Every time someone buys a dream, there's a seller giving one up

Joseph Grassadonia's stocky frame and intermediate height would seem to belie his lifelong passion for surfing. His long-since-receded hairline and dark Italian features certainly don't fit the California stereotype of the sun-bleached surfer dude. But Grassadonia is California born and bred and a self-proclaimed surf bum. Not content to merely skim the surface of the Pacific, he is also an avid skin diver.

Grassadonia has always planned his life around the ocean, and he wanted a job that would complement and fund that aquatic lifestyle. But rather than working as a lifeguard or at a beachside sporting-goods store, the 44-year-old Grassadonia has founded five or six publications over his 20-year publishing career. Most of those publications were water related, including his most recent venture, Dive Travel magazine. But even though he claims to be passionate about publishing, Grassadonia is a man of clear priorities. He keeps his surfboards in his car or his office, and plans his day according to when he's going to take his hour and a half to shoot the curl.

Starting a magazine, Grassadonia says, is like catching a truly gnarly wave. Both have their share of excitement and perils, but heck, that's all part of the fun. "When you're surfing," he says, "and you're just totally in control of the wave, and the equipment is right, and everything is working, it's exhilarating." He experienced a similar rush during his first five years running Dive Travel. But eventually, the pressures of the publisher's "hot seat" got a little too fiery for his tastes. "I got to a point where I said to myself, 'I'm not having fun anymore," he says. "That's when I knew I had to sell."

Grassadonia had known from the day he founded the magazine, in 1984, that he would one day sell it. His strengths, he believes, are in magazine development. "I enjoy coming up with the concept, doing the research, and getting the staff together," he says. "As far as managing and growing the magazine goes, that's not my forte."

In 1993 Grassadonia started shopping around for a business broker. He looked at ones that specialized in selling magazines, but he wasn't impressed. "They all wanted tons of money up front. Like $50,000. And they gave no guarantees." So he settled on a local broker. The process of placing a price tag on his business was an involved and emotional one for Grassadonia. "This business is a chunk of my life," he says. "How do you put a value on that?" He understood that valuation comes from a business's ability to generate cash, but he couldn't help feeling that it was more than just the bottom line. "Buyers come in and look at the business, but they haven't walked your path yet," he says. "They just ask, 'What are your profits?"

Grassadonia saw great value in the market share he had created. "It's so hard building up a magazine from nothing," he says. "The first five years were brutal, knocking on every door, facing the rejection and the prove-yourself-first mentality. Now we do business with just about every advertiser in the marketplace. It would be very expensive to try and create that." Even so, when the broker suggested a $500,000 price tag -- based on 1993 sales of $324,000 and recast earnings of about $50,000 -- even Grassadonia thought it might be a little steep. The price was based partly on anecdotal information that magazines typically sell for five to eight times earnings. The broker was evidently aiming for the higher end of that range.

In the ensuing year, the broker didn't have much success in unearthing potential buyers -- a fairly common situation, as you can see from the roundup chart, "Where Are They Now?," [Article link].

Grassadonia's ads in industry trade journals produced a handful of nibbles and a lot of talk, but no concrete offers. Other publishers, for instance, called up to scope out the competition. "You have to be careful," Grassadonia says. "Competitors come in and they come off very sincerely, but what they really want to do is take your business." And then there were what Grassadonia calls the "tire kickers," like the marketing guy who was interested in changing his line of work. "The money was actually quite good. But he never made a written offer," Grassadonia says. And there was the woman who offered to trade her house on swank Pebble Beach for the magazine. "That was tempting," he says, "but I wasn't really interested." Grassadonia already had a house and didn't want the hassle of another sale. After a year of little activity, he brought the price down to $450,000.

Grassadonia had sold two of his previous publications and knew that his business wouldn't necessarily sell right away. "You need to be prepared to stick with it a long time and hold out for the right buyer," he says. And he admits that waiting wasn't easy. "It took everything I had not to just jump at a bad deal." But no matter how much he wanted out, he wouldn't just walk away from it. "When you build a business, it's like your child," he says. "You still love it, no matter what. It's a part of you."

By the summer of 1994, Grassadonia had grown despondent. There had to be somebody who would buy his business at a fair price. He thought that maybe he was marketing the business badly. Perhaps going with a local broker had been a mistake. But he never doubted that he had something of value to sell.

In October, at last, came an offer. Susan Wilmink and Thomas Schneck were a married couple living in Germany at the time. Wilmink worked for Ziff-Davis, a large international publishing company, while Schneck owned a German software company. Wilmink had long harbored thoughts of running her own company, and Schneck had ambitions to break into the U.S. market.

The problem was that Wilmink and Schneck couldn't afford to buy the business outright. Wilmink proposed that Grassadonia retain part of the business and stay on as a consultant for a minimum of three years. "She felt she needed my expertise in the dive industry," says Grassadonia. Still, he hesitated to do a partial sale, since he really wanted out. But he didn't want to sell the magazine only to have it fall apart in someone else's hands. That's what had happened when he sold Santa Cruz Weekly, a newspaper he had founded in the early 1980s.

So he was open to staying on as long as someone else took over the publisher's day-to-day responsibilities. But Wilmink had to convince him that she was up to the task. And convince him she did. "Susan came in with a vision," says Grassadonia. "She had a complete layout of what she wanted to do with editorial, sales and marketing, the whole nine yards." Wilmink outlined plans for a Dive Travel Web page, a quarterly newsletter, and a repositioning of the magazine's editorial product. So thorough and persuasive was her presentation that Grassadonia felt confident that she was someone he could stand to watch running his business. "She made me a believer," he says.

But if Grassadonia was sticking around, he wanted ample compensation. "I figured I'd make more money in the long run with a partial sale than if I waited around for someone to buy the whole thing," he says. His reasoning was that Wilmink seemed to have the vision and creativity to make the magazine even more successful. If he held back a percentage of the business, he might expect to see his stock increase in value.

The negotiations took place over a six-month period, back and forth by phone between Germany and California, and then face-to-face in Santa Cruz. Both parties concede that the discussion may have begun with numbers, but it quickly veered into the world of psychology and emotion, not all that uncommon in the sale of small private companies.

As good as the fit between Wilmink and Schneck and Dive Travel had seemed, their negotiations got tense at times. During one particularly stormy bargaining session, Grassadonia and his wife, Gloria; Wilmink and Schneck; and their respective brokers and attorneys sat haggling around the conference table. Emotions ran high. Voices were raised. At one especially charged moment, Barkley, Grassadonia's 13-year-old golden Labrador, walked over to Wilmink's chair, jumped up, and licked her face. Everyone started laughing, and Wilmink decided that the name of the new business would be Barkley Publishing.

Through her contacts at Ziff-Davis, Wilmink was able to glean a thing or two about what key numbers to look at and what she could expect to pay. The buyers looked at the asking price of $450,000 and thought about what they would have to invest in the magazine to get it moving again. (During the time the business was for sale, Grassadonia admits, he wasn't really concentrating on sales growth, but instead "just wanted to maintain the market we had.") They also thought about how much it would cost to generate from scratch the advertising base Grassadonia had put together over the years. By April 1995, they finally agreed on a price of $215,000 -- representing a balance between what Wilmink and Schneck could afford and what Grassadonia was willing to settle for.

Wilmink and Schneck would pay 51% of that for controlling interest. Wilmink would be the new president and publisher, and Schneck would act as part-time chief financial officer while commuting to Germany to run his software company. Grassadonia would have the title of director of new-market development and would be responsible for finding new advertisers. He would be paid consulting fees for the next three years. (After that, he plans to sell his stock.) Wilmink and Schneck have a written right of first refusal, but they're counting on their (so far) good relationship with Grassadonia to see them through a fair valuation for the stock.

In addition, Grassadonia negotiated to receive a portion of the company's total revenues -- not profits, but revenues. (Neither party would specify the exact percentage.) Schneck was particularly unhappy with that decision, and Wilmink understood that it was risky. But she was really keen on the opportunity Dive Travel represented for them. Plus, she agreed with Grassadonia's argument that it's too easy to bury profits in a company like Dive Travel, and that he wouldn't have any control over the spending or expansion decisions they made. Meanwhile, what he could do was bring in advertising dollars.

A year later Grassadonia says he's very pleased with the arrangement. The magazine's circulation is now close to 13,000 , up from 5,700 when he sold it. Total revenues have almost doubled, from a 1994 year-end figure of $300,000 to a projected 1996 total of $550,000. But no one comes to him with the workaday crises anymore. He doesn't have to worry about paying the bills or meeting payroll. "Emotionally, I'm in semiretirement," he says. Not bad for a 44-year-old beach bum.

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Reporter Christopher Caggiano can be reached at chris_caggiano@incmag.com