Birthed in the 1970s, the hot tub industry is still relatively young. Many founding members of manufacturing companies and retail stores are not only alive and well but actively participating in those same businesses. However, no one can work or live forever.
In the coming decade, the hot tub industry faces a tipping point of business handovers. As such, SpaRetailer is launching succession planning education through 2024, going in-depth on all the ways a business can change hands and connecting you with colleagues who have done it and experts who can help you chart a path.
Nothing about buying or selling a business is ever typical. Each deal is unique to the seller’s and buyer’s needs, but we’ve provided an overview of the most common types of sales.
No matter how a business is sold, the overriding advice from both experts and industry colleagues is to start the process now. Whether you have owned a business for five years or 50, begin preparing to sell it years before you intend to by ensuring your books are in order, and the business won’t collapse when you walk away.
The family business
No other type of business transition could be more peppered with emotional landmines than one that involves family members. Expectations, presumptions and misunderstandings don’t start and stop within the business, and the deal can quickly go south, leaving the company, employees and family in upheaval. But it doesn’t have to be that way, according to those who are in the midst of the process themselves.
“Setting that expectation early and not living in the world of assumptions is really important,” says Jeff Bassemier, president of Bassemier’s Fireplace, Patio & Spa in Evansville, Indiana. Jeff and his brother James Bassemier were gifted shares from their parents, John and Diane, in their family business. Their parents sat the brothers down nearly 20 years ago to gauge their interest in eventually owning and running the company together.
“It cleared the air,” Jeff says of that conversation.
He adds that early discussions would be the time for a family to start outlining the plan. “To know that you don’t plan on selling it outside the family,” he says. “That’s the time to say, ‘You’re going to have to buy it from us,’ or ‘Here’s how we’re going to transition it over.’ Or to say, ‘We don’t think this is the right path for you,’ — that would be hard but also very kind if that was the truth.”
Joe King had a similar conversation with his two sons, Alex and Carson, before either of them were even involved in his company, King Technology, which manufactures specialty chemicals under the FROG brand.
“It gave us a decision-making tree that if they chose to [participate in the business], we had a plan in place,” Joe King says. “If they didn’t, we had a plan in place.”
There was a very specific structure for the brothers. Not only did they have to spend a number of years working at an outside company, they also had to be promoted twice in that time frame. No jobs were created for them either; when the time came there had to be a job opening at King that fit their skills. Once both of them joined, the pair had to work their way up the corporate ladder, like any other employee.
For the Bassemiers, the most important thing to John and Diane was ensuring the business could operate indefinitely. While they were happy to benefit future generations of their family, business success was prioritized. To that end, experts were brought in to help build a framework not only for the change in ownership but for operations afterward.
“It takes somebody who does it for a living to think of all the ways that things could go wrong and safeguard the company and its team against me or my brother getting creative,” Jeff says.
Even with all the forethought, the process still wasn’t perfect. The giant binder full of rules and boundaries gets updated as needed — by a vote of the board, of course. Though they talked about the process a couple of decades before it happened, Jeff wishes there had been regular conversations and updates about the business and the process in the following years.
“Instead of checking in along the way and feeling us out, when [my parents] realized they were running out of time, they hit the accelerator,” Jeff says. “That was uncomfortable. It was probably necessary because of our lack of open discussions up to that point. Had it been more of a routine topic of conversation, we could have been more open all the way around. They did everything right, and it still wasn’t easy.”
The King family, with the help of an expert, has ongoing conversations about the business transition. They aren’t always easy, but are necessary to keep everyone on the same page.
“When you go from being family members to being in business together, you have to change the way you do things,” Alex King says. “You have to be able to communicate clearly what you are hearing, how it’s making you feel and what your desires are. It’s three different lenses. To navigate those we had to learn from someone who’d done it before, so we utilized a consultant to help us with that because it was a challenge. If I was honest, there were tears at meetings because we were hurt by something that was said, we didn’t meet an expectation that someone else had of us or vice versa.”
As a family of deep faith, those tough conversations are not only worth it, but expected in order to properly care for the business. “We have joy in doing it because we know that this is the Lord’s business that we’re stewarding,” Carson King says. “These are not our ideas. We’re stewarding the resources that have been entrusted to us.”
The standout employee
It’s been seven years since Don Riling bought Olympic Hot Tub from its founders Blair Osborn and Alice Cunningham. In retrospect, there are a few things Riling says he’d do differently, but he mainly wishes he’d better educated himself on the right way to buy a business and gotten an outside perspective.
“It’s too hard when you buy from owners who are in the house, owners who are passionate about what they do, owners who have a lot of ego,” Riling says. “At the end of the day, there is no ego or pride equity. You can’t go, ‘Look, my business is worth this much, and I’m going to get it.’ That’s not how it works in the real world.”
In hindsight, Riling believes he overpaid.
“I love Alice and Blair to death,” Riling says. “They did something incredible for me, but I was also in a position where I had to roll with what was happening because our plan A fell apart.”
Not having a plan B is the second thing Riling would do differently. The initial plan was to get a Small Business Administration loan, and it failed in the eleventh hour. The ownership change had been announced publicly, things had been moved to Riling’s name and a large retirement party was planned.
“I am the owner, but it’s not on paper,” Riling says. “It forced us to propel forward faster than we probably should have.”
In the end, it was mostly seller-financed by Blair and Alice, with Riling paying them off over time. “I had the good fortune, because of what happened the last few years, to be able to repay them,” Riling says.
Now it’s Riling who is considering what the next iteration of ownership looks like for Olympic Hot Tub. He has a key employee who could potentially be the owner, but since the pandemic, the business looks much different than when Riling took the reins.
“[The hot tub industry] is a little in denial of the fact that we’re not small businesses anymore,” he says. “A lot of the [employees] who were here for the last 10 years were ready to think about owning a small business — not a medium-sized business or the company growing so big that they can’t [afford to] buy it alone. That’s changed everybody’s mindset in terms of what happens next.”
For business owners who are considering this type of transaction, Riling says it starts with allowing the owner to think about leaving. “The unknown is scary for a lot of people,” he says. “I’m trying to actually give myself permission to start thinking that way.”
For employees, in addition to education and preparation, Riling says, “You need to recognize that, of course, you are talking to your current paycheck providers, but you also need to come with a certain sense of this needs to be a good decision for all of us. It needs to be fair and equitable, and we all need to feel good about what we’re doing.”
The outside buyer
An outside buyer could mean many things: Selling the company through a broker to another entrepreneur; it could be a group of investors or a private equity firm; it could be a publicly traded company like Leslie’s that wants to get into a specific market; or it could be to another hot tub company looking to expand. Those in-the-industry buyers are what we’ll focus on.
“The opportunity is going to be insane for those who have the appetite for risk to take advantage of,” says Jay Broyer. Broyer and his business partner Brandon Jones bought three companies in the pool and spa industry, Middleton, Massachusetts-based St. Cyr Pool & Spa and Budget Pools as well as Swimming Pool Center in Hampstead, New Hampshire. “The baby boomer generation owns a lot of small businesses, and they need somebody to run these businesses. If you look at us, we’re in a very niche industry in a small part of the country, and we’ve done three [acquisitions] in four years, all from baby boomers who are retiring.”
SpaRetailer Podcast Episode #89
Erik Mueller, who bought his company Watson’s from his father in 2007, recently made his first acquisition, purchasing Detroit-based Allstate Home Leisure in 2022, which had five locations. Watson’s, which has about 30 sites that are a combination of corporate locations and independently owned franchises, is always looking for acquirable or convertible businesses. “We’re looking for businesses that have consistency,” Mueller says. “First of all, that it’s a well-run business that’s been consistent over a prolonged period. Consistency when it comes to revenue, when it comes to income, when it comes to margins — we’re looking for those operational consistencies and operational excellence. And we’re looking for people who are leaders in their market.”
Jones and Broyer bought St. Cyr’s from Jones’ uncle. It was a simple deal for the inventory, with most of it financed through the seller. “He just wanted out,” Jones says. “That’s a point that a lot of people get to where they’re almost desperate. You’ve got to figure it out before then.”
Industry connections gave them the heads up that Budget Pools was for sale. It was a large, second-generation company that had been looking for the right buyer for a while.
“They were running a really great business, had a great team and they didn’t just hand us a P&L and a balance sheet,” Broyer says. “They prepared for the sale for years. So, their financial reports were clear and made us feel really comfortable.”
That transaction looked much different than the first, with banks and the Small Business Administration being involved.
“That’s the most daunting part,” Jones says. “It takes a lot of paperwork and a lot of questions. The bank wants to make sure that they’re going to get their money back and that it’s a successful investment in you.”
The process also took much longer than the seller or the buyers anticipated. “You think you’re going to write a letter of intent and be operating this business in 90 days?” Broyer poses. “It doesn’t happen that way.”
Unlike the first time, the pair had an existing business to help cover the costs and pay off the debt. When it came time to buy Swimming Pool Center, that transaction also looked quite different than the first two.
“It was a brokered deal,” Jones says. “We had that person in the middle who was an intermediary who walked us through the whole process. Even though we’ve been through it before, it really helped out.”
The broker kept the process moving, making sure both the seller and buyer were getting everything together and completed. But of course, those services aren’t free, and using a broker means more costs for everyone.
After experiencing three acquisitions, they recommend sellers have clean books and documentation showing the company structure for potential buyers to look at.
“We’re putting a lot on the line here,” Broyer says. “We’ve got to make sure when we step in on day one, we have a clear picture of what’s going to happen, [knowing] who takes care of what [to] see that level of management. That’s important to distinguish how much is owner-operated and how much is run by the existing team.”
The ESOP
The above sale options are relatively straightforward, if not simple. You agree on a price, sign the deal, pay or collect the price and hand over the keys. An ESOP, or employee stock ownership plan, is anything but straightforward.
There are many more moving parts, and ESOPs are overseen by the government, adding an extra layer of boxes to check. But for businesses that are too complicated or nuanced for someone off the street to buy and too expensive for a single employee to afford, selling the business to all employees may be a great option.
In an ESOP conversion, the company’s owner sells their shares of the business to the employees collectively. Over time, the company repays the owner for those shares and an employee’s stock accumulates and grows, providing for their retirement. In general, an ESOP employee will retire with three to four times more wealth than an employee who only contributed monthly to a 401(k).
On May 2, Georgia Spa Company in the Atlanta metro announced it was an ESOP. Owner Mark Stevens has owned and sold several businesses and having an exit strategy was a priority for him when he started Georgia Spa.
“If you wait until your retirement age, it’s too late,” Stevens, who is 56, says. Stevens sees it as an exit runway and wishes more business owners would see how valuable it is for them to begin planning theirs.
“[Business owners] work in their business every day, putting out fires,” Stevens says. “They don’t have time to handle or grow the No. 1 asset they have — their business. For so long, a lot of these owners have been beaten down and told, ‘You’re not going to be able to sell. Nobody buys these things, so you better leave it to somebody.’ And I’ve always thought that was wrong.”
About six years ago, Stevens began working with a business coach to investigate his options. Initially, his goal was to be an absentee owner with a business that could run without him. As the company grew, that plan was slowly executed, bringing in all the needed managers for human resources, marketing, sales and finally a chief financial officer.
“I had a great No. 2 with Josh [Kemerling, who is now the CEO],” Stevens says. “I put a great executive team in place over time; that was the start of it. Then about three years ago, Jim Van Fleet and I were talking, and he said, ‘You would be great for an ESOP.’ ”
In 2016, Van Fleet had converted his business, Mainely Tubs in Portland, Maine, to an ESOP. Mainely now has six locations across three states. An ESOP intrigued Stevens, but the process was daunting.
“It just confused me,” Stevens says. “It was a language barrier all its own, and I think it’s designed that way. It’s a federal way of having a retirement plan for your employees and very heavily regulated by the Department of Labor.”
He looked at all the other ways he could sell the business but none seemed right.
“I can make my money and walk away, but what about the people who put their blood, sweat and tears into the company?” Stevens says.
The process started with education. Stevens joined The ESOP Association and attended ESOP conferences where he met Phil Hayes, who became his consultant. Stevens credits his years participating in the Gemini group with preparing him for an ESOP conversion because it meant his books were in order.
“When you go through the [ESOP] process, you have to put together all these analytics and forecasting,” he says. During the ESOP transition, there is an evaluation company, a third-party administrator and attorneys, and a trust company oversees everything once it’s complete. “All these people are looking at what you do and what your books look like. You’ve got to be prepared to defend them or correct the mistakes that are in there. You must have thick skin.”
Having an expert like Hayes guide him made the conversion not as difficult as Stevens had originally feared; it was, however, incredibly time-consuming. Stevens says owners must be in a position where they can devote most of their time to the process versus running the day-to-day of the business.
“[Stevens’] guidance to me in 2022 was, ‘I’m going to be focused on this ESOP, and you are not going to see me a lot,’ ” Kemerling recalls. “ ‘When you do, my door’s going to be closed, and I’m going to be focused on making sure this happens.’ ”
To manage the ongoing cost to administer an ESOP, Stevens says a company’s revenue needs to be between $10 million to $12 million. For Georgia Spa Company, the conversion cost was between $300,000 to $350,000 (which Stevens says is consistent with what he would have paid to go through the process to sell it) with the ongoing fees totaling between $100,000 to $150,000.
“Every year, the company [has] to be reevaluated,” Stevens says. “That determines the stock price.”
Stevens is now chairman of the board at Georgia Spa Company. He helps guide the direction of the company and holds the executives accountable for its numbers, but he no longer oversees any of the day-to-day operations. That will be his role for roughly the next 10 years; at which point, the ESOP will have repaid him. Stevens says most ESOPs give the owner a similar 10-year off-ramp.
When it was announced that Georgia Spa would be holding a company-wide “state of the union” address, the rumors started flying that the company had been sold to Kemerling or an outside firm. But when Kemerling began the meeting to announce the ESOP news, he started with, “Good morning, fellow owners of Georgia Spa Company.”
Kemerling finished his speech that day by reflecting Stevens’ original goal of the ESOP — taking care of the people who helped him build Georgia Spa Company.
“It’s not Mark,” Kemerling said, “It’s not me. It is you, the employees, who are now the owners of Georgia Spa Company, who have worked to ensure our customers get the absolute best service and quality. Mark had the vision. He’s trusted our leadership team to act on that vision, and we win on a regular basis because of that vision.”
The true walk-away
Some may find none of the sale options above are right for them, so liquidating may be the way to go. Some think liquidation sales are only for businesses that have failed or are in trouble, but it can be a lucrative way to end a business when an owner is ready to retire. The downside is the business owner gets nothing for the name and reputation they have built, but the plus side is they can take the money and simply walk away.
To get the most out of a going-out-of-business sale, a sign in the door isn’t enough. As Len Rosenberg learned when he chose to have such a sale, “You must be running a successful company, be well capitalized and have the ability to purchase inventory specifically for the sale,” Rosenberg told SpaRetailer in the April/May 2016 issue.
Read Len Rosenberg’s complete story, I Sold My Business To The Public
Rosenberg hired a professional liquidator and followed their roadmap. Each state (in Rosenberg’s case, Massachusetts) has different rules for how going-out-of-business sales can be run. In the two months he was allowed to have his sale, Rosenberg did a year’s worth of business.
In the coming year, SpaRetailer will bring more in-depth information on succession planning. Mueller, who is still on the hunt for synergistic companies, says, “A lot of sole proprietors are doing 90% of the day-to-day management, and they don’t have much of an infrastructure underneath of them,” he says. “How acquirable is the business?”
But even if you’re decades away from leaving your business, Stevens says, “Whether you ESOP or are a seller, businesspeople don’t want to buy a job,” he says. “They want to buy a business. They want to buy success.”