You are here

Buying Out the Competition (Conclusion)

Ask the right questions before making the purchase

CHICAGO — The cleaners who survived the economic downturn of the pandemic and have come out the other side often find that their less-successful competition might be looking for a path out of the industry. This can offer an avenue for rapid expansion, as well as increasing your customer base and your profits.

In Part 1 of this series, we looked at some of the different situations dry cleaners can find stores for sale, and in Part 2, we examined ways to bring customers of the purchased cleaners into the new fold. Today, we’ll conclude by determining some of the questions a cleaner should ask when buying a competing business.

Learning from Experience

Robert Strong, CEO of Country Club Cleaners in San Ramon, California, believes that doing your homework on a potential buyout is essential in finding the right deal.

Whether you’re buying a car wash or a laundromat or a dry cleaner or liquor store, you want to know what the revenue is,” he says. “Can they confirm their revenue? Can they confirm their costs?”

I like to look at their income and expense report over a minimum of the last two years, and the last five if you can get it,” says Danny Bahlman, president of Bahlman Cleaners in San Angelo, Texas. “Trust a little, but verify everything.”

In addition to the financials, there are other areas to investigate.

“See what kind of lease commitment you are buying,” says Gary Glover, president of Puritan Cleaners, located in Richmond, Virginia. “See what the obligations to ground contamination and those types of issues are. If you’re just buying a customer base, it’s a little more straightforward. You’re going to convert customers into a different location.”

Bahlman says that new owners not only have to look at the present, but to the future as well: “If you’re leasing, make sure you get it tied up. Shopping centers are not renewing leases. The last thing you want is to buy something and have to move in two years.”

Keeping the existing customers of the acquired business happy needs to be part of the game plan, as well. Randy Parnham, CEO of Acme Cleaners in Orlando, Florida, believes that the outgoing owner can be instrumental in making this happen.

“Make it a smooth transition for yourself, where the seller doesn’t just disappear,” he says. “The first time I bought a business, the seller said, ‘Once I sign the papers, I’m out. You already know how to do dry cleaning.’ I figured it was no problem — ‘I got this’ — but it was a shock to the customers who had been going there for years.”

Parnham remembered this lesson for his next acquisition.

“The second time I did it, it was much easier for the seller to be there and say, ‘Hey, we loved being here. We’ll miss you guys, but you’ll be very happy with Acme coming in.’ She did a lot of the selling for us, telling them that we were family-owned and -operated, and that everything was going to be OK.”

Bahlman cautions cleaners buying competitors that their bottom line might suffer a bit in the early going but urges them to stick with it.

Depending on the parameters of an acquisition, you should expect some loss of business (piece counts) for a short period of time until you establish yourself with the customer base,” he says. “We always feel like the customers are our best form of advertising and promotion. This is probably more prevalent if the stores are rebranded to a new name that might be unfamiliar to the clientele.”

That being said, Bahlman notes that there is a case where the new owner might be in for a pleasant surprise.

“The reverse of this is possible,” he says, “if the rebranding would be perceived as an improvement from the previous owner’s lack of updating and services offered.”

Repeat Performance

So, ultimately, is buying out the competition a sound business plan for dry cleaners? Glover believes so, as long as it’s part of your overall strategy.

“In this climate, there are dry cleaners in our market that are available,” Glover says. “Some have low volume, or they don’t represent a great location, so we won’t look at them. There are few shining stars out there that, when they’re ready or when it’s the right time, we’ll approach them and see what their temperature is. We’ve got one that we’re looking at right now where we haven’t really started negotiating, but we’ve made the initial contacts and both parties are interested.”

Bahlman says after 57 years in the industry, the right deal would have to come along for him to consider it.

The next closest place to us to buy anything is 100 miles away,” he says. “At my age, I would have to think long and hard about it. If they have good, strong management, though, I could see me doing it again.”

For Strong, 85% of his retail volume comes from route work, and even though he hasn’t made any other buyouts since the pandemic — “We’ve kissed a lot of frogs, but none of them has turned into princesses” — he has his eyes open for more deals.

“I’m really swimming the waters, looking to acquire a pickup and delivery business,” he says, “and I’m looking aggressively because of the pandemic money from SBA loans and other sources. I do have a war chest to make a purchase.”

While Parnham is also willing to make another buy, the price has to be right for the deal to make sense.

I’m not going to go out and give somebody their retirement for nothing, which is, unfortunately, what most dry cleaners want,” he says. “I’ve had lots of people approach me over the years, and most people don’t know how to value their business. They haven’t planned for retirement, which hinders them in the selling process because they’re thinking, ‘Hey, I need this lump sum of money to be able to be done’ — and that’s not how it works.”

Still, done correctly, making an offer to buy out a competitor is something every dry cleaner should at least consider, if at all possible, Glover says.

“It’s an easy way to grow if the right opportunity’s there — if it’s in your wheelhouse, it’s something that fits your core product. I wouldn’t hesitate to do that again.”                 

For Part 1 of this series, click HERE. For Part 2, click HERE.



Buying Out the Competition

Have a question or comment? E-mail our editor Dave Davis at [email protected].