Indeed, if there's a common thread that runs through most stories of successful sales, it's that realistic pricing pays off. Take the experience of the stained-glass-window restorer, which may well epitomize the kind of company that a national consolidator would never come calling on. In fact, given the tiny market niche of this $201,000 (in 1997 sales) company, the labor-intensive nature of its business, and the lack of real estate to sweeten any prospective deal, the business might well have languished on the for-sale racks.
But, reports broker John Barnard of SVI Corp., in Nashua, N.H., "one of the first calls I received after the Inc. article ran was from a certified public accountant. He thought it would make a great acquisition for a client of his who was currently operating in the home-improvement business. Because the company was priced right and the owners had maintained meticulous financial records to support its value in the marketplace, the sale went through at close to 90% of the original listing price."
That's not to say, of course, that everything proceeded without a hitch. (It seldom does, given all the unpredictable variables that can affect the sale of any small company.) The prospective buyer's CPA audited five years' worth of the company's financial records. "The buyer visited the company and made an offer in September. We didn't actually close the sale until four months later," Barnard recalls.
If the experiences of the 22 featured companies are any indication, the more unusual or difficult a company's situation is, the more essential it is to set the right selling price. Consider the nursing home. In a rapidly consolidating industry, the business has attracted a large number of would-be suitors but no offers; its $1.4-million price tag probably just seems too high for a small, outdated facility that will take big bucks to upgrade.
Another company--which has understandably requested anonymity on this issue--likewise has attracted plenty of interest. But its relatively high price failed to take into account a substantial ongoing dispute with one of its largest customers over outstanding accounts receivable. That caused at least one bidder to retract its offer during the due-diligence phase.
Still, as sellers, brokers, and even buyers agree, it's sometimes hard to figure out what the right price should be, especially when a company is healthy, its growth prospects are strong, and the M&A market is as robust as the current one.
That's a lesson Don McMichen (the seller) and Charles Dobozy (the buyer) learned last March after their deal closed on the $270,000 (in 1996 sales) car wash. Dobozy had formerly owned a self-service car wash and had been thinking about buying a full-service facility for some time. He got hooked on this one after reading about it in the classifieds of a local newspaper. "We closed the deal for about $360,000--just $40,000 less than my original asking price--on March 6, 1998, which was a Friday," recalls McMichen.
That same day he received a letter from an Inc. reader who had called earlier requesting a marketing package. "I hadn't heard from that company, which was based out of state, so I hadn't thought they were interested. Then they sent me this letter. I just passed it on to the new buyer, telling him, 'This is for you."
Despite its delay in responding, the company was interested in McMichen's--no, make that Dobozy's--business. After a couple of weeks of back-and-forthing, the company offered the new buyer a price that was more than twice what he had just paid for the business. Dobozy turned it down. "It did make me feel good," he recalls. "But this was all so new, plus there were all those short-term capital-gain issues I would have had to worry about. And I was really enjoying owning the car wash."
Fortunately, McMichen (who was still on the scene, since he spent six weeks training his successor) didn't feel too terrible, either. "I might have underpriced my company," he acknowledges. "But the truth is, I bought it myself from some older people at a very good deal. When I priced it to sell, I added in a 50% profit, plus something extra to cover the interest an alternative investment might have brought in. Now I have to say to myself, I got what I wanted. And whenever both people in a transaction are happy, you can't ask for more than that."
But if coming up with the right selling price is hard, an even more difficult issue for some entrepreneurs is figuring out when--and, more important, if--the time is right to cash out.
Mike Art, of the hot-springs resort, is one of the four Business for Sale subjects who pulled his family-owned company off the market, ostensibly so that he could concentrate on expansion efforts and perhaps prepare for a sale at some later point. But to talk to Art now, a future sale seems highly unlikely. "I just turned down an offer the other day," he notes. "The truth is, I don't want to sell. There are practical reasons--the tax bite was going to be so big--but there are also emotional ones. I love what I do so much. And it's such a great business. I finally said to myself, 'What the hell am I doing trying to sell this company?"
Although some aspects of selling--or not selling--your company never change, the experiences of Inc.'s 22 featured businesses make it clear that major shifts have been taking place in the M&A market for small companies, and most people haven't even noticed.
