Buying a granite business can be a wise investment strategy as long as you maximize value and minimize risk during the acquisition process.
People often consider upgrading their kitchens if they’re going to spend money on renovations, under the belief that kitchens sell homes.
This can make a granite countertop business an ideal investment opportunity.
The global countertop industry stood at just under $90 billion in 2019 and is expected to grow to just over $110 billion by 2027, exhibiting a CAGR of 2.8% during the forecast period. Natural stone makes up approximately one-quarter of the total.
The general upswing in the global countertop industry coincides with an increase in the number of consumers who are seeking durable stones like granite. Consumers are choosing this material because it has a high aesthetic appeal and is extremely durable.
Research and Due Diligence
From researching industry and vetting potential businesses to actually closing on the deal, can take anywhere from six months to two years.
It can often make up the bulk of your efforts to find a granite countertop business that is worth purchasing.
You’ll want to research the industry itself as well as individual companies before you move on to the crucial due diligence stage.
Identifying the right granite countertop business to acquire
You’ll want to make sure that you have a clearly defined investment thesis that spells out what sort of business you’re looking for and what kind you’re not.
This can include a rough idea of how large of a business you’re looking for, where it’s located or whether it’s run by a management team or by a single owner.
A well-crafted investment thesis can let you easily and quickly ascertain whether a business will be a good fit and whether it’s worth pursuing further.
It can help to take out the emotion in decision-making. If a potential opportunity is missing a key element from your thesis, it’s best to move on and consider other prospects.
Researching the target company and its industry
You’ll want to do some research into the granite countertop industry itself so you can get a sense of what sort of multiples of EBITDA the businesses sell for in your target area.
You should also consider whether you want to but a countertop business that installs only or one that also manufactures as well.
Conducting due diligence to ensure a good fit
This is easily one of the most important stages in purchasing a granite countertop business.
You’ll want to pore over as much information as you can – from detailed financial reports to publicly available information on the company to Google reviews from customers.
You want to turn over every rock to make sure you know exactly what you’re getting and that you’re paying a fair price for it.
It can be incredibly helpful to get some professional help at this stage.
Evaluating the target company’s financials and operations
You’re going to want to carefully analyze at least three years of financial documents from the target business, from profit and loss statements to balance sheets and customer databases.
You should also familiarize yourself with the operations of the business to see if there are obvious ways for you to improve performance. You want to know how every moving piece works in the business before you buy it.
Identifying potential risks and opportunities
What are the biggest risks with this company? Some of the main ones are customer concentration and keyman risk.
Do they sell to a small number of customers or builders who have a special relationship with the current owner? How can you make sure that current suppliers and customers are accepting of the transition?
Does the business center around a small group of people – perhaps one to just a handful of employees – and will that person be sticking around during the transition?
The Acquisition Process
The acquisition process can be slow and tedious, not always but often.
You should consider hiring a business broker to facilitate and ease the acquisition process. This can help you avoid spending hours reaching out to nearby business owners and cold-calling them about selling.
Business brokers will have a network of contacts so they can put more viable deals for you to scrutinize.
It can be more expensive but will probably save you time and money in the long run.
Managing the transition for employees and customers
You’ll want to introduce yourself to the employees during the transition to help assuage common fears that a new owner will let a lot of people go.
You’ll also want to contact key customers so they can get to know who you are and that you are aiming for a smooth transition in ownership.
Combining operations and systems
If you are purchasing an existing granite countertop business as part of a mergers and acquisition strategy, think about ways that you can combine operations to reduce costs, perhaps by eliminating redundant jobs at the head office.
Do you have a good system in place at your existing business that can be implemented at the new location?
Implementing cost-saving and growth strategies
Now that you’ve closed the deal, are there obvious ways that you can implement some cost savings? Are there unnecessary assets that you can sell?
Addressing any issues that arise
The transition will be an ongoing process for many weeks and months. Be prepared to implement changes at a pace that is manageable and avoids a general exodus of staff.
It can also be helpful to maintain a relationship with the old owner so they can help address any unforeseen issues that arise.
Sometimes this can be in the form of an official consulting position or merely being friendly enough that they’ll give you some free insight into new problems. Many small business owners worry about the legacy of the business and its relationship with its customers and employees. So many will be happy to help.
Buying a granite business can be a savvy investment.
Granite countertops are durable and have a high aesthetic appeal.
Make sure you maximize value and minimize risk by completing a thorough due diligence check on the business that best suits your needs.
You can also ensure a smooth transition by reaching out to employees and customers, implementing change at a manageable pace, and having the previous owner around to help deal with any unforeseen issues that arise.