A distributor gives up control of his company and leaves the industry.
In March 2006—after 35 years in the material handling industry, 30 years at Materials Handling Equipment Company (MHECO), eight and three-quarters years as MHECO’s owner—I sold my company to Arnold Machinery Company based in Salt Lake City, Utah.
When I tell people, “I sold the company,” three questions commonly come up: Why did you sell it? To whom did you sell it? What will you do now?
Question 1: Why Did You Sell It?
The decision to sell Materials Handling Equipment Company was one I seriously considered for about a year and actively pursued for about six months. It was triggered by a combination of things, including family issues (some developing out of Hurricane Katrina), personal and family health issues, and industry changes affecting the company.
The family and health issues were major distractions in conducting day-to-day business, as well as planning for the future. I was a hands-on manager in the business, and the outside issues were making it difficult to focus and perform at the level I considered professionally appropriate. Even with a strong management team, I believed I was not consistently providing the enthusiastic, focused leadership necessary for a frontline distributorship in our competitive, challenging environment.
In addition to personal issues, our company was facing industry and business environment changes, which increased the challenges for a mid-sized dealership like MHECO. These included dramatically rising health insurance costs, workers’ compensation insurance costs and complexities, and the increasing costs necessary to meet supplier program expectations such as training, information technology and travel. And as a multiple-division company selling, servicing and installing everything from forklifts to conveyors to loading dock equipment to casters, these issues were exacerbated by the large number of first-class suppliers we represented. Each required increasing investment to meet their—and our—expectations.
Manufacturers in different market segments are developing contrasting distribution models. Some want to see dealer consolidation and work with fewer, larger dealers. Others are moving toward smaller distributors, focused primarily on their products. Due to our history and Colorado’s market size, we were a hybrid between those two models. While we remained profitable, the squeeze was on.
Combined with this were approaches made by companies in and out of the industry to determine my interest in selling the business. Things seemed to be coming together to make this the time for me. I had read books and attended seminars on exit strategies and the recommended process for preparing a company for sale over a one- to three-year period. In my case, the response to personal and business issues, as well as outside interest, triggered the decision to sell in a shorter time frame.
It was a difficult decision because I love the material handling industry and have a passion for independent distribution. Distribution makes things work! I worked with many of the employees, suppliers and customers at MHECO for 10 to 30 years. MHECO had only had two owner groups—the founders, Jack Patten and Bob Patten (both were active in MHEDA; Jack was president in 1963 and Bob served on the Board), and me.
A key factor in the decision to sell and to whom was the welfare of our employees. Would they be given an opportunity to work for a new buyer, or time to consider other decisions if those were appropriate for them? Would their opportunity for health insurance be assured? Would leaders within our company have opportunities for leadership under the new ownership?
Our customer base dates back 54-plus years of using equipment we had sold. Would the buyer be willing, and in a position, to serve these customers, or would they be left “orphans”?
Of course, the financial well-being of my family and me was an issue. Would we be able to make a deal that would allow us to gain financial rewards for money invested, risks taken, weekends worked? In the end, I made the decision to sell the company at this time to a qualified buyer who could meet the needs of the majority of our employees, customers and suppliers, as well as those of my family.
Question 2: To Whom Did You Sell?
There were five key reasons that the sale was made to Arnold Machinery Company.
- They had expressed interest over a number of years. I had formed personal and professional relationships with several members of their management team and had come to respect them. Discussions and interfaces at MHEDA Conventions and meetings played key roles in developing these relationships.
- Arnold’s integrity, philosophies and operating policies toward employees, customers and suppliers were similar to ours. Arnold Machinery Company’s Silver Service is a straightforward statement of taking care of the customer, no matter what. This was similar to our Customer Service Commitment, but communicated more succinctly and with more marketing flair. They also indicated willingness to offer jobs to all of our employees, at least for a transitional period. They were interested in promoting two of our managers to leadership positions. They committed to adding our employees to their health insurance and other benefit programs as seamlessly as possible. The transition appeared to be one with more opportunities and less disruption for employees than other choices.
- Arnold shared the product line involved with our largest percentage of sales—Hyster forklifts. Hyster indicated it would transfer our product line to Arnold’s contiguous territory if the sale was made. In the material handling industry, product lines don’t automatically follow to new ownership, so this is a critical consideration in the sale of many dealerships. We were disappointed that not all product lines stayed with the new owner, but most of the key ones did.
- Arnold Machinery Company has interest in growing the part of the business that was not Hyster-related, what we call the Storage and Handling (Arnold calls it Material Handling) side of the business. I felt this would build on our heritage of being a full-line supplier in this market. They were willing to service all our customers. There would be no orphans.
- They were financially capable of completing the transaction and building on our base for future opportunities.
I felt the transition to new ownership would best be made to an existing material handling dealer, and my industry contacts made over the years through MHEDA and other places made that possible. I did not use a broker or an acquisition specialist to find a buyer. I did talk to other interested parties but made the decision to sell to Arnold Machinery Company.
Question 3: What Will You Do Now?
With health issues resolved and continuing strong interest in material handling, distribution and business, I do not plan a retirement of lying on the beach or playing a lot of golf. In fact, I don’t plan to retire at all! Of course, as with the sale decision, the desire and support of my wife and family are important. So plans are being made in sync with their expectations and desires. One element to be considered, as is common in the sale of material handling distributorships: I have signed a non-compete agreement and must work within that framework.
At this stage of my career, I am considering two broad alternatives and am beginning to explore these through networking and other means. The first is training, public speaking and teaching in areas of expertise I have developed during my business career, including sales, marketing, organizational management, communication, customer service and selling through distributors. The sales model “Objective Based Selling,” which I have developed and taught in the material handling industry, may be in demand there or in other industries. This may also result in consulting at the distributorship or manufacturer level, or connection with a college with an industrial distribution or business program. Some college programs may be interested in having someone in the classroom who has “been there.”
A second possibility is looking for an appropriate management, sales and marketing role within the Denver business and non-profit community. I have considerable experience in non-profit organizations, which have the attraction of giving back to the community I live in. I am networking with people I know in the Denver community to see what opportunities are available and how they might match my skills.
This addresses the three most-asked questions when I discuss selling the company. However, there is a fourth.
Question 4: What Did You Learn in the Process?
I learned I needed professional help to complete the process. While I did not use a broker or a mergers-and-acquisitions specialist to find a buyer, I found that working with a business transaction attorney was not enough. I needed someone who knew how to help me with issues such as due diligence, preparing for trailing liabilities, communicating with employees and suppliers, negotiating final terms with the buyer, the closing process, and post-closing activities necessary to close down a business. I simply was unprepared for this and needed professional help. Based on a referral from my transaction attorney, I hired a specialist in business transitions. (Editor’s note: Read tips from Gary’s specialist, David Corsaut of Cloyses Partners, inManaging The Defining Moment in this issue.)
I learned how time consuming the sales process can be. I had bought a company, but I had never sold one. It was very difficult, even with help from key people at the company (special thanks to VP/COO Ron Conrad) to keep the forward momentum going at MHECO while negotiating the sale and handling transaction details. This is another area where the transaction specialist helped.
In following through on the specifics of the business transaction, particularly the due diligence and post-closing processes, I learned a lot about the company. The due diligence information list required by the buyer was multiple pages and had over 30 detailed requests on it. Had I been planning better, I would have worked against this as a checklist for a year prior to the sale. As it was, we had to pull it together within 60 days. (If you are a distributor executive or owner, I recommend you obtain a good due diligence list. It’s a great checklist for running a business as well as selling or buying one.) Through the due diligence process, I learned many things about the company’s operations that will help make me a better future manager or advisor.
Another thing I learned was the meaning of the words “trailing liabilities.” These include things like discontinued operations insurance, closing the 401(k) plan and health insurance transition issues for employees, including myself. I was fortunate that Arnold Machinery Company worked closely with us to help with these issues, but I should have been better prepared going into the process. The experience of Ron Conrad, our business transaction attorney and the transaction specialist were indispensable in these areas. Selling to a company with experience in business acquisitions also helped. At least one of us wasn’t a rookie!
I learned the issues a business sale raises in family relationships—everything from schedules changing to discussions about office space at home to what we really will do in the future. I was fortunate to have strong support from my wife and family in this decision.
Finally, I learned that as much as I love the material handling industry, the structure of independent distribution, and the people and company I worked with so intensely for so long, I was ready for a change. It simply was time to do something different. I had lots of moments of anxiety, uncertainty and surprise during the process. But, in the end, with help from key employees, a good transaction attorney, a specialist in business transactions, a buyer with sincere interest and integrity, friends, advisers, and family, I am excited and ready for the next stage of my career and in my life!
I am proud of the effort and years I spent helping build my material handling equipment business. I am appreciative of the opportunity and am glad I bought Materials Handling Equipment Company. And now, I’m glad “I sold the company.”