The Business: 'Tis the season to shell out big bucks on child-oriented holiday products. If you'd like to cash in on the trend, consider this West Coast­based manufacturer, whose niche is one of the fastest-growing holiday markets in the United States. There's no trick to these treats: this 10-year-old business possesses intellectual-property rights that cover more than 42 hot-selling items and a customer base that includes the Kmart, Wal-Mart, and Rite Aid chains. Also, this manufacturer outsources production to several overseas companies. Scrooge couldn't complain about the company's cash-flow cycles: thanks to its recently won "direct import" status with mass-market retailers, it now gets paid on about 67% of sales by letter of credit as soon as its shipments are delivered to overseas ports. This lean-and-mean business is easily relocatable, since it employs just four full-time staffers, who handle mainly marketing and administration. The current owner is ready to retire but is willing to act as a consultant indefinitely. The sales manager is able to stay on for up to six months if necessary.

Price: $1.8 million, plus the value of inventory (currently around $200,000)

Outlook: Deck the halls with boughs of greenbacks. This company has plenty of growth potential, only one major competitor during its prime holiday season, and lots of room to adapt its product line to suit other special-day markets. Thanks to a willingness to pay royalties to productidea masterminds (who receive payments that total about $50,000 a year), the business can count on a fairly steady stream of new-product schemes, leaving a new owner free to concentrate on sales. There are three ways that this company could build on its reputation with superstores and regional retail toy chains and light up some fireworks on the sales front: add new products, diversify into different holidays, and solicit those few remaining "category killers" that have yet to appear on its customer roster.

Price Rationale: It's rare to see a business sell for anything resembling one times gross revenues, which is basically how this deal is priced. But thanks to this company's high profit margins, the seller may uncork some bubbly this New Year with a closing very near his target price. Here's why: Small manufacturers with so-called clean operations and strong growth potential are presently selling for around five times annual adjusted earnings. Based on last year's results of $408,000, that would leave this company with a fair market value of about $2 million.

Pros: Even a groundhog couldn't find a shadow here. So long as parents keep buying, you'll always celebrate the holidays.

Cons: Unless you ho-ho-hone up your diversification efforts, you'll be paying a pretty hefty price tag for what basically amounts to one sales day each year. Spread your cheer -- and the attendant risks -- around.

FINANCIALS
Gross Revenues Recast Earnings*
1996 $1,168,819 $282,199
1997 $1,680,000 $377,885
1998 $1,800,000 $408,000

*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 Kevin Sheehan by fax (707-763-1205) or email (kevinsheehan1@home.com).