How Much Is This Company Worth??

[a_caldwell]

I'm looking to by an existing all-natural Energy/One-A-Day pill company/brand.
The brand was sold exclusively through a major grocer. The grocer didn't manufacture or license the product. The 3rd-party manufacturer for one reason or another only sold the product through this grocery chain. The product flopped and the grocer gradually clearanced the item from 9.99 until it reached less than a dollar.

I begin buying the items for myself and selling the rest on ebay for around 2 for $30 . After the success of this, I bought the remaining pallets from the grocer and had revenues of $7,000/month due to me using alternative marketing strategies.

After the product originally flopped, the company discontinued the brand and seemingly wants nothing to do with it. Even though there is room for online sales, its not worth their time to continue the brand and they have muted all points in regards to this item to focus on their other products which aren't related.

I believe in the brand and want to buy it and make it work.

I have a small online business, but this will be my first acquisition. The manufacture charged the grocer $6.00 per bottle. They briefly contacted me in the past about ordering "another run", but I wasn't interested at the time.

I plan to inquire about purchasing the brand/company in its entirety. How much do you think they will ask for? The brand is virtually non-existent.

Thanks in advance.

[vangogh]

Hard to know, but it doesn't sound like the company has any interest in the brand. I would think as long as you aren't too eager to purchase they wouldn't want much for it. Realistically how much could it be worth if they aren't doing anything with it currently?

I suppose you could try to figure out how much it might be worth and then make a low offer to see what their reaction. The ideal situation would be having them come to you wanting to sell the brand to you. Maybe through a few conversations you could put the idea in their mind without actually making an offer.

[Steve B]

Since they aren't making any money on the brand - the "brand" portion is probably worth zero. It would be hard for them to sell it to anyone else when all they can currently do is prove that it lost them money.

It just comes down to how much will make the transaction worth their administrative time.

[Spider]

I believe a Service Mark is far less stringent in its requirements than a Trade Mark, and probably less costly. Couldn't you register a Service Mark very similar to their brand, then, before you do anything with it, say to them, "Oops! We just noticed a possible conflict between your brand/TM and our Service Mark and wonder - as you are appear to have abandoned your brand - if you would be prepared to assign your mark to us?"

You might get it for free, or certainly at a rather low price.


OTOH, if the brand/TM/whatever it is has failed, that may have a negative impact on your proposed business. Why not create a new brand and advertise it as a successor "NEW AND IMPROVED!" version of an old product.

[a_caldwell]

Thanks for the tips.

Questions:

Does 10,000 sound fair?
About how much should I expect to pay for lawyers, accounting, and other related admin. costs?




OTOH, if the brand/TM/whatever it is has failed, that may have a negative impact on your proposed business.

The brand has a strong following, just not strong enough for most companies but I can definitely revive it and make it work. However, I will used the failure as part of my argument if I need to.

[vangogh]

Hard to know if $10,000 is fair without knowing the brand and the details, but if the company in question really isn't looking to do anything with the brand and is failing to see the value in it then they'll probably be happy with the offer. It's really going to come down to them and what they think the value of the brand is worth.

I'm not sure about the attorney and accounting fees, but it should be easy enough to make a few calls and get a feel for what those fees will be. You may want to find an attorney and/or an accountant before making the offer to the company since your lawyer and accountant may be able to give you some valuable advice when it comes to making the offer and negotiating a price.

[Spider]

When considering what to offer, remember Shylock's rule -- If they ask for 100, that means they would like to get 80, which means it's worth 60, so offer them 20 and get it for 40.

:D

[SteveC]

The company is only worth whatever someone is willing to pay for it... in this instance is the company looking to sell or are they happy to sit on what they have and I assume generate income from other brands...

Also you should ask youself how much it cost to develop the product, is the company prepared to let the brand die to stop a competitor picking it up... etc... because sometimes companies let brands fail so that other similar brands they might have increase market share.

If I were in your position I would approach them without a specific offer... just to see if they are prepared to sell... then you can talk about price... sell the idea before agreeing to price, etc.

[Baseline]

Thanks for the tips.

Questions:

Does 10,000 sound fair?
About how much should I expect to pay for lawyers, accounting, and other related admin. costs?




The brand has a strong following, just not strong enough for most companies but I can definitely revive it and make it work. However, I will used the failure as part of my argument if I need to.

Why not start with offering to pay the costs of that transfer? Then you will get an idea of what they are looking for- because they will probably counter. If not?



I don't see a downside here- if they get upset, you do the "gee, I thought you were axing the brand because of .........." and start negotiating. Or they accept- and you hire the experts you would have hired anyway to make sure its all legal and good.

[a_caldwell]

I plan to make a move in a month or two, I'll be reading books and doing research on acquisitions/transfers in the mean time.

Thanks for all the replys, many interesting and valid points were made.

[a_caldwell]

I just spoke to the local Small Business Dev. counselor. B/c I have limited funds he advise me to talk with the company/owner first and then hire a lawyer and accountant if the situation progresses.

I plan to continue the research and do some additional discovery work and start a dialogue within a few weeks.

I will appreciate any tips on the above approach.

[Baseline]

Your personality should determine your approach. You could take the owner out to lunch to broach the subject- or schedule a high-powered meeting with powerPoints, pie charts and reams of data.

The other factor is the current owners style/personality. If he/she is button down, go formal; if casual, go lunch and ask feelers.

Do some research- business is a lot more about personality than most people realize or admit.

[vangogh]

When you approach the owner try not to be too over eager. Assuming the owner is willing to sell then you're in negotiations and you don't want to come across as wanting to buy too much. The more the owner knows you want to buy the more the price will go up. Try to keep the first conversation casual. In fact if you can think of another reason to call and then slip in the question about buying into the conversation that might be best.

You don't want to tip your hand too soon.

Once you've started talking and know the owner is willing to sell you want to determine how much you're willing to spend and go from there.

[a_caldwell]

//Will start dialogue soon..

Questions.

Should I start directly with the owner or with my previous contact. I had two previous brief conversations with a guy there in a supervisory role. He's been my only contact with the company. He gave me information on buying the remaining crates from the grocer.

When should I bring in the lawyer and accountant? Immediately after I learn the business is for sale or wait until I work out a price?

[Business Attorney]

I would suggest that you discuss the price, deal structure and negotiating strategy with your lawyer and accountant at the earliest possible date. You are going to pay for their advice sooner or later, so why not get it when you have the most opportunity to use it?

For example, if the accountant or lawyer see something that should decrease the price, and you have already reached a tentative price, you look like you are reneging. If you had that same information before you discuss the price, that would have been leverage to use in negotiating.

[vangogh]

David makes a good point. Your lawyer and/or accountant will be able to help you out a lot right from the start so why not take advantage of their advice before you begin any negotiating. They're there for more than the paperwork.

[a_caldwell]

I understand bringing in the lawyer for pre-negotiation help.

However, in my case is there really a need for an accountant early on?

- the company is literally defunct/failed
- there are no current sales figures to examine
- I really don't care about past sales figures, b/c I've sold the product myself and believe I have an angle that the company has overlooked or has no interest in
- this isn't a typical buy where the buyers needs convincing, I've been selling this item near exclusivity for the past few months and I'm already convinced. Its not the case where I need to verify the sellers past sales to ensure I can do the same, I'm basically taking a failed product and applying my own sales and advertising methods which I know is effective.

[vangogh]

I just meant it as an either/or/both in getting some advice on the negotiations by someone you're probably going to hire at some point anyway.

[a_caldwell]

It looks like its all a poker game from here on, or at least that is what I'm reading from it.

I spoke with the owner's wife who does daily operations within other brands of the small company. We had a general chat about the history of the company. After going over our conversation and doing a little research on the statements she made, I can tell she's been ordered to feign her husband's interest in reviving the company. She made too many contradictions.

I'll be out of town for a while, so I'll be talking to the owner in a few weeks, however, I'm sure the company is for sale.

[vangogh]

Good luck. Again try not to be over eager. The more you show how much you want to buy the company, the more they'll raise the price.

[Spider]

On the subject of reneging after you have reached a tentative price.

Until all aspects are agreed and a contract is signed, you are under no obligation to go through with a deal. You may have a tentative price but it is tentative - which is why it called a tentative price. You can back out any time you wish from a tentative price, with or without reason.

Reneging generally refers to going back on something already agreed - a tenatative price is not an agreed price. In this sense reneging is a contraction of re-negotiation. Until you have finally agreed all points, you can start renegotiating any time you want.

Nothing is agreed until everything is agreed. (Unless you specifically agree to the contrary.)

[ArcSine]

a caldwell, cheers and best of luck on the deal!

I'll just add a couple of thoughts to the mix, if I may...

With respect to a tenatative price, the ease with which you can bail out "no questions asked" tends to vary inversely with the amount of due diligence you've done to that point. When a price has been put on the table very early on just for talking purposes, and no real investigatory work has been done yet, everyone understands that the named price is "subject to whatever I might uncover once I pull out my magnifying glass." The parties know the price will probably move, and significantly.

But in many deals a price is 'tentatively' agreed to after a large portion of the due diligence work is wrapped; it might even be specified in a Letter of Intent. Even though legally nobody's tied to that price yet--pending some further DD work and the signing of the final purchase docs--a drastic change in the price at that point by either party might be seen by the other as not dealing in good faith. In other words, once you've been given access to the numbers and had a chance to vet 'em somewhat, there's usually an implied understanding that any price that's named at that point won't be unexpectedly changed by a major amount, absent a real good reason. So yeah, legally you're still not bound to the price yet, but any serious changes at that point might throw a real damper on further negotiations.

Also, you've got a great point that since this isn't a typical acquisition (what you're really buying isn't an existing balance sheet of assets and liabilities, but a platform from which you'll launch your own marketing and distribution strategies), then maybe an accountant isn't needed yet. But on the other hand, your biz's value will depend in part on the reliability and quality of the product production end of things, and for that you're probably vetting some assets, equipment, manufacturing capacities, stuff like that. In turn, that might call for an accountant helping out with at least that aspect of the DD.

I hope all goes well for ya, and it rolls out to a huge success!

[a_caldwell]

^^^ Good advice.

[bm9139]

$10K seems too expensive for a brand that has never gotten off the ground

[vangogh]

True. If the brand has never gone anywhere it might be bought for less. However it could also depend on the company and whether or not they have plans to do something with the brand in the future.

[a_caldwell]

I spoke w/ the owner, we talked back and forth for a while but it's a no go. I don't have enough funds to cover the minimum run or enough to buy the company and insurance associated with it. Even though the product failed the owner seems be holding on to the market value potential as opposed to the actually track record of the product.

I'll maybe have a shot at it later down the road. The owners says he has future plans for the product, but he doesn't sound convincing. I believe sometime next year he'll be contacting me to get it off his hands. There really isn't much more he can do with the brand than I could.

Anyway, thanks for all the info you guys have attributed.

I would like to highly suggest the books below to anyone buying or thinking about buying or selling a business:
- Negotiation Boot Camp - Ed Brodow
- Entrepreneur Magazines' Legal Guide: Buying & Selling A Business - Ira Nottonson
- How to Buy & Sell a Business: how you can win in the business quadrant - Garrett Sutton

These books were very helpful and gave me a wealth of information. I will always re-read these books when dealing w/ my future acquisitions and sells.

As for me now, I'll be dabbling into the vending industry and starting two other online companies within a month or two.

Thanks again for all the responses.

[vangogh]

Sorry it didn't work out. Thanks for the book recommendations.

Is there any way you could start a new brand with a similar product? You do seem in good spirits and don't give up entirely. If the owner of the other company doesn't do anything with the brand he might be more willing to sell in a few months.

[Spider]

Careful. If you do create and sell a similar product and it does well, the company with the original product could come back into the market you have created and claim to have the original product. It seems they would have the resources to blast to the front with extensive advertising and take your market away from you.

[a_caldwell]

Careful. If you do create and sell a similar product and it does well, the company with the original product could come back into the market you have created and claim to have the original product. It seems they would have the resources to blast to the front with extensive advertising and take your market away from you.

Nah, I'm through with the matter, I don't have the money or desire to look into a copycat product. There is already one gaining momentum.


You do seem in good spirits and don't give up entirely.

That's good to hear, b/c I am in good spirits. I'm just happy to find my true calling; entrepreneurship. It took me a while to realize this...... Also, I made a good amount off of the overstock, not as much as I would have made if I would have been successful with the purchase, but enough to where I'm content.

[vangogh]

I'm just happy to find my true calling; entrepreneurship

You'll find that not all of your ideas will go the way you like, but as long as you keep at the process another idea will find you very soon after. Most successful entrepreneurs have more failures than successes, but when they do have those one or two successes it makes up for all that didn't pan out.

[jfrutkin]

Interesting. What exactly are you purchasing if the product doesn't exist anymore? How will you manufacture the product after the acquisition?

Best of luck...

[yoyoyoyoyo]

...Most successful entrepreneurs have more failures than successes, but when they do have those one or two successes it makes up for all that didn't pan out.

Right on.

a popular example is Thomas Edison. He failed about 1009 times, but supposedly succeeded that 1,010th time.

What would've happened if he stopped on the 1009th try? is a popular question they like to throw out there to motivate people.

[vangogh]

All I can say is I'm glad he didn't stop after try 1,009. Who knows what invention of his we might not be using today. I'm partial to quite a few of them.

There's nothing wrong with failure. Through failure we learn to become better the next time. Through success we learn to repeat the past.

[a_caldwell]

Yes indeed, I hear you guys loud and clear. Entrepreneurship and most forms of success comes in the form of a marathon not a dash. I'm beyond the point of needing any motivation, I motivate others, entrepreneurship is what I was put here to do.


Interesting. What exactly are you purchasing if the product doesn't exist anymore? How will you manufacture the product after the acquisition?

Best of luck...

I would have been buying the formula, patent, trademark, etc... I would have taken the formula to a vitamin manufacturer and started a new shipment.