After 20 years, founders of plaster painting business decide to sell
Customers purchased more than $2 million in plaster figurines last year from the Somerville based Plaster Fun Time. It took the founders over 20 years to build the market before selling the business. The transaction was not unusual in the world of buying and selling small businesses. However, the process is normally kept confidential so the narratives behind selling businesses are rarely told. During a live transaction where a business is being sold, the buyer, broker, and seller find themselves intertwined. All are hoping for a deal, but a recent study found that 80 percent of company listings don't sell. That same study found that 50 percent of deals inked on paper fall through. This is according to BizBuySell, the largest online database of businesses for sale. The Plaster Fun Time deal did not fall through. The buyer and seller with help from a business broker closed the deal in April 2015 for around $2 million or 2.5 times the company's 2014 Earnings Before Interest Taxes Depreciation and Amortization (EBITDA).
The Buyer Perspective
IAt about 10 a.m. the new owner of Plaster Fun Time was starting the day at their Newton location. After a brief hello, Chris Ling was busily preparing for the first clients to arrive. Ling purchased Plaster Fun Time in April 2015 and became its CEO. He speaks the lingo fluently now. "We are the go to place for birthday parties for ages 3 to 15” he explains. Prior to buying Plaster Fun Time Ling spent about ten years in consulting and general management roles. His experience includes stints at Boston Consulting Group and KPMG.
Ling credits his consulting work with helping to navigate reams of information to find a business he was prepared to buy. When asked about the process of agreeing on a dollar value for the business, Ling describes a point where buyer and seller are not completely happy with the price but comfortable with a compromise. His offer faced competition from other buyers, but an “auction” organized by the broker kept all the steps orderly. Ling’s offer was second in line but when the winner backed out of his offer, Ling's was accepted the following day.
“I had been looking for a business for several years, everything from niche manufacturing, some retail, to service businesses," said Ling. Each potential business came with a different lifestyle attached to managing that company. Working at Plaster Fun Time is slow mornings, busy afternoons, with few scheduled days off. In 2014, they were open all but three days of the year. For people going through the process of buying a small business, each new business brings self-affirming questions: could you be the owner of a snow plowing business, how about a mail-order company, or chief executive of a day-care business?
Ling was willing to look at a wide variety of businesses, but he searched for a core set of operating and financial fundamentals. About Plaster Fun Time, Ling valued that the company had both manufacturing and retail components. He believes these make a business more stable than pure retail businesses. The buying process requires imagination to see oneself managing a business someone else started. However, if the vision is plausible, potential buyers take next steps to contact the business broker and obtain a marketing packet on that business. After reading a teaser about Plaster Fun Time, Chis Ling contacted Park West Business Partners about buying the business.
The Broker Perspective
After listing Plaster Fun Time for sale, Juli Rossi received several requests for marketing packets. At the Boston Business Expo in Hynes Convention Center is where I interviewed Rossi, a business intermediary at Park West Business Partners based in Kansas City Missouri. She travels to these sorts of events to meet potential clients. She looks for buyers who are beyond the curious stage and demonstrate commitment to the acquisition process. Rossi says, “the ones who respond quickly and follow up are the ones who close deals." Rossi said Chris Ling was 'very responsive' regarding his interest in Plaster Fun Time. As a first step, she will ask buyers to submit financial information to show they have access to cash worth 20 percent of the purchase price. “20 percent is typically required as a down payment to qualify for an SBA (Small Business Association) backed loan.” This function of Rossi’s job saves the seller the hassle of sifting through unqualified buyers "window shopping." Rossi’s firm serves as a partner to the seller. Through a secret process, her clients can share financial details without fear of these leaking to the general public. “We’re very particular about that, each potential buyer signs a Non-Disclosure Agreement, and the business details remain confidential.”
Rossi was introduced to the Plaster Fun Time transaction through a contact who knew the founders. She learned that the owners were coming off a bad broker experience that lasted one year but generated no potential buyers. The previous broker collected a fee upfront. After phone conversations with Rossi, Plaster Fun Time co-founder Mark Selvaggi signed on with Park West to sell his business. This time, there they had several offers within months of listing. Business broker services can range in cost and results. Selvaggi had previously paid a broker fee to list the business and didn’t receive any offers. Rossi’s firm did not charge any upfront fees but instead earned a commission after the sale. After Rossi explained the process, Selvaggi was comfortable committing to Park West Business Partners as his broker.
Mark Selvaggi with Nancy, Laura, and Joseph Selvaggi
The Seller Perspective
Mark Selvaggi started Plaster Fun Time with his brother, sister, and mother in 1995. The family learned about plaster painting in the 80s from mother, Nancy Selvaggi, who worked as a high school disciplinarian. She designed plaster painting sessions for troubled highschool students as a way “to provide an activity where everyone could be a winner," said Selvaggi. In 1995 Mark Selvaggi had just graduated college when the brothers thought to infuse the plaster painting concept into a franchiseable model. They thought to open multiple stores in the Boston area with "no one store making a ton of money but with several, you could make a good living," said Selvaggi. The first location was opened that same year in Reading, MA. After several years of slow but organic growth, a break came for the family when they opened a location next to an after school arts center in Natick. Families brought pupils for lessons at the school but had few options for young siblings of the students while lessons were going on. The adjacent Plaster Fun Time soon became a favorite pass-time with kids and parents. Sales at that store paved the way to opening other locations and establishing a manufacturing facility.
20 years later the business grew to nine locations and the manufacturing facility. Selvaggi was the company President. Brother Joseph Selvaggi however, began pursuing a political career, and his sister Laura wanted to spend more time with her family. Selvaggi continued to press on and had hoped to keep the business. He considered buying out the equity of his family members but was also enticed at the idea of starting a different career. Particularly Selvaggi was excited at the prospect of having no employees to worry about. Ultimately, a family decision was reached to sell the business, and they went about the process of preparing an exit. It was nearly two years before the sale was complete.
After selling the business Selvaggi began using his experience to help other entrepreneurs organize their financial lives. He works as a financial advisor for New York Life in Waltham, MA. He often talks with business owners about figuring out what their companies are worth. Selvaggi admonishes against some of the practices by uninformed business owners, for example, valuing the business at a multiple of annual revenue. Instead, he advises owners to calculate EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). Plaster Fun Time sold for about 2.5 times the EBITDA number and "this is the standard way to calculate a price across different industries," said Selvaggi. He also advises current business owners to think carefully what life will be like after selling the business. For him, there were several adjustments required to feel normal in his new life. Selling a business “is a mixed bag of emotions," says Selvaggi.