Buy, Merge or Go Home?

On Feb. 8, 2016, in Kansas City, KS, Kenneth Voboril of Overland Park was sentenced to 63 months in prison for embezzling more that $6 million from an Overland Park company. According to his plea, Voboril was hired by Commodity Specialists Co. (CSC) to run its subsidiary, TransMaxx, a firm that brokered trucking deliveries for CSC customers, but Voboril devised a scheme to defraud CSC by creating fake companies and billing CSC for deliveries that never occurred. He created false truckload information and entered it into the TransMaxx computer system, resulting in invoices being created in the company software system.

– Condensed from “Examples of Corporate Fraud Investigations – Fiscal Year 2016,” irs.gov

One easy way to grow your business is either to buy another business or merge with one. You’ve surely read that Target plans to grow its business by buying Shipt, a home delivery service (aka “online delivery platform”) that, the Target chiefs believe, will allow it to better compete with Amazon and Walmart, retail firms that home deliver online purchases. This acquisition allows an interesting case study because, Target’s press release said, the purchase will enable it to leverage its network of stores with Shipt’s same-day delivery technology to maximize customer convenience. The red-bullseye retailer plans same-day delivery for its major product categories by the end of 2019, the release said. Meaning, we’ll be able to order, say, a KitchenAid toaster, wicker patio bench or a head of broccoli online and have it delivered the same day.

Target will pay $550 million for Shipt. Is acquiring Shipt a good idea for Target? Can signshops learn by studying such high-dollar processes?

MISSED TARGET?

In a Dec. 12, 2017 Forbes article, Sucharita Kodali, vice president, principal analyst for Forrester (a market research company) called Shipt an “Uber for groceries.” Kodali said Shipt’s service merely provides a bevy of drivers who shop for and deliver client-ordered items. She also said Target’s buying of Shipt won’t make same-day delivery any easier and stressed that most shoppers won’t pay for such service. Kodali said such online orders add up to $20 per gig, meaning that most buyers won’t bear the cost, adding that consumers prefer free delivery.

Still, it’s big, online purchasing, so you can see why Target is interested. Writer Laura Stevens, in a June 8, 2016 Wall Street Journal article, said the Commerce Department reported that total online spending comprised 7.8% of all retail purchases in the first quarter of 2016, while Forrester has recorded that more than half the population, or about 190 million US consumers, will shop online this year.

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Here’s another detail: Target’s 2016 sales reached $73.79 billion, its cost of goods was $54.21 billion and its gross income was $19.58 billion. The $550 million price tag for Shipt is lunch money; therefore, a Shipt failure isn’t a crisis; it’s a comfortable write-off.

LIKE BUYING A TRUCK?

It’s easier to fathom mergers and acquisition activities if you associate such challenges with everyday tasks, like buying a truck. A used bucket truck, for example, that a dealer took in trade and thought you might want to buy. “Hell of a price, too good to miss,” the salesperson says, adding, “You could use it as an auxiliary profit center by hiring a guy to cruise the area looking for signs needing repair.” Such ideas replicate like summer weeds and, too quickly you’re caught up in the salesperson’s enthusiasm. Then you go look at the bucket truck, immediately noting the leaking hydraulic seals, cupped tires, rust splotches and, when driving it, the throw-out bearing warble and white exhaust smoke on downhill runs (that means the valve guides are jiggered). The reality is this bucket needs a complete engine rebuild, body work and lift system overhaul. It’s not at all what the salesperson described.

A merger example is that your shop phone rings and a raspy voice introduces itself as “Bud” from Bud’s Signs. Bud says he’s going to retire and move, but wants his son to continue the business. He wants to merge with your shop, so the son would have ongoing support and guidance. Plus, “I got a good deal for you,” Bud says, and tells of owning two primal but workhorse cutting routers and a year-long, $128,000 contract with the state park service.

Do you stop over to talk?

REAL WORLD ADVICE

For more of a street view of merger and acquisition challenges, I talked with Sam Clark, the relatively new owner of The Sign Shop of Sheboygan (Sheboygan, WI), and businessman Michael Sager, developer of Tulsa’s Blue Dome District.

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For Clark, an acquisition became formal when, in April 2016, the Sheboygan County Economic Development Corporation (SCEDC) announced Clark’s acquisition of The Sign Shop of Sheboygan, as well as plans to relocate the business to an expanded facility to better serve customers. The press release said, “For the past two years, Clark has served as VP of Sales and Marketing for The Sign Shop with plans to eventually acquire the business. He has over ten years of experience in the sign and graphics industry and has served in all areas of the business including design and graphic installation.”

I telephoned Clark to ask him about the buying/acquisition process. Polite and quiet in Wisconsin style, he explained that he had called upon his knowledge of business finances and, as well, had contacted and worked with area business assistance organizations to arrange acquisition and expansion monies. The SCEDC noted that assistance had come through the Hiawatha National Bank of Sheboygan, the City of Sheboygan’s revolving loan fund and business plan development assistance via the Small Business Development Center (SBDC) at UW-Green Bay and the SCEDC.

Of course, others chipped in and Clark said he got two kinds of on-the-street advice: Do it and don’t do it. “The one thing that fueled me the most was that I wanted to be part of the business community, to own my own shop, but another driving factor came from those who said I would fail. I wanted to prove them wrong,” he said.

He did. Under Clark’s leadership, the business demand soon exceeded the expanded site’s capacity. Today the company functions in a larger location that has allowed it to expand into even more signmaking processes. And, last May, Clark was awarded Entrepreneur of the Year in the 2017 Sheboygan Next Wave Young Professional Awards ceremony.

I asked, “Did you have sleepless nights?” Yes, he said, because he not only worried about his own finances, but recognized that the shop was supporting nine workers and their families. He did not want to let them down.

Clark’s advice for signshop buyers:

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• Don’t buy blind. Know the industry you’re buying in to.

• The sign industry is complex – there are many areas of opportunity, so select carefully.

• Once in, you’ll be dealing with two primary challenges: staying current with what you’re doing and trying to push new business opportunities as much as possible.

DRIVING FORCES

An entrepreneur, developer, businessman and past lecturer at Tulsa Community College, Sager is best introduced with a May 22, 2014 Tulsa World article headlined “Michael Sager a driving force in downtown resurgence” that said, “For more than three decades, Sager has been one of the driving forces behind the resurgence of downtown, especially in the Blue Dome District.” It added that the resurgence did not come easily. Michael is a lifelong friend and business consultant, so, no surprise, I asked him three questions regarding mergers and acquisitions:

Q: For a small business owner who has sufficient capital, a business merger or acquisition is often seen as a quick way to increase product offerings, markets and sales. Would you agree or disagree, and why?

A: I agree with expansion through acquisition. You purchase an existing network and market share. With fast moving trends, timing is everything.

Q: Is it better to merge with another small business or acquire it outright? Why?

A: Purchase. Ownership gives you full control of decisions and you do not have to cope with the other owners who have your money or differing opinions. You don’t want the tail wagging the dog.

Q: What do you see as unconventional risks (meaning things your lawyer or CPA won’t tell you) in joining with, or acquiring, another small business to increase market, sales and profits?

A: You may see dead areas or fat the previous owner or shareholders didn’t. This applies to all areas of admin, market, methods and risk.

WOULD YOU?

I’ll add that the best partnering business advice I ever received was years ago, and from the father of a friend I intended to enter with, into business. When we announced our plan to his father, he looked at me and asked, “Would you marry him?”

I remembered being surprised at the question and stuttering, “What? Uh, no.”

“Then don’t do it,” the older man said, “because if you go into business with him it will be about difficult decisions, money and opposite opinions, just like a marriage.”

Obviously, I recommend an outright purchase or acquisition – once you’ve searched the closets and pried up all the floorboards.