By Lloyd R. Manning
Here’s a true story from many years ago.
As a commercial Realtor, one is often confronted with unusual situations. None were more unusual than the sale of Mickey Mouse Electronics. I have forgotten the company’s real name but Mickey Mouse is appropriate. The term refers to a business that is an insignificant player in the market.
That is what it was; a very small company, under-capitalized with nowhere to go but down. Its net worth consisted of a handful of assorted tools, some equipment of questionable value, a few boxes of parts of who knows what, a lease on somebody’s garage and the seller’s assurance that the package included many great ideas and a glorious future. Few tangibles; oodles of intangibles!
The company was manufacturing a type of electronic reader board, one for Realtors to have in their offices to tell them what was listed, pending transactions and what had been sold. Perhaps some companies could have used it to keep track of inventory. Although obsolete by modern standards, the concept was not bad for the time. This was the early 1970s when the computer was still considered by most to be only a toy.
The asking price for this company was $40,000 and it was worth every penny of it, or so the owner said. Its tangible net value was probably about $2,000. It was all those great ideas and that glorious future that made this company an invaluable gem.
Mickey Mouse Electronics had been in business for about two years and made few sales. Net profit – zip! Here was a typical case of a business being offered for sale for health reasons – like starvation. True, it was a going concern. Only the direction was uncertain.
The owner admitted he had insufficient capital to expand, bring in employees, purchase more equipment, stock up on parts and market extensively. Still, the enterprise was loaded with potential, or so he said. It was only due to a lack of capital that the owner doubted if he could make it into a major concern. Although he didn’t admit it, there was the ever-present probability that the bank would call in his notes and he would be left only with the tools, the equipment, the boxes of parts that no one would want and those great ideas and that glorious future.
I did not think that listing this company was worth the bother. At the standard commission rate, after few showings and a few advertisements, I would be a loser even if it sold at full listed price, which was doubtful. Questioning my own wisdom for doing so, I still accepted the listing. My rationale was that beating the bushes to sell this company might lead to good things, such as more clients.
Some buyers are only shopping. Some sellers are just sizing up the market. In this business, having a pocketful of saleable listings and anxious buyers is everything. On the other hand, perhaps Mickey Mouse Electronics did have some potential. There just might be a modicum of goodwill. Maybe, as the owner suggested, a larger and better financed electronics company would pick it up, not for its tangible assets, but all those great ideas and that glorious future.
Thinking that it was not worth spending too much time or money on promoting, at the seller’s insistence I placed an advertisement in the Edmonton Journal. Shock of shocks, I received an inquiry. “You have Mickey Mouse Electronics for sale?”
“Indeed I do!”
This followed: “Drop over to my office. I’d like to make an offer.” The caller did not bother to obtain any of the pertinent details or ask the price. Still, from the tone of his voice he seemed sincere. Strange, yes, but selling businesses is at times a strange business. For a $50 advertisement and no showings along comes a willing buyer.
The buyer was in a similar line of business, yet considerably larger and far more successful. After detailing for his benefit Mickey Mouse Electronics, its tangible assets, its potential and dwelling on all of those great ideas and the glorious future, he said that he wanted to buy. His offer for the company, lock, stock and barrel was $500!
I smiled and blurted out, “You can’t be serious.”
Casually, demonstrating almost total disinterest, he politely replied, “Oh but I am.” He waved his finger at the papers lying on the desk before him and said, “Write it up!”
Becoming quite defensive, I emphatically stated that I would never take such a low-ball offer to the seller.
“This is no joke. Write it up! Here’s my cheque.” He was adamant. “When you deliver it, tell that S.O.B. that if he does not accept my offer I will sue his ass off for violating my patents. Besides, I don’t care what he wants. Five hundred dollars is more than it’s worth. There’s nothing there, just a few tools, some obsolete equipment and a couple of boxes of scraps. Those brilliant ideas, all that goodwill, forget it. If they ever existed, and I doubt it, they’re only in his mind. He’s lucky I’m so generous.”
When shown the offer, the owner was livid. “No damn way! That’s crap!” He snatched the agreement from my hand, started to tear it up, then briefly paused and shouted, “This is asinine. I should sell for $500? No way. I would rot in hell first!” Then pausing briefly, thinking that he misunderstood, he more calmly said, “That must just be the deposit. What’s the total price?”
I replied, “That is the total price.”
“No! Never! This is a good little company loaded with potential; on the threshold of great things. You just got yourself some clown who wants to play games.”
“I don’t think so,” was my curt reply. “If you don’t accept his offer he will sue your ass off for violating his patents. He was very serious.”
This shook the seller. Nothing like this was contemplated. After considerable pondering, he asked, “How much do you want for commission?”
I replied that under the circumstances, thinking that as I had not done that much, I would split the $500. With a severe frown this crestfallen motivated seller, appearing whipped, asked, “Where do I sign?”
The $40,000 company with all those great ideas and that glorious future just got sold for a net to the seller of $250. And all those contacts I was going to make from selling Mickey Mouse Electronics? They didn’t materialize either.
Lloyd Manning, AACI, FRI, CCRA, PApp is a semi-retired commercial real estate and business appraiser and broker who now spends his time writing for professional journals and trade magazines. He resides in Lloydminster, Alta. Email [email protected]
