"Good Morning, Sugarloaf Great Plains division, this is Carlene." Wow! Did I really just hear that? Just yesterday it was "Good Morning, Chilton Vending." We really must have done this deal. I've known this was coming for the last seven months. It's here. Why am I surprised?
Many of you have in the last few years have, or will have the opportunity, to sell your businesses. Some buyers will want you to work for them, others will just want your routes, and you can contemplate retirement if you choose, or do something else for a living. Regardless, it's a huge decision, and an emotional one, when you start considering selling your business - especially when it's been in the family for generations, as is the case more often than not in this industry. In our case, I guess I knew it would come to this sooner or later, what with the way our industry is progressing with consolidation. "Sooner" is suddenly past tense for the Chilton family.
My suitors were gentlemen. Our first real meeting was in Boulder in December of 1997. I knew about their company and they about ours, but we had never before discussed becoming part of their company. I suspected it might come up, so I had rough financial information with me. It was clear early on that week that our business agendas were on an intersecting course. They wanted to be in the video and redemption amusement machine business, and I wanted to take our company's talents to the next level.
But how much can you discuss with a current competitor before you execute non-disclosure agreements? It worked out that they had me sign a non- disclosure agreement early in the meeting. In reality, the agreement doesn't mean much, so it was important that I had a real comfort level with the conversation. I did. I won't soon forget the feeling I had when I was departing Boulder for Wichita after that first meeting. You just knew this was a different deal. Many details, including the price for the company and my employment package, had yet to be negotiated...but you knew their intent was genuine, and that this deal was very "do-able." It was time for some serious family conversation.
"Dad, it's Randy" is how the conversation always starts. "You know those guys in Boulder? They are interested in buying our company." Even as I said it I really didn't think it would come to conclusion the way it has. It was fun to talk about, though. Stan Chilton just turned a young 73 on July 2 (I hope he doesn't mind me saying...) and he was still working every day. This would be an opportunity for us to realize our equity and to take our company's talents to a new level of operating. We had discussed this before in a "what if" scenario, so it wasn't something we hadn't thought about. Stan and I quickly agreed to move forward. When opportunity knocks you must answer the door.
After a mountain of financial information was forwarded to Boulder, we quickly established a purchase price, my responsibilities with Sugarloaf, and employment package. It wasn't so much a "negotiation" as it was a "dissertation" from Sugarloaf CEO Jerry Lapin to me. Just for sport, I asked for more, and didn't get it.
An interesting twist to this was that because of Sugarloaf being a publicly traded company, all of their company's financial information is available on the Internet. Going into the meeting I think I knew more about their business than I knew about my own. Their proposal was very fair, which is good because I didn't get the feeling there was going to be much negotiation. I learned about "E.P.S." (earnings per share), being "accredive to the bottom line" and about "meeting expectations." All have a very specific financial meaning in the publicly traded area.
Jerry Lapin said to me during one of our earlier meetings, "The deal must be 'accredive' to the E.P.S. or we won't meet our expectations, which is unacceptable." I think it means they can't buy a loser company no matter how bad they want it because if they do, and it negatively affects the companies earnings, then they don't meet the quarterly expectations as it relates to net earnings, then their stock price drops. And that's a very bad thing.
After a number of meetings with our attorneys and accountants (which as I write this totals approximately $30,000 in professional fee wisdom for this transaction), we had the documents signed and sealed. Now on closing day - June 1, 1998 - we received the money from Sugarloaf via wire transfer. It was anti-climactic. My accountant buzzed me that Monday morning and said the eagle had landed (the wire had arrived). Wow. It's done. For a while we had quite a bit of money in the building...at least, that was the case until after lunch that same day. Then we had to wire out chunks of the money to pay off a few lenders. That did feel quite good. If I'd had the time, I would have liked to hand-deliver a few of those checks.
We did negotiate some very good pay-off amounts with most lenders. I didn't know you could negotiate these amounts, but we sure did. Lenders like to get paid off...that is, most of them do, anyway. We did have a few bad deals on the books; we just didn't know it. In the heat of our expansion during a particular cash crunch a couple of years ago, we financed some equipment through a distributor's lease program. At the time my accountant plugged the numbers into an amortization schedule and the term and interest rates were reasonable, so we did it. I guess we didn't read the fine print.
I've learned the hard way about leases. My advice is that if a lease talks about figuring principal balances using the "rule of 78s" (a "jake-leg" or "loan shark method" of accounting, the "anti-Christ" of simple interest computations), or includes an early payoff penalty, then stay away. No need both of us making bad deals. Can you believe the lease companies penalize you for paying them back early? I'm not talking about pennies here, either. It was over 5% of the total balance due in penalties. That's like the preacher telling you you're giving too much money to the church. I thought paying off debts early would be welcomed.
I should have had an attorney read the lease before I signed it. My advice, don't lease equipment and if you do, have an attorney read the documents first. Use traditional financing.
Now it's time to bring all of our employees into the loop. The reality hit home again when during a Chilton employee meeting with the Sugarloaf representatives that they explained to our employees what happens during a "roll-up" situation with a new company. Roll-Up? Now there's a term I wasn't ready for. Isn't "roll-up" something you do to a rug? How violating that felt and sounded. It sounded too much to me like "throw-up." Selling your family owned business of 53 years is tough enough emotionally without finding out you're being "rolled-up."
Later I mentioned to the Sugarloaf guys, who were actually terrific with our group, that I thought of the transaction as more of a "transition" or "new partnership." They appeased me and all further references were part of the "transition." Special thanks to Ken from Omaha for that one.
Now it's down to the last week before closing date. Time for the "due diligence" portion of the transaction. We have 1,813 machines in who knows how many counties in three different states. In the next seven days, Sugarloaf sent representatives, each with one of our Chilton representatives, out to EVERY machine to visually inspect it, verify serial numbers, and rate its condition. Then we had to physically count every piece of plush in each skill crane to come up with an actual inventory as of June 1. The count was somewhere around 150,000 pieces of plush in 260 cranes and six warehouses. Stan coordinated that part of the transaction, thank goodness. I guess he has 100 hours in that effort alone.
I tell you all of these details because in my wildest dreams, out of ignorance, I never would have imagined all that occurs when you sell a route. I've never bought or sold a route.
Special thanks are in order for the Sugarloaf team that lead our company through this "transition." There were no less than 20 people involved at one time or another. Sugarloaf's Ken Bartholomew from Omaha gets special kudo's from the entire former Chilton staff for his leadership and patience.