I had no idea what was in store when I began trying to purchase Vomela Company in 1985. But through the unexpected surprises, I learned several important lessons about what it takes to purchase a company and eventually leverage a profitable sale. (This is the final installment of a three-part series about my personal experience building and selling a profitable business.)
At the end of Part 2, I had explained how Vomela had undergone a total restructure to reinvent itself for future success. My father had all but stepped aside, leaving me to run the business, and our gross margins and profits were off the charts.
In my mind, the next step was as simple as it was obvious: I’d buy the business outright. However, through the process, I learned several harsh truths that would shape my future with Vomela, my eventual departure, and lead me to where I am today.
My 5-Year Process of Purchasing Vomela Company
I entered the buying process seeking sole ownership of Vomela. But money - or lack there of - quickly crushed that dream. If I wanted to purchase the company, I’d need a business partner. That’s when I was introduced to Tom Auth.
Tom was a financial expert with experience. He’d already bought more than 30 successful companies by the time he entered Vomela’s radar, so he knew the game.
With my longstanding devotion to Vomela, purchasing it was emotional. But for Tom, it was just another business deal. My father instilled in me the values of risk-taking and gut-listening, but Tom took a more pragmatic approach to business: He followed the money.
Tom saw Vomela’s potential, and wanted in. After careful consideration, my father decided to sell Vomela to Tom and myself in a 60 - 40 split. I went from dreams of independent ownership to the reality of being a minority shareholder. It was a tough pill to swallow.
Even tougher was the realization that I still didn’t have enough capital to purchase my share. So, I went to the bank. That’s when I, once again, realized the importance of being surrounded by the right people, and more importantly, money.
You can’t underestimate the significance of relationships, credibility and personal guarantees in business. Had I entered the bank as just “Rock LaManna,” they might have turned me down. However, hearing of Tom’s involvement was all the credibility the bank needed to approve my request.
By this time, Vomela was humming. We had increased our staff from 35 employees back up to 120. Between Vomela’s success and my newly acquired capital, it was time to seal the deal with my father.
For three years after officially purchasing the company, Vomela continued to flourish. Sales and margins were at an all-time high, and our investments were booming. While Tom controlled our finances, I ran day-to-day operations believing I was just part of the package.
However, in 1993, Tom shattered that illusion when he asked me to sell him the rest of the company.
3 Keys to Leveraging a Sweet Deal
I wasn’t interesting in selling the company to Tom (or anybody else). I had worked at Vomela for 17 years, for crying out loud! But after realizing that I couldn’t compete with Tom financially, I reached a stage of acceptance - though not without a fight.
I was no longer a rookie in the selling process, and I knew being strategic would be key to receiving the best deal. Here are the steps I took:
* Hired independent expertise - As partners, Tom and I had previously shared the same consultants - lawyers, accountants and the like. Now, I needed to hire my own.
Most owners in my position don’t spend their money on top advisers because they don’t understand the return on investment. However, if you want to avoid being out-maneuvered, mediocrity isn’t going to cut it.
I knew Tom was surrounded by top-notch advisers, so I needed matching intellect. I immediately contacted accountants, bankers and lawyers, who helped me draft a contract and provided invaluable guidance.
* Seeked emotional guidance - This was uncharted territory for me, and I was scared. Vomela was all I’d ever known! Hiring a Personal Coach for emotional guidance afforded me some direction through the selling process and my post-close transitional period.
* Solicited a valuation - Finally, in what became one of my most valuable decisions, I ordered a valuation, which paid off two-fold: First, it told me what the company was worth. Second, it presented benchmarks indicating where Vomela needed improvement.
Drawing on the appraisal’s findings and my freshly-hired experts, I grew the business considerably over the next 19 months. Then, when I returned to the negotiation table with Tom, I knew my stuff!
The payoff? I ended up quintupling (yep, that’s five times) his original offer. Now, I needed to decide what to do next.
Transitional Planning for Post-Close Success
As important as it was to close a profitable deal, I knew that securing my success after Vomela was just as prudent. Remember, this all happened over 20 years ago, when I was only 39 years old and nowhere near ready to retire. I needed to develop a transitional plan.
Over the course of the 19-month sales process, I dedicated half of my time to the deal at hand, and the other half to planning my future ambitions. In the end, I decided I’d stick to what I knew best by becoming a consultant in the print and converting industry, and my experience paid off big.
I knew which raw materials Vomela needed and recognized an opportunity: They didn’t have the resources in-house or the contacts to buy their materials internally. So, I structured the closing deal naming me Vomela’s new raw materials supplier. Then, I cut a deal with 3M to resell their raw materials to Vomela at a discount rate. I created my first client before leaving - my old employer!
The day after Tom and I closed our deal, I was already working for the LaManna Alliance, my new consulting agency. Now, I’ve been personally involved in nearly 100 deals, whether buying, acquisitions or selling.
This is an instance where I would suggest doing as I did. Most owners get so caught up in trying to control the sales process that they forget about the next steps. My advice? Leave the deal up to the experts - they know more than you anyway. Focus more of your attention on creating your new, post-deal life based on your creativity and passions.
Believe me, the road to buying or selling a business isn’t paved with marble - it’s going to be bumpy at times. However, if you remain patient, focused and seek the right expertise, you’ll come out a stronger, more enlightened business person.