JANE APPLEGATE—Selling Your Business Can Have an Emotional Cost

0

Howard Sherman, CEO of Roundhouse Inc., was rushing to pick up his daughter, Annabella, from preschool when an e-mail message flashed on his computer screen: “The deal is done the funds are flowing.”

“There was no place for my emotions to go,” recalled Sherman. “Seven years of brutal work had led me to this moment.”

Having built Roundhouse, a Los Angeles maker and designer of CD storage products, into a $40 million success story, Sherman and his team opted to sell out to Targus, a major manufacturer of computer carrying cases. Terms of the deal were not disclosed, although Roundhouse received a combination of stock and cash.

Still in shock at the finality of what he had done, Sherman called his wife, actress Sela Ward, but could not speak. He hung up, drove to a coffee shop, bought a cup of coffee and called her back from the car.

“It was a very strange time for me,” said Sherman. “I had gone through eight months of misery, dealing with the financial people, my management team and our backers. I hated life. I wondered, why are we selling when sales are up and things are so good?”

At one point, when an initial investor was fighting the sale and Sherman was ready to back away, his investment banker called him with this blunt message: “‘You make frigging CD cases, Howard,’ he told me,” said Sherman. “‘You guys didn’t change the world.'”

But every entrepreneur knows that your business is your world. And selling your business radically changes your life. The emotions associated with letting go are deep and powerful. You have to deal with relinquishing power and responsibility. You have to report to the home office and be accountable to a new layer of upper management.

Day to day, operations are supposed to remain the same; Sherman and his top managers signed three-year employment contracts, but fundamentally they have changed. They all work for a very big company now.

“There were three reasons we bought Roundhouse,” said John Sargent, vice president of communications for Targus USA, based in Anaheim. “Products, customers and design.”

Sargent said Targus employees joke that the company makes computer cases in two colors: “black and dark black.”

“We wanted to expand our thinking and reach younger computer users with a line of modern, sexy different colors,” said Sargent. “We also liked their management team. They are good guys.”

Founded by artists

The good guys are founding co-presidents Scott Oshry and Sean Brosmith. Executive vice president of sales, Jeff Magsitza, was also asked to stay on after the merger. When Sherman, who has an MBA from Harvard Business School, joined Roundhouse in 1993, it was basically a 3-year-old design studio run by a couple of struggling young graphic artists. They revolutionized CD storage with the philosophy that good design doesn’t have to be expensive.

Roundhouse is probably best known for a Rolodex-style alphabetical CD storage unit, as well as trendy plastic cases and attractive CD storage units.

“When I got here, the founders were doing a few design projects that put Top Ramen on the table,” Sherman recalled. They recruited Sherman to add some business savvy to the management team. After graduate school, Sherman founded two small consumer-products companies and a company that created amenity programs for high-rise office buildings. He brought his management expertise and money to invest. They had talked about selling out eventually, but nothing materialized until about a year ago. They were introduced to Targus through an investment banker who said it would be a natural fit.

Negotiations heated up at the end of last year. When the founders finally sold the company to Targus in late August, it had grown to 16 designers, 200 employees and two locations, a facility in Rancho Dominguez and a high-tech design studio in West Los Angeles. Sherman, who has an office in the design studio, said Roundhouse would maintain its West Coast locations as well as its branding.

So far, not much has changed around the office. To celebrate the sale, they threw a party at Patina, a restaurant that Sherman always thought was too expensive for a company party. A few days after the deal closed, two of Sherman’s colleagues went out and bought $100,000 Porsches.

“We still feel like it’s our company,” said Sherman. “I still run it. I have the same power and authority, but I have a CFO to report to.”

What to wear?

One of Roundhouse’s first challenges was deciding what to wear to the Consumer Electronics Show trade gathering. Roundhouse reps were used to wearing cool, black Armani suits Targus reps always wore slacks and polo shirts with company logos.

“We had to have a meeting about what to wear,” said Sherman. “The compromise was to wear black sweaters and slacks!”

Although the top five managers will remain on board, there will be some jobs lost in the human resources, accounting and warehouse divisions, Targus’ Sargent said. He said the Targus management team is excited about the acquisition, which instantly added $40 million worth of business to the privately held company.

“This acquisition will get us close to $500 million in sales next year,” said Sargent, adding that the company plans to expand sales.

Jane Applegate is the author of “201 Great Ideas for Your Small Business,” and is founder of ApplegateWay.com, a multimedia Web site for busy entrepreneurs. She can be reached via e-mail at [email protected].

No posts to display