The Business: Are coffee breaks the high point of your day? Since much of the workforce feels that way, this thriving in-office vending-route business looks sweeter than a Coke on ice. It provides coffee, soft drinks, and munchies to about 500 commercial and government-agency customers in a busy five-county region; most are signed up for one- to five-year contracts. Among this 23-year-old company's competitive advantages is its huge product menu. Other assets include about $560,000 worth of furniture, fixtures, and equipment, such as computers, change machines, and three delivery trucks. The company also owns 400 coffee-brewing machines and 150 vending machines, which are provided free of charge when customers sign up for service. The owner is ready to retire his coffee mug, but the four other employees should hang around for a refill.

Price: $490,000. With a $390,000 down payment, the owner will provide five-year financing at 10% interest. (He's also willing to sell or lease the company's office/warehouse.)

Outlook: This cup runneth over. Consider two simple facts: First, most working Americans are hooked on caffeine and junk food. Second, most companies sign up with a single vending-machine or coffee-service company. A new buyer could accelerate growth by hiring, for the first time, a marketing representative or by expanding sales beyond a 50-mile radius. Expect new growth to cost from $250 to $800 for each coffee machine that must be installed, $2,500 to $2,800 for each soda machine, and $3,200 to $3,500 for each snack machine. The good news is, with simple maintenance, these machines last virtually forever. But if you aim to hook some of the largest, most desirable commercial accounts, be prepared to share the wealth with your customers by paying them a 5% to 10% commission on your gross sales.

Price Rationale: Now comes the sugar shock. Tasty as this company's prospects are, it's priced too high, at least according to current fair market standards. Vending routes typically sell for about 55% to 65% of their annual gross sales, which suggests a price tag of $247,500 to $292,500. A new buyer could easily justify paying another $20,000 (to cover the value of inventory), but beyond that point this valuation gets stickier than a Milky Way bar. This company's long-standing ties to its customers are a plus. Does that justify paying anything close to $400,000 to do this deal, which doesn't even include the warehouse headquarters? In a world of three-dollar cups of coffee, anything's possible.

Pros: Regional-market savvy, outstanding product mix, and a virtual corner on the market: it's a scenario that couldn't be sweeter.

Cons: Pay too much, and you could get scalded.

FINANCIALS
Gross Revenues Recast Earnings*
1997 $350,966 $75,000
1998 $365,276 $77,000
1999** $450,000 $100,000

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

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, VR Business Brokers, at 410-772-0006.