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Building Industry Advisors and Webb Analytics track M&A activity in the LBM segment, which serves as a key indicator of investors’ prevailing attitude toward the industry. With this in mind, the number of acquisitions climbed slightly to 79 companies in 2019, which is a positive indicator for the health of the industry.

Are you looking to sell? There are a number of factors that can make that transaction smoother and more likely to close. With regard to real estate, for example, the optimal arrangement is for all company buildings and land to be held by an affiliated, but separate, entity under control of the LBM business being sold. With rent set to a market rate, a buyer can analyze the prospective acquisition candidate as a true stand-alone entity, since there will be no real estate held by the company to complicate the transaction. Having the real estate rented from a third party is second best, but at least the rent will be assumed to be at a market rate.

Next, look to the top. In small- to medium-sized companies, owners often wear multiple hats. Any LBM company considering a sale should reflect on the duties of the owner to ensure that this person is only responsible for roles that would be expected of them if the company were being designed from scratch in an ideal setting. This means that owners should shed any financial statement preparation duties and ensure that there are strong hands in vital areas within the company. The more duties that an owner handles, the more difficult it will be to find a replacement.

Delegating such duties to others can pay dividends. Nothing gives buyers more confidence that a management transition will be seamless than an owner who has already partially stepped away from a business that continues to perform well. Another possible benefit of this delegation of duties is that the owner could then invest the newfound time created on more-valuable activities, including focusing on a reluctant, but game-changing, customer that the company has been trying to win. Perhaps the owner could focus on winning back a customer that was lost, or could work out the details of a new product or service offering to explore.

Another important assessment that companies should make prior to undertaking a sale concerns less-than-obvious gaps in the management bench. Should the company’s controller be upgraded to a true chief financial officer? Is the operations manager overloaded and having to touch every process because of insufficient support? Maybe it is time to give that person a COO title and hire a vice president of operations to help out. The talent market may be tight, but there are employees who have reached a professional ceiling at their companies and are looking for more challenging roles. As with delegating owner-level duties, filling upper midlevel management positions yields several types of positive rewards, not the least of these being the fact that some buyers are not adventurous enough to pursue acquisitions where key hires must be made right out of the gate for the business to continue to succeed.