How to sell your home center business for the most profit

By William T. Baker Merger and Acquisition Project Manager Geneva Business Services, Inc.

HE DECISION to sell your business can be the most important decision of your life. The typical business owner may sell one business in his lifetime. In this, the biggest single sale of his life, he probably will be overmatched because the average corporate buyer acquires seven businesses every two years.

In a survey of clients, we asked business owners why they were considering the sale of their businesses. Interestingly, the answers ofthese entrepreneurs all were sub- jective, rather than objective. There were six most common reasons for selling.

Boredom and burn-out top the list. These business owners have seen their business through the tough, early years and aren't willing to stand up to the rigors of accelerated growth or another business cycle.

Lack of operating capital and growth capital are the second most common reasons cited for selling.

Age and health are the next most common reasons. They begin to see their friends and contemporaries on the obituary pages and they begin to feel less immortal.

Desire for liquidity is another frequently cited reason for selling. The business is a large part of personal net worth, often as much as 60 to 700/0. They begin to understand the "prudent man rule" that no more than 200/o of one's net worth should be tied up in any one asset.

Lack of children's interest is the fifth most common reason. These business owners tell us that their children have no desire to take over the business.

Other interests are another subjective reason given for selling. They want to try their hand at another occupation or another life. Potential buyers far outnumber the sellers. Geneva's proprietary data base now includes the names of more than 10,000 companies and individuals who have bought a business in the past 18 months and are looking for more acquisitions.

In more than 10 years of providing merger and acquisition services for middle market companies, we have found that buyers fall into two categories - economic buyers and synergistic buyers because often they will be positioned to appreciate the full market value of the selling business.

What most inexperienced sellers need to understand is that buyers are seeking return on investment levels better than they can get from passive, risk-free investment. In addition, buyers expect to see growth potential and synergy possibilities when evaluating home center acquisition candidates.

Today's middle market company buyers range from large U.S. public and private corporations to private investors and investment groups, as well as offshore corporations and private investors.

Offshore buyers represent a growing trend in the middle market. We estimate that of the 15,000 middle market businesses that will change hands this year, some 20% will be sold to international buyers. Buyers from around the world recognize the United States emerg- ing as a corporate tax haven. America's new tax laws reduced. corporate taxes to 340lo in 1988, among the lowest worldwide, mak- ing the U.S. a tax haven. Acquisition is a logical method for entry into this market.

Middle market business buyers recognize the profit potential and economic advantages of acquiring an established, profitable, mid-size home center business that is cash positive and evidences good potential for growth. They validate Peter Drucker's axiom that it's cheaper, smarter and faster to buv assets than to build them.

Story at a Glance

Ways to determine af you should sell your business understanding buyer mentality. . taking advantage of tax law opportunities.

Far and away the question that I am most frequently asked is, "Should I sell now, is this really the best time to sell?" Mv answer is. if it's a question of do you sell when you are ready or when the market is ready, obviously the best time to sell is when the market's ready. The market has never been more ready than now, at least not since the late 1960s. It's a seller's market with record numbers of buyers seeking middle market acquisitions. Today, there is more money chasing good deals than there are deals available.

Another important reason for beginning the selling process now is that until December 31. 1988. buyers and sellers of businesses for under $5 million are exempt from a double taxation that could result from the elimination of the General Utilities doctrine. Businesses selling for $5 million to $10 million are partially exempt until December 31,1988.

This means that even under the new tax law, only one tax on the transaction could be paid until December 31, 1988. After that date, even those smaller to midsize transactions could be subject to a double tax, one at the corporate level on the gain from the sale of assets and one by the individual shareholder upon distribution.

O'Malleys New Marketing Plan

The O'Malley Companies, Phoenix. Az.. have announced a new marketing plan which will refocus their business in designated market areas.

The firm currently operates three product divisions - Retail, Wholesale, and Contract and Manufacturing. Started in 1908 O'Malleys now operates throughout the Southwest and employs more than 800 people.

The new plan calls for continuing all three divisions, but restructuring the business within each one.

Of the 12 retail yards now operating it is possible that some may be closed as the two year restructuring proceeds, according to Duncan Hossack, executive vice president, who is in charge of operations for the

Group Targets Fibreboard

An investment group including Archibald A. "Red" Emmerson, president of Sierra Pacific Industries, Arcata, and Redding, Ca., has been buying stock in Fibreboard Corp., Concord, Ca., and may seek to control the firm.

three divisions. He stressed that no decisions have been made at this time and that yard by yard analysis may result in continued operation for all the yards.

Hossack denied rumors that Southwest Hardware and O'Malley Glass and Millwork were for sale. "They are not being marketed," he said.

A twenty year veteran with the firm, Hossack said that he was "more positive and confident than at any other time due to restructuring actions the company is embarking upon."

Traditionally, the company's roots have been in the supplying of building materials primarily to homebuilders, contractors and remodelers. O'Malleys also operates

According to a Securities and Exchange Commission filing, the group holds a 6.80/o stake, 264,100 Fibreboard common shares purchased for about $3.1 million.

Although an offer by the group in October to buy the company for $17 a share was declined by Fibreboard, a chain of retail stores, which sell both professionals and consumers. the group may seek meetings with Fibreboard or continue to acquire stock, according to the filing.

The new marketing plan seeks to re-emphasize the company's core business to position O'Malleys as the major supplier of building materials to the construction industry in Arizona, and in the El Paso area of west Texas.

Thomas E. O'Malley, chairman of the board, sees the company remaining and growing as an important part of the construction trade in the Southwest. "We're enthusiastic about the opportunities in the markets that we service. We will continue to offer the kind of quality products and service to our customers that have made us successful for the past 80 years."

Emmerson purchased 81,100 shares between Nov. 14 and Nov. 23, although Sierra Pacific is not involved in the dealings, according to a Sierra Pacifrc spokesman.

New Hampton Acquisition

Agreement has been reached for the sale of Fort Hill Lumber Co.'s plant and equipment at Valley Junction, Or., to Hampton Affiliates, which includes Willamina Lumber Co. five miles away at Willamina, Or.

Completion of the acquisition is scheduled for March 1. Fort Hill will continue to operate and market the mill's production until the closing, completing its order file and serving its regular customers until then.

A substantial volume of Fort Hill's production has been channeled into specialty items up to 26 feet at premium prices, while Willamina concentrates on low costs, high production and high recovery on a program of 2 inch dimension items up to 28 feet in length. The tributary timber for both mills will be allocated to optimize the potential of both plants.

Fort Hill Lumber, started in 1961 by Ed and Art Moshofsky, has developed into a major independent producer with volume totalling 120 million feet in its latest fiscal year. Production at Willamina for 1988 will total 235 million feet.

Beginning March l, all marketing willbe handled by Hampton Lumber

Sales Co. whose present annual sales volume totals over one billion feet of Western softwood lumber from producers all over the Pacific Northwest.

Hayward Lumber Dissolved

Hayward Lumber Co., Claremont, Ca., is being liquidated to repay debtors. The remaining assets include accounts receivable and shuttered stores in Blythe, Ca., and Parker, Az.

Hayward president Kingston McKee purchased the Hayward Lumber stores in Lucerne Valley and Barstow for his Imperial Valley Lumber Co., Claremont, which is now operating under protection of Chapter l1 of the Bankruptcy Code. Other Imperial Valley units are in Imperial, Brawley and Calexico, Ca.

HomeClub Opening In ldaho

HomeClub, based in Fullerton, Ca., has arrived in Idaho, opening a retail warehouse in Boise.

CELEBRATII{G the first anniversary of Marquart-Wolfe Lumber Co.'s plywood division, Grand Terrace, Ca.; (front, l-ilCharlotte Carr, Sandi Johnson; (back) Tom Stanford, Neal De Witt, Lance Duke. Marquart-Wolfe was founded in 1953; its plywood unit opened in Seot. 1 987 in Corona, and has since moved to Grand Terrace at the former Trojan Trucking location at Inland Timber Co. The lumber division is in Costa Mesa, Ca.

A 103,909 sq. ft. warehouse with 10,000 sq. ft. nursery is planned for a site at Interstate 84 and Franklin Road, across from the Boise Towne Square mall.

The store will employ more than 100 people and will join the 41 other HomeClub units in the West when it opens next spring.

NHLA Meeting Sees TV Ad

The 1500 delegates attending the 91st annual National Hardwood Lumber Association convention in New Orleans, La., had an opportunity to preview the 30 second hardwood advertisement currently being shown on CNN tv network.

Inaugurated by the Hardwood Institute wood promotion committee under the direction of Emmet P. Vaughn Jr., Emmet Vaughn Lumber Co., Knoxville. Tn.. the ad will be shown 168 times in the next 10 months. Budgeted at $277,000, the promotional film will be seen five to six times by some 150 million people during that period.

"The intent is that this will be an ongoing program to build in the eyes of the North American consumers the desirability of genuine hardwoods in homes and businesses," Vaughn said in introducing the program.

John Thomson, Peter Thomson & Sons, Alliston, Ontario, was elected president; Henry G. Fulcher

MARY'S RIVER TUMBER CO.

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Jr.. Sitco Lumber Co.. Wilmer. Tx.. first vice president, and Jim C. Hamer, Jim C. Hamer Co., Kenova, W.V., second vice president.

The meeting, Oct, l7-19, marked the retirement of W. Carroll "Bill" White as executive manager. The growth of the association during his l0 year tenure was reviewed in a special salute to him.

Ernest J. Stebbins, assistant manager for the last five years, has taken over as executive manager with Bob Garst as assistant manager.

Meetings of the Hardwood Export Trade Council, Hardwood Distributors Association, Canadian Lumberman's Association-Hardwood Bureau, American Walnut ManufacturersAssociation and International Hardwood Products Association were held in conjunction with the annual meeting.

Tree Spiking Fines Set

New federal penalties of a $30,000 fine and/or a five year prison term are in place for anyone convicted of tree spiking.

Aimed to combat tree spiking and trail spiking, tactics used by some radical environmentalists to keep loggers from cutting down trees, the anti-tree-spiking bill was part of a bipartisan anti-drug bill.

Sen. Jim McClure (R-Id.), who introduced the bill, said, "The people who commit this kind of senseless violence are nothing more than eco-terrorists. These federal penalties will put these radical environmentalists on notice that they will pay for their reckless actions."

L-P Halts Doman Buyout

Louisiana-Pacific Corp., Portland, Or., has abandoned its proposed $200 million buyout of Doman Industries Ltd., Duncan, 8.C., Canada.

L-P had been purchasing large shares in the company and, after attaining more than l0o/o of Doman's stock, signed a preliminary agreement to buy the firm, subject to approval by both companies' boards and governmental agencies. L-P currently has no plans to dispose of its present investment in Doman.

With 1987 sales of about $300 million and net income of about $20 million, Doman has five sawmills with an annual capacity of more than 550 million board feet. It also owns 200/o of Western Forest Products Ltd., which operates two British Columbia pulp mills.

Mead Clark Sale Ahead

Mead Clark Lumber Co., Santa Rosa, Ca., is expected to be sold to Dave Kirk, formerly with Yaeger & Kirk, and contractor Lee Morton, according to The Press Democrat, of Santa Rosa.

The 76-year-old company employs about 100 people at its 7.5 acre site and has been owned by the Destruel family for 40 years. Owner Dusty Destruel refused to comment on the proposed deal.

Five years ago, when Kirk sold his interest in Yaeger & Kirk, he allegedly signed an agreement to stay out of the lumber business for five years, according to The Press Democrat.

No purchase price was disclosed, and Morton said no details have been set.

Blase' Seattle Shoppers

Despite fierce competition between Ernst Home & Nursery and Pay 'N Pak for home improvement business in the Seattle, Wa., area d-iy consumers show no preference for either store.

A recent market survey found that more than 580/o of the consumers queried in Seattle had no favorite home center or hardware store. The research done by Impact Resources also discovered that Seattle consumers are above the national average in doing d-i-y work on their homes.

Free Storage ldeas, Plans

Western Wood Products Association has completed a 20-page storage idea book called the Breathing Room Book, backed up by a series of 13 d-i-y plans showing how to build most of the projects pictured in the book. Two of the 13 plan sheets show how to build simple storage projects not shown in the book.

The projects include a wide variety of storage variations including built-ins, islands, dividers, modular units, platform units and ideas for an entire room dedicated solely to storage. They range from a simple garage storage unit to bookcases.

Single copies of the book and the l3 supporting plan sheets are available free. Up to 25 of each of the plan sheets are also available free. A single copy of the Breathing Room Book is free. Each additional copy 850. They are available from Western Wood Products Association, Dept. STP, Yeon Building, 522 S.W. 5th Ave.. Portland. Or. 97 204-2122.