Kevin Sullivan was riding high running one of Seattle’s largest printing companies when the 2008 recession hit.
Within months, sales tanked and Sullivan was forced to slash his work force from 185 down to 90. Nine hundred thousand dollars into a million dollar line of credit, the bank called and demanded Sullivan and his two partners re-capitalize the business. That’s when he decided he wanted out.
In this episode of Built to Sell Radio you’ll hear how Sullivan and his team pulled the business out of the ditch and eventually got it back to profitability, which is when he and his partners decided to sell. His partners were happy to just get their names off the debt the business was carrying but Sullivan thought they could do much better, He turned down the 2 – 3 times earnings he was offered by financial buyers in search of an offer closer to six times…in the end – he was able to do even better.
About Kevin Sullivan
Kevin Sullivan was the president of CCS Digital for 16 years. CCS Digital was highly regarded by clients for the firm’s commitment to customer satisfaction and quality products. The company earned a spot in the Inc. 5000 fastest growing companies in 2013.
Kevin positioned the company for sale, and oversaw the successful acquisition itself, achieving the desired value for shareholders. Kevin was retained on a contract with the acquirer to integrate the business into theirs.
Kevin now serves as an advisory CEO to Forever Green Indoors, a distributor of products and infrastructure which serves the burgeoning indoor horticulture industry in the northwest.
About CCS Digital
- CCS Digital was the third largest privately owned traditional and digital printing company in the Seattle area at the time of the sale.
- We took care of major accounts in the area – like Microsoft, Amazon, Boeing – and serviced all their printing needs.
- The financial recession really broke our backs. We lost about 50% of our revenues and we had to lay off almost half of our employees.
- The company had never had debt before, and we all imagined that we were going to lose everything.
Back from the Brink
- The goal we set was to be recognized as the most excellent business operations and profitability company in our region.
- Excellence was defined by financial success. We had always been a money-making company, so for us it was getting back to that level of profitability.
- We managed to pull the business out of the ditch and get it back to profitability which is when we decided to sell.
- My partners were happy to just get their names off the debt the business was carrying, but I thought we could do much better than that.
- We turned down the 2 – 3 times earnings we were offered by financial buyers in search of an offer closer to six times … and in the end, we were able to do even better.
Negotiations & Deal
- It’s scary, because you’re showing your competitor your business model, your secret sauce.
- But you have to come clean – no skeletons in the closet. The buyer needs to see that you’re transparent. When you’re buying a business, you’re buying the confidence of the owners and of the customers.
- There were some large economic buyers trying to buy small printing companies for 2X, 4X…. But I really thought we could get 6X, and at the end of the day, if you looked at the different deal elements – cash up front, notes, financing, earn out or incentive compensation – it was closer to 8X, and I was proud of that.
What Else Contributed to the Decision to Sell?
- Printing had been in a slow and steady decline for years. As fast as we sold our services and brought new deals to the company, there were customers who told us: We love your firm, we love your services; but next year we’re going to be spending 30 or 40 percent less.
Did You Take the Business to Market?
- I reached out to private equity and investment banks, and they looked at us and said they were not interested in deals of this size, that they typically looked at deals with 50 million and up companies.
- He ended up becoming more or less our broker, and he took me under his wing and told me which deals were worth pursuing.
- If we’d gone to a traditional business broker who didn’t know the printing industry or the Washington market particularly, we probably wouldn’t have sold to a competitor, and selling to a competitor is the best alternative.
What Was the Most Frustrating Part of Selling the Company?
- The most frustrating part was the legal side – the amount of time and energy we put into dealing with the purchase and sale agreement – but I wouldn’t do anything differently.
The Structure of the Deal
- I think 8X EDITDA is accurate, but how that performs over time is variable. If some of the customers go away, or the printing market continues to decline, at the end of the day it could be less. But it’s still a good multiple.
- The other elements of the deal were cash up front, owner’s notes, incentive compensation over time.… The more we were willing to take as potential payout and compensation, the more eager they were to buy the business. So there’s sort of a risk/reward balance to that decision making process.
The Earn Out
- As for the earn out period, you’re used to being the guy who makes the decisions, who’s in controls, the guy who can rally his team. But when you sell your company and become an employee again.
- You need to learn to ask for permission and sell your point, and it was a real adjustment – a much more difficult adjustment than I thought it would be.
And Beyond That?
- I’m looking forward to investing in new business opportunities and becoming an entrepreneur again.
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