Case Study #12: The Right Multiple

In 1993 Dennis Hart founded Apex Media Sales (what a great name!). Apex focused on long-form direct response television advertising, in the specific categories of religious and infomercial advertising.

Dennis enjoyed the structure of the company. It was a cash-in-advance business. While the television and cable networks demanded payment upfront, he was also able to demand that same payment from his clients.  

He didn’t have a warehouse or equipment he needed to buy or maintain. All he needed was hard drives to store the “inventory” from his clients. In the early 1990s there were very few players in this space and Dennis took advantage of being one of the first to market and generated $750,000,000 in revenue over the lifetime of the company.

The right timing…for once

Dennis had learned from previous experience in the stock market that he had the ability to pick winners. Unfortunately, he simply had bad timing. He would wait too long and those winners would become losers. When he started Apex he wanted to grow the company to a specific size and then sell…with no regrets.  

By 2007 he felt that he’d grown the company to a size that was the limit of his experience and desire. The company needed someone with more of both to go to the next level, and this realization dovetailed with interest from VCs, one in particular that was pursuing a roll-up strategy in this space.  

7X EBITDA

Apex would be the first company in this roll-up and 7 times EBITDA was the agreed-to deal point. But the acquirers did start to go over some of the owner benefits, which in Dennis’ estimation weren’t shameless tax avoidances but true business expenses around acquiring and romancing potential clients. Dennis was a tough negotiator, and on more than one occasion he was prepared to walk away. In the end, he obtained 95% of the purchase price up front and 5% to be released after one year.

A Family Affair

Dennis’ daughter Carrie had a similar vision to Dennis. She wanted to bring others into the company to take the firm to the next level. On more than one occasion, as Dennis threatened to walk away from the deal, she was the honest broker that kept everyone talking.

Dennis stayed on with the acquiring firm (and is still with them) and continues to work in the space. Dennis’ takeaways from the transaction should be similar to our own:

• Begin with the end in mind. Think about what your exit strategy is and what your Why’s are.
• Know your numbers and have clean financials. They will always make a sale easier.
• Know what you want and be willing to walk. Instead of sabotaging your deal, you’ll often find that this impresses buyers because it indicates confidence in what you already have.

Got questions? Be sure you speak with your Apex Business Advisor to understand more of the ins and outs of the selling process.