BUYING A SMALL BUSINESS

A Dorm Room Dot-com

For sale: A southeastern e-tailer of backyard playground and outdoor equipment that has $9 million in annual revenue.
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Which would you prefer: to run a successful business or to go to medical school? The 27-year-old owner of this e-tailer is opting for the latter. The business, which he founded in a dorm room in 2000, sells backyard swing sets, trampolines, playhouses, and other outdoor merchandise. It carries products from roughly 400 manufacturers and ships about 80 orders per day. Sales have stood at $9 million since 2004, and the business has been profitable from the start.

To differentiate itself, the company sells upscale items-- the average sale is currently close to $400. Most products are stocked on-site in a 32,000-square-foot company-owned warehouse, which allows the business to ship orders within one to five days. The owner will consider selling or renting the current space, but he thinks the business is a prime candidate to move to a metropolitan area closer to major shipping routes.

Recently, the company axed a division that it had acquired in 2003 and that turned out to be a drag on cash flow and profits. The owner says this misstep is also the reason sales have remained flat. He expects the company to resume growth in 2007. That, of course, will depend on the resources and know-how that a buyer brings to the table.

Price: $4 million, based on between $450,000 and $500,000 in net assets including inventory. The owner is willing to finance up to half of the purchase price and to advise a buyer for up to two years.

Price rationale: There isn't a rich history of data concerning sales of e-tailers of this size to draw upon. Excluding net assets, a price of $4 million represents a multiple of 3.9 times EBITDA.

Pros: Though sales have been flat, costs at the remaining division have dropped. Learn-ing how to advertise his site better online, the owner trimmed his advertising budget by a third this year, to $475,000.

Cons: The lack of growth. Also, because technology drives the company, a buyer who lacks the Web skills that the founder has would need to hire a programmer in a tight labor market, increasing overhead.

Outlook: The ideal buyer may be a traditional retailer that wants to enhance its Web presence. Demand for outdoor play sets is projected to rise thanks to the growing ranks of people who have kids later in life.

Gross
Revenue
EBITDA* Owners'
Comp
2004 $9.05 million $890,755 $80,000
2005 $9.06 million $900,000 $100,000
2006** $9.1 million $900,000 $100,000

*Earnings before interest, taxes, depreciation, and amortization. **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 Kevin Groff at Sun Equity Solutions: 201-727-1300 or kevin@sunequitysolutions.com.

Last updated: Jan 1, 2007




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