Business for sale

THE BUSINESS: If you've been waiting for Santa Claus to fill your entrepreneurial stocking, here's a treat worth unwrapping: two companies with closely connected operations, one a grower of Eldarica pines -- which are sold as "living" Christmas trees with the root ball still attached -- and the other a distributor. Since both owners are ready to retire, they've combined their companies to form one package for sale. As a unit the merged businesses have solid ties to a strong network of customers, profit margins of 35%, and significant expansion potential. The 280-acre farm, which has been in commercial operation since 1987, harvests about 13,000 trees each year. The trees are typically three years old and between five and nine feet high, wholesaling at about $4.50 a foot. The 25-year-old distribution business sells trees (mainly, although not entirely, from this farm) to a network of 250 retailers in Texas, New Mexico, Arizona, and Nevada. Here's another plus: although companies don't get much more seasonal than these two, both are basically one-person operations that keep costs low by relying heavily on short-term contract labor.

PRICE: $1.2 million

OUTLOOK: Yes, Virginia, there is a Santa Claus. And there is demand for Christmas trees -- typically for about 33 million of them a year in North America alone. The increasingly popular living trees are in short supply, so growth prospects for this business are strong, especially since the farm uses only 100 of its 250 plantable acres. A buyer will pay about $800 annually to cultivate each additional acre; each new acre should yield a crop of 800 trees after three years. The distribution operation isn't able to satisfy even the current level of demand from its retail customers, owing to a high-quality product that sells for less than its West Coast competitors'. A buyer wouldn't need Santa's helpers to figure out a low-cost strategy for aggressive growth: plant more seedlings in April, and while waiting for them to mature, line up additional growers. Then visit one or two trade shows to increase the customer base.

PRICE RATIONALE: In a real-estate-driven deal like this one, it makes sense to focus more on assets than on revenues. So here's some more Christmas cheer: these companies possess combined assets worth more than $1 million. (Three years' worth of tree crops are valued at $109,500, and farm equipment and fixtures at $91,500. The farm was independently appraised at $850,000.) Those figures don't include the value of the distributor's blue-chip customers. Whether a buyer decides to go as high as $1.2 million will probably depend on the aggressiveness of the growth campaign, but unlike many business-for-sale transactions, the assets should make this deal easy to finance.

PROS: Ho, ho, ho! The economy may be weak, but this is one business where money does grow on trees.

CONS: Bah, humbug! If you can't handle the rural locale, cyclical cash flow, and farmer's lifestyle, ask Santa to bring you something else instead.

Southwestern Christmas-Tree Farm
Revenues* EBITDA** Owners'
1999 $372,060 $17,097 $94,015
2000 $374,079 $66,442 $99,373
2001*** $430,455 $87,859 $107,500

*Financial results for the two companies have been combined.
Separate results are available.
**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 Robert J. Bohacik, at Arizona Sunbelt Business Brokers, at 520-577-1212.


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