When a Merger Can Be in Your Best Interest
With sales reaching $3 million and a host of intriguing new opportunities for its security systems and products, Carson-based Martec Controls Systems needed cash to expand. The principals, Jim Power and Mario Marinaccio, had worked together on security systems at four major corporations but had just recently gone into business on their own.
Although they were skilled in developing high-tech security systems, they were unsure about how to write a business plan to attract new capital. The Martec founders assumed that they were looking for venture capitalists to help them out, but they found exactly what they needed by merging with a larger, public corporation.
And although selling out wasn’t what they had intended to do, Power said Martec’s solution may apply to other small-business owners anxious to expand their operations.
“We met with several venture capitalists, but 90% of them wanted to own the store,” said Power. He said he and his partner needed money to expand, but they definitely wanted to remain at the helm of their business. Martec’s answer came in the form of CCX, a publicly traded building materials company based in Bridgewater, N.J.
“They checked us out and were convinced that we have a . . . light touch and let people run their own show,” said Martin Stone, chairman and chief executive of CCX.
“The CCX management team was made up of our kind of people,” said Power. “They were not tied totally to the bottom line.”
This successful match was made by two Southern California investment bankers who specialize in helping small-business owners. Bruce Juell of Palos Verdes and Frank Kilpatrick of Manhattan Beach introduced Martec to CCX.
Juell, formerly head of Bateman Eichler, Hill Richards Inc.’s corporate finance department, also lined up several venture capitalists interested in investing in Martec.
After nearly three months of discussion, Martec turned down a multimillion-dollar offer from an international venture capital group in favor of merging with CCX, which expects sales of about $65 million this year. Martec’s principals sold the business to CCX in October for an undisclosed amount of cash and stock options. They also agreed to stay on for several years to run the company.
CCX’s Stone said the deal not only provides Martec with the cash it needs to grow, but offers CCX a new business with enormous growth potential.
“Ultimately, we think the Martec business is the one with the glamour and the explosive growth potential,” said Stone, who studied about 3,000 firms and acquired 29 while building Monogram Industries into a $500-million Santa Monica-based conglomerate in the 1960s. He has sold his interest in Monogram to Rhode Island-based Nortek Inc. in 1982 and is trying to slow down and enjoy life on his horse ranch in Lake Placid, N.Y.
Stone said CCX brought more to Martec than traditional venture capitalists who are usually “from the financial world and don’t understand the marketing, manufacturing and operational sides of a business.”
One of the first things CCX did for Martec was to establish stricter financial controls and straighten out the company’s books.
“We stepped in and provided them with quite a bit of working capital, brought their accounts current and provided longer range capital for developing new products,” Stone said.
Looking ahead, Stone said he envisions developing new building security products that would combine CCX’s window screens and fiberglass mesh with Martec’s electronic security systems. (According to Kilpatrick, the annual U.S. market for electronic systems and devices is about $3 billion and is growing at a rate of about 10% a year.)
So far, Power said, he is extremely pleased with Martec’s new parent company. With help from CCX executives, Martec has created a seven-year business plan that outlines how much money Martec needs each year from CCX to reach its goals. Each month, CCX and Martec executives review Martec’s results. They plan to meet quarterly for a more in-depth review.
Weekend Forum in L.A. Takes a Look at Franchising
The Commerce Department predicts that franchising will be the leading method of doing business in the 1990s. Already 7.3 million Americans are working at 510,000 franchised outlets, according to the International Franchise Assn. in Washington.
If you are interested in exploring the latest franchise opportunities, the association is hosting a “World of Franchising” exposition Saturday and Sunday in downtown Los Angeles.
About 100 franchised business opportunities representing 40 industries are slated to be presented at the Westin Bonaventure Hotel, 404 S. Figueroa St. The exposition will run from 11 a.m. to 5 p.m. Admission is $6 for adults, while children under 16 will be admitted free.
EXAMINING A MERGER
Here is some advice for entrepreneurs considering merging with a larger firm:
Learn as much as you can about the company from public sources, colleagues and others. Is it run by people you can work with? Does it have a business plan and a direction that is simpatico with what you are doing? Does it have the resources and financial backing to help you? Is it well financed for growth? Can your business contribute to its corporate structure?
If you have an attorney or accountant, ask him to approach the company on your behalf. Or hire a reputable business broker to represent you.
Market your business yourself by preparing a clear, concise presentation that includes detailed financial data, product lists, catalogues and descriptions of your management team.
