Pricing Your FBO for Sale

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Don't Get into the ‘Multiple’ Trap

As we start to see a small ray of sunshine peeking out from behind the lingering recession cloud, we find some encouraging news in the industry. Flight hours are increasing, used aircraft are starting to sell, and we see a resurgence in the continued consolidation of the FBO industry.

In the last couple of months, we have witnessed chain operators sell a couple of locations and sell one location to a competitor. We also saw the sale of a small chain to a larger chain. Therefore, I pose the proverbial question in the manner Harvard Business School types might ask: Is it time to “harvest” your business?

Only you can determine this. But if you’re getting into the sell mode, here are few things to keep in mind as you move forward.

Begin with the Business Plan

I’ve been involved in many FBO sale transactions over the years — both buying and selling various properties. The first order of business should always be to review your business plan. If your plan is in order, it will reveal the goals and objectives you have set for your business, which will help in the valuation of your assets.

Business plans we write for our clients include a section on exiting the business. Here the plan details a positioning strategy designed to maximize the value of your business whether you plan to leave a legacy to your family, retire with an income or just cash in with an outright sale.

Various sections discuss topics such as:

  • A full- or part-time retirement scenario
  • A succession plan to leave in place a strong management team
  • Capital needs for the future
  • Possible changes in the airport environment
  • New business or personal opportunity
  • Time to “cash in” — business has peaked

As part of the asset evaluation, you should be able to quantify the following:

  • Current condition of your operating systems
    • Fuel operations
    • Accounting function
    • Facility maintenance
    • Ramps and hangars
    • Efficiency of employee team in place
    • Stability and diversity of your customer base
    • Measure of profitability
  • Airport lease considerations
    • More than 10 years left?
    • Upcoming capital requirements for lease extension
    • Current lease is assignable to a new owner
    • Liability after sale on business and environmental issues
  • Tax issues
    • Capital gains tax
    • Taxes on the sale
    • Get advice from tax experts
    • Review tax issues of buyer
  • Legal and regulatory issues
  • Current and proposed airport environment
  • Identifying potential buyers

Sale Price Considerations

When consulting with clients who want to sell their FBOs, one of the first things they ask is: What multiple should I go for? Of course, they are referring to what the industry has conditioned them to expect: the “magic number” times the earnings before interest, taxes, depreciation and amortization (EBITDA). Or is it another magic number, such as EBIT, gross profit or even revenue?

I understand where they are coming from, but I caution not to get hung up on the multiple issue. Throwing around multiples like 5×, 10× and even 15× can quickly become a mental trap that often gets in the way of a true valuation of the business worth.

As our premise for this article indicates, the selling price of your FBO is not about the earning multiple but quantifying many of the questions we asked above. Some recent deals that have been consummated have no multiple. So what does that mean?

As you get into the pricing of your FBO, it’s imperative that you do a full-scale presale evaluation in order to further define and determine the terms gross profit, net profit and EBITDA. Because the eventual buyer will be doing his own due diligence, it’s important you do your own in advance so you can better understand the buyer’s valuation of your business.

Although you, as the owner, can have an understanding of the worth of your business, ultimately you can’t dictate what it is worth. Only the market can do that.

Develop a Selling Strategy

What is important to remember, if you decide to sell your business, is to seek professional assistance to walk you through the process, to help you properly position your business for sale. Also, an experienced professional can help you channel your efforts by identifying and targeting potential buyers.

For instance, one strategy would be to sell to one of your immediate competitors on your airport if one exists. Past experience says this will most likely give you the best deal.

Selling to your competitor allows the buyer to gain one of the most important business success factors: pricing power. (This can be a subject on its own merit and will be dealt with in another blog.) Suffice it to say pricing power will significantly increase the valuation of your business but cannot be so much that you make the transaction noncompetitive.

Ultimately, there are many factors that enter into the valuation decision. Businesses are sold for many reasons, and all those reasons affect the selling price. What both buyers and sellers must realize is that a satisfactory business deal for both parties must be concluded. Translation: Negotiate!

A purchase and sale agreement reached by the parties, if they succeed in reaching one, will be the result of bargaining. Depending on the relative bargaining positions of the buyer and seller, the purchase and sale agreement might reflect either compromise or capitulation, and, as a result, a valuation reasonable to the parties will be reached.

So don’t let the multiple trap get in the way. The multiple of earnings doesn’t really count in the transaction.  

Keep the goal in mind. The mission is not to simply conclude a transaction. The primary mission is to sell the business at a satisfactory price while guaranteeing payment is received when it is wanted and the way it is wanted.

John Enticknap

Before founding Aviation Business Strategies Group (ABSG) in 2006, John Enticknap was president of Mercury Air Centers' network of 21 FBO locations and has held executive management positions with DynAir Fueling and CSX Becket Aviation. He is an ATP- and CFI-rated pilot with more than 7800 flight hours, certified in both fixed- and rotary-wing aircraft, and the author of 10 Steps to Building a Profitable FBO.