The Business: If you're looking for a gem of an enterprise, consider this well-established and hugely successful distributor of semiprecious stones (that is, everything except diamonds, rubies, sapphires, and emeralds) and gold-filled and sterling-silver items. Assets include about $5 million in inventory, along with 24-karat relations with about 40 suppliers from five continents and more than 2,500 customers (primarily jewelry manufacturers) in the United States and abroad. The company's headquarters, located in a 4,000-square-foot office building and warehouse, can be leased from the current owner or purchased in a separate deal; the entire business also could be easily relocated. The owner, who is ready to retire, is willing to structure this transaction as either a 100% sale, as described below, or a 70% sale (with the price discounted accordingly) that will allow his six key employees -- all gemology experts -- each to get a 5% ownership stake.

Price: $6,250,000

Outlook: Don't look for the flaws behind this company's slight drop-off in revenues. Its profit margins have increased in recent years (with a markup as high as 50% on some items). And its cash flow is dazzling: it covers the owner's $300,000 salary and all operating and growth expenses, and has kept the company debt-free throughout its entire three-decades-plus history. The current owner does little to market the business, relying primarily on two full-color catalogs. But a new owner could set up a Web site (which would boost sales, although probably with small customers) or hire a marketing staffer to pursue additional large corporate customers.

Price Rationale: Don't expect a cut-rate transaction here. The most important rule of thumb concerning jewelry-related businesses is that the value of the inventory carries the deal. Also, keep in mind that distributors tend to sell for about 30% of sales. Those two standards suggest a fair market price of about $6.3 million ($5 million, if inventory stays at current levels, plus $1.3 million, which is 30% of last year's sales). With competition, the deal could close higher still.

Pros: Results this good are pure gold.

Cons: Top-dollar deals like this one can be tough to finance, unless a bank knows the industry or the buyer. If you'll need to borrow the bulk of your payment, this deal could fail to pan out.

Gross Revenues Recast Earnings*
1997 $5,106,193 $444,731
1998 $4,742,200 $443,983
1999 $4,366,100 $492,896

*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 Bill Russell, 800-784-7820.

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Published on: Sep 1, 2000