Making the Sale
Dos and don’ts of putting an FEC on the market
by Mike Bederka
Harold Skripsky jokingly calls himself a “professional FEC seller.” He sold his facility twice (repurchasing it once). Despite his experience, he admits he goofed by negotiating both sales himself.
“It was probably the worst thing I did,” says Skripsky, now president of Entertainment Management Services Inc. in Scottsdale, Arizona. “I left something on the table. I could have squeezed more out of them.”
He believes he should have worked with someone “emotionally removed” to help broker the deals. Of course, 13 years after the second sale, that fact matters little now, but it does illustrate an important point:
Selling a family entertainment center (FEC), a proposition with myriad nuances, can occasionally trip up even the most knowledgeable owners. Here’s a primer to guide you through the process.
Getting Started
Before even thinking about putting the facility up for sale, owners need to look inward and outward. “Make sure you want to sell and ask yourself what are you going to do the day after you sell,” notes Robert Ranallo, a Cleveland, Ohio-based mergers and acquisitions attorney experienced in the sale of FECs.
Once past that initial question, owners must get “their ducks in a row” with regard to financial documents and assets, says Jerry Merola, chief financial officer for Amusement Entertainment Management LLC, in East Brunswick, New Jersey. “What do you own? What don’t you own? And how does it look on paper?” he says. If a person rushes a property to market without preparation, the business is rarely presented in the best possible light, and the FEC never reaches its maximum value because the financials don’t tell the real story, Merola says.
However, revenue and quality of assets constitute only one part of the equation, Skripsky says. Potential buyers will want to know about the competition in the area, the ability to expand, the curb appeal, parking availability, and quality of existing staff. Also, owners who don’t continually reinvest in their properties with new games and attractions, restaurant equipment, and a fresh coat of paint now and again will see their FEC’s value diminish greatly. “If your business is ‘broke,’ what do you really have to sell?” he says. “The buyer needs to be wowed.”
Merola agrees: “Ultimately, a seller will get a lot more mileage out of upgrading and maintaining that facility at its peak level. Buyers look for flaws. When flaws become glaring, they assume that there are more flaws than they’ve actually been able to uncover.”
Going to the Table
Once an owner eyes a dollar amount, it’s time to market the business for sale, says Ranallo, a partner with the firm Skoda Minotti. Possible options include a broker, investment banker, blind ads through industry publications or business journals, or word of mouth. Merola says the most likely (and logical) purchaser will be an entertainment operator from the area. Other possibilities are local entrepreneurs, who might not have any FEC experience but understand the community and its needs.
After an owner finds a suitor, the negotiations can begin. Skripsky offers the following tips for getting a signature on the dotted line:
- Use a professional business broker or mergers and acquisitions firm.
- Set clear and realistic goals.
- Understand the facility’s strengths and weaknesses.
- Understand the buyer’s strengths, weaknesses, and goals.
- Be organized and efficient.
- Have a lawyer and CPA involved at every step of the way.
Owning bad books or giving misleading, inaccurate, or bogus statements are a quick deal killer, Skripsky adds: “Almost everything is verifiable. If they catch you in a lie, they’re not going to believe anything you say.”
How to Establish an FEC’s True Value
Establishing an FEC’s actual value comes down to four main factors, says Jerry Merola of Amusement Entertainment Management LLC:
1. Value of actual assets within the business
2. Future value of the cash flows generated from the operation
3. Required reinvestment into the business in the short term
4. Fair market value of any real estate that’s part of the transaction
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Tough Times for Some Sellers
At this point, Dave Cleveland doesn’t mind being offended. “We’re very motivated sellers,” says the owner of Silos Fun Park in Hillsdale, Michigan. “Go ahead: Make an offer. Let’s see where we go from there.”
Cleveland eagerly wants to break away from the FEC to focus more on his young family and his other job as a computer network consultant. “I would like to simplify my life,” he explains. So far, he hasn’t had much luck. Silos has been on the market for almost two years. “Tire kickers and just nosiness” represent the only inquiries.
Robert Ranallo, an attorney, CPA, and certified valuation analyst, associates the challenges in the marketplace to two main factors: extremely tight credit availability and property is highly depressed in terms of value.
“The pool of qualified buyers is much smaller than it ordinarily would be,” Ranallo says. “This is not a good time to sell, particularly if the business is worth intrinsically more than today’s market might support.”
Cleveland knows these facts all too well. “It’s not that we have an unattractive park or something that someone wouldn’t want to buy,” he says. “It’s just incredibly horrible timing.”
He built the park about six years ago in obviously much better times. Even during the first few years, Cleveland sank more money into Silos, adding a large arcade and bumper boat pool. Now, he acknowledges he should have taken a more objective look at the economy and anticipated this downturn.
Luckily, he does see some glimmers of hope, with the unemployment rate improving in his area. He won’t, however, make any predictions on when he’ll finally be able to make the sale. “My crystal ball quit working a long time ago,” he says with a laugh. |
Contact Contributing Editor Mike Bederka at mbederka@IAAPA.org.
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