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BUYING A SMALL BUSINESS

Business for Sale: East Coast Herbal Supplier

Pass the echinacea! A company that supplies nutritional-supplement ingredients is for sale -- and poised for growth.
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Business for sale

The business: Are you looking for a prescription for entrepreneurial success? Then check out the prognosis for this 11-year-old supplier of raw materials for manufacturers of herbal remedies, cosmetics, and other products. The company has a customer base of about 600 manufacturers. From 1998 to 2000 it boosted its gross profit margin from 25% to 39% of sales by promoting custom blends of its list of more than 1,100 ingredients, including vitamins, amino acids, herbs, and botanicals. Two of the three owners are ready to close up shop, but one partner (who currently owns about 5% of the stock and manages a staff of 30 as well as all operations) would stay on as either a minority owner or a key employee.

Price: $9 million

Outlook: Even if you've never heard of guaran or glucosamine, two of this company's hot sellers, it shouldn't come as a surprise that the herbal-products market adds up to big bucks (at last estimate, more than $4 billion in sales). There's plenty of room for growth here, thanks to some customer-alienating upheaval among the company's largest competitors and a growing interest in herbal products. A new owner might want to add some more trade shows to the existing mix of six or seven that the current proprietors rely on to bring in new business. There's only one negative side effect worth worrying about: because the availability of the company's supplies is tied to harvesting schedules, its inventory turns over fairly slowly, just two and a half times a year. So a buyer would need extra capital, at least at first, to handle the cash-flow pressures caused by an accelerated growth schedule.

Price rationale: Setting a price tag on this company is an even tougher challenge than learning how to pronounce its product list. It's not really a pharmaceuticals supplier -- or a food processor or a food distributor -- yet it has elements of all those businesses in its operations. That makes it tough to assess relevant patterns in its recent sales. At the current price, the company is valued at about five times EBITDA, which is in line with general marketplace sales trends of four to five times earnings for companies in robust health.

Pros: When economic conditions are under the weather, the best medicine for a buyer is a proven, profitable business in a secure industry niche.

Cons: If you can't swing a high-seven-figure price tag, plus a hefty capital reserve, you'd be better off shopping for a more generic business instead.

--Jill Andresky Fraser

Financials
Gross revenues
($000)
EBITDA*
($000)
Owners'
compensation
($000)
1998 $16,355 $1,624 $140
1999 $14,268 $1,260 $180
2000 $13,735 $1,755 $175

*Earnings before interest, taxes, depreciation, and amortization.


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 Mark Romney at IndustryPro, at 801-838-7705.


Please e-mail your comments to editors@inc.com.




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