The Second Time Around

An inside look at entrepreneurs who bought back the company.

by Virginia Lindaur Simmon

Anybody who's ever sold a car knows that pang of regret as the new owner drives it away. It's like saying goodbye to a trusty friend who's shared many an adventure, over many a mile. Fortunately, the moment lasts only a bit longer than it takes for the car to drive out of sight.

What if, for some reason, the new owner one day decided she didn't really want the car or discovered the car didn't fit her lifestyle or maybe her driving habits? Would we, even for a second, consider buying it back?

If it weren't a car, but a business we'd created, nurtured and then sold, then how would we react to the temptation to give it another try?

Ken Merritt Ken Merritt

Merritt & Merritt

"It's more common than one would expect," says Ken Merritt, managing director of Merritt & Merritt, a Burlington law firm concentrating in enterprise law for growth companies and representing institutional and individual investors.

Reasons vary, but often the business will have gone off track for various reasons, he says, and the founder sees "a chance to continue the original dream or vision that has not yet been realized by the new owner." He says it's often "someone who has remained in the business as opposed to somebody who's gotten totally out."

Under these circumstances, a buy-back opportunity can come at a fire-sale price, giving the original owner the chance to get it back on track and maybe sell it again, Merritt says.

For the businessperson thinking about selling, Merritt has a couple of tips. "Probably the first thing entrepreneurs selling their businesses need to consider is whether their business can coexist within a larger organization," he says. "Another thing to ask is whether the culture of the two organizations mesh."

Even with solid answers to those questions, an infinite number of things can go wrong after a business is sold. "It depends on what the corporate parent has done in terms of marketing and branding. The business may not be perceived the same way it was five or 10 years before that," Merritt says.

We called three Vermont entrepreneurs who bought back their business brain-children in the last year or two and asked what it was like for them.

Randy Kimball Randy Kimball of Vermont Mechanical

Vermont Mechanical

In 1988, Randy Kimball and Richard Boutin started a mechanical contracting company, Vermont Mechanical. Over the years, the company grew to be about a hundred employees strong, focusing on hospital and school construction projects across Vermont, New Hampshire and upstate New York. "We did most every hospital in the state," says Kimball.

About four years ago, the partners began seeking ways for Kimball to buy Boutin out, "he being 16 years my senior and getting close to retirement age," says Kimball.

Around the same time, he continues, "there was a nationwide push to do rollups in our industry," where a company would look for the number one or two company in a market and offer to buy it. Kimball and Boutin received three offers for the company. "What they came to our front door with was considerably more than what we had earlier thought would be the amount to buy my part," Kimball says with a chuckle.

They accepted the offer put forth by a company called Encompass. Negotiations took about 18 months. Both partners signed three-year agreements to operate the company, but Boutin opted to get out of his contract after the first year, "so he's been away from this company and retired for a little over 2½ years now," Kimball says.

Shortly after the deal was signed, Encompass decided to further consolidate the 250 business units it had purchased, says Kimball. "They said, 'Let's look at common trades and geographical units.' What this involved was companies that continued to operate as individual companies but reported to the headquarters in Houston. They had some very strong operations and others that were very weak," he says.

From a back-office standpoint, Vermont Mechanical was considered the strongest of the operations Encompass had bought in New England, "so they appointed me the regional president of the New England Encompass operation, which meant that I was now in charge of not only running my two operations in Vermont, but one in Albany, one in Concord, N.H., and one in Hartford, Conn.!" Kimball exclaims. "It was brutal; it was culture shock. All these businesses had been successful on their own, and now they said, 'You're going to operate in a common manner."

As often happens in a "relationship industry" like contracting, says Kimball, when relationships become strained and the market is highly competitive, the customers began to go elsewhere. After a couple of years, Encompass came on hard times, "because they became heavily indebted. The construction industry was sliding down at the same time."

About a year ago, the company began divesting itself of some of its operations as a way to generate cash. Throughout the first quarter of 2002, Encompass sold off maybe a dozen operations, says Kimball, and had made a strategic decision to no longer participate in New England. "They approached me in April and asked if I would be interested in talking to them about buying the New England operation. My answer was no."

Kimball was interested, however, in talking about what he had originally sold to Encompass: the Vermont Mechanical operation. Although Encompass was reluctant, on Sept. 30, 2002, the deal was closed and Kimball purchased back "in essence, the company I had sold them in May of 1999."

Kimball was able to structure a very good deal "to allow this company to remove itself from the Encompass name and get back operating as an independent operation and move forward. It's a breath of fresh air for everybody who lived through the situation," he says.

Things are going well, and might be perfect were the economy not sluggish. "We've had terrific responses from long-time, old-time customers who are very excited to see those Vermont Mechanical trucks out there again. The employees are really excited that I can make decisions without waiting for Houston. Employee morale has really turned things around for us," Kimball says.

Scott HardyScott Hardy of NEOS

New England Overshoe Co.

Scott Hardy's business was built on an invention drafted on a cocktail napkin one dark and stormy night in New York City in 1993.

Hardy's friend Woody Nash was a bond trader who, having plowed through slush, snow and wailing wind, had arrived at his office that morning soaked through from the knees down. The unsightly galoshes he bought for the commute home didn't last through the subway ride. That evening over drinks, he recounted his frustration to Hardy, an inventor, avid skier and Vermont resident.

Hardy went home to Vermont, stitched lugged soles to mountaineering gaiters and sent them off to Nash in New York, who put them immediately to the test in a "storm of the century." As one person after another stopped to express interest in his overshoe, and Nash boasted about his dry, toasty feet, the idea crystallized: NEOS was born.

Hardy spent a year developing the company, and Nash joined him when they realized they had something good. "We said, 'Hey, let's see what we can do over a couple of years and how quickly we can build this, then maybe we can sell it,'" says Hardy.

Four years later, the shoe was a success, but the business was seasonal. Just when they decided to sell, Quabaug Corp., a North Brookfield, Mass., company, approached them with an offer.

Quabaug would buy out Hardy and the other shareholders; and Nash, who wanted to be nearer to his New Jersey home, would move to Massachusetts and work with Quabaug. "On the day we were to sign, Woody decided not to do it," Hardy says.

Quabaug then offered to buy out Nash and the rest of the shareholders if Hardy would stay on for a while. He reluctantly agreed to commute to Massachusetts, but kept his home in Vermont.

Quabaug was an original equipment manufacturer the maker of Vibram rubber soles but had little experience directly selling finished product. "Their business had taken a bit of a downturn," Hardy says. This spurred a joint venture with another sole manufacturer. "It was better for them than running a brand, so in January 2002, they asked me if I wanted to buy the company back."

Hardy was less than thrilled by this prospect. He had expected to move on in 2004, when his buyout came due. "We spent three years integrating it back to Massachusetts, and now I had a few months ... they talked to me in January, and we started shipping shoes in June."

Financial circumstances, though, were agreeable. "The only way for them to get out of my contract was for it to be under very favorable terms," he says.

The company aligned itself with Karhu, to which it now outsources a considerable amount of back-office work such as customer service and accounting. "They used to be part of Merrell, and part of their executive team knew quite a bit about footwear."

ULU, a line of three-season boots inspired by the circumpolar regions of the world, was created to balance out the seasonality. A parent corporation, Linckia, is charged with bringing new products to market other than footwear. Both NEOS and ULU are under it.

Things are going well, says Hardy. "I'm working harder than ever, but it certainly beats commuting down to Massachusetts every other week." The company's offices are at 208 Flynn Ave. in Burlington.

"If someone is interested in buying NEOS at some point in time, we'd sell it again," says Hardy; "but fortunately, with me owning the whole company, it's going to be under favorable terms to me."

James Lawrence James Lawrence of Eating Well

Eating Well

Sometimes, you have to leave in order to arrive. In 1990, James Lawrence, the publisher of Harrowsmith Country Life, launched Eating Well, The Magazine of Food & Health, funded by Telemedia Communications (USA) Inc., the U.S. subsidiary of a Canadian multimedia corporation.

Eating Well was an instant success, with paid circulation climbing to more than 400,000 in the first year and to 650,000 by 1995. A series of unexpected senior management changes within Telemedia's Canadian parent company eventually led to Lawrence's leaving the company to found Chapters Publishing Inc., "a publisher of cookbooks, nature books and gardening books," says Lawrence.

Following Lawrence's departure, Eating Well went through a series of personnel and ownership changes and strategic shifts. In mid-1999, the publisher decided to cease publication, citing weak advertising sales.

Lawrence says he "tried very hard to look the other way while all of that was going on, and I had absolutely nothing to do with the magazine."

By the time of Eating Well's demise, Chapters had been sold to Houghton-Mifflin and Lawrence and his wife, Alice, had started Microcosm Ltd., "a small book publishing company that does books in the field of marine biology and saltwater aquarium husbandry."

Lawrence was periodically approached by former staff members, who talked about the "loyal readers out there who still wanted a magazine like Eating Well. Particularly Betsy Heiser, nutrition editor from the beginning, was determined to do something with the concept," he says.

He and Heiser explored ways to spin off the concept, "perhaps as a newsletter or something between a newsletter and a magazine," says Lawrence. Before anything could gel, Heiser was killed in a car accident.

Realizing how many great people had gathered around the Eating Well project and were still in the area and interested in getting the magazine going again, Lawrence decided to take the plunge.

"I had to figure out who owned it," he says with a verbal wince. The editorial assets had been purchased by a dot-com venture put together by some of the former editorial staff. "They started out as, became, and they were bought by" Our House was on the verge of selling to Amazon.

"We were able to get them to put aside the Eating Well assets and made a separate deal for the Eating Well name and URL and a library of recipes that were developed by Eating Well, as well as a whole slew of general rights to the editorial concept that was created by Eating Well."

The notion of the relaunch was based on using the same editorial formula, updated, without advertising, one used successfully by publications like Cook's Illustrated and Farm Woman magazine.

"The other goal was to do it without a huge publishing partner," says Lawrence, "to grow more slowly and work with regional investors." Through Mike Flynn of Gallagher, Flynn and Spencer Knapp at McKenzie, Knapp and McAndrew, Lawrence hooked up with Fresh Tracks, a venture capital firm in Middlebury. "Through Fresh Tracks, we found support from Boston Community Ventures, which was looking to invest in Vermont, and the Angel Investors Group, based in Shelburne, led by Reg Gignoux."

The new Eating Well is a quarterly magazine published from the same Charlotte offices (and using the same, though updated, test kitchen) as in its first incarnation.

Revenue streams come through subscriptions and single-copy sales at natural food stores, of which there are about 10,000 nationally, and book stores, such as Barnes & Noble and Borders. "Then we're going to grow beyond that to supermarkets that have organic natural food sections." Added to that are planned ancillary products, "primarily books and other sorts of recipe collections," and the launch of another magazine title in the third year of the plan.

While he's definitely having fun, Lawrence says it's terrifying as well, "because we're doing it on the thinnest of budgets. The first issue [Summer 2002] was a virtual sellout on the newsstands, and we've had very good response from former subscribers. We were able to find an old mailing list, and they responded in droves."

Originally published in February 2003 Business People-Vermont