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EXIT STRATEGIES

Business for Sale: Mail-Order Catalog Company

An overview of a mail-order catalog company offered for sale. Includes the price, how the business was valued, the outlook of future sales, and the pros and cons of the purchase.
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The Business: Looking for a way to place your stamp on an entrepreneurial venture? Try licking this envelope: a business-to-business mail-order catalog company that serves several big retail niches. With about 14,000 regular customers, a popular 50-page catalog, and an evergreen product list that includes sale tags and the like, this 10-year-old company should be nearly as reliable as the post office. Though the catalog isn't flashy, its finances are: with no outstanding debt, this business has paid for its growth entirely from current operations. The drop in 1997's recast earnings from the previous year's figure reflects a temporary computer glitch that has since been cleared up; 1998's results are expected to be positively first-class, at about $487,000. The owner would like to retire, but a buyer should be able to count on the 15 current employees to help post those 12,000 pieces of promotional mail each month.

Price: $1.9 million

Outlook: The output of mail-order and catalog businesses might be referred to as junk mail, but the revenues for those companies look more like pure gold. The industry has logged more than $34 billion in annual revenues in recent years. This company's growth prospects look pretty shiny as well, given its potential to move into additional retail-industry niches merely by purchasing some new direct-mail marketing lists. A creative buyer could also boost revenues by broadening the company's product line or by developing its Web site into a more aggressive sales tool.

Price Rationale: Except in rare cases, companies just don't sell for anything coming close to a year's worth of annual revenues. (The current range for all types of businesses is about 25% to 75% of annual revenues.) But don't toss this deal into the trash--especially if you've already got some type of direct-mail business. Based on current market trends, a revenue-based bid could range from $516,000 to $1,550,000. How do you set some limits? A reality check used by business brokers holds that a deal can pay off if its purchase price multiplied by 0.255 exceeds the company's annual discretionary (or what Inc. terms "recast") earnings. (The logic here is that, assuming a five-year loan at 10% interest, one could theoretically finance the whole purchase and use the earnings to make the required interest and principal payments.) In this case, a sales price of $1.5 million would work with recast earnings of $382,500 (a good fit, since this company's most recent three-year average for recast earnings is just over $393,500). So don't go any higher than $1.5 million.

Pros: Someone will always buy, someone will sell, and someone will sell the sale tags. Why not you?

Cons: Pay too much and the first time the post office raises its rates, you'll be running your own fire sale. -- Jill Andresky Fraser

Financials
Gross Revenues Recast Earnings*
1995 $1,596,965 $340,216
1996 $1,964,370 $491,162
1997 $2,065,638 $349,319

*Before interest, taxes, depreciation, 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 Craig Davis, Prairie Capital Advisors Inc., at 630-443-9933.

Last updated: Jan 1, 1999




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