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Pencil-Pushing Retailer Slays Superstore. Can You?

An overview of an office-supply operation offered for sale, including the price and pros and cons of the purchase.
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Business for Sale

Take a letter, please: One of the hottest plays in the booming mergers-and-acquisitions market is in mom-and-pop office-supply distributors and retailers. This 25-year-old Colorado office-supply store--actually a pop-and-daughter operation--has a lot to recommend it, especially a strong market niche among 400 banks, schools, and other commercial customers. How strong? In 1994, when one of the industry's superstores moved into town, this tiny powerhouse actually gained 5% in sales from its 3,000-plus product line. Its secret: good prices and great service, including weekly visits by salespeople to customers' offices and 24-hour order fulfillment. Another plus is this company's stellar relations with suppliers, which make all those quickie deliveries possible. Pop is ready to retire, but most of his 12-person staff should stay on.

OUTLOOK: Does anyone really have time to sell office supplies in an M&A market this active? Since 1996, there have been more than 160 acquisitions by the industry's most aggressive national players. Bet on this retailer to get snapped up faster than a roll of discount fax paper--by either a consolidating chain or an independent operator with an eye toward boosting sales and margins. Both could be beefed up by upgrading the store's computer systems, hiring more salespeople (the current sales staff is just two full-timers, with some help from the owners), and maybe even adding a mail-order catalog.

PRICE RATIONALE: Don't expect floor-sale prices in an industry this hot. This company is fairly priced now, but a bidding war could push its price tag higher. Although rules of thumb fall by the wayside during M&A booms, office-supply retailers have typically sold for four times monthly revenues (resulting here in a price of $432,000, based on average monthly revenues of $108,000 over the past two years), plus inventory ($140,000). For a deal that includes $440,000 worth of real estate, a price of $1.01 million seems rational. If the marketplace goes crazy, the sky's the limit.

PROS: The region in which this business is located is growing fast. Thanks to this retailer's strong ties to commercial customers, it might actually be worth top dollar.

CONS: Then again, it might not be... especially if a new owner risks alienating all those pampered clients with a cookie-cutter superstore growth strategy. --Jill Andresky Fraser

THE BUSINESS: Colorado office-supply store
PRICE: $945,000 (SBA financing preapproved with $190,000 down)
FINANCIAL SUMMARY: 1994 1995 1996
Gross revenues $1,066,279 $1,253,000 $1,350,000
Recast earnings* $170,000 $199,000 $202,000

*Before depreciation, interest, taxes, and owner's compensation

Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Robert Minor, Business World Brokers, 970-928-0842.

Last updated: Oct 1, 1997




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