Are You Ready to Acquire Another Shop? Here's How to Tell
magine acquiring six other shops in the last seven years—and then getting listed on the Inc. “5000 Fastest Growing Private Companies in America” list, for that rapid (and sustainable) growth.
That’s exactly what Tom Rauen, CEO of Envision Tees out of Dubuque, Iowa, was able to do, by making the expansion of his business and obtaining new customers, a primary focus. “To move forward, get momentum in your business and grow it, you’ve got to step on the gas,” he says. “That’s what we call our ‘Growth Acquisition System.’”
“A good shop that’s set up to acquire another shop needs the management team and infrastructure in place to handle the growth and all the moving parts to make an acquisition go smoothly.”
– Tom Rauen, CEO of Envision Tees
Rauen started his decorating business, in 2005, out his parents’ basement. After three months, he moved into a 2,000-square-foot shop in a high-traffic area, with a single-head embroidery machine and a six-color, manual screen-printing press. “My goal has always been to build a solid foundation for my business,” he says. “First, we reinvested in equipment and technology, and then as we began to grow, we reinvested in our team.” In 2012, Envision Tees moved into a 7,000-square-foot building. Now, the business resides in a huge 35,000-square-foot facility, operating two manual and four automatic presses, 50 embroidery heads, two laser engraving machines and two large-format printers.
Envision Tees’ latest, big acquisition was five years in the making and happened during a pandemic year: Franklin, NJ-based, 1800Tshirts.com. “I wanted that famous phone number, so I reached out to the owner in 2015,” Rauen says. “He wanted to continue the conversation in 2020, when he planned to retire. That seemed so far away at the time, but I stayed in touch every six months. Despite COVID-19, 2020 was the year we made it happen.”
Jason Parke is another decorator whose built his empire though similar acquisitions. President of The Greek Corner Screen Printing and Embroidery in Springfield, MO, Parke has acquired three screen-printing and embroidery businesses, since founding his own shop in 2007. When he first started, he didn’t know a lot about printing or embroidery, so he watched several videos done by screen-printing veteran, Ryan Moor.
“I soon realized that if I wanted to take off, I couldn’t do it as a one-man shop,” Parke says. His first acquisition in 2009 happened by chance: He subbed out an order that required a sleeve print. After he found the subcontract shop, Corner Graphics, he started the acquisition process. Within two months, he owned the 26-year-old shop for $35,000.
Parke learned a lot with this acquisition. “Although I purchased the business at a good price, it came with a lot of expenses like old equipment that needed replacing,” he says. “We had to rebuild a tattered reputation. However, I also inherited two amazing employees who are still with me today. The staff knew all aspects of the business and taught me what I needed to know.”
If you’re thinking about acquiring your first (or another) shop, you’re in luck. We picked Rauen’s and Parke’s brains to get all their insider tips on the whole process.
To acquire, or not to acquire?
Acquisitions aren’t easy if you’ve never experienced one before, Rauen says. “There are a lot of moving parts on both the buying and selling side,” he says. “Before you jump in, it’s important to know that acquisitions take a lot of time, energy and resources to complete successfully. Weigh your growth strategy options first because there may be better options, if you don’t know the ins and outs of an acquisition.”
“You can’t ignore red flags when you’re looking at acquiring another shop. If you think you see a red flag, there’s a good chance it exists. Sometimes, it makes better business sense to walk away.”
– Jason Parke, President of The Greek Corner Screen Printing and Embroidery
Starting from the bottom
Parke cautions that acquisitions can be expensive. “Shop owners sometimes get more concerned with the art or craftsmanship of a shop they want to buy, rather than the actual business aspect of the screen-printing and embroidery business.”
In 2018, Parke wanted to grow his market share, so a business broker paired him with a local screen printing competitor. “This was our largest acquisition and I wanted it, so I ignored a lot of red flags,” he says. “Everything that could go wrong, went wrong every step of the way. For example, the previous owner was difficult to work with and withheld information. More than half the employees who came with the business and quite a few of their customers didn’t want to give us a chance.”
Ultimately, Parke says, the team who remained has been great and they moved the merged business to a newer, bigger facility. “We bought a great building with tons of room to grow,” he says. “Without acquiring this new company, there’s no way we could have bought it on our own.”
Acquisitions come in other forms, too, such as purchasing media, traffic sources and intellectual property. “This could include art catalogs and portfolios that you’ll use or license to others,” Rauen says. “You can also acquire podcasts, social media accounts, events, and other sources of traffic to increase the number of clients coming into your business.”
What’s the value of your new acquisition
According to Rauen, you need to look at concrete numbers when you’re acquiring a shop:
What’s the annual revenue? What’s the profit? “The numbers tell you the story,” he says. “When you look at the P&L, you can also see where you can reduce costs.”
Is there a good customer list?
“Make sure that they have their list with all the contact info you need in a CRM,” he says. “Is anything missing or is it just one big mess?”What’s the value of the customer list? “See if the top 20% of their clients are bringing in 80% of the revenue,” he says. “Focus on the value and volume of their larger national accounts that can still continue to bring in significant revenue post-acquisition.”
How about the equipment and inventory?
Rauen says the new equipment should align with yours. “If you have all M&Rs or Tajimas it might be harder to sync up with a different brand. And you’ll have different file types, platens and squeegees. Plus, you’ll need a different service tech.”
How about their art files?
“Are there 500 or 5,000 files?” Rauen says. “There’s great value in how much time their graphic designers spent creating these files, especially for embroidery digitizing, since that can be expensive if you need to recreate those. And are those files organized or do you have no idea how to find anything?”
As an example of how to value your acquisition, consider Parke’s experience. For four years, Parke outsourced his embroidery to five different subcontractors, and it was proving to be time-consuming. On top of that, the quality wasn’t consistent either. That’s why in 2014, he decided to acquire an embroidery business. As part of its allure, the new retail and contract shop once had kiosks inside every Bass Pro Shop in the United States, along with kiosks inside Silver Dollar City and a store at the Branson Landing, both in Branson, MO.
“There was a skilled, experienced embroiderer who wanted to continue working with us,” Parke says. “There were also two machines, more than 10,000 valuable digitized files and a large book of customer contact information.” While there were some challenges to overcome, Parke felt that his $25,000 investment to bring embroidery in-house was definitely a win.
Is your shop ready to acquire another one?
There’s no-one-size-fits-all answer for this, because every shop’s situation is unique. However, there are still some general things to consider. “A good shop that’s set up to acquire another shop needs the management team and infrastructure in place to handle the growth and all the moving parts to make the acquisition go smoothly,” Rauen says.
When you’re looking to acquire another shop, a good rule of thumb is to look for one that fills a service need in your shop or works with your business plan. “An example would be a screen-printing shop that outsources their embroidery,” Rauens says. “Once their outsourced embroidery grows beyond a certain volume, it may make sense to look to acquire an embroidery shop to bring that service in-house or possibly acquire the contract decorator.”
Rauen and Parke outline five things you need in place personally—and in your shop—to acquire another business:
1. Do you have good systems in place? “You need to be organized and have a detailed plan going into the acquisition,” Parke says.
2. Can you improvise and adapt? The best-laid plans will sometimes go off kilter. “You need to be a leader who can easily change course and come up with a new plan when you need to,” Parke says.
3. Does your shop align with the seller’s? “Your vision and values should align with the owner’s, along with the company culture and customer base. If these things don’t align, you’ll realize very quickly that your shop won’t m
esh with theirs,” Rauen says.
4. Are you ready to work with frustrated people? Parke points out that often, the employees in the shop you’re acquiring might be angry, confused or worried about the future. “They may not like change, so you need to be there to build that bridge,” he says.
5. Can you communicate well? Remember, you’re bringing a whole, new group of people, employees and customers, into your organization. “Be ready to openly and honestly communicate how things will look moving forward, so they know what to expect,” Parke says. “You’ll also need to go out and meet your newly acquired customer base. That’s the only way you’ll retain them.”
6. Can you handle risk? “Hopefully your acquisition will go well, but do you have a contingency plan if it isn’t successful?” Parke says. “Are you in a spot financially that you can recover?”
7. Are you willing to walk away? With one of his acquisitions, Parke had tunnel vision and didn’t care. “I wanted to do the deal and ignored multiple red flags,” he says. “If you see a red flag, it probably exists. For example, if the seller doesn’t give you the information you need, you probably need to walk away.”
Starting small at square one
If you’re a shop owner, who’s decided to explore an acquisition, Rauen advises looking small and locally at first. “There can be some big wins and also some major learning lessons, so if you start off small, your lessons learned will be less painful or make less of an impact,” he says. “Once you’ve gone through one or two acquisitions, you can learn to adjust and find the sweet spot that works best for you and your business.”
