When the owners of Two Men and A Truck – Columbus came up with a unique plan to sell their franchise to an employee, their lawyers were skeptical. Very skeptical.
“Initially, they thought we were nuts,” says former company president Gail Kelley. “They warmed up to it after a while.”
Gail and her husband John Kelley figured out the deal structure, in outline form, on a lot of yellow tablets. The only adviser they consulted was their financial planner who helped them understand how much money they needed to be able to live the way they wanted to after the sale.
Then they took the outline, which included financing the transaction themselves, using business profits for payments, to their business attorneys to flesh out.
Smart Business Dealmakers spoke with Gail and John about how they sold their moving company, which is consistently No. 2 in sales volume out of about 350 Two Men and A Truck franchises.
Finding a buyer
From the beginning, Gail and John were open that they wanted to sell to someone in the company. The couple had already worked close to 20 years in retail, so in 1993 they went into Two Men and A Truck – Columbus with an end goal in mind.
“Over the years, we’ve had several individuals come and talk to us, and as long as they kept growing with the company, we kept teaching them — the P&L, the thought process on making decisions, etc.,” Gail says.
After 10 years, the third attempt was successful. The new owners, Stephanie and Justin Clarey, spent years in the business, with the Kelleys always being transparent about operations, costs and what it took to be profitable.
“They both had good fundamental understanding of how the company operated, and it met our criteria of being able to sell it to somebody in-house who we had brought up in the business and understood our principles and our goals and our objectives — that was important to us,” John says.
While the first two attempts to sell just didn’t work out, Gail says there were no hard feelings. The third time, though, the couple requested a down payment, which helped create more buy-in.
A flexible structure
Another benefit of selling to an employee is Two Men and A Truck – Columbus has good cash flow but few assets. The only assets are trucks, which tend to depreciate quickly. After some soft valuations, Gail and John decided it would be better to carry the deal financing themselves.
“We structured this in a way that the company was profitable enough to make the payments out of the profit of the company without being detrimental to the operation,” he says.
They also stopped payments in January, February and March when the industry slows.
“We took the amortization tables and took the 12 months and squished it down to nine months,” Gail says. “You couldn’t do that if you went to a bank.”
A slow transition
Over the course of a four-year contract, Gail and John slowly turned things over, including sending the Clareys to meetings at Two Men and A Truck’s corporate office.
“Four years may seem like a long-term project, but at the time we were in our early 60s, so we weren’t ready to retire at that point yet anyway,” John says. “It didn’t hurt us any to continue working and continue grooming these individuals and teaching them what they needed to know.”
The four-year transition helped Gail and John learn how the new owners would handle the tough decisions, which reassured them the sale would work out well.
The Kelleys also had a financial goal to hit. Once they determined what they needed to retire, they knew the business had to grow to a certain point where they could sell it for enough.
“Once we had all that set, and we thought we had the right couple, it became kind of a race to see if we could get to that number to make everything work,” she says. “The good news for us is we were not pulling people along; they were pulling the company along.”
With the sale itself, John says it changed more than he expected after signing the agreement in January. They’ve had to make amendments because of things like tax implications.
“Do the best job you can do, but expect that things will change, and make the contract flexible enough to accommodate some of those changes that may happen after the fact,” he says.
Today, Gail and John, who have a financial stake in the company’s success, still meet with the new owners once a quarter to answer questions, look at the P&L and get a pulse check. They are also willing to talk anyone who is interested in learning more about the sale process.
“We’re more than happy just to have a beer or a cup of coffee and tell people what we did,” Gail says.