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A surfer exits the water on Barra da Tijuca beach in Rio de Janeiro, Brazil, May 16, 2012.
A surfer exits the water on Barra da Tijuca beach in Rio de Janeiro, Brazil, May 16, 2012.

Acquisitions

Surfboard designer finds buyout a rough ride Add to ...

Surfboard designer Corran Addison was riding the crest of a very lucrative wave in 2010.

His Montreal-based company, Imagine Surf, was carving a name for itself in the burgeoning sport of stand-up paddling – an old style of surfing where the rider stands on the board and uses a paddle for propulsion. Mr. Addison was designing great boards, but he couldn’t make enough of them to become a major player in the market. To get to the next level, his business needed cash to ramp up production and to bring in managerial expertise.

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Manhattan Beach, Calif.-based Contrarian Group Inc. came calling with an offer to buy the company, invest in production, and keep Mr. Addison on board to lead the brand. It seemed the perfect solution. Mr. Addison says he sold "controlling interest" for $2-million, the proceeds were reinvested in the company for growth, then he moved to the west coast and started a new life as head of the Imagine brand for the Contrarian team.

Within a year, he says, the relationship started getting rocky. “Like a marriage, you don’t mind that your partner snores until there are other things about him that are driving you crazy,” explains Mr. Addison, who lives in San Clemente, Calif. “Then the snoring becomes unbearable.”

In the world of small business acquisitions, marriages of convenience – when the entrepreneur becomes the employee – rarely end in anything but divorce, says Stewart Thornhill, executive director of the Pierre L. Morrissette Institute for Entrepreneurship at the Richard Ivey School of Business of the University of Western Ontario.

“Probably finding ones that did work well would be more the exception than the rule,” Mr. Thornhill adds.

Mr. Addison readily admits there were fissures on both sides while he was at Contrarian. He wanted to push the brand with influencers, which meant he wanted to be where the surf was. He says the new owners wanted him to work closely with manufacturers and investors.

“Obviously the blame goes all ’round, and I take my fair share of that,” Mr. Addison says. “We weren’t doing poorly – we went from having 25 dealers in the United States when they bought us, to 250 dealers when we were sold … but their bottom line demanded something be done.”

In January, 2012, Contrarian Group sold its controlling interest in Imagine to global sporting goods company Pryde Group for $2.25-million, and Mr. Addison decided to move on.

“Whenever businesses start up, there can evolve differences of senses of direction for the company,” says Dick Whilden, a principal with Contrarian Group. “It happens every day in businesses.”

When employment offers to acquired entrepreneurs do work, the consistent element of success lies in setting a fixed term for any continuing relationship, such as having the previous owner stay on for a year to smooth the transition, Mr. Thornhill says. “Where there’s leaving under duress or under a cloud, all that really means is that the honeymoon ran out sooner than expected, not that it was ever expected to last forever.”

Eileen Fischer, the Anne and Max Tanenbaum chair in entrepreneurship at York University’s Schulich School of Business, says due diligence and research is required of sellers and buyers, and each party must be frank and honest about its motives and desires.

“If you’re selling, you’re selling for a reason,” Ms. Fischer says. “It’s not your baby any more, and it’s really hard watching somebody else be the parent.

“Really understand what the consequences will be if the unexpected happens, such as the business being sold, such as new people being hired that you don’t want to work with, such as a shift or change in direction that you don’t agree with. How are you going to feel then?”

Just like a marriage, without careful planning and defined boundaries, the relationship can suffer, Mr. Thornhill adds. “Have a really frank conversation about what life is going to be like after the acquisition. Discuss situations where they’re likely to run into conflict, such as changing staff … You may discover that a consultancy relationship (rather than employment) may be better.”

In retrospect, Mr. Addison says he stands by his decision to sell Imagine but adds he would have handled the process very differently. “In order to take Imagine to the next level, to make Imagine a real player, we needed the financial ability to produce the goods and have them in stock. And to do all of that we needed money.”

While selling was wise for the brand, he says becoming an employee was less so. “My gut feeling and experience tell me that a buyout would be a buyout, (meaning) I’m out.

“You’re buying this company because of the brand, the money it brings in, the network it has or the reputation it has, and you have the expert personnel on hand, you don’t need me. Employment would be a separate negotiation.”

With a couple of job offers floating on the horizon, and some new boards in prototype phase, Mr. Addison is getting ready to wade back into the waters.

“It’s hard to walk away … because you have so much invested in it, but as soon as you get your own apartment, and you go on your first date with somebody new, you go: ‘Oh my god, what took me so long?’”

Editor's note: An earlier online version of this story incorrectly stated that Imagine Surf's three partners split the proceeds of the sale of controlling interest. This version has been corrected.

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