Selling Equestrian Feed Businesses
Equestrian businesses primarily provide hay, feed, nutrients, and specialized equipment for the feeding, caring, and housing of domesticated horses. The annual feeding costs of horses ranges up to $4,000 per year, and many horse farms have a dozen or more horses. The equestrian community in Wellington, Florida is quite extensive with over 580 horse farms serving a variety of disciplines including polo, dressage, hunter/jumper, and recreational rides. Confidentially selling an equestrian feed business – often to competitors or industry professionals – involves obtaining an accurate set of financial records and inventory count, highlighting the unique value proposition offered to a loyal customer base, and hiring a business broker experienced in valuing and selling equestrian feed businesses consistent with industry standards.
Valuing Equestrian Businesses
The typical equestrian business has a retail storefront which carries inventory while also delivering horse feed to its customers on a regular basis. The profitability of an equestrian business usually depends on its ability to deliver and service needed materials to its high-end customers at their horse farms on a regular basis. The valuation of an equestrian business is a multiple of its annual adjusted owner benefit (or the true economic profit derived by the owner). The multiple is usually 2-4 x the annual adjusted owner benefit, with inventory often sold separately (at cost). The distribution network, economies of scale, and regular or repeat customers all play a crucial role in determining its valuation.
Distribution Network of Equestrian Businesses
- The distribution network of an equestrian business is its relationship with the suppliers who deliver the horse feed and hay to the equestrian business, as well as the equestrian business’s ability to then deliver the supplies to its customers on a regular and reliable basis.
- Reliability is key in the equestrian industry as customers need their horses fed and cared for without delay or excuses.
- Much of the hay and feed for horses are often delivered from out of state by large wholesalers (who do not deliver to retail customers).
- It is imperative that an equestrian business establish and maintain good credit and terms with these large wholesalers to assure regular deliveries of product.
- Once delivered, the equestrian business must deploy manual labor to physically segment the product for deliveries to its own retail customers, possess and maintain suitable vehicles and modes of transport, schedule deliveries to its customers, and reliably transport and deliver the materials on a timely basis so that its customers needs are met.
- A key competitive advantage for many equestrian businesses is its reliability and trustworthiness in having the inventory available and delivering it on time and professionally to its customers.
- Prior to making an offer, most buyers of equestrian businesses will thus scrutinize the relationships with suppliers and staff to ensure their continuity after the sale.
Economies of Scale Important for Equestrian Businesses
Economies of scale refers to cost advantages that companies enjoy based on their size that allows costs to be spread out over a larger number of goods. In the equestrian industry, economies of scale are of critical importance because of the large amount of materials needed to be constantly purchased. Wholesale suppliers of hay, feed, and equestrian equipment will typically give sizeable volume discounts to locally owned equestrian businesses. The local equestrian businesses may then offer lower pricing to its customers (beating competitors’ pricing), and also enjoy higher gross margins. Gross margin is the difference between the cost of purchasing the good and the price realized, and is a key metric when buyers assess the value of an equestrian business.
Competitors Often Purchase Equestrian Companies
Because of the importance of having economies of scale along with a strong distribution network, many equestrian businesses are sold to its competitors. Such competitors can enhance their profit margins by increasing their size and economies of scale (from volume discounts) via the purchase of a competing equestrian business. Likewise, they will also strengthen and make more efficient the combined distribution network by adding vehicles and trained staff to their own existing network. Competitors often are willing to pay a premium price under these circumstances because of the increased potential profits.
Repeat Customers Increase Valuation of Equestrian Businesses
The intangible value (or non-physical value) of equestrian businesses is its customer base stemming from its goodwill, brand name, and reputation. Most customers are repeat customers because they constantly need to feed and maintain their horses. If properly maintained, these customer relationships built on trust may last years or even decades. The regularity of the equestrian business generally leads to higher valuations when it comes time to sell. Since buyers of equestrian businesses trust the regularity of future profits, they are more likely to place a premium on its present value. This compares favorably with other businesses where the future is more uncertain.
Equestrian Businesses Qualify for E2 Visa Buyers
The ‘E2 Visa’ program allows individuals to enter the United States based on an investment or purchase of a U.S. business. Equestrian businesses are generally qualified businesses for an E2 Visa buyer so long as it has a suitable level of sales ($100K) and profits ($30K), one or more paid W2 employee (including the owner), and a long term lease (unless the business is attached to commercial property). As a practical matter, many potential E2 Visa buyers from South and Central America are interested in the equestrian industry and frequently purchase equestrian businesses in South Florida.
Equestrian businesses with a strong distribution network, economies of scale, and regular or repeat customers are highly valued by many types of buyers seeking to enter this appealing industry. Owners of equestrian businesses should consult a professional business broker to ensure their business is valued properly and sold confidentially.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.