When Richard Gent bought Gent Machine Co. more than 40 years ago, it was a difficult negotiation that left a number of family members not speaking with each other. He was determined not to let the same thing happen in 2009 when he sold the company to his sons, Rich and Adam.
“One of the prerequisites was that we had to both work in the business and actually work on the floor in the business in order to get to the point where we would be able to buy it,” Rich Gent says. “He didn’t want us to just own the business because we were family.”
A big problem with the deal his father made back in the 1970s was it involved family members who hadn’t been working in the company.
“They were just owners and that made it challenging for him as someone who worked in the company for 15 years before he purchased it,” Gent says. “He was dealing with owners that really didn't know the company at all.”
Smart Business Dealmakers spoke with Gent about two pivotal deals in Gent Machine Co.’s history that have set the business up for a bright future.
Get third-party counsel
As the two brothers prepared to take ownership of Gent Machine in 2009, they felt well-acquainted with the company from top to bottom. However, there were still some things to work out before a deal could be reached.
“At that point, we're on opposite ends of the table and of course, we want the business at a price that we feel we can still make money,” Gent says. “Our dad was looking at it like this was his nest egg for the next 15 years. So we needed to come up with a price that was palatable for both parties.”
The two parties turned to the company’s longtime accountant for assistance in bridging the gap.
“We had someone who was a trusted adviser to both sides and helped negotiate a fair deal,” Gent says. “That was the best thing we did rather than each hire our own representatives. That might not be possible in every situation, but it was for us.”
The deal Gent and his brother made didn’t involve a lot of debt, which enabled the company to get off to a strong start under its new ownership, despite the global recession that had begun in 2008.
“We got an automotive certification that allowed us to pick up the pieces from a lot of companies that had gone out of business in the recession,” Gent says. “We took on Tesla Motors as a customer in 2012 and when the Model S took off, our growth just shot up.”
Consider your needs
After the deal with Tesla Motors, the brothers realized they would soon need to acquire a new home for their South Euclid-based company, which was growing by an average of nearly 10 percent a year.
“When we bought the business in 2009, we had one building,” Gent says. “Because business increased so much after 2009, we purchased the building next to us, which was an easy and very low-cost move because it didn't require us actually to move. We bought the building, renovated it and connected it. And that was perfect.”
The company kept growing. Thought was given to constructing a new building on the property that would connect to the 70-year-old facility, but that was deemed impractical. So the ownership team looked for a new place to call home.
“We don't make our own product, we're a job shop,” Gent says. “We have some stronger contracts with our bigger customers and then we have a lot of smaller customers that are just kind of purchase order to purchase order. It meant taking a big leap of faith on our side if we were going to spend a lot of money on real estate.”
A couple factors were working in their favor. Interest rates were low and the company’s financials were strong.
“When we bought the building in 2016, we had had five years of being an owner and five years of growth to show to the bank,” Gent says. “So banks were eager to lend to us.”
Gent Machine found an 80,000-square-foot building in Cleveland, close to the Eddy Road exit on Interstate 90.
“We had looked in some of the eastern suburbs and the pricing for similar buildings was just a lot more money,” Gent says. “There's a lot of excitement in the manufacturing sector and to be in Cleveland was kind of a cool thing.”
Do your homework
Gent Machine took a year to renovate the space and relocated in early 2017. It wasn’t a seamless transition as there were environmental concerns stemming from the building’s past use as a dry cleaning facility, as well as the fact that it was going through bankruptcy.
“We hired a real estate attorney and they had environmental specialists on staff and we spent a good 10 hours going back and forth about the challenges that we were going to see going through a cleanup of a building of this magnitude,” Gent says.
When they crunched the numbers, factoring in support they received from both the city and JobsOhio to rehab the building, they concluded the deal made sense.
The key is thoroughly reviewing every aspect of a property, especially potential environmental concerns, before making any real estate purchases.
“If you take over a building without doing your due diligence and then you're stuck with the cleanup,” Gent says, “that's not the kind of thing that you want.”
