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36
BUYING A SMALL BUSINESS

Your Eyes on the Prize
 

For sale: a promotional products and awards company located in eastern Massachusetts.
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Begun in a basement 27 years ago, this promotional products distributor today occupies an 8,500-square-foot office and warehouse. Printed products such as coffee cups, pens, mousepads, and flashlights account for half of revenue. Apparel and other soft goods, like tote bags, make up 35 percent of revenue, and trophies and awards the remaining 15 percent.

Unlike most of its competitors, the company, which is run by a husband and wife who are now retiring, does embroidery and engraving in-house. This results in better quality control and faster delivery, one of the owners says.

The company's 1,500-name customer list includes large corporate buyers such as Gillette (NYSE:PG), Bristol-Myers Squibb (NYSE:BMY), W.R. Grace (NYSE:GRA), and John Hancock (NYSE:JHS). The firm works with a network of 3,500 suppliers, which means that it can source a very high number of products on short notice. The 14-person staff includes veteran employees, who are likely to stay put following a sale. The owners have built an unusually formal library of management documentation for a company of this size: A buyer will be able to turn to extensive company manuals for procedures on everything from new employee orientation to how to run an engraving machine.

Price: $1.5 million, which includes machinery but not inventory. The owners intend to keep the building, renting it to a buyer for $7,000 a month. They will consider financing a fifth of the purchase price.

Price rationale: The company is valued at 6.2 times its 2005 cash flow of $376,000--right in line with the 6.3 median multiple for promotional products and other specialty advertising firms sold in the past 10 years.

Pros: Industrywide, sales and profits are rising. Distributors earned an average gross profit margin of 33.8 percent in 2005. This company's margins are even higher, averaging 37 percent since 2003.

Cons: The trend in the industry is to sign big clients to long-term deals, even though this approach can create warehousing and manufacturing headaches, and reduce profits.

Outlook: Very promising. Sales grew by a third between 2002 and 2004. A buyer could keep the company on the fast track, the current owners say, by adding e-commerce to the company website.

Gross
Revenue
EBITDA* Owners'
Comp
2003 $2.1 million $268,000 $142,000
2004 $2.6 million $305,000 $212,000
2005 $2.4 million $304,000 $134,000

*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 Mike Coleman at Beacon Capital Group (781-551-8000 or mike@beaconcapital.biz).

Last updated: Oct 1, 2006




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