Acquisitions Anonymous - #1 for business buying, selling and operating - $21mm golf ball business for sale and Girdley shares vacation photos- Acquisitions Anonymous 239

Episode Date: October 24, 2023

In this episode of Acquisitions Anonymous, the hosts discuss a  business for sale that is a golf ball and club manufacturing company, analyzing its financials and market position. |They delve into the company's relationship with Walmart and the challenges of working in the retail industry. Highlighting the intricacies of supply chain dynamics and the potential cash flow challenges, they provide insights into the business owner's possible ownership structure and lifestyle. Despite potential complexities, they acknowledge the profitability of the business and the significance of the Walmart relationship in its success.Today's deal comes from Axial.  Axial is a trusted deal-sourcing platform serving professional acquirers in the American lower middle market.Thanks to our sponsors!Rejigg - Get connected to owners looking for exits.Rejigg is a platform built for searchers who want to meet directly with small business owners. They have an in-house team doing outreach, finding owners who are excited to meet with people ready to buy their companies. Searchers who join their platform often have 5-10 meetings scheduled directly with owners for the very next week. Their sweet spot is $500k-$10m in revenue, but they have other opportunities as well.Get started on their platform to fill your calendar with owner meetings. Rejigg does the calling - you do the closing.-------------Double Jump Media is your one-stop shop for creating engaging, high-quality videos.Double Jump is a boutique video production company with over a decade of experience creating professional, memorable videos for clients from around the globe and in various industries. All while helping those clients generate millions in sales through video content.So, whether you’re rebranding a business you recently purchased, launching a new product or service, or want to look awesome, Double Jump is down to clown.Visit www.doublejump.media to check out their portfolio and schedule your free consultation today.Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Acquisitions Anonymous. Today, we had an episode that Bill described as the best episode we've ever done. I don't know if that's true, but it was pretty darn good. Bill, Bill, me, Michael, and Mills. We did much better talking that I'm doing right now. We got together and we talked about a golf ball manufacturer for sale, another deal that we found off of Axial, $22 million in revenue, so big boy, and really led into some interesting places to think about

the dynamics of your customers, think about the types of businesses you want to be in, and then Bill won the host of the day award by figuring out how to make the deal happen. So I love this one and hope you like it as much as we did, especially because we had fun making it. So here's the episode. Our sponsor for today is Rejig, a platform that is built for searchers who want to meet directly with small business owners. They have an in-house team doing outreach, finding owners who are excited to meet with people

ready to buy their companies. Searchers join their platform and often have fun. five to ten meetings scheduled directly with owners for the very next week. Learn more about rejig's model at rejig.com slash a.a. And again, that's R-E-J-I-G-G-G dot com slash AA. And Rejig does the calling. You do the closing. All right.

Good morning, guys. Is everybody punched drunk for Friday? Yeah, baby. Friday. It's probably coming out on Tuesday, so the listeners aren't getting it. Sorry. Hey, we don't do these lives. Just so you guys know, we're not actually in your phone talking to you.

We're actually. They feel the energy. They feel the Friday energy on Tuesday. Yeah, we're bringing the Friday energy all week. Yeah, well, I spent the week in Cleveland at Holdco Comph. Those guys did a really good job. They did a really good job. All the details were done, right?

Like, even the name tags were, like, classy. Like, everything was really well done. Nice, except the one detail that it was in Cleveland. Do right? Cleveland. Surprisingly underrated. I mean, look, I know we were there in September, and so it's like, yeah, man, this place is delightful.

It's like 75 and sunny every day. Well, I know that's not how it is the rest of the year. But, like, the thing I was impressed most about Cleveland is, like, it felt like kind of reminiscent of San Antonio that, like, there's a core group of people that are, like, really positive about the town. And, like, they were so prideful, like, of everything. And they were like, yeah, we've had our problems, but there's, like, so much cool stuff going.

on. And we, one of the activities was we went to like this rowing, this community development thing that was basically a rowing club for underprivileged kids. And it was like a world class like rowing facility where you could go out on the river or like train inside on like these simulated tanks that are like world class, like better than anything, you know, at any university in the United States. And it was just like, it was just cool to see just like, these are just like good, hardworking people really proud of their city. And that was inspiring. Well, it is like a, ever used to be, a absolute crown jewel American city, right? You know, like Pittsburgh, you know, during the Industrial Revolution.

I went there when I was doing investment banking, I went there for a deal. And I was simultaneously struck by two things. This was, of course, 10 years ago. And I do know Cleveland's come a long way in the last 10 years, especially. But on one hand, there are all these gorgeous buildings, like old theaters. The downtown is incredible. but it's sort of like I am legend.

They're all like abandoned and like coloring cobwebs and like dust and stuff. But you're like there was once a great civilization here in downtown Cleveland. You know, we stay downtown and my coworker went running in the morning and he comes back and he goes, you're not going to believe this.

I was literally chased by a pack of wild dogs through downtown Cleveland. And so it's like, it was this weird vibe where it's gorgeous, right? And there's a lot to it, but it's, you know, it needs to be re-itolized.

All right. So, you know, guys, I don't know if you're aware of this. This is a show about deals. So we should consider talking about some deals. Oh, wow. All right.

I brought this one. It's another axial deal. The axial guys are just not getting out of the park with deals lately. So like, you guys want me to read this one? I love the actual ones. They're very fun.

All right. Okay. This is a golf ball and club manufacturing company. Subject Project Project Fairway, the company is a manufacturer and distributor of golf balls, clubs, bags, and various other golf accessories. The company manufactures its products at multiple locations across China and Vietnam, where they maintain lengthy relationships stretching back many years. New balls and clubs, businesses of the company continue to show strong growth and healthy margin figures through 2020.

The company has maintained a strong balance sheet historically with a current ratio of ADEX at year end 2022. We should probably... bonus points for the first mention of current ratio on acquisitions and honors. or in a Tinder. I don't think we've ever seen that over 250 deals. A strong long-term relationship with Walmart, where opportunities exist

for a buyer to leverage a relationship to gain access to a broad distribution network for other products, the drastic increase in golf rounds played over the last two years, coupled with the company's market position poised the company for strong future growth. The company is uniquely positioned

to capture growth in the opening price point golf market with their products firmly entrenched as a leader in the space. EBITDA has significantly increased in 2023 due to lower freight costs, increased demand at big box retailers and better supply chain situation. Financially, they did $21.8 million and $1.5 million in EBDA in 2021. In 2022, they slightly grew to $22 million in revenue and $2.3 million in EBDA for a 10%

EBITA margin. They are located somewhere in the South Atlantic, so DCVA, West Virginia, North Carolina, Florida, and then they make all that kind of stuff. It's just a little bit more here of what category they're in. So what do you guys think? You know, you got to hand it to the broker for admitting they had a COVID bump. Right. The drastic increase in golf rounds played over the last two years,

coupled with their marking position, poison for strong future growth. So I appreciate the honesty. That's also a euphemism, right? It's like a creative rebranding of COVID bump. Yeah. Dramatic increasing golf grounds. Yep, exactly. I couldn't figure out at first why their margins are so low,

and then they said Walmart. So that helped connect the dots a little bit and opening price point. I feel like usually with like with golf club, like my mind goes to extremely high margin. You know, you would think on the manufacturing side. Now I know most of this is sold in retail, even on the higher end stuff. And so the margins get, you know, picked and eroded away. But if you're selling like a $300 or $350 driver, the margins on that stuff, it has to be better than this, you know, 10%.

But they're probably selling a whole kit with the bag, you know, and everything included. Yeah, because when you're Callaway and you sell a $350 driver, yeah, the pure gross margin is good. But then there's $200 of marketing and customer tack in that $350 driver, you know. So I bet these guys don't have that. And that's also what I'm curious about, right? Golf stuff is often branded, right? There's a ton of good golf brands out there. I can't imagine this is one of them.

Like I bet you have not heard of this brand, which means they're selling unbranded stuff. This feels like when you go into Walmart and they have beaten up some sort of supplier, mom-and-pop supplier who is giving them golf balls or whatever at super low margin and working on close to subsistence wages with unbranded generic America's best choice golf balls.

And you just trust that Walmart do their, scale has beating them down on price and gotten you to a reasonable level of quality. That's, is that this business? That's what it smells like to me. Yeah. I mean, this is like Uncle Sam's brand. This is like Kirkland brand, but for Sam's Club, probably. Which means, you know, they're getting just absolutely blistered by Walmart on the stuff

we've talked about with big box retail, you know, slotting fees and buyback dollars and, you know, dropping their margins in order to maybe get on an in cap, you know, for a, you seasonal thing. It's just, I'm curious. Like, do you guys think that Walmart is 35% of their revenue plus or minus, or do you think it's like 75% of their revenue? It will be surprised if it's 95%. You think if you're selling, if you're selling this type of category to Walmart, you know, in your full chain, you could easily get 20 million, you know, in revenue with that, just one customer. Yes, for sure. I mean, that being said, though, like, we're here talking about how tough those margins could be. I'm not saying a 10% EBidon margin is the best EBITDA margin I've ever seen,

but it ain't the worst either. You know, not that bad. In theory, they're taking home $2.3 million. Because, I mean, given, you know, the nice thing here is the manufacturers are doing the majority of the CAPEX, right? There's these Chinese factories. Of course, the downside there is somebody else can come in and buy from those same factories and cut you out, so you don't have that as a moat.

but given, you know, in theory, you're just being a middleman here and your job is to make sure Walmart stays very happy with you and the factories continue to prioritize you as their buyer. Like, it can be pretty good. Now, I think there's a danger here, which is if you dig into it

and you discover that the reason the factory likes you is that you pay them more or first before everybody else does. So that's one of the games that has happened as the Chinese have shifted their production, base. So, you know, over the past 15 years, the CCP has come in and basically reduce the level of competition that happens amongst the manufacturing base, which is great. You know, that makes sense when you're like your labor pool is shrinking. But from a buyer standpoint, it's put all the power into the hands of the manufacturing in China, which means you have to compete as a buyer

sometimes to get their attention. So like in fireworks, for example, there are buyers who come in and they're like, we'll pay you six months ahead of time before you deliver Mr. Factory. Everybody else will give you net 60. We'll pay you six months ahead of time, but you're going to do all of our stuff first. And like, you know, it creates kind of a weird thing. So that has me wondering what kind of the cash conversion cycle is for this business.

Like, do these guys have $5 million in cash and personal loans that they've guaranteed because they're using that to get these factories to stay happy with them? All of that is a little scary based on what's happened in China these days. The other interesting tell here to me is, Vietnam, the fact that they say Vietnam, like in 2018 when all the Trump tariffs came online, what you saw was this, you know, like just panic. And everybody immediately was like, well, in 2018, they didn't have necessarily redundancy in the supply chain, but they were like,

don't worry, we're going to find similar manufacturers in, you know, other parts of Southeast Asia, and Vietnam was the big one, the recipient. And so I'd be willing to bet if you go back, they probably pre-2018 Trump tariffs in China. They were exclusively manufacturing in China, and now they've diversified. And like, you know, good for them. To your point, Michael, on the working capital cycle, these are, if you're, if you're shipping bags, full bags with golf clubs, it's almost all sea freight and not air freight. Like if it were, you know, like a high end electronic or something like that.

And so that just slows down that cash conversion cycle too because of things sitting, you know, on the vote and, you know, on a dock somewhere and not being air-free. So, all right, pop quiz for both of you. Without Googling, what is the current ratio? What is the definition of current ratio? I had to Google it and I will tell you. Okay, good. Because I was about to feel really good.

Oh, no, is this another moment we're building this something I don't know and I'm going to feel stupid all day? Didn't it current liabilities about current assets? Oh, so close, the reciprocal. But yes, you're close. Okay, yeah. I didn't know this would be in an accounting quiz. Mills, Mel's former broker or investment banker gets us, right? Point for Mills.

So what's interesting, right? The current ratio is current assets over liabilities. Their current ratio is 8x, which means they have a ton of assets and almost a ton of current assets, and we'll come back to what the definition of a current asset is and almost no current liability. So you might go, this is great. Actually, I think this is terrible because this means that the business sucks cash like crazy. What it means is they have ton of inventory and a ton of accounts receivable, which are current

assets, and they have almost no current liabilities, which is accounts payable. So basically, they are giving great terms to Walmart. They are carrying a ton of inventory, and they are not getting any terms at all from their supplier. Right? So this is a huge. huge tell for me that this business is a cash-sucking monster, right? So all of my diligence here is going to be around, I got to go back for five years and track the working capital, right? And if

this business goes from 20 million to 30 million, it might suck up another $5 million of working capital. So like immediately I'm going, whoa, working capital alarm bells. The other thing that I would check out, though, the flip side of that, potential massive opportunity, if you can buy this business at a decent price, there is a huge opportunity to do a lever distribution almost right away. You can go, if you got all these current assets, and you're able to buy them at a decent price from seller, go to an asset back lender. And you go, I've got a shitload of Walmart accounts receivable, the credit is perfect, and a ton of inventory that is good and saleable, and you can immediately get a credit line, which is 80% of AR, maybe 90% of AR for Walmart,

and about 50% of inventory. And you could just draw down and cut yourself a dividend check. You might pay back 50%, 80% of the acquisition on day one just by restructuring the balance sheet. Like classic private equity move, tin value. Total tangent, but it does remind me of my favorite, like, you know, leverage buyout strategy when real estate is involved these days, where it's like you see it happening, but it happened more when interest rates were low. It's more fun than I don't think it happens as much now.

But like you go see somebody buy a business and the real estate that goes with the business, and the first thing they do is go do a sale lease back of the business real estate to then use that to fund purchase price. So you can see people with basically zero cost basis from the beginning because they sell off some of the assets of the business. So Eddie Lampert, C-Mart, Sears. That's the whole strategy there. It didn't turn out that good for them. But yeah, that's the idea.

Well, we see those a lot of times because the landlords are typically smart. Like in roofing, the sale lease back, the buyers, like, well, we're not accepting responsibility for the roof. You know, and it's a 15-year lease. And the tenant, who was the former owner, is like, yeah, yeah, no problem. Just like, hand me the pile of cash. We'll figure that out later. And then five years in, they're like, oh, my gosh, the building. needs a new roof. It's going to be $800,000, and we weren't planning on that. And we don't even

own the building. The last thing I want to do is spend all this money on the roof. Yeah. So it's just funny to me how they say current ratio and they make it sound like a really strong balance sheet. But what this actually means is this balance sheet has sucked a ton of the seller's cash up over the years to get to be very strong. And it's very strong. It's not like strong in like we're sitting on millions of dollars of cash way, right? It's strong in like we have millions dollars of cash tied up in it way. It's strong like you own a fireworks business way. Yeah, exactly.

I think, though, if you look at the statement of cash flows for this thing, the net change in cash, even with nominal growth, which is going to be more cash consumptive, even just with 2% top line growth, if you look at the statement of cash flows at the end of 2022, I bet their net change in cash is, I don't know, less than $750,000. right? The EBIDA is all just being cloud back into the next round of inventory and that just long cash conversion cycle. Yep. Yep. So I mean, to me, that's the whole diligence here on this. This is, I mean, to Michael's point, right, this is almost a distributor. Like, you're a middleman. You're a middleman between China and Vietnam who makes the golf balls and Walmart who buys the

golf balls. The value you are providing here is probably not the brand of golf balls. The value you're providing is great relationship with the factory, great relationship with Walmart, and you're a bank. Right? You're basically floating the golf balls and you're financing the golf balls as they travel across the Pacific, go through Walmart's supply chain, get onto shelf and get sold. So that's how I view this business. It's maintaining two relationships and being a bank. Yeah, one of those relationships is my favorite economic term of all, the opposite of a monopoly, a monopsony. So where you only have one buyer for your product.

Selling to the government is a monopsony. And it makes you in a very bad situation when there's only one buyer, which is always what scares me. And also why, if people are like, why do we have huge retail chains? Like, why is there Walmart and Target? Why is there HB and Walmart here in San Antonio? It's like, oh, here's why. It's because when you're the only buyer, you have a ton of pressure that you can put on

your other folks. And it always scares me. Like, I don't like it. But maybe that's because I'm not very good at business. So I understand this correctly. When you become a monopoly, like Walmart, right? You're trying to become monopoly. You create lots of monopsonies for your suppliers.

Correct. Your goal, any business's goal, is to become a monopolist. So your suppliers are all monopsonists and they have no market power because you're the only customer. Yeah, that's why Walmart is a great business. and this is at best an okay business. And I think it's only an okay business because they sell a lot, a lot of golf balls. But like, if you weren't selling $22 million a year

worth of golf balls through Walmart and you were selling $3 million a year through golf balls through Walmart, it's just not that fun. But objectively, and it's something we kind of forget a lot, which is this business, in theory, spins off over $2 million a year in profit, buying golf balls from China

and then making sure Walmart is happy when they get them on the shelves. And like, still, that's a lot of money. That's a lot of money. I don't think. Probably not hard either. Like, I bet you don't work every day. Correct.

I do think you fly to Bentonville a lot, which is what you do. True. What you do when you sell to Walmart. The issue, too, with this is that, like, these businesses, they, whenever they're, what do they call it, big retailers have this kind of process, this, like, song and dance, right, that they go through where, like, if you're selling, I'm trying to remember some of the, they go through where, like, if you're selling, I'm trying to remember some of some of the, the site visits I've been to where they have these like mock up walls. And it's like, hey, Walmart or Target, this is what it'll look like on your shelves. Like, yeah, this is how, not merchandising or categorizing, but it's like, this is how we're going to lay out, you know. Planogram is the word you're looking for. Planogram. That's right. Yeah, yeah. So they

planogram it. But like, the risk, right, for these folks is when they're in the middle of the year and they're in the middle of the sell through, it's stressful because they're like, look, if this doesn't perform, if this stuff doesn't sell through, then we're on the chopping block. And if it does sell through, guess what? You're still on the chopping block because the next go round, you don't know, is somebody going to undercut you? And you're locking into probably 12 months worth of it. It's not a real rigid contract, but you're, because it's very one-sided, but you're locking into, we're going to sell this stuff.

And if it doesn't sell, then we're bringing it back. And when we bring it back, it's like, you know, return fireworks, right? What are you going to do with it? it's like all, you know, mangled and destroyed and you, you know, you just have to get rid of it. I'd be willing to bet, Bill, like, maybe 50, 50. If this business is $20 million in revenue, there's a 50% chance that they are still mom and pop and not that sophisticated and they don't have like a big credit facility in place to manage their working capital. It's just like you don't, you don't know until you get into it.

There's a good chance that they don't. I mean, isn't an 8x current ratio telling you that they don't? Like, there's no liabilities. Yeah, I guess you're right. There's no current liability. $100 Chili's gift card says this is owned by some 68-year-old boomer who they has, has charmed everybody on both ends of the spectrum. And for 35 years, has plowed all the free cash except for enough money to buy a Lincoln town

car every three years or Cadillac, if they're feeling classy. And, like, has put all that money out of their pocket into this business over and over again. and their kids have no interest in doing the business. They got smart and got lawyer jobs or something. So that is this scenario. A $100 Chili's gift card says this is what's going on in this. And the guy probably lives a pretty good life, right? Like, Sal, he plays golf a lot of free golf balls.

He definitely has a boat and a house in Sarasota. Like, there's just no doubt about the guy that owns this. I'll just tell you what he looks like. He wears any, he wears those really out of style golf shirts that, I'm totally blanking the name that they have the short. on him, the retired golfer, the retired golf of the Greg Norman that nobody talks about today, but like they were hip in the, but nobody under 50 is going to wear him. That's what this guy does. And he catches fish off of the boat that he owns. And his life is great. But his kids have no

interested in that life. They're living in New York and they're lawyers. That's just, that's the story. Do you need video content for your business that doesn't suck? Double Jump Media is your one-stop shop for high quality, highly engaging video content. They have over a decade of experience producing great memorable videos for their clients across North America and beyond. And those clients have taken those videos and turned that into millions more in sales for their business to help them grow and achieve their goals. And a distinguishing characteristic that sets them apart is they have a small team that

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Fill out their form, tell them that we sent you, have an introductory call at no cost to you, and figure out what's best for your business. They're great folks, can help you on your journey in producing amazing video content to help meet your business needs and goals. And thanks to them for sponsoring today's episode. When the business has this balance sheet, though, it tells you that the deal is going to fall apart due to the working capital adjustment. Because this guy today is going to go,

that's my money. That's my money. It's all tied up. That's mine. And you're going, well, wait a second, I can't put $8 million into the business at close to fund the balance sheet that you've created, yeah, you have $8 million worth of current assets and you have a million dollars worth of current liabilities. What do you expect me to do? This is normal. This is normalized. Yeah, I mean, so let's just like run the math, right? This business has roughly $2 million of EBITDA. If we're right about it in that it's a little bit of a distributor type business, got reliance on Walmart, like this is going to trade for four times, maybe five, right? So let's say it trades for $8 to $10 million on enterprise value, and he's got $8 million

on the balance sheet, which was totally possible. $8 million on the balance sheet is 50% of revenue, of one-year revenue, right? Like, it's possible. Yeah. That's their cogs. Right. So now they've got, they've got basically, you got $8 million of enterprise value and $8 million of working capital.

And so now the business really costs $16 million to a buyer, aka eight times revenue. right? Like you've, or eight times you've died rather, you've doubled the multiple on the working capital adjustment. And that, to your point, Mills, is why these deals are so hard to get done with big fat balance sheets. Yeah, because all along the guy's been like, well, at least when I sell this thing, I'm going to be able to take $7 million out and plus purchase price, you know. But in reality, somebody's going to say, yeah, I might pay you, you know, $6 million and I want you to roll some equity or something like that. Or, you know, you have to have some contingent payment earn out. but you got to leave $7 million in the business. And he's gone all this time I was thinking I was getting 14, 15,

and I'm getting half of that. And then the crazy thing is when you talk to the folks that have this set up like this, let's say they have $10 million in cash put in the business. They don't think about it as they're getting 15% return on their money, right, which is their EBITA from 2021, $1.5,000, which, like, that's EBITA. So let's say it's really they're making a million dollars cash each year

on $10 million capital invested. They do not think they're making. 10% return on their money, which by the way, is not that much better than T-bills and a lot less liquid. They think I'm making a million, I'm making a million dollars a year on what I originally invested when I started up this business. And like when I started it with just like me in a couple boxes of golf balls flying at Bentonville. And so there's not that level of sophistication to realize their return on invested capital is actually not good at all.

And that also ties into why like they don't have many competitors. It's because, you know, being dumb is a moat. Being dumb as a moat. Great girly quote. Phenomenal. You also are kind of pigeonholed when you're in this business. I mean, it's not like you can say, you know, down at the bottom, they kind of list like a broader industry, you know, of consumer goods. I think it's very, very difficult to expand the product lines here because there is a similar guy somewhere else in the country.

who is selling all the basketballs and all the frisbees, you know, and all the bicycles or whatever. It's not like you just say, oh, we already have the relationship. Like, let's just expand it and go wider. That's just this cash consumptive. And you can't, you don't have a directed consumer business where you say, hey, guess what? Now we're also selling, you know, golf shoes. And we already have the customer relationship with the end user. You don't have it.

Look, Walmart, Target, all these guys, H-EB, like, they all. Home Depot, they have spent, well, not Home Depot, but Walmart Target, every grocer, they have spent the last 60 years with Procter & Gamble and Anheuser-Busch and Bev and all these guys, owning brands and beating, owning families of products and beating them up over it, and they don't like them. There is no way they're going to let you organically create your own golf brand and create yet another Procter & Gamble for them to deal with. And it turned, you know, there's just no way. Like from game theory's perspective, they're not dumb. They don't want you to do that.

And so it's never going to happen. That's just the biggest fantasy in this whole thing, which I love that the broker put it, but it's total fantasy. Let me give you the bull case for this business that. All right? Somebody has to do it. By the way, at the conference, at the conference, they were like, you guys savage these deals. I'm like, really? I've been mean before.

This is not that mean. Anyway, Bill, tell us how you get rich on this one. how I would get rich on this one. So the big assumption here is that I can structure the purchase price in a way that gets over the huge working capital hurdle and mitigates my risk in case Walmart drops me. You got to have the seller share the risk in that. So leaving that aside, right, you got to get over the working capital purchase price hurdle and share the risk with seller on Walmart bailing on you. Assuming you get over that, here's how you make this business bigger. I know that you go, oh, there's another guy selling the basketballs, right?

Before we even get to that, I'm putting a lot of credit in place and taking out a decent sized levered dividend, right, to pay back some of my purchase price. The next thing I'm doing is a Walmart vendor number is more valuable than you think. They are hard to get. It is hard to get in the door at Walmart. And it is true that if Walmart is buying one thing from you and you have a vendor number, it is way easier to sell Walmart thing number two than thing number one. So I would absolutely, I wouldn't be looking in basketballs and homeware and all that stuff.

I'd be looking on the golf shelf and I would go, what else can I make for you, Walmart? What else do my current factories know how to do? And just not, I'm trying to eat the lunch of somebody else, right? Figure out where the golf market is going. So if you're going to make shell space for a new product, I'm going to make it. You don't need to go to another vendor. Right. So that's the first thing I'm doing. Second thing I'm doing is I'm going to my supplier and going screw you net 90. Right. I'm going, I've already took out a big line of credit, right, and taking

money out. Then I'm going to my supplier and going, look, you know I'm doing business with Walmart. Like I got paid them that net 90. I'm going to pay you net 90. Deal with it. Right. You just have to. And they'll do it like they give credit all the time. So you got to get your work. So between those two, getting net 90 from your supplier and taking out a big leverage dividend. you might pay back the whole purchase price. And now you're playing, and you've got seller sharing risk on if Walmart bails on you.

And now it's just, can we sell more stuff into Walmart and can we sell more stuff into other retailers? Right? Because you go to the other retailer and you go, I take care of Walmart, right?

I can deal with, do you want to talk about bullshit? I've got a high tolerance for bullshit. I deal with Walmart. Like, I'm not scared by your bullshit. Target, right? Whoever else, don't you want to say golf ball?

Like, you want to have private label golf ball? let's go, you know? And I would pitch, I'd spend two years pitching every other retailer go, we make your private labor golf balls while I try to expand my shelf space in Walmart. That's how I get rich on this thing.

Realize a lot on structure. Bill, I think you get, this is the most creative mental gymnastics to make a deal work I've ever seen you do. And A plus, host of the day award for Bill, host of the day award. I think it's super creative. Sounds really hard.

I think you found the bull case. The one bull case that is out there in the universe for this one. You have to do, right? Isn't that small business acquisitions, right? You have to find a deal that's kind of hard and then it has some warts on it and you've got to somehow structure your way through the acquisition, right, to get the thing closed on a structure that you don't overpay and you're, and you mitigate the big risks, which is Walmart leaving you and you share that risk with the seller, right? And then you've got to accept that all businesses have stuff that sucks about them. And you've got to find what structural advantages does this business have,

which is they've got a golf ball factory in Asia, and they've got a good relationship with Walmart and the ability to deal with bullshit from large retailers and say, those are my moats. How do I exploit my moats? That's what small business acquisitions are, I think. There's some buyer out there, too, who brings some advantages to the table, right? They may know the buyer at Target or they may, you know, have a golf pro in their family who's like, yeah, I would be the face of something, you know, put me on the, put me on the packaging or like just some advantage where you go, oh, okay, like now, now this is not just, you know, a middle of the road kind of play. I feel like I have some advantage I could bring to the table and it would

get somebody over some of these, you know, some of these obstacles. Yeah, let me, let me tell you another story about how to win at retail with these big retailers, because I have experienced doing this. So this is a company that shall not be named, not mine, but a friends. They sell to Whole Foods, a lot of products to Whole Foods. Now, they started off with, like, they got really big on Amazon, and they pitched Whole Foods, and they got, like, two skews in. And they went to, and they were doing well, but they went to Whole Foods and said, hey, look, I know you deal with all these big supplements companies, right? And they're slow and a new skew takes a year or two. But you know what? We're fast. What skews do you want? Tell me in this meeting and I'll have them on your dock in 90 days.

And they bear hugged Whole Foods. They introduced 60 new skews into Whole Foods in a year because they were new label or their own brand under their own brand because Whole Foods wanted this stuff on the shelf. and I think they did some private label also. They kind of figured it out. But what they said to Whole Foods is like, look, you're tired of dealing with P&G. They muscle you around. How about I let you muscle me around? What do you want?

Let's go. I can be fast in 90 days. They put 60 new skews on the shelf nationwide at Whole Foods. They want Whole Foods supplier of the year that year. Wow. And doubled, maybe tripled their business just in Whole Foods because they said, I'm going to use my moat, my advantage. which is that I'm fast and I'm small, right?

And Pocker & Gamble doesn't have that. And they crushed it. And that's why I think with this business, the golf ball's business, what's your moat, right? You're small. I don't know if you're fast, it's overseas, but you're small,

you can deal with retailer bullshit and you can make golf ball cheap, right? Lean into it. That's awesome. That's cool. All right, you guys ready to wrap this one up? Hang on, what do you pay for it? Oh, yeah.

What do you pay for it? So it's $2.3 million in EBITDA. 22 million in sales. They've got a big old working capital adjustment. What do you pay for this? I don't think you're getting, you might get that on this business. Maybe one turn?

I mean, it's like, what will somebody pay or what would I pay? Or what is actually realistic? What's realistic? What's realistic is probably four to four and a half times through free cash flow. So that's five. If you think you're really peeling off

a million to a million and a quarter a year. A million. Because there's interest here somewhere and maybe hidden. What can you actually finance? You can't finance off EBITDA. You can't make debt service payments off EBITDA.

I think you have a problem. In this case, you might have a million, maybe a million three available for debt service. You're probably getting one turn at most, and the bank's going to be like, so personal guarantee, cross-collateralization, hope you own some other stuff. I think that's for sure.

Do you think even though they've got all the current assets? I mean, they're sitting on tons of Walmart AR. That's a real asset. But for an acquisition, I feel like the bar, the hurdle is just so much higher. I wish Heather was here. Because I think if it's your own business, right, and it's, you've owned it, it's a going concern, and you say, hey, look, I want to reconstitute my balance sheet. It's a totally different scenario.

But all of those, you know, ratios of, hey, how much can I get on Walmart's AR? It all gets lowered if it's your entry point, you know, into the borrowing relationship. So do you go to seller and you're like, look, I'm going to buy this for $1, and then we're going to approach a factoring company, and I'm going to give you everything that we get. I mean, that is kind of how these businesses like this tend to transact. Like I have a buddy who has a business just like this, and you know who's buying it from him? He's giving it to his son. That's who's buying it to him.

His son's coming in, learning the business for five years. He's going to his version of Sarasota, and he gets to hang out with his, adult son and they get to be business partners for a while and then leave and like that's what happens. I think you could, I know, I know you're just saying this tongue in cheek, Bill, but from a factoring standpoint, that's the most expensive, you know, source of capital in the equation and in the stack. So, you know, if you could do it in a more sophisticated manner and bring some actual financial heft, you know, and actual kind of, you know, true sophistication, right? Just how do you, how do you negotiate the best terms with the lender on something like this,

that you're talking about probably a 10-point spread between factoring rates and, you know, a working capital line or, you know, or something that is kind of season one. High single digits versus high double digits probably. Yeah. Yeah, exactly.

High teens, yeah. Yeah. I agree. I think it would take creative structuring for sure. So, but you think probably how much does seller take out? Probably five to 10 million. How much do they take out like at close?

or put in his pocket. Oh, if you can kind of, I think the thing is, is it wouldn't all happen overnight. It would take some time to kind of work out, you know. Lump sum, right? The big thing would be reconstitute the balance sheet, get the current assets, you know, in line with current liabilities with some spread. That's probably safely $5 million. Yeah.

Then go back to your suppliers and start negotiating better terms. And that over time is going to free up, right? over probably a quarter to two quarters, that'll free up another maybe million bucks. But it depends on how they're buying inventory. Is it a really big one-time order at the beginning of the season and then replenishment? Or is it spread out? If you're stocking Walmart, it's a big order, you know? So you've got to figure out when does that hit?

When is golf season? When's the beginning of, you know, spring or whatever? Which means you've got to place those orders in the fall. It's just like a great call, Mills. I bet this is very seasonal. Unless you live in the paradise that is St. Antonio, Texas, in which case you can golf for 11.5 months a year. We only shut down for taco time.

Yeah, yeah, they water this. No, it's actually San Antonio's like a huge golf destination because you can golf here like every day of the year. Just sometimes it's too hot, so you go golf at 6 a.m. But like, yeah, our golf courses are packed. We have a ton of them. We have a whole TPC course, all this kind of stuff. The miracle of irrigation.

They do. It's pumped out of the giant aquifer that's underneath my feet right now. We live above. That's part of why San Antonio works, despite not neat, being near any real water, is there as much water that are fed below me? The fertile crescent of San Antonio. It's amazing. It's amazing.

In February, I will tell you, it's much better than Cleveland. But Cleveland's also great. I always, it always strikes me when I fly into Las Vegas. You look out the window and you're like, this is Mars. And then there's like a tropical paradise of the strip. right in the middle, and you're like, how much water do you need to turn Mars into the Las Vegas strip? It's amazing. It is just a testament to the engineering that those guys did. I mean, I don't know if you're interested. It's, well, I know I'm interested in because it's super nerdy, but like all

of the foresight, like the city fathers of L.A. and like Southern California had to irrigate all of that and claim all the water that's coming out of, you know, the river's coming off of the Rocky Mountains. it was just really, really smart what those guys did. And, you know, L.A. and California and Las Vegas wouldn't have been like they were unless those guys were thinking like 100 years ahead. And so those are some of my favorite stories. Like the reason Houston actually has an airport like close to the city is because the city didn't want to actually buy the land for an airport when they knew they needed it back in the 60s.

So a bunch of businessmen got together, collected money, went and bought the land for it, and then sat on it until the city was finally ready. like that kind of thinking where you have like a whole ambitious city of people who are like willing to think in decades if not hundreds of years like that's a winning that's a winning combination i love those kind of stories and then you also have cleveland that's cool it's very cool cleveland's nice all right let's wrap it up this is a good episode i hope people enjoyed it very i did well we had fun making it so that means it'll be it so all right all right everybody tell your friends tell your friends about the show ask them to listen, subscribe. And thanks again to all of our advertisers. We love that we're able to spend more money on great stuff. We're going to start doing more clips and all that kind of stuff in the future. So I'm excited for everybody's support. So thank you for listening.