For some pool and spa business owners, building a thriving business from nothing is only the second hardest job they've faced. The toughest of all is successfully passing that business on and transitioning into retirement.
It's a daunting task. When you've sacrificed so much for something, you care for it. You want it to survive you and continue to grow.
It's like your child. Indeed, there are many parallels between a family business that was born and guided to maturity, and one's own progeny. And it's often the secret hope of family pool and spa business owners to bring the two together and pass the mantle of ownership onto one of their own children, allowing the parent-owner a graceful, gainful transition into retirement.
Many owners have had that dream. Every once in a while, despite all the obstacles — family squabbles, disinterested or incapable children — it happens.
Recently, a third-generation family-owned pool business, Jet Line Products, successfully made the crossing, with a good outcome for both generations of the ownership family. The retiring generation was able to exit with the financial rewards due them for all their years of hard work, and the younger generation retained important positions in the new regime.
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Warren Feder, Partner at Carl Marks Advisors, an investment bank that advises middle market companies, was the team leader on successful sale. Through his experience in facilitating the sale of family-owned businesses — Jet Line and others — he has some helpful insights for owners looking to make that same crossing safely, with their family bonds and the fruits of their labor intact.
"For many people that start a business, that business is really their first child. And then they go on to have families, and the two grow together. But family dimensions can complicate the running of a business. And as you know, statistically, very few family businesses really make it to the third generation, and almost none make it beyond that, because it's so hard. The challenges of a business, the challenges of family — it's tough when you combine both of them.
"Although they may not feel this way at first, for many family business owners looking to retire, a great solution for everybody's life is to simply sell the business, and let people just be family, not members of a family business."
Jet Line is a pool equipment distributor founded in 1971 by the Epstein family, and as of early last year it was in its third generation of family ownership, with customers in the Northeast, Texas, South Florida and the Caribbean.
"The second generation of ownership, several siblings in their sixties, was looking at a different stage of life, really looking to phase out and to cash out. While the younger, third generation of the family, three guys between 40 and 50 years old, Andy Levinson, Josh Epstein and Brett Epstein, were really looking at different opportunities the business might offer — they might be interested in growing more."
So there were different family groups with different goals all trying to find a way forward. As discussions and meetings proceeded, despite efforts to keep the matter confidential, word leaked out that Jet Line was on the market. And the company that came calling in response to those rumors was, to the family's surprise, their biggest competitor.
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"The guys were really wary when they found out," says Feder. "They'd been competing with POOLCORP and doing it very successfully for a long time — they'd expanded into Florida and Texas from their Northeast base, and they were thriving.
"And those feelings are real. In my own family business, which I sold years ago, we were a distributor in competition with a company called Goody Products. And you don't just compete with your biggest competitor, you kind of demonize them to a certain extent. They're the other side. So it's not easy to agree to sit in the same room with them and talk about a deal. But POOLCORP was persistent, and eventually the guys agreed to a meeting."
Somehow, being in the same room changed the equation, Feder says. "That face-to-face meeting really was the turning point. When they actually sat down together, the chemistry was very good between both parties. Often you find with your competitors that once you sit down and really talk to them, you find you have tremendous commonalities, and you're dealing with very similar issues. And that can be a basis for a good relationship.
"After that face-to-face meeting, the guys from Jet Line came away saying, 'Yeah, these are actually pretty good guys. They're not what I expected.' And that really opened the door, you know, for the transaction. From there, we started sharing more information, we went back and forth on different things that were important to each side, and eventually closed at the end of September.
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"And it ended up being a deal that really served everyone's needs. It was a substantial liquidity event [cash] for the owners of Jet Line and for Brett, Andy and Josh, they joined the POOLCORP management team. As young guys who are aggressive and smart and know the industry really from birth, they're tremendously valued and have a very nice future in front of them as well."
This solution in this case offered the different constituents something of what they wanted and overcame the passions that are part and parcel of a family business. In the Jet Line sale, the company's biggest competitor became the new boss — a difficult proposition for most people to accept — but family members were able to look beyond their old rivalry and find a resolution. The people who wanted to stay found places in the new organization, and the people who wanted cash at the door got cash at the door. And on the other side of the table, POOLCORP got a thriving business and experienced leadership in the bargain.
Some Helpful Hints for Selling Your Business
Beyond the lessons of the Jet Line sale, there are some general principles that can facilitate the sale of a business — any business, but particularly a family business, Feder notes. It starts with limiting the number of people around the table. One is probably the best number.
"If everyone has an equal seat at the table and wants to be involved in every aspect of the transaction, it makes it far more difficult to get a deal done," he says. "You need the family to designate one person or a couple of people with the authority to make the deal. And that's critical.
"The second thing, and this will sound somewhat self-serving but it's true, you need really good advisors, and you need to let them do their job. Let's face it: Few owners of family businesses — I don't care what size they are, especially in the pool and spa business where you don't have that many large companies — know how to sell companies. It's just not what they're good at.
"You need people that know what the market expects and how to structure deals. People that know what issues are important and which ones aren't, and how to get over them. And you need a good mergers and acquisitions lawyer that knows how to do a deal. In short, you need people that know what they're doing."
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Another crucial element of a successful sale is a company's financial systems and record-keeping, because whoever's going to buy a company is going to need proof of its profits and revenues.
"They're going to be doing a proctology exam on your business," Feder says. "To the extent your systems and numbers are good, and your buyer can send in accountants and validate what you're saying, then you have a better shot at getting a deal done the way you want to. If you can't do all of that, it's not insurmountable because we certainly have clients that don't have great numbers, and we have to help them reconstruct things, but it just makes it a bit more challenging."
One of the biggest problems that family businesses in the pool and spa industry have when they want to sell is that most of the expertise is wrapped up in top management — the very people who are looking to cash out and leave. That makes it really hard for someone to buy that business and prosper when so much of the business value is headed out the door with the sale.
"This is where systems, organization, procedures and having groomed people for management gives you a tremendous advantage," Feder says. "It gives you a much better chance at making the sale. You need to figure out who's going to operate the company when you're gone. You need to have that question answered. You can't leave that to the buyer. (Unless you're selling to someone else in your business who already knows how to run things. But that is a limited number of people.)
"In some cases, if the owner can commit to staying for two or three years and to help facilitate the transition, there will be people who don't mind taking on that challenge. But if you think you're going to get your check and walk out the door the next day, and people that don't know your business are somehow just going to take over and run it, that's not going to fly."
Symptoms of COVID: Business Fatigue
Like every area of finance and the economy, in business sales and acquisition, COVID has changed everything. Feder sees the events of 2020 accelerating the pace of activity.
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"We are swamped. I think a lot of baby boomers, people in their sixties, seventies — they went through 9/11, they went through the great recession in 2008, and suddenly now, out of nowhere, they're hit with COVID, which has been a real struggle for everyone. So you might've been about 50 years old in the Great Recession, and now you're 65 years old dealing with the supply nightmares of COVID. And I think a lot of people have reached a point where they just don't want another body blow. Even if they've come out okay with this pandemic, it's been a very harrowing time not knowing what was going to happen the last 10 months. They've just been exhausted by the experience of COVID.
"So I expect that we're going to see more families saying, 'You know, the only thing that's finite is time on this Earth. And I'd rather take chips off the table now and cash them in. I'm happy to do a transition for the next two or three years — I want to put the business in good hands — but when I'm 70 years old, I don't want to be doing this anymore.
"I think we're going to see a lot more of that."
This article first appeared in the January 2021 issue of AQUA Magazine — the top resource for retailers, builders and service pros in the pool and spa industry. Subscriptions to the print magazine are free to all industry professionals. Click here to subscribe.
