DONE DEAL

By Nick Whitmore

Colin (not his real name) sold his central Virginia business-referrals firm after 11 years of running the franchise he’d created.

Prior to closing, Colin’s business generated revenue of $420,000. He decided to sell to focus fully on a new business-advisory enterprise he’d set up.

The business had two divisions: one in Shenandoah Valley and one in central Virginia.

“My mentor told me, ‘You have two businesses within that business, so you could split it up into two and sell them separately,’” said Colin.

Colin didn’t place a single ad to sell his business. He gave his assistant, who was running the central Virginia arm of the business, the option to buy it. However, the assistant wasn’t able to purchase it because of finance issues. In the end, Colin received four offers on his business before finally closing a deal.

The buyer of the central Virginia division was a good friend of Colin’s. “He said, ‘Are you selling it?’ I said, ‘Well, we weren’t, but we’re always open to selling it.’ We really liked the guy, so we said we’d sell it.”

Colin’s former bookkeeper purchased the Shenandoah Valley arm.

In total, Colin’s business was generating $206,000 of earnings before interest, taxes, depreciation and amortization (EBITDA). The business was sold in two parts for a combined total of $550,000, representing an EBITDA multiple of 2.67. The business was sold “as is.” There was no earn-out or seller finance involved.

Deal Snapshot

Business type: Business-referrals
Revenue: $420,000
EBITDA: $206,000
Selling price: $550,000
Multiple paid: 2.67

(photo courtesy of sxc.hu/blary54)

DONE DEAL

By Nick Whitmore

When Ken (not his real name) decided to retire and sell the company he’d spent over 20 years building (12 as owner), his business was generating revenue of around $2 million.

Ken’s rental business offered props (e.g., tents, furniture, dishes) and planning help to those organizing graduations, birthday parties and other celebrations. The established rental business had multiple locations, which included retail space and a warehouse for storing the rental inventory.

Unfortunately, the sale of Ken’s firm didn’t go quite as smoothly as planned, with one of the major stumbling blocks being the value of his rental inventory. Ken placed a value of $1.2 million on it, whereas the buyer valued it at just $600,000.

“One of the key elements in a sale like this is getting a handle on the true utility value of the rental inventory,” said Sue Wain, director of business sales at Calder Associates and Ken’s business broker.

After some negotiation, the parties agreed to a sale price of just over $1.5 million, including all inventory, which represents a 6.0 multiple on Ken’s $250,000 of earnings before interest, taxes, depreciation and amortization (EBITDA). The full amount was paid on closing, and there was no earn-out involved in the deal. Real estate was not included in the sale of the business; the seller decided to lease the premises to the buyer.

Wain believes that Ken made a good decision choosing to sell his business. “He didn’t want to make the additional investment required to grow the business on his watch. He felt like he was inhibiting its growth. It was a perfect invitation for a buyer to come in here, but not only buy it—grow it.”

Deal Snapshot

Business type: Party rental
Revenue: $2 million
EBITDA: $250,000
Selling price: $1.5 million *
Multiple paid: 6.0

*includes inventory valued at between $600,000 – $1,200,000

(photo courtesy of Flickr/ *ASAP*)

DONE DEAL

By Nick Whitmore

Ed’s payment-processing company in the tri-state area was producing revenue of $1.86 million when he was asked to join the $50-million family business. Ed had a decision to make: keep growing his small business or join the much larger family empire. In the end, a sense of obligation to the family business tipped the scales, and Ed decided to put his business on the market.

“Initially, he did not want to sell, but his family really needed him in their expanding business, and Ed wanted to answer the call,” explains Sonny Soi, Ed’s business broker and the president of CrossPoint Business Group.

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One of the most interesting things about researching our new Done Deal series for this site has been discovering how common it is for the person selling the business to lend part of the money to the buyer.

It’s called “vendor financing” and for the sale of smaller businesses, it has become common. Basically you mutually agree to what the company is worth. The buyer then pays you a portion of the money on closing, with the other chunk paid to you over time with interest (the rate is negotiable).

>> More