Like most entrepreneurs, Prime Time Shuttle founder John Kindt searched hard to find an investor. Kindt's angel, who was in the construction business, fueled Prime Time's growth by providing the money to install a high-tech computer reservation system. Soon, the company, which serves airports, piers and train stations in Los Angeles and Orange counties, ranked second among shuttle services in Southern California.
But a few months ago, when the region's construction boom fizzled, Kindt's angel pulled out, asking Kindt to convert his substantial equity investment into a loan.
Cutting back was too depressing. Selling out would be a defeat. As he weighed his alternatives, Kindt recalled an earlier overture made by a rival, City Shuttle founder Rod Ramsey. Kindt and Ramsey had served together on the board of a shuttle industry trade association. Although they competed for every passenger in the San Fernando Valley, the two respected each other's operations.
While the thought of joining forces with your competitor may be hard to swallow, more small-business owners are using mergers or strategic alliances as a way to flourish during the current economic slowdown.
If your company is not ranked No. 3 or better in its industry, you should think of making some kind of alliance with a competitor, said Michael Corrigan, head of Price Waterhouse's corporate finance group in Los Angeles.
"In any recession, the weakest tend to go to the wall," said Corrigan, who along with Phil Tremonti, another partner at Price Waterhouse, orchestrated the merger between Prime Time and City Shuttle.
When Kindt and Ramsey began negotiating in July, Tremonti said they were far apart.
Tremonti, who has put together several mergers, said the biggest problem in bringing two small companies together is meshing the needs of their strong-willed owners.
Slowly, he encouraged Kindt and Ramsey to focus on the positives of a deal, emphasizing growth potential and ability to cut overhead.
Eventually, Tremonti, the entrepreneurs, their accountants and attorneys crafted a merger plan. The division of responsibility reflected their personal strengths. Kindt, who became president of the combined firm, realized he enjoyed overseeing day-to-day operations. Ramsey, vice president and chief financial officer, prefers to concentrate on the financial and administrative side of the business.
Prime Time hired a number of City Shuttle's drivers, bringing employment to 500, but many others were let go.
To give the new and bigger Prime Time a fresh start and more space, the company recently moved into a 15,000-square-foot headquarters.
Shortly after moving, Ramsey, who also founded his shuttle company in 1986, reflected on his decision to join Prime Time.
As the company gears up for the busy holiday travel season, Ramsey said the merger already has substantially reduced overhead costs.
Although no money changed hands in the tax-free merger, Kindt said he and Ramsey "both brought their bank accounts" into the new company.
The new, bigger Prime Time expects to serve 720,000 passengers and could generate about $12 million in revenue a year.