In an M&A market in which sellers often feel their company's value is higher than a buyer is willing to pay, G&G Garbage CEO Michael Desmond says the mom-and-pop shops he tends to target aren't focused so much on what the market is doing. Instead, they're concerned primarily with their retirement strategy and how a deal helps them achieve their post-ownership goals.
"I don't know that the environment that I'm dealing with is necessarily impacted so much (by) looking at what the cost of money is, so much so as it is to what does this mean to me over the next 10 years, or whatever that is that we restructure the deal at," Desmond said at the 2023 Denver Smart Business Dealmakers Conference.
He says most of the target opportunities he's approaching aren't necessarily advertising that they're for sale, and most aren't working with professional M&A advisers to establish a target valuation. That means most often they're willing to accept Desmond's offer, which has helped his company buck market trends.
The acquisitions that Desmond has done have mostly been self-funded cash deals.
"A lot of what we do is we'll let the new acquisition somewhat fund what we do," he says. "We'll set up a buyout on the tail end, so we may establish where it could be a three-to-six-month payout on the balance of the business. Obviously, we let the business start to cashflow to pay some of that. We'll either set those up in escrow so the cash is there and comfortable for the seller, or in some cases — and actually just finishing up one right now with an acquisition done in February where the seller is actually carrying a portion of that note. So, it's been kind of a mixed bag."
With a business focused on garbage collection and porta potties, he says they've discovered a niche market where they can find tuck-in opportunities.
"A lot of our activity started as B2B, primarily servicing the oil and gas industry. And then now we've recently expanded into some residential activity as well, and some contractual recurring revenue that we like," he says.
While cash is primarily used to fund deals, he says he took on a little bit of debt with a couple recent acquisitions, primarily because he didn't have any was debt and found it to be a good tool to preserve cash.
"We're fortunate that we're in a position where we can pay cash for things, but we also have a large base of assets that we can also utilize the leverage if we choose to do so," Desmond says. "And that's where I would look at is as we're looking at other deals — and that's kind of a lot of what I do is I'm typically looking at new deals and expansion. We bought up a lot of our competition, so we gained a lot of market share. That has been our strategy. Now we're looking at opportunities beyond that. And so, when we started looking at some of those opportunities then we may have to rethink some of our financing — it will kind of outstrip our ability to compete."
As they vet companies in the region, he says they look at market share and brand quality. But one of the bigger challenges has been personnel. The challenge they're running into when targeting smaller companies is that his company drug tests, an increasingly difficult hurdle for them when it comes to onboarding talent from the acquired companies.
"When we go into an acquisition, I've always had the same approach. I look at it as no employees will come over with the acquisition, potentially. And we've had some that say, 'I can't pass a drug test and we're out.' Those are the issues, but those are unforeseen factors that we can't really consider," he says. "So, we have to look at what the synergistic opportunities are, what the market share opportunities are. We look at things regionally. And so, I don't anticipate that we'll adjust that lens to be looking at anything other than that right now."
