only a few clients.
Buyers also look at how recurring services create additional opportunities. Inspection and maintenance work often leads to repair projects, system upgrades and replacement installations. That ability to generate follow-on work makes recurring revenue even more valuable because it supports long-term growth.
Beyond recurring revenue, buyers evaluate several other characteristics. A diversified customer base is important because it reduces risk. A stable workforce with experienced technicians is increasingly valuable given the industry’s labor shortage. Companies with strong safety programs, current licensing and a reputation for quality service also stand out during the acquisition process.
Technology is becoming another differentiator. Businesses that have invested in modern service software, digital inspection reporting, customer relationship management systems and organized financial reporting often operate more efficiently and provide buyers with greater confidence during due diligence.
Ultimately, buyers want businesses that have demonstrated consistent performance and have a clear path for future growth. A company doesn’t need to be the largest in its market to attract strong interest, but it needs to have well-managed operations, dependable employees, loyal customers and predictable revenue.
Consolidation certainly receives a lot of attention, but I think it’s important to remember that independent companies continue to play a vital role in the industry. Many of the strongest businesses we work with are independently owned and have built outstanding reputations within their local markets.
Remaining competitive starts with providing exceptional customer service. In a business built on trust and long-term relationships, responsiveness, technical expertise and reliability continue to differentiate independent companies from much larger competitors.
Owners should also focus on investing in their people. Recruiting and retaining qualified technicians remains one of the biggest challenges across the industry. Companies that provide training, career development and opportunities for advancement tend to build stronger teams and deliver more consistent service.
Another area that deserves attention is operational efficiency. Investing in technology, improving scheduling, streamlining reporting and strengthening financial systems can increase profitability while making the company more scalable.
Growth doesn’t necessarily mean opening offices across multiple states. It can involve expanding service offerings, increasing recurring inspection revenue, entering adjacent geographic markets or deepening relationships with existing customers.
Interestingly, many of the same decisions that create a stronger independent business also make it more attractive to buyers. Strong management, recurring revenue, documented systems, healthy financial performance and diversified customers are beneficial whether an owner plans to operate the company for another twenty years or sell it in the near future.
Owners shouldn’t build a company solely for the purpose of selling it, but its eventual sale should always be in the back of their mind. This naturally leads to a business that performs well, serves customers exceptionally and operates independently of the owner. If you eventually decide to sell, buyers will recognize that strength. If you don’t, you’ll still own a better, more valuable company.
The biggest mistake I see is waiting too long to begin planning. Many owners spend decades building excellent businesses but don’t start thinking about succession until the year that they’re ready to retire. By that point, they have fewer options and less time to address issues that could improve value. The time needed to plan succession varies greatly from company to company, but I would generally recommend starting planning at least three to five years before retirement.
Another common mistake is assuming the business cannot operate without them. If the owner handles the largest customer relationships, makes every major decision and oversees daily operations, buyers will naturally question how the business will perform after the transition. Developing future leaders within the company is one of the best investments an owner can make.
Poor financial reporting is another issue that creates unnecessary challenges. Buyers expect clear, organized financial information that accurately reflects the company’s performance. Trying to reconstruct records during due diligence often slows the process and is a surefire way to reduce buyer confidence.
Some owners also focus exclusively on the purchase price while overlooking deal structure. Working capital requirements, earn-outs, employment agreements, indemnification provisions, taxes and payment timing can have just as much impact on the overall outcome as the headline number. A slightly lower headline purchase price number with better terms may ultimately produce a better result.
My advice is simple. Start planning earlier than you think you need to. Have honest conversations with your family, management team, accountant, attorney and an experienced mergers and acquisitions advisor. Understand your options well before you need to make a decision.
Selling a business is usually a once-in-a-lifetime event. With thoughtful planning and realistic expectations, owners can protect what they’ve built, create opportunities for their employees and position themselves for a successful transition whenever the time is right.
