Operations

Let’s Make a Deal: Buying, Selling, or Merging your Company

Posted on June 10, 2010 by - Also by this author

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In this economy, many operators are selling their businesses to larger companies or people ready to plunge into the industry without starting from the ground up.

Others are merging, hoping that two companies combining resources may provide more stability for success. Maybe you are doing so well that you want to buy out your struggling competitors. All of these transactions require plenty of planning and performing due diligence with data on hand to make the best deal for the parties involved.

Mergers

These are by far the easiest transactions, as the concept is a simple blending of assets where each company has a certain value on the date of the transaction and each company is backed by the assets brought to the table. For instance, if Company A has a value of $1 million and merges with Company B that has a value of $500,000, the new company has a combined value of $1.5 million and the principal from Company B would have an approximate interest of 33% in the new company if the deal was simply structured.

In the case of Bay Area Racing Limos, owned by Curt Chandler, and Mosaic Global Transportation of Palo Alto, Calif., owned by Maurice Brewster, a merger was a great solution for both companies. Mosaic established itself as a corporate car provider focusing marketing efforts and equipment on serving corporate accounts. Chandler, meanwhile, pursued the retail party crowd by investing in NASCAR theme "wrapped" limos and retail marketing. By merging, the two companies achieved a goal of serving different markets without buying new vehicles. Mosaic had a fleet of 30 vehicles and Bay Area Racing had a fleet of seven.

For Chandler, his options were to downsize, sell the business, shut it down, or merge. Because of his four-year affiliate relationship with Mosaic, the last option was the best move for both companies. Since the merger, Mosaic had more monthly revenue in March than during the previous two years, Chandler says. The merger began with a simple email sent by Chandler to affiliates to see if anyone had an interest in buying his vehicles. Brewster responded to that e-mail. After several attempts to negotiate the perfect contract, the rest is history. Both companies still exist under their brand names, but all phone calls go to Mosaic dispatchers while Chandler markets for both companies.

Acquisitions

To buy an existing business requires finding out first why the existing owner no longer wants the business. It could be a case of wanting to retire or a medical condition, but it also may imply the business is not sustaining itself. Examining the past three years of a company's financial records should provide an insight to sales performance and expense load. The most reliable window to a business is the past three years of tax filings.

Becky Laramee purchased All Points Limousine of North Oxford, Mass., after performing such due diligence. Laramee also enlisted the aid of a business broker and an attorney to help examine finances and draft legal documents. Laramee said she performed exhaustive reviews of cash flow, balance sheets, and credit card statements. She also reviewed the competition for both the threat level and the ability to work together as affiliates.

Despite all the effort, Laramee realizes she missed many other areas such as the client base, airport rules, DOT requirements, and biggest of all, the expensive insurance policies required. The existing owner's insurance broker lacked the expertise required in the industry. Laramee called the problems created by the lack of knowledge "insurmountable." Because of her lack of experience, she was forced to pay double the amount of insurance premiums as the previous owner and was blindsided by the cost after being told by the broker the premium would "stay about the same" after the sale.

Since the purchase, Laramee says she has learned how unlicensed operators affect the market as well. "It is not only what you know, but who you know," she says. This includes local and state police officials, DOT inspectors, airport personnel, and fellow livery operators, who all keep All Points Limousine on the correct path.

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