An overview of a packager and distributor of safe-sex products offered for sale. Includes the price, how the business was valued, the outlook of future sales, and the pros and cons of the purchase.
The Business: Psst, how'd you like to consummate your entrepreneurial fantasies with a part-time home-based business that's got plenty of growth potential? Consider this distributor of condoms and other safe-sex products, a company that has more than doubled its revenues during the past three years and raised profit margins to a level that many other small home-based businesses would lust after. Its secret? A market niche that bigger distributors tend to ignore: fulfilling bulk orders from about 600 health clinics, schools, religious organizations, and other nonprofits. The current owner, who has run this as a 20-hour-a-week venture out of his basement, wants to concentrate on other business holdings; his one staffer, a commission-paid marketer who works on developing new nonprofit customers, could remain with the company regardless of where it relocates.
Outlook: Don't dismiss this company as a one-night stand. While it's hard to evaluate the exact size of the market for safe-sex products, the U.S. government reports that in 1995, the most recent year for which statistics exist, more than 13% of heterosexual couples used condoms (suggesting that overall usage rates, when factoring in gay consumers, are even higher). That means a lot of potential customers. The current owner made the savvy decision years ago to just say no to the commercial marketplace, since wooing big retail clients would have cost more in slotting and co-op advertising fees than he could have afforded. Instead, he has focused on nonprofit customers, offering clever catchphrases on the packaging, rapid order fulfillment, and accepting orders smaller than the typical one-case (1,000 condoms) minimum. A new owner who wants to think big could boost revenues by aggressively pursuing state health departments and colleges and universities--two large nonprofit niches the company has so far only flirted with--and by establishing an Internet presence. But it may not pay to stray too far from this company's nonprofit base, where profit margins are relatively high, competition is low, and customers pay promptly.
Price Rationale: With a product list that includes everything from basic items such as condoms and lubricants to exotica, this business may seem too offbeat to value, but in fact the rules of thumb that govern any general distributor apply. Figure that a fair-market price would be 1.5 to 2 times adjusted earnings; that would price this company at $57,000 to $76,000. The company has no inventory or fixed assets worth mentioning here, but the quality of its customer and supplier relations might justify a deal at the higher end.
Pros: A low-cost, high-growth-potential business whose fax, phone, and mail operations are easy to relocate: this is practically too good to be true.
Cons: Given the company's short financial history, a product list you wouldn't want to discuss with your mother, and a market niche that's big but fragmented, you may want to pass on this. --Jill Andresky Fraser
*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 Marc Dosik of VR Business Brokers at 410-772-0006.