NEW YORK — Always sell your business in the first quarter and always take cash.
This story first appeared in the November 26, 2003 issue of WWD. Subscribe Today.
And, if you can manage it, don’t sell your business at all.
Those aren’t necessarily the words one would expect from an investment banker, but they were the ones delivered, in both jest and seriousness by Peter J. Solomon of the firm that bears his name. Solomon addressed the American Apparel and Footwear Association seminar on “It’s All About Consolidation: Merge — Acquire — Liquidate,” presented by Emanuel Weintraub Assoc. Inc. at the Princeton Club last week.
According to Solomon, it makes sense to sell in the first quarter because of fresh financials: “You get credit for last year and some credit for the coming year.”
Second-quarter transactions can be delayed by concern over the Christmas season, anxiety that tends to grow over the course of a year. The investment banker pointedly told attendees, “Do not embark on a sale after May or June.”
He also provided some tongue-in-cheek strategic advice to prospective sellers: “Tell potential buyers that you are planning to stay with the company. Let them fire you. Get fired and get a double dip [through the] severance check.”
He advised sellers to always take their payments in cash: “Why would you want to transfer your stock that you control for stock that someone else controls?”
The best course of action? Don’t sell at all. That way one avoids becoming “just one more [person] walking around New York City with $50 million in their pockets where no one cares about you,” Solomon said. “Then you invest it and it gets down to $30 million.”
Through ups and downs in the economy, Solomon said, business owners need to figure out ways to keep their operations intact. Principals often regret selling their businesses, either because they don’t know what to do with their time or because they can’t adjust to being just another employee.
Solomon lightened the tone of a series of presentations that included remarks by Peter Boneparth, chief executive officer of Jones Apparel Group; George Jones, ceo of the Saks Department Store Group; Robert Adler, owner of Halmode Apparel before its sale to Kellwood Co.; Gilbert Harrison, chairman of investment bank Financo Inc.; Jon Lucas, senior vice president and Northeast regional manager of CIT Commercial Services, and Allan Ellinger, senior managing director of Marketing Management Group.
Lucas spoke about what lenders typically look for when analyzing a balance sheet, such as a history of predictable earnings. One point of advice he gave was for buyers to “work backwards” by analyzing earnings and cash flow to figure out what it would take to pay off the debt assumed from the acquisition.
In a presentation entitled “Getting Your Company Ready to Be Sold,” Emanuel Weintraub of the eponymous firm told attendees that Wall Street wants public firms to grow 10 percent a year. With apparel sales growing between 3 and 5 percent a year, the balance generally comes through acquisitions.
“The big fish need to eat the little fish to keep stockholders and Wall Street happy,” he observed.
Adler, representing retirees everywhere, noted one of the incentives to sell is that it is difficult for many businesses today to maintain the volumes and margins that they enjoyed in the past.
“Today, every product that we made [at Halmode] will be replaced by ‘George,’ so Wal-Mart can save on royalty [payments]. I can say this because I’m now retired,” Adler noted.
Jones, of Saks, declared “something needs to be done” about the proliferation of chargebacks and vendor compliance programs, although change is difficult since the practices are so widespread. He termed the ways in which retailers use chargebacks a “profit center….I hate this. We have to stop this.”
Jones feels that brands with a degree of exclusivity offer great promise to department stores. “The brands are important, but there has to be equity in the brands,” he said. “They must be true brands and if you have that, you must protect it. The others are not true brands, just labels.”
Smaller companies may not have the name recognition required to be considered a brand, but often they have the talent needed to generate exciting, differentiated products. Those firms are more likely to be independent, rather than owned by a larger firm.
Addressing those companies, Jones said, “We like you just the way you are.”