In 2007, James R. Tolston III considered himself semi-retired, having sold one of his businesses, Empire Wire & Supply.
“I didn’t make enough money to retire fully, but I wanted to sit at home, walk the kids to the bus, and do that kind of thing,” Tolston says. “I enjoyed it for about 16 days.”
That’s when he was contacted by TAG Holdings CEO Joseph Anderson, who was the majority owner of Timmonsville, S.C.-based North American Assemblies, a provider of modular assembly and supply chain management services for Honda’s all-terrain vehicles.
“Mr. Anderson called me and said, ‘Hey, my general manager resigned down in South Carolina,” Tolston says. “‘Why don’t you come down here and see if you can turn the company around?”
He declined the offer and another one a month later.
“Then, it was getting cold, rainy and snowy in Michigan, and he sent me the weather report, and the number of golf courses in the area,” Tolston recalls. “And I said yes.”
He took a six-month contract as the general manager of NAA and quickly turned the company around in a few months. Anderson wanted him to continue, but Tolston again said no — it was too far from his family.
Then Tolston added a twist: He would stay to build the company’s margins to a certain level, but only if Anderson would sell him the company.
They shook on the deal and five years later Tolston had achieved margins that had seemed extremely unlikely.
But that was only part of the challenge. The Detroit entrepreneur also had to structure a deal to buy out 14 shareholders without significant incoming equity in a company that had just one customer.
Get it in writing
“The key to the deal was Mr. Anderson, because my deal was a handshake,” Tolston says.
When it came time to sell, 13 of the 14 investors balked because the company was making too much money.
“Mr. Anderson, who controlled the company and whose hand I shook, said, ‘You should be ashamed of yourselves,’” Tolston recalls. “We told James if he did this, we would sell this company to him and we are selling. Period.’”
In hindsight, the handshake deal would have been a disaster if Anderson hadn’t honored his word, Tolston says. “I can tell you I’ve never done another handshake deal.”
With the help of investors, he created Commerce Township-based Tolston Holdings LLC to buy NAA. The investment vehicle now owns other operating companies that provide manufacturing, assembly and distribution services. It is ranked 48th on Black Enterprise magazine's list of the Top 100 African-American-owned companies.
“When I acquired the company, we were approximately $18 million in sales,” Tolston says. “Presently, we’ll do anywhere between $50 and $60 million in sales. But I’d say within 24 months we grew from $18 million to $40 million. So, it was a lot of growth in the first two years.”
The right people at your side
Tolston, who was a minority shareholder in NAA, worked on the deal with Footprint Capital, a Columbus, Ohio-based middle-market investment bank.
Managing Director Josh Curtis says buying out 14 shareholders was only one reason it was an unusual transaction.
“Having one customer in Honda it wasn’t the easiest transaction to get done, without a significant amount of incremental equity coming into the transaction,” Curtis says.
The group lined up interest-only mezzanine funding from Fifth Third Bank with no warrants and a small payment-in-kind.
Whether you’re looking at an acquisition or exit, Tolston says, it’s critical to have experts at your side or you risk leaving something on the table.
“Having the M&A companies, and the private equity guys, the analysts, you can’t put a price tag on value because there’s a lot to lose and also a lot to gain in terms of their knowledge,” he says. “They grind the numbers every day. They look at the industry statistics every day. Having someone like Josh on your side is really key, whether its an acquisition or whether you are exiting a business, because you don't want to leave something on the table."