If you are thinking of buying a pallet company, it can very beneficial to learn from a few people who have recently navigated this process. Whether you already own a pallet business and are thinking of expanding through acquisition or are completely new to the pallet industry, this article covers some insight that can help you avoid common pitfalls.
The Backstory
The name Ralph Rupert should be familiar to many people in the pallet industry. For years, Ralph was the director of Virginia Tech’s Center for Packaging and Unit Load Design. He later went to work for Millwood as manager of unit load technology and has written in Pallet Enterprise magazine and spoke at industry meetings. Ralph and his brother, Karl, bought a pallet business last year. Amy and her sister acquired a business from another family member, completing the transaction a little more than a year ago.
In a separate transaction, Amy Olson has become co-owner, with her sister, Mia Allen, of Rose Pallet in Bridgeview, Illinois. Both women are veterans of the pallet industry, and they were critical players in the pallet brokerage business they would later acquire.
Learning on the Job
Although Ralph has lengthy experience in the pallet industry by virtue of his career at Virginia Tech and then Millwood, he had no prior experience owning a pallet business or even managing or working at one. Neither did Karl.
The company they acquired, Johnson Industries, is located in Sharpsville, Pennsylvania, right on the Ohio border. The previous owner bought the business from his father, and the business has been in the same building since 1963. The business employs 30 people and generates $4-5 million in annual revenues. Ralph and Karl completed the acquisition in September of 2020.
Ralph will be 66 in August, and Karl will be 56 in July. The brothers had been thinking of some kind of joint business venture in recent years. Karl was getting ready to retire from 30 years of teaching, and Ralph also was approaching retirement age. Despite being in mid-60s, Ralph has no plans to retire soon. “I’m just switching occupations,” he said.
Even though Ralph has long, strong ties to the pallet industry, it was not a foregone conclusion that they would buy a pallet company. One or both brothers had some experience in landscaping, remodeling and real estate. “This fit our timing and our strengths,” said Karl of the acquisition.
The seller was a personal friend who disclosed to them one day in conversation that he wanted to exit the business but didn’t have a plan. That got the wheels turning in the minds of the Ruperts. Johnson Industries was located a mere 15 minutes away from each brother; they drove past it the last nine years when they went back and forth to visit each other.
“Our acquisition was pretty unique because it was friendly,” noted Ralph.
However, the process took 2.5 years to complete. “It took so long partially because neither party knew what we were doing,” said Ralph. “The Limpachs took over from his father, and we had no idea how the process worked.”
It took about a year to figure out the process. Both sides benefited, though, “because it helped us get a better feel for the business and their desire to pull the trigger on the acquisition.
“God had His hand in this,” added Ralph. “Step by step, things fell into place. The transition couldn’t have been smoother as Dave and Debi Limpach continue to pass on their vast knowledge of Johnson Industries. They are invaluable, and we can’t thank them enough.”
Ralph continues to work for Millwood in a part-time consulting role. It’s rather a unique situation because Millwood is a customer of Johnson Industries.
Johnson Industries specializes in heavy-duty and other custom pallets — from very small to very large — and also crates and other specialty packaging. “Another nice thing about this acquisition is the diversity of products they supply,” noted Ralph.
Creating A Strong Team Leads to a Better Transition
One of the most important things about the process was the people who helped them along the way — notably, a banker, attorney and accountant. Their loan to purchase the business was acquired via the U.S. Small Business Administration, and an SBS representative also was very helpful.
“We had the advantage of that team,” said Ralph. “They were very knowledgeable and helped us through the process, knowing what finances to look for, and getting all that in order to do the economic analysis. We can’t say enough about that team. Without that kind of team, I would not recommend anyone doing an acquisition.”
In fact, Ralph recalled an annual meeting of the National Wooden Pallet and Container Association and listening to a panel discussion about mergers and acquisitions. Howe Wallace, CEO of PalletOne, a member of the panel, mentioned the importance of having a good attorney and accountant to guide a buyer through the process. “I totally agree,” said Ralph.
With his knowledge of the pallet industry, Ralph was able to come up with a ballpark value for Johnson Industries, and their bank and the SBA came up with values that were very similar. The valuation was based on overall revenues as well as assessments of the land, building and equipment. “When we got to the point of asking the owner his asking price, it was very, very close.”
Although the men had no previous business ownership experience, they had no difficulty getting approved for a loan for the purchase, according to Ralph — largely based on his knowledge of the industry. Karl also brought to the table his experience operating a small landscaping business for 25 years — his ‘summer job’ from teaching. “So, between the two experiences as well as it being a well-established and strong business, the bank was eager to lend to us,” recalled Ralph.
Be Patient Because There Will Be Obstacles
The brothers admitted to some anxiety about consummating the deal. “Particularly because it took us so long,” said Ralph. “It just kept dragging on,” and required patience.
“We learned so much in the process that it helped us as we came in as new business owners,” added Ralph.
They elected to keep the existing name of the company, Johnson Industries. “It’s very well known in the area,” noted Ralph. “We’re definitely keeping the branding.”
Now, both men are actively involved in the business; Ralph is involved with designing, pricing and selling pallets as well as buying lumber. Karl oversees production operations as well as handling some office tasks, like payroll and taxes. It has been an eye-opener to learn about all the various taxes and government regulations that impinge on the business, Ralph noted.
Within a few days, Karl was on the plant floor, building pallets. “We wanted to demonstrate to employees that we are hands-on,” said Ralph. Several employees approached Ralph and said, ‘He knows what he’s doing,’ he recalled. “It gave employees a sense of ease,” he recalled, “that we weren’t just off-the-street, office-type people. That we really knew construction and the pallet industry. It made our transition very easy with the employees because they recognize our strengths.”
Although the Ruperts are pleased with their decision and are enjoying operating their company, Ralph cautioned newcomers to the pallet industry. “I would not recommend anyone who is not familiar with the pallet industry to endeavor to buy a pallet shop,” he said. “I’ve been associated with the pallet industry for 20 years…it’s amazing how much I found that I didn’t know when we took over this company.” As an example, he had no prior experience sourcing raw materials and evaluating and dealing with lumber suppliers.
“The pallet industry is quite unique in so many respects,” said Ralph. “You need to understand it before you consider getting into it.”
Familiarity Creates for a Smooth Transition at Rose Pallet
Amy and Mia’s experiences were quite different since they were dealing with a family member.
Both women have lengthy experience in the pallet industry, having worked in it ever since graduating from college. After working for different companies, they worked together for a year before deciding to do a joint venture with their uncle, Alan Rose, who was exiting the paving industry and, with expertise from Amy and Mia, launched Rose Pallet, a brokerage business.
Amy and Mia became minority stockholders when the business was formed and worked full-time in it, mainly in sales. They planned to acquire the business from their uncle in about 10 years. A key employee serves as president as Alan relocated to Florida for his retirement and was not active in the day-to-day operations of the business. They completed the buy-out of their uncle and took over sole ownership of the business in December 2019, sticking close to their timetable. Rose Pallet has nine employees at its corporate office, including the sisters.
“Our buyout was amicable,” noted Amy. “We knew most of the mechanics, so it wasn’t very difficult. We did make some changes with our banking and accounting support, but other than that it was not disruptive to our staff, customers or us as new majority owners. We had very good (legal) counsel that helped make the transition seamless.”
Amy agreed with Ralph’s assessment that having a good relationship with an attorney, accountant and banker is important to go through the acquisition process. Amy and Mia had little experience dealing with the accountant for the business because their uncle had handled much of that. “A lot of that was new to us,” she said. They ended up changing accountants and banks in the process.
The accountant they decided to retain and their attorney were “a really big help,” she added.
“You definitely have to have a good attorney,” said Amy. “Even though it was a smooth transition because it was family, still, things come up.”
Amy and Mia did not rely on their accountant to help them determine the value of the business. “We pretty much already knew,” said Amy, being privy to the company’s financials and talking to others in the pallet industry. They came up with a number they thought was fair and negotiated with their uncle. However, for someone who is new to the industry and considering buying a pallet company, Amy suggested using an accountant to help determine the value of the enterprise.
As for other preparations to take over the business, they had to negotiate issues related to real estate, a lease and a buy-sell agreement between the sisters.
“The biggest change was becoming a certified Women-Owned Business Enterprise,” said Amy. “We are 100% women-owned, and over 50% of our workforce is female. We also have some other minority representation. We are an equal opportunity employer. We are always on the lookout for outstanding new talent.”
Amy had the following advice for someone new to the pallet industry who is considering buying a pallet company. “For me, the pallet industry is kind of second nature. It’s all I really know. It’s an interesting business. It’s not just building a pallet. If someone is really looking to get into it and doesn’t know anything about it, they need to take some time to understand it. It is a very fast-paced business and industry. You have to be prepared for that and for the changes. It happens a lot. Every day I wake up, it’s different.”
