CHICAGO — Buying out a competitor can be a great way to build a drycleaning business, but it requires asking the right questions and correctly evaluating the company.
In Part 1 of this series, we examined how to determine if a competitor’s company is worth making an offer to buy. In Part 2, we looked at potential hidden liabilities and deciding if the existing staff will be able to handle the change in ownership. Today, we’ll conclude by exploring how to structure the deal and what to do after the business changes hands.
Structuring the Deal
When it comes to deal structure, Kermit Engh, owner of Fashion Cleaners in Omaha, Nebraska, and managing partner of Methods for Management (MfM), is emphatic: The terms matter more than the price.
“The structure almost always involves a seller carryback where they’re financing part of the deal, or almost all of it,” he says. He shares a recent example: “The down payment, and this was a large acquisition, was $50,000, and the entire purchase price was done on a carryback with the seller over a 10-year period at a fixed interest rate.” All told, the buyer acquired a multi-seven-figure operation with minimal cash up front.
Engh also recommends building in purchase-price adjustments that protect the buyer if the business doesn’t perform as represented. “The seller is not going to be excited about that,” he admits, “but if it becomes clear that things were manipulated at the purchase, the buyer wants to make sure that they’re protected.”
Robert Strong, president of California’s Country Club Cleaners, has used representations and warranty clauses to a similar effect. In one case, when the business didn’t match what the seller had promised, Strong withheld the final payment.
“I said, ‘Listen, your business still has value, but it’s not what you said it was.’ He then said, ‘Fine, then what is it worth?’ And he allowed for adjustments.”
After the Handshake
Once the deal closes, the real work begins. Integration can bring its own headaches, from point-of-sale system conversions to managing the culture clash between two different operations.
Engh points to POS systems as a common stumbling block. “If you’re on the same point of sale, it certainly makes integration a lot quicker and smoother,” he says. If not, getting data out of the old system and into the new one can be a real challenge.
Customer communication is critical during the transition. Joseph Hebeka, vice president of franchise redevelopment for Clean Brands LLC, and owner of Belding Cleaners in Grosse Pointe Park, Michigan, favors a gradual approach, especially when the acquired business has a strong legacy.
“The No. 1 thing we communicate to the customers is ‘Same great staff, but new technology and services are coming,’” he says, adding that taking control of the narrative matters. “You can get ahead of a lot of questions or a lot of people making assumptions on a place that is changing hands.”
Engh has seen buyers frame the transition as a merger rather than a takeover — a move that can keep customers comfortable. He also stresses non-compete and confidentiality agreements, and says the buyer needs to think carefully about how long the seller should stick around.
“I’ve seen cases where the buyer really wants the seller gone pretty soon because they are resistant to change and they can actually poison the well,” he says.
Strong says to expect the unexpected: “It’s all the little things. The lady at the coffee shop next door is crazy, and there’s a fight about parking. And, oh, there’s no garbage — they took away the garbage. Whatever it is, these little headaches. It takes a little while to get things running smoothly. And you’ve got to count on that.”
The Opportunity Ahead
For dry cleaners considering their first acquisition, key checklist items include doing your homework, protecting yourself in the deal structure, and not buying volume just for volume’s sake.
“Is this acquisition a strategic acquisition, or is it just buying volume?” Engh asks. “Not all volume is equal.”
Strong, looking back on four decades of deal-making, admits he may have been too cautious at times.
“There were probably some deals I should have done that I didn’t, just because I wasn’t confident I was getting what I was paying for,” he says. “And I probably should have rolled the dice.”
And Hebeka encourages operators to start the conversation early — and keep it friendly.
“Everything starts with a conversation, and it gets people’s wheels spinning,” he says. “And that’s often a great way to grow — just by acquiring competition.”
For Part 1 of this series, click HERE. For Part 2, click HERE.
Have a question or comment? E-mail our editor Dave Davis at [email protected].
