Acquisitions Anonymous - #1 for business buying, selling and operating - 2.5mm promotional product business - Acquisitions Anonymous 201

Episode Date: June 9, 2023

Michael Girdley (@Girdley) and Bill D’Alessandro (@BillDA) talk through a promotional product business. Check it out: https://www.beaconadvisors.com/listing/b2b-custom-promotional-merchandise-distributor/_____Thanks to our sponsor!This episode is sponsored by Acquisition Lab. Acquisition Lab, created by Walker Deibel author of Buy Then Build: How to Outsmart the Startup Game, is an accelerator with a highly vetted cohort-based educational and support community for people serious about buying a business. After going through the Lab's month-long intensive, you have ongoing access to almost daily Q&A sessions with advisors, regular live deal review forums with Walker, hand-picked vendors for your deal team, and a very active Slack group with other searchers on this path. Our team personally understands how to buy a business and will help navigate all the complexities of the process, as well as provide a trusted framework, tools, and resources to support you from search to close. The Acquisition Lab recently celebrated its 70th business being acquired and well over $100m in aggregate transaction value. The Lab is there to stand by your side, so you can take the right action (at the right time) and avoid wasting countless hours trying to "go it alone".For more information, check out acquisitionlab.com or email the Lab's director Chelsea Wood, [e-mail] 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]

Hey, everyone, this is Bill Alessandro, and welcome back to another episode of Acquisitions Anonymous. This week, I am with Michael Girdley, and we talk about a promotional products business. So if you have ever tried to buy embroidered hats or screen printed shirts or, you know, Yeties with your company's logo on it, that's what this business does. It's a B-to-B swag promo products business. It's got about 300K of SDE. It's selling for a reasonable multiple. We dig into the entire value chain behind this business, not just this one, but where it gets

the hats and where that guy gets the hats, the whole cascading value chain behind this business is a pretty interesting one. I hope you enjoyed this week's episode of Acquisitions Anonymous. This episode is sponsored by Acquisition Lab. Acquisition Lab created by Walker Dybul, author of Buy Than Build,

How to Outsmart the Startup Game, is an accelerator with a highly vetted cohort-based educational and support community for people serious about buying a business. After going through the lab's month-long intensive, you have ongoing access to almost daily Q&A sessions with advisors, regular live deal review forms with Walker,

handpicked vendors for your deal team, and a very active Slack group with other searchers on this path. Our team personally understands how to buy a business and will help navigate all of the complexities of the process, as well as provide a trusted framework, tools, and resources to port you from search to close. The Acquisition Lab recently celebrated the 70th business being acquired and well over $100 million in aggregate transaction value.

The lab is there to stand by your side so you can take the right action at the right time and avoid wasting countless hours trying to go it alone. For more information on the lab, check them out at AcquisitionLab.com. There's a link in the show notes, or email the lab's director, Chelsea Wood, at Chelsea at buy-then-build.com.

And that's Chelsea, C-H-E-L-S-E-A at by-than-bill.com. All right, it's another episode of Acquisitions Anonymous, and Michael and I are flying, I don't want to say solo. I guess we are flying duo today on this episode. Good to see you, Michael. It's good to see you too. Well, did you read my depressing post about Twitter this morning? Yes, how you're so sad about Twitter and it's the worst, but you're still not leaving because you're addicted.

Yeah, which, well, it's one of those things where it's always funny when people complain about Twitter on Twitter. It's like, I'm leaving Twitter. Here, Twitter, let me announce it to you. And it's like, oh. And then several days later, just so you know, I've left Twitter. I'm gone. Yes, yes. And then you discover later they're actually still lurking until they're.

they break the secrecy and reply. But, I mean, it's one of the fun things about Twitter or social media in general. Like, you have to reinvent your expectations all the time. So, like, I just need to get through all five stages of grief over the next 24 hours and then I'll be fine again. Just like, okay, whatever. The era of newsletters begins. Well, and then the best thing I did, because it hit me, like, you know, I wrote that message,

got in the car, and my friends were going to have breakfast after our workout class. And like I went over there and like we all put our phones down and we just like interacted like normal human beings. And I was like, this is amazing. This is better. Like, screw Twitter. I'm going to hang out with people in real life. Much better. Just regular social, no media.

Yeah, no media involved. Okay. So a listener sent us this one and it had all the makings of a perfect deal except it's listed in Canadian dollars. But other than that. Oh. What? Sorry, I can't not make a Canadian joke. So this one comes from beacon mergers and advisors.

and it is a B2B custom promotional merchandise distributor. Located in the Greater Toronto area. Oh, they have a video too, Bill. It's a trend. So I actually, I was just with the guys from Quietlight Brokerage last week at a conference, and they said that they won religiously listened to Acquisitions Anonymous. Like every episode gets passed around the firm, especially when we do one of their deals. So shout out to the QLB guys listening.

But they also said that because of us highlighting deals with videos, they are going to start doing videos, which, Michael, do you know what that makes us? Influencers? That makes us business broker influencers. Yeah. Yeah, in your face, business brokers. How about that? You always want to be an influencer, now you are.

I hate that word. I hate that word. I hate that word. I hate the word mastermind. Yes, mastermind is very dumb. And my branding, so for this, you don't know, a mastermind is like, I don't know, it comes from Zig Ziglar or something. Like you create this mastermind of like a peer network of smart people.

But it's been, it was co-opted by all these really scammy people who would like, like create a mastermind and like not provide any value and sell you hopes and dreams. Anyway, that's why the mastermind, like I believe in the mastermind concept. I just hate the name.

So anyway, but influence. Yeah, just peer group. Well, you are both, you're both an influencer and also in masterminds. So I don't know what that says about you.

100%. Well, for me over the past year, and this is something I would recommend everybody do, like I have started probably seven or eight masterminds, and you and I are in like three of them together,

right? Where it's like, I have one for podcasting, I have one for newsletters, I have one for Twitter. Like, I have another one for just like random, like, hold co people.

Like, these are all things where it's like, like you can create them yourself and it's really easy. Like half of those, it's just like, I got four people together and I was like,

hey, we're going to create a chat in signal and we just talk about stuff. And they're better than Twitter. Like the 100% better than Twitter. Oh, yeah. Well, everybody says like, you know, the magic is in the DMs, right? It's because people are actually honest and you know who there's no anonymous.

There's no anonymity, right? You know who everybody is. You know, there's no lurkers. You know, who's reading and who's not. Yeah, it's way better. You know, so what's interesting, too, is, you know, I think we've talked some about, about YPO, which we're both part of. And I know you have a business called Scale Path, which is I like YPO for SMB.

bees. And those are interesting, too, because rather than just being like a group chat or, you know, an informal group of friends, there's a structure to it, right? You meet every so often. There's very formal kind of or can be a very formal rules of engagement for how you put issues on the table, how you're allowed to interact with those issues, you know, try to prevent people from giving advice, which I think was one of the most counterintuitive things when I joined YPO, how you're not allowed to give advice. You're only allowed to share your own experiences on the topic. and it is freaking murder on like

type A people, high A people. All you want to do is be like, I have an opinion, let me tell it to you. But you're not allowed to you. You can only share where you got that opinion, like what happened to you that caused you to form that opinion. And it actually prevents like kind of wishy-washy.

I've never been their opinions. It's pretty interesting. My Vistage group threw away the whole, whatever it is, the Socratic, whatever you're supposed to do. I forgot what the name of it is. were you only speaking in allegory? Gestalt?

Gestalt, yeah, like the EO loves to do it. My Vistage group threw it away because everybody was just like, just tell me what to do. But I think it demonstrated a really good level of trust. But now people like, they really like, they'll just be like, look, you're screwing up, like are doing this way or like,

are we really talking about this employee again? Like, there is that level of directness and trust that like I really value in our group. Because I did Gestalt for a while and I was like, just tell me what you think. I don't understand your allegory of a bear and a briar patch. Like, none of this makes sense to me. It's fair.

Just put up your hand and go, no more experiences. Just tell me what you think. Okay, so back to the deal. B2B custom promotional merchandise distributed area located in the greater Toronto area with a video. It is a unique opportunity to acquire a 15-year-old custom promotional merchandise distributor with a high-profile corporate client base. The business serves as a few multinational Fortune 500 brands as well as a one-stop shop for their promotional products and business gifts. The company offers custom merchandise

and over 300 unique product categories, including apparel, awards, bags, drinkwear, fun. Fun? What is fun? Headware, health, office tech, writing, and more. The business is deeply integrated with its customers by having fully dedicated and customized websites for each making the ordering experience seamless and easy. Additionally, the business has one of the industry's best turnaround times making just in time and custom delivery a quick and efficient process. This opportunity is ideal for a complementary promotional merchandise distributor interested in acquiring superior supplier and client relationships and increasing revenue volume of visibility, explaining their e-commerce presence to increase average orders and online website

that includes niche items for cross-selling opportunities. The asking price below is for a sheer transaction with a normal amount of working capital on a cash-free debt-free basis. EBDA and revenue are below conservative, projected 2023 numbers with historic profitability in the last three years trending even higher, revenue, 2.5 million, EBITA, 325,000, and they are selling it again for 1.1 million. So a little over three times. So what do you think, Bill? You're ready to make this embroider, buy this embroiderer of hats in Toronto? So I've always been fascinated by this industry because there are a lot of them making a ton of money. I have seen ones that are much bigger than this, but they are totally and completely undifferentiated. So the basic business model here is you buy,

blank hats or blank shirts or blank cups and then you either screenprint them or engrave them or embroider them or whatever with company logos. That being said, I have just seen people crush it. I know a guy who bought like a t-shirt. It's basically a t-shirt business. They make corporate apparel. They'll embroider a polo for you or they'll print, you know, screen print custom corporate t-shirts. He bought it for like a hundred grand and he's doing, you know, one or two million of EBITDA now, like two years later, just because he's good at marketing and SEO, because the market for this is really big, right? And it's kind of evergreen. Like, you buy swag this month and like next quarter you need new shirts for the next offsite. Yeah. So I have a

buddy that owns one of these. He goes on my guy's ski trips, which you'll hopefully go on one someday when you're not busy with better stuff to do. Yeah, stop scheduling them when I'm having children. So, but, so he owns one of these. And, you know, I, look around and the last one had about 15 of us that were like CEOs and and some some W2 folks, but different types of folks there, but a lot of business leaders and executives, there were three of the people that were on the phone all the time taking calls 24-7. My buddy that owns one of these businesses was doing that. And it clued me into, it's a very similar business, exact same thing.

He lives half a mile from my house. And like, what it clued me into was the differentiation here is not, around the product at all. It's around the relationships and the customer service that he provides these people. And like, they get in with H.E.B. or, you know, I'm just throwing out big corporate names here in San Antonio, Frost Bank. I don't even know if those are his customers, but like, like, that's, they become their guy. He's their guy and they call him. And it's interesting as to why. I asked him why. Like, why do they choose you? Like, they could just go on the website, get this stuff for cheaper. And he said it works like this. The buyer of this stuff,

If they're putting on, like, sponsoring the local marathon and the bags show up and H-E-B is misspelled as HBE, that is a huge, huge problem that the marketing manager is going to get fired over. And so they want a throat to choke of somebody to call if things are going to go wrong and they're willing to pay a premium for that customer service. I was like, oh, that's why these businesses operate. They're like agencies, but they just instead of giving you SEO, they are giving you a brighter hats. They tend to be pretty local too, right, for that reason. The relationships can be local and

like, oh yeah, we'll embroider them today and run them by the office, right? Yeah. I listened into some of the calls he was doing and it was like, he was like, I'm sorry that the embroidery color came in slightly wrong. Can we, how do we fix that for you? And it was all this kind of just very much like, oh, like let me get the, let me get my print shop going right now and we'll get does fixed over and replaced you in a couple hours. Like, they want, they want that level of handholding and they'll pay a premium for it. Yeah. I mean, there's definitely, it's funny.

This seems to be like the last thing that people think about when they're planning an event or realize they need shirts. They're like three days four. Oh, shit, we need shirts. Right. And the, and like, the reason I know this is because we've bought them for our business. And I, you know, because I'm a very online person, I just type into Google, like, you know, embroidered shirts or whatever.

And you hit the big boys, the four imprints of the world, you know, the Vista a prince of the world. There's a bunch of them. Um, and they're like rush shipping is like in bold. It's like the primary customer value proposition of these big boys is like we will get it to you very, very quickly, um, which tells you that that's what this industry is about. Yeah. Well, you, and you pay for it. Um, you know, our, our fireworks business has graduated to using a firm like this for their swag and our swag game has gone up like crazy. Um, one of the things that they've done, which was a, or just more of it? Uh, more of it, quality. And what I think part of the challenge is is when you do swag as a small business,

you end up with a lot of stuff that people don't want to wear or don't want to use. And so like, I did hats once and I figured out in the office, I was like, oh, I'm going to pick the most fashionable young lady and put her in charge of buying it. Because then I knew if she was, and I was like, look, here's the only deal. Don't buy anything you won't wear. Like, other than that, I have no taste, like, come back with that stuff. And like, all of our stuff was like golden because I knew. it was going to be cool enough for her to wear,

that meant it was definitely cool enough for me to wear. But the other thing that they've done at our fireworks business, which is cool, is offer to the staff, like if you have any clothing that you like, that you want to be branded as Alamo Fireworks clothing, you can drop it off or bring it to the office, and we will take it to the version of this, and they will embroider it in a way that makes it look awesome

and bring it back to you. So, like, everybody's in this, like, swag that both fits their style but looks amazing because it suddenly got like an embroidered Alamo fireworks logo on it. Wow. Like, yeah, like such a cool service and something that, you know,

I don't know if they're doing that as part of this company. So my swag tip for all our swag is to make it twice as nice and do it half as often. So what we do is we do like North Face jackets. So what I found is,

yeah, people like the company logo. But, you know, you know what they really like? A North Face logo. also. So I get the double-breasted, you know, North Face on one side, natural dog or elements brands on the other side, and people love them. I mean, they stick around for years. I got people wearing jackets from, you know, four or five years ago because it's nice stuff and people love them. Yeah. So is this a good business? I mean, does it have good margins? I think it comes down to, I mean, the margins are okay. Let's see,

like it's 325 of EBITDA on 2.5 million. I mean, I would definitely be interested in how much equipment they have inside of their shop, right? Because, you know, my other buddy owns a Fast Signs franchise. Have you ever listened to Fast Signs? I haven't looked, but I know it. They have, I mean, it's great. It's like this, and it's this but for signs. And they have equipment everywhere.

Like you go into a shop and there's like embroidery machines, cutting machines, CNC machines. He's all, you know what else he does? He like, he could do like pinstriended. on cars. So their cars are like totally pinstriped out. I'm like, do you really need to race this stripe? It's, you know, it's a Lincoln.

Like, maybe you should calm down a little bit there. So, but, you know, I think I would be very much interested in what is actually SDE here, rather than EBDA. Because it would not surprise me if a lot of your cash is tied up, not only in an inventory that you're keeping on hand for quick turnaround, but also in machinery and capital. done there. And that's the first place I would go in terms of thinking about this business. As a multiple of EBITA, great. I'm curious, what's the multiple of SDE? That's fair. And you'd have to understand, maybe you're getting a bunch of really nice equipment in the deal, or maybe the stuff is on the edge of falling apart and needs to be, you know, you need $500,000 of CAPX over the next five years. A million percent. That being said, if you get a ton of equipment, right, and it's not fully utilized,

that can be a great, you know, scaling opportunity. If it's either not fully utilized or you're not in enough lines of business. Like, hey, how else, what other things can I embroider that's not custom apparel? I don't know off the top of my head, but that would be a great,

great thing to think about for this one. Yeah, you specialize in a fireworks company crap. So another interesting thing about this is you would think that you have to maintain a bunch of inventory. And I was surprised to learn when I talked to somebody about these businesses, is there's actually the distributors have gotten incredibly good

at getting you the stuff basically overnight. So if you call these guys and say, hey, tomorrow I need, you know, 1,400 hats, they'll be like, okay, well, it's going to take us, we get the shipment overnight from Dallas, and then we can have them embroidered for you in two days, and they'll be at your office on Friday. Like, that becomes, like,

you're not carrying as much inventory as you think because these distributors are hyper-competitive in terms of how quickly they get you stuff. And they all have, like, a big, like, U-line-style book. that's like 350 pages. So it's so interesting when you think about the value chain on this thing, right? So these guys, which is the distributor, probably like last touch, customization and embroidery, right?

They're operating on a 15% net margin. But behind them, as you mentioned, is this whole network of the people who sell the blank hats and the blank shirts and all that stuff, right? And that is also, I would think, semi-commodity market wherein speed of delivery and customer service matter a lot. I can't imagine those margins. are really that awesome. And then what are those businesses?

Those businesses are arbitrage between selling to the distributor that does a customizing and the Chinese factory, IMF. Right. I'm sure all of this is Chinese. They're all cups and hats and stuff like that. It's all Chinese. So that business is basically an importing business, and it's entirely B2B. And they've kind of said, we're going to fragment out. We're basically going to outsource our end customer delivery to this entire other class

of businesses. Right. So if you're the customer and you're buying an embroidered hat, You've got the customizing distributor, then you've got the basically importer of hats, and then you've got the Chinese factory. It's just amazing to think of the number of layers in value chains between the manufacturer and the customer. Yeah, I would be willing to bet, and I've never dug into it, I'd be willing to bet that

there are a handful of very large distributors of this stuff, probably national. And it looks a lot like the plumbing distributors or the electrical distributors. It's very consolidated because there's huge economies of scale for that, kind of stuff. And yeah, and then this last mile part of it, I think it comes to what you're talking about. Like, this is a good business, but you're probably going to, you're probably going into it buying yourself a job because it's your relationships that are your moat. Right. And that's how I would go into my mind thinking about this. And look, if my day job, dream job and it would be tap dancing to work would be answering the phone all the time, developing relationships with low level

marketing managers at these different companies or small business CEOs being there for them 24-7, and that's my job. That's what I do. If that seemed like the tap dance to work opportunity for me, spoiler alert, it is not. I don't like phone calls. Don't call me. Scheduled phone calls, great. But like, if that was tap dancing to work, like, this is a great business.

This is a perfect one to be in. But you also have to wonder, like, why buy it if you're in that case? Yeah, this does feel like buying a job a little bit. I mean, the other thing you got, too, is you got the top down pressure from the very online, the four imprints of the world, the people who are national and really good at SEO and paying tons for paid ads. And they've got really high LTVs and they're willing to finance it because their product catalog is way bigger than yours can ever be. And they're really good at email marketing. So you've got, you got that top down pressure that would scare me. And I'm not saying these businesses will go away, but I think that's going to keep a lid on your growth.

100%. Well, and you're going to do like a typical agency. I would not go into this thinking you're going to make this any bigger, right? It's like you're going to tap out at the capability of your ability to maintain personal relationships. And that's why this is a $2.5 million business like Brent Resour says, like small business or small for a reason. The reason is that's just the dynamics out of this business works and why the big distributors

aren't in this business as you talk about and they've pushed it all out to these individuals. Look, it's a great life. If you can make $200,000 a year printing T-shirts from people, like more power to you. Like, that's great. It'll be worse. Yeah, you could own a Lincoln with a big pinstripe on it, like a racing strike. Like, where the hell not? You know, I think, and I think to their credit, the guys at Beacon M&A, the broker here,

seem to understand that because they put on here in the listing, the opportunity is ideal for a complimentary promotional merchandise distributor interested in acquiring supplier and client relationship. and increasing revenue volume or spanning a new area even. So, like, I mean, imagine if you were in, you know, I don't know, this is in Toronto, imagine you're just over the border in the States. I'm going to reveal my horrible lack of Canadian geography. But I believe, you know, like Michigan would be like right across the border, roughly, right? Or New York, which is closer.

I don't know. This is all the Canadians are going to tell you. I have Canadian employees now who are definitely going to cancel us. But yeah, no, people don't realize, like, how far South Toronto is. Like, it's further south Detroit. Like, you actually go from Detroit into, are you familiar with this? You go from Detroit into Canada,

you actually go south? I'm clearly not, Michael. It's fascinating. Yeah, it's fascinating. And it's also interesting with Canada how, like, each one of the provinces, they're more connected with the U.S. Across the border than they are connected with each other.

Like, and that's why, like, the personalities of Vancouver versus Montreal versus Toronto versus kind of the Edmonton Calgary area, they are almost like I know people and have done business in each one of those. And like the people in Toronto are radically different than the people in Calgary. And then Vancouver's like, might as well be Portland. Like it's just like, it's just super weird. But yeah, Canada, I'm sorry, I just rambled about Canada.

I found it a fascinating place for the Canadians. Have you ever done a deal in Canada? Nope. I've looked at a few. I did diligence on two, and both of them blew up. Yeah, one of them would because it was just like, it was mostly because of like culture. We were just like, oh, this, I learned a lot about Vancouver culture. Like, it's just totally, totally different.

Toronto's a different place. Totally not like Texan culture. Like America. Like, like, hey, like mission for, you know, this sort of. we take it for granted, I think, in America, that it's like mission first, you're part of a team, you know, that way.

And then there's some workplaces, but it's not common where it's like, oh, no, no, like me first, community second, then mission third. And like, you know, kind of what I would describe

as the way Twitter was before Elon bought it. It's like, oh, this lives to serve the employees, not vice versa. And, you know, that gets you in trouble eventually because you don't make any money. You don't achieve your mission. But like, it was very much that.

Like, we went in to go visit this company and, like, everybody got quiet, like, at 3 o'clock in the afternoon. And, like, the lights got turned down. And I was like, why is everybody whispering? Oh, it's because the dog, the dog was having a bad day, the office dog, and he needed to take a nap. I was like, what the hell is going on here? Get the dog, put the dog in the hallway. And also, why do we have an office dog?

I don't understand this at all. Oh, my goodness. Get to work. I don't even work here. You guys all need to get to work. Oh, boy. Yeah. Anyway.

I have seen some very interesting tax structures by Canadian nationals who live in the States because there are apparently some really big advantages as a Canadian national from a tax perspective. Like, they just don't charge you a lot of tax if you don't live in Canada, unlike the long arm of Uncle Sam that would get your ass no matter where you live in the world, as long as you have that sweet, sweet United States passport. If you are Canadian, if you don't live there, they really don't. Dang you. So I've seen a number of Canadian businesses that are like a Canadian Holdco, but then the founder lives in America and they want to be an American business and they want to have American business credit cards and all that stuff.

So they spin up a United States LLC. And that is sort of the facing business, facing entity for everything they do. But then you find out the whole thing is owned by Canadian Wholeco. And then they try to sell you the United States LLC because they need the, the tax to flow up into Canada. You're just like, ooh, I need a different lawyer for this. I'm just going to keep paying taxes.

Awesome. Okay, I don't know if we have anything else more to say about this one. I think it's a good business. Like, people are going to keep buying swag. You know, it's got a lot of future qualitative things going on that are really good. Like, I think the shift in,

the recession is probably good for this business. You're seeing more and more companies want to focus back on mission rather than other stuff. You're seeing the stuff that you talked about, this trend of buying less higher quality swag, which is good. All those are positive things helping this business. It's just, it's going to be what it is. Like, don't expect much more than this and you're buying a job, I think. I have seen some swag businesses absolutely kill it since COVID because all of these remote employers now want people to feel connected. And so they buy way more swag boxes that they send all their employees because they're not coming into a branded

corporate office every day. I mean, I've seen this guy who sells socks, like, you know, big, he puts together swag boxes, socks and other stuff, millions, like rocket ship since COVID. Unbelievable. So, I mean, yeah, I don't think this business is going anywhere at all. I just think it's never going to be massive. Yeah. Well, and then you have to think about if you're buying yourself a job is three times EBITDA there and then definitely like, what's the SDE? That's what I wanted to. I don't know. How much am I really, I bet you when you look at it, I bet this guy's really, our gal, is really pulling down about 175 or 200. And this is a really expensive price. After amortization and all the capax and everything else.

Well, actually, I bet you it is, I bet he's making, if anybody looks at this, I bet, and it's usually a man doing these businesses, I'm sorry, but it's, he, she is doing 220,000. And why do I think it's 220,000? Because that's one-fifth of, it'd be five times EBITO. It's one-fifth of $1.1.1 million. That's my humble guess of how they get to $1.1. We'll see. I'm sure someone will look at it and let us know. Let us know.

All right. Let us know. Let's wrap this one up. Thanks for coming. Another episode of Acquisition Anonymous, the internet's number one podcast on buying, selling, and operating small businesses. We will see y'all next episode.