Acquisitions Anonymous - #1 for business buying, selling and operating - $2.2M EBITDA Traffic Management Firm: Should You Buy It?

Episode Date: January 3, 2025

Explore the deal everyone on the podcast wanted to buy—a $2.2M EBITDA traffic management firm for $11M, perfect for the M&A enthusiast!Business Listing - https://www.bizbuysell.com/Business-Opportunity/traffic-management-firm/2275423/Sponsors:Are you ready to take the leap into business ownership? Check out Acquisition Lab, the premier resource for entrepreneurs seeking to buy their dream business. Visit AcquisitionLab.com to learn more and schedule your free consultation. Be sure to mention Acquisitions Anonymous sent you! https://www.acquisitionlab.comDiscover a better way to finance acquisitions with Capital Pad, bridging the gap in M&A’s no man’s land. https://capitalpad.com/Episode Summary:In this episode of Acquisitions Anonymous, the hosts dive into the details of a $2.2M EBITDA traffic management firm. The business specializes in providing off-duty officers and trained professionals to manage traffic for events, airports, construction, and more. With a $20M top line, an absentee owner, and significant growth opportunities, the panel discusses the pros, cons, and potential strategies for taking this business to the next level. They also tackle the unique challenges of scaling low CapEx businesses and the dynamics of self-funded searchers trying to acquire businesses at this size.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]

That's the challenge with businesses like this is sort of the pipeline of people and managing those people. The thing that I absolutely love about a business like this, low capax. That's got to be, I would think, one of the growth thesis for this is if you step into this thing, it's got a great playbook and a great reputation. You just go to the next city over, right? Or the next county over, the next state over, and you try to wiggle your way in. I said Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100% beard anymore.

And thumbs down you on just the plus. Hello, everyone. Ladies and gentlemen, boys and girls, welcome back to Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. I am one of your hosts, Bill Dallessandro. And today I am with Michael Gurdley and Heather Anderson. And we had an awesome deal today all through. re-hosts wanted to buy this deal and Michael and Heather got into a bidding war. So it is a traffic

management firm. So these are the guys that put off-duty cops and traffic directors on street corners during football games, construction, things like that. This business is $2.2 million of EBITDA. They're asking $11 million. And Heather and Michael get in a bidding war for it. This episode is a little bit longer because there are a lot of interesting tangents we went on. We talked about how we grow it, how do we reduce expenses? Heather had a really interesting aside on the economics of self-funded search deals over $10 million. So if you're an M&A nerd, you're really going to like this episode of Acquisitions Anonymous. This might be our last episode of the year. So if we don't see you, Merry Christmas, Happy Holidays. We'll see you in 2025. I hope you enjoy this episode of Acquisitions

Anonymous. Are you ready to take a leap into business ownership but you don't know where to start? Well, look no further than Acquisition Lab, the premier resource for for entrepreneurs seeking to buy their dream business. Founded by Harvard MBA and acquisition expert, Walker, Dibble, the lab is your fast-tracked success in the search diligence and acquisition process. With hands-on support, world-class resources, and a community of like-minded entrepreneurs, Acquisition Lab gives you the tools and confidence to navigate every step of the journey. And we're proud to call Walker and Chelsea, the lab's director, longtime friends of the podcast.

They're passionate about helping entrepreneurs like you take the next big step. So don't wait to make your business ownership dream of reality visit. at AcquisitionLab.com today to learn more and schedule your free consultation. And when you do, be sure to tell them the Acquisitions Anonymous podcast sent you. All right, everybody, good morning. Good morning. Michael Gurdley. How are you? I'm hanging in there. I'm finishing the year strong. That's what I'm trying to do. Well, this is Friday, December 20th, which as everyone knows is the last day of 2024. Yeah, right. That's right. Unless you own a fireworks business, in which case today is the first day

the company is selling fireworks in the state of Texas. So the highlight of that for me, actually, we're probably going to do some content around it is my son is running his own fireworks stand this season here in San Antonio as an 18-year-old. So I'm very excited for him. All right. Do you need to be 18 in order to sell bombs legally

in the state of Texas? We called them explosives, Bill. So please. Show some respect. Yeah, you have to be 18. They have to have an adult present at the whole time. But the funniest thing was, you know, I was out at the office yesterday and the warehouse manager came back and she had gone on the delivery for him. And she's like, hey, I talked to your son.

He was super nice. And evidently, my son had said when he signed for the fireworks to receive the delivery, he was like, this is so weird like doing adult things and like signing on my own behalf. like I don't know how to deal with this. I was like, that's just the cutest thing ever. So I have you for him. Awesome. I, my kids are still too young,

even for lemonade stands. But I imagine it's pretty cool to see your kids, uh, run their own business. Uh, it is, it is one of the, and Heather has perspective on this because I,

I know yours are grown, right, Heather, like, but it's so weird to be, well, one is almost out of college and one is out and, uh, the older one works in Vizzo.

She works side by side with me every day. So, yeah, very cool well i don't know how it is for you other but for me like and it's been more of a natural transition like you have to you know at this age you have to transition much more to kind of mentor and you know like almost like you know that kind of relationship with your kid whereas like high school felt much more like coaching and then like when they were younger it felt like you were a dictator and like felt like you had to make the transition to be the right parent at each time

and at this point, like there's a lot more, like, I would say 90% of the time, we're just like, well, it's your decision, buddy, like you're 18. Like, you can legally get out of here and not listen to us at all. So we're going to back you in it, but here's, you know, here's any contingencies, continuities in what we're backing. Yeah. It is, it is totally different for sure. And as working together, I have to have a completely, I have to have a strategy on how to give

feedback at work with your own, with your own child is a little. little different. There's a little sensitivity there. So I have a special strategy for that. Well, speaking of managing traffic, I have a segue into a deal. So for those of you listen, there is no there is no prep for this whatsoever other than we'll find deals. And we have, I have a bank of deals that I go through. And that's, you know, we'll pull them up. So I will spend three minutes. I got on it, you know, 925 looking at deals. And then I know it's going to be a good deal to talk about if I propose it and then somebody starts immediately being like, oh, I know something about this. So Heather said she knows something about this. So no pressure, Heather, but I feel

like this is going to be a good one. So Michael goes, you record, hit record. Don't say it. You record. I just click record where everybody's time. I was like, everybody shut up. We're going to record a podcast. All right. So this is off of Bizbysell, our future favorite advertiser. And they are a traffic management firm in New York County, New York. It's a relocatable business. There is no real picture on the listing other than it looks like a picture. of a cartoon character holding a stop sign on a stick. Is that what this is, Heather? Yeah, on a like a hazard sign.

So like the safety guy on the side of the road. So that's what I think. That's why I thought I knew this business. But let's read what it says. Stop sign on a stick. What do you do? I hold a stop sign on a stick. Oh, good.

Asking price is $11 million. This business makes $2.2 million, and it's in New York County, New York. Gross revenue is $20 million, and EBITDA is $2.2 million. So $11 million asking price, 2.2 cash flow, 20 million gross revenue, EBITO's $2.2.2 million. Not bad for a guy with a stop sign. Must be a hell of a stop sign. Yeah.

Must be a long stick. All right. The pedestrian and vehicle traffic solutions is the type of businesses. The company is a leading traffic management firm providing unique in-house solutions that were previously absent from the market geared towards optimizing high-volume pedestrian and vehicle traffic flow at congested. are hazardous public and private areas. The company employees trained and certified professionals,

many of whom have career backgrounds in law and traffic enforcement, to provide solutions which ensure pedestrian safety in various urban environments. The primary customer base ranges from sports and entertainment venues utilizing the customer's company services to protect pedestrians and facilitate traffic flow to business improvement districts, ensuring maintenance of safe pedestrian crossings and keeping intersections being blocked. Airports are increasingly becoming a key customer segment for the company as these customers contracted services to mitigate any potential hazards during construction

upgrades and improvements. Shopping centers and distribution fulfillment centers are also target markets for the company's services. As 39 employees, it is run from somebody's home, so they do not have a facility. There is no direct competition for the company in its cord services, and they are innovators of this new trend in pedestrian safety, and they are looked at as a knowledgeable, trusted source in this space. The principle is essentially an absentee owner and ardently believes that with ownership dedicating full-time involvement, the opportunity is available to expand the company's operations many times over. This is evidenced by the rapid growth of the company in spite of there being minimal,

proactive marketing programs for services in place and not having the benefit of any significant growth investments to fuel expansion. The company's recent expansion into the airport market has generated significant new revenue streams. The company has a young management staff in place that oversees operations and will remain on board post-transaction. Interesting. So, Bill, what do these guys do? So I'm trying to figure out if this is any more complicated than providing police

off-duty police officers to direct traffic outside of football games, you know, and other big events. And it doesn't even have to be police officers. It just has to be people trained. Yes, that's true. Although they did say they use a lot of off-duty police officers, but you're right, it doesn't have to be. So this is a staffing firm, right? Pretty much.

Exactly. Yeah. Exactly. So kind of the same model if I own like a security firm and somebody contracts me to provide, you know, security, security guards. Yeah. So this is like, you know, if you're the take my local football team, Carolina Panthers and you need off duty police officers to direct traffic into parking lots and hold cars so a whole mass of pedestrians can cross the street and get into a stadium. Like that's what these guys staff, right? Concerts, football games, you know, parades.

downtown, you know, whatever, a golf tournament, whatever it might be. If you've got a lot of traffic, vehicle, and people, these are the guys directing it, right? Right. And I think what I point, what I've seen before in these businesses are ones that are focused mostly on construction zones, you know, serving that kind of, you know, serving the city's requirements around a construction zone. I do think this one's a little bit innovative, like they said, in that it sounds like they've, you know, they've got a pretty good size sales channel that's for these events. or, you know, congested areas. And I think that's, that's, that's, that's pretty attractive. That makes this business pretty attractive. A lot of repeating type events is, is a positive for something like this.

So do we think they have recurring contracts per project contracts? Do, is it reoccurring? How do we think that actually works here? I always confuse recurring and reoccurring, which is which. So recurring is like what you pay, Salesforce. $89 a month per seat every month that's recurring. Recurring. Reoccurring is somebody comes back and buys from you on a regular basis in a pretty similar quantity, but it could be every month, it could be every two months. Contractually. Yeah. So like let's say you're a

plumbing supply store and you have, you know, special relationships with, you know, 500 kind of core customers who buy from you every single month. That's reoccurring, but it could be up and down, that kind of thing. And then project-based is like your local general contractor who gets projects, and that's it, what had done. Yeah. I imagine this is reoccurring and project-based. Like, I mean, if you're a concert venue or a construction firm or whatever, you just have your guys, your traffic guys, and whenever you need traffic guys, you just call them, right? You probably don't bid it out every single time. So if you get to become the traffic guys for the local concert venue or a couple big local GCs that every time they do a commercial project,

they bring you in or the airport or whatever. I imagine it's pretty good. As long as you answer the phone, perform, deliver your guys with stop signs, you probably keep the deal. Yeah. When I have to imagine, like, let's say your Carolina Panthers thing, you know, this gets really attractive if the Carolina Panthers venue has a contract with these guys, right?

And, you know, that's a way a lot of entertainment venues work. So like if you want to go book the San Antonio Convention Center here, you have to use their caterer. And that caterer gives fixed kind of prices and there's a fixed markup to it. And that's just how it works. And you have to use. And they also give a kickback to the venue for using it. So if these guys have weaseled their way into being one of those vendors, who's like the dedicated vendor or one or two or three vendors that are approved by these venues, like that's a pretty lucrative place to be in. Like the caterer who has that contract with the San Antonio Convention Center has a big ass fancy building on the east side of town and a bunch of Mercedes in front of it.

I think that's a good. Yeah. Right. Right. So however sticky the customers are to the extent that you have contracts, really good on the revenue side, there's always a need for this. But as you pointed out, Bill, it's a staffing business. So the hard part is it's kind of the supply side, right? It's the people.

It's, and you have surge, you know, you have times when you need a lot of people for big events and then you don't need very many people. So it is, that's the challenge with businesses like this is sort of the pipeline of people and managing those people. Because it can be, you know, the staff can, can ebb and flow, but it can get to pretty large size. And this is low wage, usually, relatively. You know, there's probably a few higher wage people that are the police officers that are

off duty, that kind of thing. But there's a lot of other folks that are just holding flags and things like that along the route. And so it's relatively low wage. And that's usually the challenge in these businesses. It's just keeping the supply of people available and managing them, making sure they're good. Well, I imagine that's one of the nice things, one of the other nice things you're stepping into by buying a business like this is the Rolodex of all the people who have worked for you before and successfully showed up on time and not caused any issues. And so you've got got hundreds and hundreds in the areas where you book these events, you basically just send an email and you go, we've got an event Saturday who wants to make a few bucks. And I'm sure there's

a calculation of yield and how many responses you get and how many people you show up. And, you know, that's a little bit harder to bootstrap, you know, just to start to cold start. So if you've got on one hand, a lock on the demand because you've got some contracts, right, or you're the most favorite supplier, even if there's no contract. And then you've also got something that's kind of hard to replicate as far as a big database of supply, this can be hard to compete with. Yeah, I agree. So they have listed here, I'm sorry to talk over you other, but I had a question. So was your comment really good? I'll shut up. No, it was not. It was not good at all. Just just bleak twice if I need to be quiet. So they have 39 employees,

and it's a $20 million top line business. Those 39 employees, have to be the office staff, like the recruiters, the coordinators, the salespeople, the payroll folks and all that kind of stuff. These are not the folks. It does not seem like they have the folks who are actually doing the work of staffing these events on their payroll. Right. I agree. I agree. Yeah. You need hundreds. Yeah. And this is a business where I would, if I had a buyer looking at something like this, I would say, please do your insurance diligence early because there can be workers comp claims. You know, this is a, it's somewhat of a dangerous job. You're out there in front of cars and at events where people might be drinking and all kinds of crazy stuff going on. So,

you know, you want to do your diligence. What I've, a trend I've noted, and I'm sure we all kind of are aware of it. Insurance costs are going up across the board. And insurers seem to be taking the opportunity when a business changes ownership to use that opportunity to raise the rates, maybe even more. And or a buyer comes in and realizes maybe the seller didn't have adequate coverage. And if I'm going to buy this business, I need better coverage. That's going to cost me more. Either way, I always look at something like this and a lot of businesses, honestly.

And I think in the back of my head, there's a maybe EBITDA is going to shrink a little bit once we figure out how much the new buyer's insurance is going to cost. That's a great point, Heather. And I see that not just in these businesses, but I've seen that in lots of other businesses, where a buyer comes in and goes, you don't have any. insurance, metaphorically or literally. You don't have enough insurance. And I need more insurance. And that's going to cost me an extra whatever a year. And then buyer goes for an EBITDA adjustment and tries to pay less. And you think, if you're sitting the buyer seat, you go, this is completely

reasonable. And if you're in the seller seat, you go, absolutely not. Like, just because your risk tolerance differs from mine, that's your problem. I'm not taking an adjustment for that. I can see this. I've seen this one get very contentious. Yeah, absolutely. That's why you push it up front. Anything that could kill a deal. You sort of want to size up a deal and say, what are the top three or four things that could kill this deal and move that diligence to day one or day two so you can either kill it fast or, you know, fix it, retrate it, whatever you have to do so you know you have a deal you can close. Yes, totally. I do think, but so insurance wise here, they do not have W-2s in the streets. So they probably have liability exposure, you know, but they probably don't have workers

comp exposure, I wouldn't think. They probably have 1099s in the streets. Yeah. What you do have is to make sure that you're properly classifying everybody as 1099. You don't have 1099s. You're going to make a claim that they're actually W-2s and then try to see you, et cetera. So you want to be buttoned up that you really have real 1099s, not W-2s, but you don't have, you know, I got hit by a car claim, but you probably have, ironically, the claim from the driver who hit them saying your employee dented my car. Right?

Probably. Sadly. Okay. I wanted to talk about the thing that I absolutely love about a business like this, low capex. Like a business like this, you know, it's just so beautiful in terms of there's no, you know, the dude's running it from his house. Everybody's remote.

There's no. It does surprise me there's no office, frankly, because if you're recruiting these type of low-end, like traffic signalers and stuff and people, work events and be in the parking lot, they tend to go into an office somewhere to get interviewed and qualified and do drug tests and all that kind of stuff. So it kind of surprises me there's not that for this business. My friends that do staffing for kind of low end, like menial labor, like they have offices because you're not doing that over Zoom, right, to recruit people to come take those jobs. But like that's the thing I just want to lay out here. Like what's awesome

about a business like this? It's not like if you want to grow at 50 percent, you have to drop another $5 million for more real estate, more equipment, any of that kind of stuff in here. At most, you're buying cheap, you know, vests and stuff out of China, right, to add 10 more folks, right, onto your roster and grow your thing. So I just wanted to give a commercial for how awesome that is. That is. And that makes expansion really easy, too, right? If you're in a certain territory, geography, and you buy this business and let's say it's

all in the state of New York, and you want to expand into the state of Pennsylvania, or something, you identify a geography and you just go. You don't need to buy a whole bunch of trucks. You don't need to buy building, you know, any machinery, all that. And you just go in there. So, I mean, that's got to be, I would think, one of the growth thesis for this is if you step into this thing, it's got a great playbook and a great reputation. You just go to the next city over, right? Or the next county over or the next state over and you try to wiggle your way in. Yeah. So I'm an idiot from Texas, right? And I don't know the New York culture that I went to college closer there. So I got a vibe.

I know the vibe. And I know it's not me. Like can I own this business and succeed here if I'm not a New Jersey, like New Jersey, New York, Connecticut native who understands this culture and how business gets done up there? Right. Like you're doing with all kind of political crap because there's a lot of public venues and airports and stuff. Like is this something that like a normal schmuck from flyover America could own? Maybe. But I think you'd have to move there.

Yeah. Right. Like, I mean, I'm convinced Michael you could do it, but probably not from San Antonio. Like, you need to fly there, move there, join the country club, like donate to the right rotary, you know, and like be in the community. Even if you're not from the community, I think it really helps you to be there. Because these, I think these contracts, because it's not that differentiated a service, right? Like, these contracts get handed out to the guy you know and like and you trust the being. Yeah. Right. It's a relationship business at the end of the day on, on the, on the, demand side. And I do think that's a good point, Michael, because lenders, you know, banks are always trying to assess if a buyer is the right person. And relocating is a risk. You know, if you already live in a community, that's considered, you know, relatively low risk. If you have to relocate, it's higher risk. And I think, you know, in the back of everyone's mind, it's like, where are you coming from and where are you moving to? What's the culture difference? I think that is a factor here, potentially. Now, unless it were totally wrong, like if we get, if we get the book on this, this guy's in

New York and all the gigs are in Pennsylvania or in North Carolina or whatever, then I like it even more. Yeah. Right? Because that means you can expand into other states that you don't live in. Mm-hmm. Sure. So there's a funny Twitter interaction I thought about you guys when I had it, which is over the past

couple years, I've met a ton of successful searchers in San Antonio. You know, like there's a ton of like 35 year old guys who bought businesses and have turned out really well, right? And like they set out to do a search fund. They made it happen and they bought a business here. They live here. They're very happy and they're killing it. And then you start to talk to folks and hear anecdotal things on social media from people that are trying to buy businesses in Austin. And they're like, it's so crowded.

Everybody moved here and wants to live in Austin and buy a business here. And it just is a funny thing where everybody wants to hunt in the pond where it's like, going to be super fun and cool to live when you're a 28 year old. And like, and like right down the road like in boring ass San Antonio, no offense to San Antonio, I love it here. I'm a boring ass person. There's just like a much more fertile hunting ground for stuff like this. So anyway, that's true for all.

That's true for all definitions of pond, right, Michael? Either a geography, geography that's not sexy or an industry that's not sexy or a job that's not sexy. Like I met someone just recently, she worked for, again, the Carolina Panthers. she was making 50% of what she'd be making in the identical function at a quote-unquote real company because everyone wants to work for an NFL team. Yep, right? It's sexy.

And so they pay an experience, not dollars. So if you're willing to do the unsexy job, business model, city, it can work out much better. What, you know, I know people that have worked for and are associated with the Spurs here in San Antonio. and unless you're on the coaching staff or you're playing on the court, they pay bupkins. Like it's horrible. Just like what you're talking about, the folks that like do the dancing at halftime and stuff like that. Yeah, they get nothing. Sometimes literally, right?

Yeah. Yeah. It's never volunteer. Just to say you have it on your resume. Yeah. Yeah. And then the thing is even crazier when they go to you like as a vendor, like if you try to work with an NFL team or a sports team, they come to you and like, let's, say you have a piece of software, they will come to you and say, congratulations, you get to sell to

us and we want you to pay for the privilege to do it. Like literally, you are the official HR management software of the Carolina Panthers. They'll be like, we need to buy HR management software. We're the Carolina Panthers. We, our price is negative one million dollars a year. Literally, that's what we'll pay you. Yes. Okay. So back of this business, I have another investment thesis for this business. So we've got 39 people in an office basically direct, metaphorically directing traffic, and an unknown number of 1099s in the streets literally directing traffic, right? If all 39 of those people are home-based in the United States, there is a major arbitrage

opportunity here. Oh, yes. Because if you have 30, and this is true of any business, but, you know, this one reminds me of it, right? If you got almost 40 W2 Americans at full American freight with full American benefits and all they do is are on the phone and metaphorically direct traffic all day, those people need to not be in the United States. You can cut the payroll of this business in half or better by moving those people overseas. And I'm going to get canceled and all the pitchforks come out. but like those are 40 jobs that from a business perspective here don't need to be in the United States.

Yeah, I have a client in the freight brokerage business and that is their playbook. They bought, I think they're on their fourth acquisition and the playbook is to take the office staff that's basically doing something similar to this, a lot of phone contact and move them to, in their case, I think it's Columbia. Medellane is where their hub of their overseas talent is. It's a really good point. Yeah, there's a lot of businesses like that. Did I ever tell you about my visit to Medellin where we discovered how all these small fuel hauling trucking companies work? Did I ever tell you about this?

No. So at what time, you know, I was on the board of a company. And I was like, yeah, I'll help you. Like, we're going to go to Latin America and start to look at where we're going to near shore talent. Like, let's go visit all these cool places. So I'm like free food, speak Spanish. Like, let's go do this. So I go down with them.

And like, we're going and we go visit Mexican, places, we go visit Columbia. So we go down in Medellin. And so, like, super cool, best weather in the whole world is the San Diego of Latin America. Like, it's got amazing. They call it the city of the Eternal Spring because the weather is that good. It's sunny and beautiful every single day, and it rains for about five minutes every day at 5 p.m. That's their weather every single day.

So anyway, that's my commercial for Medell. But so it's become a huge tech offshoring hub. And so they take us, the local kind of economic development folks, they take us to this building, and it's a high-rise building. And they take us up to this floor and they start walking us through it. And I'm looking at the whiteboards. And I'm like, I realize what they're doing here. It is the back office and admin and accounting and marketing and sales for every small-sized fuel hauling company in the United States.

So like imagine those big tanker trucks that are moving fuel around. If you're a small regional version of that, there's like 15 or 20 of those around the country. Like these guys had managed to get the BPO, like the business process offshoring for all of those businesses. And they were running out for every single one of those businesses out of a giant floor in Medellin with English speaking workers. And they're booking fuel trucks to and from fuel deliveries, basically. Booking fuel trucks, like making sure compliance happens, getting people paid, verifying tickets. of drop off and pickup, like doing accounts receivable. They were doing everything.

And here's the funniest part. It was mostly not Colombians. It was Venezuelans. In Colombia. In Colombia. Because everybody's left Venezuela because there's no economy whatsoever. So they've all ended up in Medellin or Bogota and places like that. But big chunks of the workforce were all Venezuelans.

All Venezuela. Crazy. Amazing. Yeah. I mean, so we have Americans in our business. We also have South Americans in our business or South of Americans because we use Mexicans as well. And they are just some of the best employees. I love our Americans, but I love our South Americans too.

Like they speak great English. They're on our same time zones. And we're able to pay them a wage that is phenomenal for them and also phenomenal for us. It's just, it's such a win-win. They're human beings after all. That's right. I don't care if you're in Canada or San Antonio or Argentina, like you're still a person, with a family and just trying to make a living.

And not only that, not only people with families, but people with college degrees and master's degrees and expertise in accounting and, you know, anything else you may need. Yep. All right, back to this deal. What does it trade for? And to whom?

Four and a half. Four and a half. That might be the highest multiple ever heard from Heather. Heather likes it. I do like it. That comment was the surest sign. Heather had a good quarter placing loans, I think. The lending market is back, everybody.

Read through that comment. The lending market is back. Go, go, go, go. Buy it. Last episode, or it wasn't two episodes ago, Phil, Heather was like, F everybody, going down, screw these people. No F, Southern. It's over now.

I'm better. See? I came back. It's all good. The dealers are closed. The lenders, the lawyers did not ruin Christmas. Heather is back to smiling. They didn't.

America's M&A sweetheart. She was going. So four and a half, Heather. So you're paying asking for this? Yeah, I like, I mean, if that's really the EBITDA, if it's really over $2 million, I like the size of it. That's kind of why I'm going, I'm paying up for the size of this business. I think it's, you know, it's got, if as long as those relationships are transferable and you

really have growth opportunities, yeah, four and a half. I like it. Yeah. So Heather's paying $10 million. Asking's 11, but Heather's coming in strong at 10. 10 million, four and a half times. Yep. Dude, I think I, if this is as good as we think it is, I think I'm hitting the bid on this.

11. Gerds outbids, Heather, just like that. I lost it already. Do I hear 12 million, Heather? I don't know if that's going to be all cash. I think there'd be some seller note and earn out there. Right, right. I mean, if you structure this, let's see.

So, Heather, do you think you could get two turns of cash flow with debt? With debt on this? Two. Yeah. easy two turns of cash flow so let's say that's four and a half in cash in in a in a term note that you could get on that so that leaves you how much left bill six point five six and six point five then you do two in a two million in a seller note two and a half million in a seller note so you raise four million in equity yeah hopefully to generate in a million in cash flow after debt service in

year one it's not a bad searcher deal actually you can make a pencil searchers traditional searcher And especially then if you can get maybe some synergy on the headcount, as we talked about, and maybe expand into a couple other markets. I mean, you could smash it here. I do want to point something out. I see a lot. If a self-funded searcher sees this deal and wants to try to go SBA and try to figure out some finagle some way to get an SBA loan in there, it often doesn't work. Even if you could get the debt and the equity to work on the numbers, a lot of times it falls apart when the self-funded searcher realizes. how little of the business they will own, and they're still personally guaranteeing the debt,

because the equity investors will end up, you know, their terms will end up owning and controlling too much of the business. So it's not always a good idea for a self-funded searcher to try to take one of these down. And by one of these, Heather, I think you mean a business that you have to buy for five times. That's, yeah, that's above two million EBITDA that you have to buy for five times. It's just a little too big and the numbers don't end up working very well for the self-funded search. Because you need to raise too much equity. Exactly right. Yeah, exactly.

Still a good deal, but it doesn't make sense to be the personal guarantor in an SBA loan. And you went and found it and then you don't really own enough to compensate you for everything that you're doing and did. Because basically what you need is you need to be the loan that you're personally guaranteeing has to be a large enough portion of the cap structure so that your sweat equity as the searcher is material as a fraction of. high. But if you have to raise more equity than debt, you're still guaranteeing a multimillion dollar loan, but there's more equity in the cap structure that dilutes you. Exactly. Exactly. And a lot of a lot of searchers don't realize that part of the math until late in the deal. You know, so they waste a few months under LOI before they figured that out. So is this, is that another way of saying that self-funded searchers really can't pay more than

three and a half or four times, or it's the economic start to get bad for them personally? It's not necessarily the multiple. So I wouldn't tie it to that. I would tie it to the overall price. So they kind of, once the price hits eight to 10 million, it's, it's getting too big for them to make it work, regardless of what the multiple needs to be. And that's because you can only raise, especially SBA, your debt caps out of five million. So you've got more and more and more equity.

Exactly. Right. Yeah. So a little bit of multiple, a little bit of just the price overall. Yeah. Yeah. Yeah. Either the multiple drives the price up there or the size does or both.

Yeah. Exactly. That is a wonderful insight for any self-funded searchers listening. Yeah. Yeah. That's why you guys price so much to listen to this podcast. That's right. But that's what you, you know, this is why we have the no man's land.

You know, this is why there's really good deals in this size range, but they can only be financed a certain way to make sense. Mm-hmm. Yeah, I still think that is one of the most mind-boggling inefficiencies of the entire M&A market is that these businesses between $5 and $15 million can be amazing businesses and they're just really hard to transact. Exactly. So this is a CapitalPad deal, right? Like, this is totally down the... This is right overhome play for CapitalPad, I would think. Yeah. Yeah. Yeah, absolutely. Because, I mean, this is a searcher who's got to get paired with investors and come up. a little bit of creative deal structure. This is perfect for Capital Pat. Such a good idea. We should have that idea.

That's a good idea. I hope Travis Crudges up. That should be their tagline. Capital Pat solving the no man's land for small business acquisitions. There you go. I mean, at some point I needed to do a Twitter thread or a video on like business ideas my friends have had and I totally should have ripped off, but I can't.

And this is what, you know, Travis's business is one of them. Kudos to him. Yeah, that's a good one. I'm glad we're friends. Wish we weren't. All right. So I think we all like this deal.

Heather's coming at 10. Gurley's hitting the bid at 11. I'm staying out of this. I don't want to bid against you guys, but I do like it. I do like it. You know what I'm stoked about? I'm stoked we finished in the year on a deal that we would actually want to do because, you know, we haven't seen that many. That's right.

It's been a long time since that one farm. That's the thing. If you're a casual M&A observer, you think, oh, I'll buy a business. You look at a couple and then you buy one. And if you've been a long time listener of this pod, we're going on 350 to 400 episodes now, I would say deals like this where one of the hosts says I'm hitting the bid is less than 10%. Yeah, for sure. Maybe less than 5%.

You just got to kiss a lot of frogs when you're looking to buy a business. that's right cool all right everybody do our team a favor and please sign up for our newsletter and just open it you don't have to read it just open it every week and then close it and it'll make them feel good

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