In 1977, a nine-ball shark started a business that delivered and set up pool tables for a local Sears (NASDAQ:SHLD). Over time, the company evolved into a chain of nine retail showrooms that sold billiard tables, as well as barstools, fancy card tables, and patio furniture. "The best part about this business is that you're basically selling recreation," the owner says.
Lately, however, recreation has been a tough sell. The weak housing market has sunk demand for $3,000 pool tables. The owner has responded by closing two unprofitable stores and laying off a quarter of his staff, which now stands at 60. Despite these cutbacks, earnings fell 83 percent from 2006 to 2007 and are expected to fall another 25 percent in 2008.
Last February, the owner signed a letter of intent to sell the operation to a large East Coast venture capital firm that said it wanted to take the retail concept into other markets. But the deal fell apart, and then the credit crisis took hold. A sale is something of a long shot, but the owner is undeterred. "I've been in this business awhile," he says, "and it's time to get some chips off the table."
|Gross Revenue||EBITDA**||Pool Tables Sold|
*Projected. **Earnings before interest, taxes, depreciation, and amortization.
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The Asking Price:
$5 million, including $2.4 million in inventory. In 2007, the business paid $2.1 million in rent for seven retail locations and two warehouses. The owner is willing to finance a portion of the sale and to assist a new owner through the transition period.
Rodd Feingold, a California broker with expertise in retail, says a valuation often takes inventory and adds it to four times earnings (using the average of three or four years of EBITDA, with more weight given to recent years). By that logic, this price is high.
The gross margin on a pool table is upward of 50 percent. And interest in the game is growing: 51 million Americans played pool in 2007, up 10 percent since 2000, according to research from the Sporting Goods Manufacturers Association, a trade group.
Though the company has poured $800,000 into advertising in 2008, sales fell for the second straight year. And because the owner offers salespeople a guaranteed minimum salary, he has to cover the difference in lost commissions, in effect paying more for fewer sales.
The Bottom Line:
As long as consumer confidence is weak, the business will struggle to make a profit. And much of its value is tied up in pool tables. Feingold, the retail broker, says a buyer should carefully appraise the inventory "to see if there's some obsolescence in there."