It's rare that a 28-year-old business experiences a major growth spurt. But that's what happened to this manufacturer of handcrafted stoves last year when homeowners searching for a reprieve from high heating bills flooded it with more than 2,000 orders. As a result, discretionary cash flow zoomed to a projected $650,000 this year from $104,000 in 2004.

The company, which was founded in 1978, sold only wood stoves at first. The federal government later regulated emissions from wood stoves, driving many companies out of business. To survive, this company developed a line of stoves that burn pellets made of recycled sawdust. The pellets burn cleanly.

The stoves are priced at $2,500 on average. They are sold by a network of 120 dealers, and the business has no sales or marketing manager on staff. Some regions of the country are not well covered, and marketing activities are limited to one or two trade shows a year. Currently the company has parts cast in India and China, and a staff of 10 handles light manufacturing, assembly, and painting in the U.S. An owner who brought manufacturing in-house could add $80 to $100 in profit per stove, one of the partners estimates. Of course, if that worked, it would dramatically change the business.

Price: $2.5 million, including equipment ($150,000), inventory ($600,000), and receivables. The owners will finance a portion of the sale, and one partner is willing to provide his services on retainer.

Price rationale: The price appears to be fair. Many manufacturers sell for four to five times cash flow. When you factor in inventory, etc., this company is selling at about 3.2 times discretionary cash flow.

Pros: Industrywide, sales of pellet stoves grew by 76 percent from 2004 to 2005. And at 6.4 percent (according to the broker), this company's net profit margin is higher than the industry average of 4.4 percent.

Cons: Though that profit margin is relatively high, it declined in the most recent quarter, which suggests that the company, in growth mode, may be easing up on costs and receivables.

The Bottom Line: The current owners are struggling to keep up with fast growth. A buyer with capital to invest in expanding production could capitalize on the sudden spike in demand for wood stoves.

EBITDA* Owners'
2004 $1.5 million $56,721 $47,744
2005 $2.2 million $297,751 $76,363
2006** $3.0 million $560,000 $90,000

*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 Larry Willis at the Independence Group, 888-891-0097 or