The Perfect Acquisition

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But Brodsky had more in mind than simply a miracle turnaround. He wanted to be majority owner of a public company. Being public automatically would place a price on and provide a market for Perfect should Brodsky want to cash out. And it would enable him to reward faithful employees with something more meaningful than a Christmas turkey. "For them to own shares of a private company doesn't mean too much. They could wipe their backsides with the paper if something were to happen to me," says Brodsky, who, nominally through his wife, Elaine, has retained 100% of Perfect Courier and Perfect Air Inc., a spin-off he created to help smooth the transition. But he isn't allowed to give employees stock in the publicly held company based on past performance in his private company. Key employees are, however, being granted stock options in CitiPostal.

CitiPostal was already public -- albeit barely. To achieve Brodsky's ends, CitiPostal's financials first had to be shaped up to where the company could qualify for a listing on an exchange. "With a public company, you have something that's real, something to look at," Brodsky feels. On NASDAQ, his chosen market, CitiPostal's visibility would enable him to go to the market for financing, which in turn would allow him to make yet further acquisitions.

With both scenes in mind, Brodsky granted CitiPostal an option to buy Perfect Courier for $6 million, exercisable between May 1988 and September 1990. If that happens, the short of it is that Brodsky will have sold his company to a public entity, yet have a majority interest in the combined corporation.

Handily, the company that is to decide whether to buy Perfect Courier for $6 million is controlled by the would-be recipient of the $6 million -- seemingly a nifty failsafe. Unfortunately, the rules of the SEC and the IRS tend to frown on such faits accomplis and won't allow Brodsky to buy his own company. So, in 1988, an arm's-length appraiser is to be hired to evaluate the deal and make sure it's good for CitiPostal. "They'd be crazy to turn it down," predicts Brodsky. "They'll get a terrific deal, because now they'll have one whole company with earnings such that Perfect is probably worth more as part of the public company. I won't have to increase my overhead a nit to pick up their business, and I'll end up with a chunk of money for 10 years' work."

Brodsky's bravado aside, there's a risk that the bottom will fall out of the localcourier industry, and CitiPostal (presuming it still exists then) may turn down the purchase option. If that's the case, in hindsight Brodsky would have done better taking cash and running to Tahiti.While the option is active, however, Perfect Courier cannot be sold to a third party, no matter how enticing the offer. On the other hand, if Brodsky decides he doesn't want to sell to CitiPostal after all, he could make Perfect's books look so nasty that stockholders would turn it down.

A person has to marvel at how little else is left to chance. And Brodsky does: "The big score for me is not the $6 million," he says, "it's the stock. That's where the leverage is. The cash gives me enough security so I don't have to worry." CitiPostal has been given the better part of two years to make up its mind, because it will take time to get an evaluation and then arrange to come up with the capital. If it turns out that when CitiPostal pays up, Brodsky's company is actually worth a lot more than the $6 million, then the price of the common stock, reflecting the combined value of a consolidated operation, will rise. With 8,281,344 shares in his portfolio, Brodsky is not apt to suffer from an inadvertent undervaluation of Perfect.

How will a company that has no net worth now be able to come up with $6 million in two years? By borrowing or floating more stock. In order to do that, however, its performance must merit the new financing. First, CitiPostal has to be rescued from the Pink Sheets and become a reporting company on a bona fide stock exchange. Thus, one of the first things Brodsky did, after the deal was sealed and he had installed himself as CitiPostal's president, was to apply for NASDAQ listing, among whose requisites are standards for assets, equity, and shareholders. First-quarter results showed pretax income of $621,910 on sales of $2,429,880. "I don't think I'll have a problem earning the $1 million," Brodsky concludes.

To accomplish the turnaround, Brodsky paid off the factor and loaned CitiPostal money himself at a lower rate, renegotiated vendor contracts, plugged procedures into his own automated system, and -- perhaps most important -- severely pared CitiPostal's payroll. Like most courier companies, CitiPostal's pickup fleet was comprised of independent owner/operators. "They started these part-time people at $7 for a job description that calls for $5 an hour," says Brodsky. "That's not so bad. But soon they went to $9. Still not that bad. But instead of the 5 hours of actual work, they clocked them in when they came in and out when they left. So they were working 40 hours a week. Still not bad. But after 35 hours, they paid them overtime. Still not bad. But they gave them vacation, sick days, and other benefits that a part-time job didn't call for. Add it all up, and they were paying tantamount to $20 an hour. That's bad!"

Perfect Courier undoubtedly is salable today for a substantial sum. But simply disposing of a business for the sake of putting a few million dollars in the bank is not Brodsky's style. "Most people don't take calculated risks, but I'm a gambler at heart," he admits. "I guess that's what an entrepreneur does."

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