The Perfect Acquisition

Some want to buy; some want to sell; some want to plan for the ultimate cashout. The owner of Perfect Courier did all three at once.

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When one business acquires another, the tenets of Western commerce have it that the acquired entity be paid for with cash or stock. Though basically unchanged, the rules are being read more loosely in this era of greenmail and white knights, and some intriguing turns have been taken. It's not unheard of, for example, that a seller may be so delighted to discover that someone is interested in its proffered operation -- a failing division of a large corporation, for example -- that the seller actually gives the buyer some money if only he'll take away the hapless enterprise and run it somewhere else.

So far, though, there's precious little in business texts that describes how a modest private company can purchase a going public concern for nothing down; how that buyer at the same time can convince the seller to guarantee to buy him out in a few years for several million dollars; and how the initial acquirer ends up not only awash in cash, but owning more than half the consolidated entity -- whose shares by then presumably will be soaring in the public market. The scheme sounds too good to be true, but if and when the founder of New York City's Perfect Courier Inc. emerges unscathed from the convoluted deal he forged last summer with competitor CitiPostal Corp., he intends to have everyone -- buyer, seller, and stockholder -- going home rich and happy.

It takes the mind of a lawyer and an accountant to have devised this flawless chain of events. And, according to the pair of certificates framed and hanging in his midtown office, that is exactly what Perfect's Norman Brodsky possesses -- plus a swashbuckling sense of business adventure."I don't do this for money," Brodsky insists, referring mainly to the time he puts in figuring out how to make money. "If I did it for the money, I'd sell my business today and go to Tahiti."

Brodsky entered entrepreneurship in 1979 and now, eight years later, expects to take in close to $30 million. His courier service has been listed on the INC. 500 ranking of private-business growth for the past three years, yet its 44-year-old founder works only three weeks a month."You have to be insane to drive yourself," he preaches to the deaf ears of his brethren.

If all goes well, Brodsky's sanity will win out on or before September 30, 1990, the last date on which CitiPostal can exercise its option to buy out Brodsky's Perfect Courier for $6 million. And CitiPostal's new chairman and president -- none other than Brodsky himself -- is confident that it will.

The two companies in finance's version of "I'm My Own Grandpa" are among the many wheeled fleets that collect packages in urban areas and ship them by specialty carriers, such as Federal Express and Airborne Express, for next-day delivery. Because they can consolidate the packages and earn discounts from the carriers, they are able to offer individual users customized service at a savings.

Both Perfect and CitiPostal work the streets of mid-Manhattan. But judging by their results, you'd never know that they did the same thing in the same place (although the former does it in eight cities). While Perfect was briskly expanding by means of internally generated funds, CitiPostal lost some $880,000 in the past year alone, and in less than two years had run through the $1.4 million it had raised in a stock placement. Aside from a $2-million tax loss carryforward, there were few assets left. As far as Brodsky could see, the five-year-old company was functioning only by dint of a factor's happily lending against receivables at six points over prime. CitiPostal stock, unable to qualify for listing on a regulated exchange, was stuck in the tundra of the over-the-counter's Pink Sheets, barely trading at 50? bid, $1 asked. The company clearly showed little promise.

"They were losing money, but they had a better caustomer base than I did, and better prices!" Brodsky reflects incredulously. "It shows there can be a business that's a natural profit maker, yet someone can lose money with it." The "someone" in CitiPostal's case was its two free-spending founders, who, overstaffing, overbenefiting, and overpaying, according to Brodsky, "had a lot to learn."

But Brodsky wasn't about to teach them. Instead, he flushed out the corporation's three major investors and reminded them that the company they owned was going down the tubes. "But I am here to tell you that I can bail you out," Brodsky proclaimed at their first meeting last March. "The only thing is, it won't be for charity: the executive officers have to go, and you have to give me half the company. Call it 53%, and I'll make us all a fortune."

Since those investors already had dropped more than $1.5 million on a similar promise two years back, they were doubtful. We want to see you make a fortune was the gist of their reply. "Well, for 53%," Brodsky took up the gauntlet, "I'll guarantee that, in the first fiscal year starting July 1, CitiPostal will do $10 million in sales and $1 million in pretax profit. If it doesn't, I'll give you back part of the stock." That sounds fair enough, the about-to-be-minority stockholders agreed. Brodsky's portion -- more than 8 million shares of common -- would be placed in escrow pending the end-of-year financials as of June 30, 1987.If his projections failed to materialize on that date, Brodsky would relinquish ownership in proportion to the shortfall of his vision.

Given a customer base expanded by 600 new businesses, each sending 2.5 packages per night and generating $6 million a year, a shortfall would be unlikely, since the profligate CitiPostal operation could be intertwined with lean and mean Perfect's. "They had only one problem," Brodsky concluded -- "overhead that would choke a horse." Where one section of Brodsky's service was employing 4 people, a similar operation at CitiPostal had 16 people running four specialized departments. "They were sitting around all day doing nothing," Brodsky says. "Their explanation was, 'We're going to grow bigger." Not wanting to lose more ground, he took over as president of CitiPostal on May 1, 1986, even before the deal was final, and started to trim the payroll. With Perfect Courier performing (and getting paid for) services for CitiPostal, that very June CitiPostal posted a monthly profit.

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