PEMBROKE, Mass. — Richard Stone began in the industry as a delivery person.
He was 18 and in college. A friend didn’t want the delivery job anymore, so he cajoled Stone to take over. But there was a problem. The delivery vehicle, a VW bus, had a clutch, and Stone did not how to drive a stick.
The friend taught him that day, and they went back to the boss and Stone was hired. That was a long time ago, in the early ’60s.
Today, Stone and his wife, Judith, run Dry Cleaning Plus, based in Monroe, N.Y., an East Coast matchmaker that brings together buyers and sellers in the fabricare industry. In addition, the company handles acquisitions/mergers, exit planning, and more.
In their 50-plus-year careers in the industry, they’ve been employees, owners (Richard wound up buying that store he drove for), wedding gown rental operators, route managers, consultants, and expert witnesses.
Their firm, opened in 1989, has done business in 15 states plus Costa Rica. Hundreds of transactions have passed through their portals. But more important than years of experience, the Stones are astute students of the business.
They have learned what makes dry cleaners succeed, how they fail, what it would take to turn a failing operation around, as well as the qualities needed to be successful in the field. These qualities enable them to be successful matchmakers.
TIMING, TIMING, TIMING
Always, timing is critical.
When ZOOTS (Mass.-based drycleaning and laundry company) first began, it was buying dry cleaners for 100% on the dollar. In fact, Dry Cleaning Plus negotiated many of their acquisitions. That’s because it expected to go public, and cash-out at 40 times its investment.
It didn’t happen that way. Richard says: “The problem with that period is that ZOOTS’ purchases distorted the market, and made it harder for us to sell to conventional buyers.”
Then comes, in many ways, the hard part: convincing the seller of the business’s true value. Sometimes there is a discrepancy.
Richard offers a not-uncommon scenario: “An owner who does $300,000 sales tells his wife that the business is worth $400,000. After our evaluation, we determine that it is worth $200,000 to $225,000. That’s quite a discrepancy that the seller has to square with his wife.”
The duo explain their reasoning. If the owner doesn’t agree, the Stones back out of the project.
“Businesses willing to sell over time (installment sales basis) get a premium,” Judith says. “Businesses wanting all up-front money don’t get a break. If the buyer is an insider and reputable, accepting an over-time payment might be the wise choice.”
Another thing the Stones do is recommend that the seller go to see an accountant to determine the tax ramifications of a sale. Very often, an owner won’t do this, and several steps along in the negotiation, that same owner is shocked to find that he will owe $200,000 capital gains taxes.
The Stones also recommend hiring a lawyer who is not their lawyer, but a lawyer who specializes in sales of businesses and who knows the industry.
“It is important for the lawyer to protect his client, but it is also important to facilitate the sale,” Judith says.
Richard offers: “I’ve built up an enormous amount of contacts in the industry over the years. I assess whether any of them would be interested. Not finding a buyer, I go on the Internet, and advertise the enterprise.”
The Stones don’t just locate a prospect, they also examine relevant business experience.
At that point, the prospective buyer and seller meet, size each other up, and spend some time together. They do not have to become friends, but they must both be willing to make the transaction happen.
Because of the complexities of today’s sales, the timeline is usually a year.
Convincing a client of true worth is another time-consuming issue. In fact, Richard claims to be able to walk into a dry cleaner, spend an hour with the owner, and come up with a pretty good assessment of what the business is worth.
When a sale is consummated, the seller pays their company a commission that ranges from 8 to 10% of the sale price. That’s a chunk, but if you think they are not worth it, try selling the business yourself.
The lower sales range (from 100% to 80% of sales in recent years) is not because the drycleaning industry is declining, claims Richard.
“The high-end operators are not only thriving, they are making most of the profits in the industry.”
The bottom line, conclude the matchmakers: “Having two really motivated people — buyer and seller — who really want to make the thing happen.”
To read Part 1, go HERE.