Why We Sold Our Company, Then Bought It Back

By Anthony Medico, President, E+M Advertising, New York City
A few years ago, a company made a bid to acquire the 30-year-old advertising business that my father and I owned. At the time, it seemed like a great opportunity for expansion. The executives promised to invest new capital and as part of the deal we would stay on as managers and keep shares of stock. We agreed to sell.

Little more than a year after we signed the deal, our new corporate parent started to fall apart. So we had a decision to make: We could walk away and cut our losses, or we could save the business by buying it back and taking on more than $8 million in new debt. Here's what happened.

The acquisition
My father, Mike Medico, founded E+M Advertising in 1980. I came on as a partner in 2000 to run the Internet advertising and e-commerce division. By 2006, the company had offices in New York and Los Angeles, 30 employees, and annual billings of more than $40 million. We both felt that to develop the company further we needed partners who were prepared to invest new resources.

Selling to the parent company, which focused on digital display ads, would help us grow by giving us the chance to diversify into different types of technology. E+M would serve as a unit within the overall business, while maintaining our existing company structure. We had some concerns that our acquirer brought in far less revenue than we did. But we liked that the company was publicly traded, seemed to have a smart board of directors, and focused on expansion into new advertising mediums with proprietary interactive technology. Most importantly, we would retain full control over our divisions and share in the profits.

So we sold E+M for roughly $4 million in cash and shares, along with a promise to expand our resources and technology.

Money problems
There were signs from the start that our parent company couldn't make good on its promises. It immediately ran into financial trouble. Then the economy began to decline in 2007, credit tightened, and the company couldn't borrow money to keep operations running.

Meanwhile, our unit did extremely well that year. But corporate owner was so short on capital that it couldn't afford to pay its debts, including those to the media sources that we pay to place ads on behalf of our clients. Within a year, our division was $8 million in debt and our credibility with our core media sources was seriously damaged.

Then the news got worse: In 2008, the company filed for Chapter 11 bankruptcy. We knew we were going down with them -- unless we agreed to buy back the company and shoulder the debt that it had incurred.

A tough choice
We could have walked away from the business and started from scratch. But my father and I both care deeply about the company. We also knew that the companies we owed money to would only see pennies on the dollar if we let E+M go under. That would have been disastrous if we ever hoped to start a new company.

We quickly weighed our options and decided to buy our unit from the parent company. We bought it for less than $1 million, which took a huge chunk of our personal savings. The larger risk, though, was taking on the $8 million debt.

Paying debts
Our first move was to streamline our operating costs. We immediately shut down our secondary office in Los Angeles, cut our staff to 20 employees and took a hard look at our budget. Those moves gave us breathing room. But we still didn't have the funds to repay the debt immediately.

So we explained the situation to our media sources, emphasizing that we had retained 90 percent of our clients. They agreed to be flexible and we paid back our debt in 18 months.

Coming back
In retrospect, we should have seen the holes in the acquiring company's plan. And next time, we will make certain that any prospective partners have the money to make good on their proposals.

Still, I don't entirely regret the experience. Buying back our company gave us the opportunity to reinvent ourselves. As a result, 2010 has been the most profitable year in the company's history. Maybe, every once in a while, you need everything to fall apart in order to make yourself stronger.

Before becoming a partner at E+M Advertising, Anthony Medico focused on direct response marketing for companies including Time-Life Music and Telebrands.
-- As told to Kathryn Hawkins

Resources:

• Learn about other "boomerang" business owners.
• Find out whether you should sell your company.
• Read about another entrepreneur who bought back his own company.