Acquisitions Anonymous - #1 for business buying, selling and operating - $4.3m/yr to see how the sausage is made - Acquisitions Anonymous 231

Episode Date: September 26, 2023

In episode 231, Heather (@EndresenHeather) and Mills (@thegeneralmills) dive into a unique business opportunity involving a Breakfast Sausage Manufacturing Company for Sale. They explore this business's financial and operational challenges, highlighting the complexities of the food production industry. They discuss the potential for strategic acquisition and how corporate buyers might view this opportunity, shedding light on the intricacies of deal-making in this segment. The hosts also share personal anecdotes and insights into the fascinating food production and distribution world.Today's deal comes from Axial.  Axial is a trusted deal-sourcing platform serving professional acquirers in the American lower middle market.Axial partners with over 2,000 boutique investment bankers and business brokers who use the Axial platform for marketing their deals to lower-middle market acquirers.Thanks to today's sponsorsThe Science of Scaling, hosted by Mark Roberge. Mark is a Senior Lecturer at Harvard Business School. In each episode, he interviews the most successful sales leaders in tech to help you learn how to scale a business, whether that’s how to find outside capital or what to look for in your first sales hire.Search for “The Science of Scaling” in your favorite podcast app-----------------CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.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]

Welcome to another edition of Acquisitions Anonymous. Today, Jess Mills and I had fun with a breakfast sausage manufacturing company. And it was an interesting one because they're not just mixing up sausage. Wait to you see what all goes into this business. It's somewhere in the southeast. I was a little, I don't know, cringy on it because, you know, what they do. But it's a really good company and something from Axiol for us to look at today. So join us.

Hey, everyone, it's Bill. So funnily enough, today's episode is actually brought to you by another podcast. It's called The Science of Scaling, hosted by Mark Roberge. The cool thing about Mark is he's a senior lecturer at Harvard Business School. And in each episode, Mark interviews the most successful sales leaders in technology to help you scale your business. So if you're into tech, and especially if you're into SaaS sales, this podcast will be really interesting to you. So whether they talk about how to find outside capital or what to look for in your first sales hire, I checked out a few episodes, and I was really impressed with some of the people he got.

So Mark had the head of sales at OpenAI, Alyssa Rosenthal, and also Oliver Jay, who's the founding CRO of Asana. So some pretty heavy hitters. So I encourage you to check them out. If you go to any place where podcasts are downloaded, just search for the science of scaling. So that's the science of scaling in your favorite podcast app. That's it. And thanks again for tuning in to this episode of Acquisitions Anonymous. Hey, Mills, good to see you.

Yeah, you too, Heather. It's just us today. So what are we going to do? I know. We have a, we have, there's always a fun deal. We like go through the parking lot and we're like, oh, this sounds hilarious. Let's do this. All right.

What did we pick? Breakfast sausage manufacturing company for sale. This is an axial deal. And I'm not pulling it up on the screen because I don't have it there. But I'm just going to read it. and there's some high-level overview, so you're not missing much if you're not on YouTube. 40-year, quote, best-in-class breakfast sausage manufacturer available for acquisition. The company will generate over $20 million in revenue and $4.3 million in EBITDA in 2022.

Exit plan for founder. The company produces one of the best-tasting products in the industry and has a loyal customer base of local, regional, and national food service companies and retailers. Company has generated strong historic organic growth with the long-term compound annual growth rates. Cager is the acronym for that of over 10%. The overall breakfast sausage market is growing in the mid-to-high single digits. Product is very recession-resistant. I don't know why that's funny to me.

Very recession resilient, sorry. And if input prices rise, meaning if their material costs rise, the company is is able to increase in user pricing. When hog prices fall, the company holds pricing and margins expand dramatically. The ownership has reinvested over $25 million in brand-new state-of-the-art facilities. This includes a new 51,000 square foot slicing, storage, and cooking plant situated on 14 acres. A modern 16,500 square foot slaughtering plant with a capacity of 60 heads per hour. hour. Oh my gosh, these details are amazing. I'm like, cringing and also a love in the detail.

60 heads per hour. Revenues could double from current levels with little to know additional capital expenditures. The company continues to grow organically and their potential highly accretive acquisition opportunities available. The company is located in a low tax, low regulation, non-union and low-crime area that is extremely attractive for both employees and employees and ownership. So we've got maybe a little bit of a typo here, but all right, 2020 revenue.

This listed is 2010, but that's not right. I don't think. Who knows, right? I think that has to be 2020. It's a typo. 2020 revenue was $13 million. 2021 was 18.9. 2022 was $20 million, 20.1. And they're estimating

2023 at $22.7 million. So this was probably a teaser that was done early in the year and here we are in August looking at it. And so it's always nice to see how they track relative to those estimates when you get a teaser early in the year and look at it again late in the year. Their EBAA, this just seems crazy to me. Their EBITDA in 2010 on 13 million in revenue was 4.3. Then they grew to $18.9 million in revenue, 45% year-over-year growth.

And they did $4 million in EBITDA. EBITDA margins went down. Then on 20 million in revenue, they had 6% top line growth. EBITDA went from $4 million to $4.3. And they had 13% top line growth and EBITDA went to $5.8 million. So there's some volatility here. And it's not really clear because they're presenting EBITDA and it's not necessarily like EBITDA less CAPEX.

They talked about spending a lot of money on a facility. It could be that I guess what do you think, Heather? from 2020 to 2021, they grew revenue so much. They spent a lot of money on equipment. Their margins went down as they like stepped into a new facility with a higher cost structure. Maybe. And then they then they like kind of stabilized under this new kind of margin profile. And that's why they're saying they have room to double top line without more Kappex.

It could be that. But you know, the KAPX shouldn't all be expensed. So, you know, it wouldn't be totally tearing down the margin quite as bad as that. I'm guessing it has to do with the commodity pricing that they mentioned in the teaser. So what they're telling you is we get those great margins in like 2020, which obviously it's not 2010. It's got to be 2020. In 2020, probably hog prices were cheaper.

I mean, who knows what was going on in that market in 2020? I don't have those numbers top of mind right now. I just forgot them the other day. I know. You used to. But that's what I'm thinking is like maybe that was the year where they had that great margin because they don't drop their prices even though their input costs. decrease. And then the input costs went normalized, I guess, I would say, you know, the next few years.

But it is kind of interesting that they, you know, to go from 13 million to maybe 22 or 23 million this year, you know, and they really didn't increase their EBITDA all that much for a $25 million, you know, facility expansion that went on during that time. They worked really hard to get from 4.3 million to 5.8. And maybe that tells you something about how hard it is in the, the food business, anything to do with farming and, you know, and food, it can be, it can be a lot of work and the, and the margins are always volatile. Yeah. Yeah, definitely. And, you know, when you're, when you're at a certain size in this market, you can hedge, you know, but that you can't necessarily, you know, always hedge if you're at $20 million in revenue and maybe

you're talking about maybe, I don't know, your input costs might be, you know, $5, $6, $7 million at the very most, you know, on, you know, on the actual direct inputs. Then you have labor and all those kind of things. So, yeah, it's hard. I think it's hard to hedge when you're this size. Yeah. But, but I mean, nonetheless, they were profitable every year, so they know how to price their product. And I thought I did laugh also when they said it was recession resistant. What I laughed at a little bit in my head, I have this picture of a news story that, I don't know why it made me laugh, But when inflation was at its peak and the news reporters were trying to find people at the grocery store talking about, you know, food prices, there were people saying, you know, I'm just so upset I can't afford to buy bacon this week. I don't know why that always struck me.

It's like, well, there's other food that's a lot cheaper than bacon that you'll still be fed and fine and probably healthier. But, you know, people want their meat products for sure. And that was what they were upset about, at least in that story. It's interesting, too, that, like, in this market, you know, you could be, like, they're, you know, arguably, this is not, like, Tyson foods, you know, this is not, like, the 800-pound gorillas. But they say that they're a leading brand. And, you know, when you're in this position as a company and as a purchaser of, you know,

raw input materials, like, they're buying hogs, is what they're saying. And they kill them. This is like a vertically integrated. They're not just buying, you know, bulk, you know, meat and then mixing it together and putting it in a casing. They're buying, this is a slaughter facility and a packaging facility. And then, and then, you know, they sell to distribution who then puts it in the grocery store. They're not like physically taking it to, you know, the grocery store to the restaurant stuff. But they really probably don't move the needle that much.

And they don't have that much leverage in buying. There's been this really kind of fascinating thing that's been happening in the poultry market that, I've not followed that much. But like the way I guess poultry prices are talked about, there's like the big stat is the Georgia dock price is I think like the average. Like it's like the index of poultry prices, Georgia dock price. And there was this huge thing. I think it was a few years ago, but I think it also has continued. There's been some more recent stuff.

But there was a price fixing, an antitrust scandal in poultry where a lot of the producers were colluding and fixing the prices of, of, you know, the raw ingredient. and, you know, saying, hey, look, let's kind of like manufacture, you know, a certain level of pricing and make sure it doesn't go down. I have no clue, like, how the hog market, you know, compares to the poultry market or the beef market or, you know, these other kind of livestock markets and products. But, you know, you stand in a place in the value chain where you don't necessarily have that much control over your inputs. whereas if you if you you know, manufacture anything, you want to try and control those items as much as possible. And at a certain point,

like if you, you know, if you're making something like a widget that has an input, you could go to different suppliers and try and get that. Like, let's just say it's a plastic part. You could go to different people and get that plastic part. The price of plastic changes and you don't have any control over that,

but you may be able to buy from other people. And in this case, these businesses, they're in the South. I think they list like a handful of states in the South where they might be. But like if the price is really, really good for hogs in California, it doesn't help you, because you're in the South and you're not going to move the, you know, livestock across the country just to slaughter, you know, 60 head an hour. So they, I think, have some somewhat limited, you know, control over those inputs. Well, and I always think of food production as something that the

government is going to always get heavily involved in. It is a the government's best interest to keep people fed, right? The last thing they're ever going to let happen is food prices to skyrocket to the point that people can't eat. So I always think of any kind of food production business kind of is really kind of really in bed with the government. You know, the government is going to keep prices down, whether they subsidize or whatever type of regulation or scheme they kind of put in place, you're always going to be under that somehow. And so you lack pricing power from that perspective as well. So I always think of farming and food as it's a tough business to be in.

Yeah, you're really joined at the hip. You're joined at the hip for sure with the U.S. government as a beneficiary and a recipient or as somebody who's, you know, kind of has limited, limited control. They, you know, they also, I guess, have, we don't really know that much about the brand itself. Like they could have, you know, they could have an amazing brand. really know Jimmy Dean is like the big one I guess. But you know how powerful right can brand awareness be? I think it probably plays a huge part. Now because they're they're selling through

distribution, you know, there's a middleman in between them and the customer. And I don't think this type of business makes the play to like try and sell direct. You know, I just I just met with a guy this morning who is a distributor for frozen dog food and he doesn't make anything. He's like, I tried that. It was terrible. But I'm just a distributor and it's frozen dog food. So he has to have like, you know, cold storage and it comes on a refrigerated truck and all those kind of things. But, you know, you, a lot of these companies try and cut out middlemen to go direct because the margins are so much better. And now with like how accepted e-commerce, you know, has become in subscription models, I just got a dog.

Of course, my wife gets frozen dog food. And I'm telling the guy, I'm like, yeah, actually, I didn't know anything about this that long ago. But I can't see this business doing that because you're talking about making a huge jump from, okay, now we buy hogs, we slaughter them, we take the ingredients and we package them into a branded product. And now we also have to have a fleet of vehicles to distribute it. And at $20 million in revenue, like this stuff is moving more than just like in

their state, right? You're selling regionally at the very least. But I'd be curious, like, the role of brand and how that gives you any leverage with distribution. Yeah, and they did say they were local, regional, and national. But what went through my head at a company of this size was it's probably mostly a local brand. You know, like if you go in your grocery store, you know, you see the Jimmy Dean and then you might see some smaller brands that are more, oh, this is the local brand, you know, so especially in the South, I would think, like here in Southern California, I don't know if we have any local brands, but I would think in the south you would. And so that's where your name is maybe known and your brand is maybe known. But yeah, once you kind of distribute to the national,

I doubt that the national distribution is a big part of it. Or maybe they white label or something for that, you know, that region of another national brand. I kind of wonder that too. But speaking of your dog, I got to go back to your dog. That's really important. Really important side note. I have a dog and I have to have to come. confess that I now make dog food for my dog. Somebody was just telling me about this because it's so expensive to get dog food. And like your dog may have a special diet and, you know, you got to like cater to that. Yeah.

Yeah. So I have learned to make dog food. And the sad part of it is like he loves this dog food so much that I can never stop. You're stuck. Yeah. It's the highlight of his life. It is. Wow.

Maybe you should spend up a business, Heather. And I thought of it. Rent a commercial kitchen. and yeah. Yeah, I got a recipe. It works really well. I'm not going to tell my wife that this is a thing and that she can also make good. I'm going to tell her.

I'm going to have to find her and tell her. All right, taking a quick pause here, I have something to tell you. This is Michael. I hate bookkeeping. I hate bookkeeping. I hate doing HR. I hate doing all that kind of stuff. But for bookkeeping, I have found a solution.

It is my friend Charlie's business called cloudbookkeeping.com. So that's cloudbookkeeping.com. they are your perfect partner if you want to get bookkeeping out of your hair and focus on making your customers happier and more successful. So please give them a call, call Charlie, cloudbookkeeping.com, tell them we sent you. They're a great way if you're a business buyer, if you're a business owner, you're tired of hassling with getting your bookkeeping done. He's got a whole fleet of people that are well trained and work for him.

He's located here in St. Antonio, so I can tell you because of that, he's awesome. And they're a great partner for you to potentially call to help with all your bookkeeping needs so you can do the important stuff in your business rather than worry about getting your books right. So give Charlie a call, cloudbookkeeping.com, and now back to the episode. Yeah, but I think this is a tough one in terms of, you know, brand. I don't think their brand strength is probably huge. I think their geography is probably big, right? What they do and where they are is probably like the most important part of this business. business. You know, you think about the, think about like the nature of running this business for a minute.

And then let's talk about the financials and the deal itself. And like, how does a deal like this even get done? Because it's not, it's not with the SBA at four to five million dollars in average EBIT. No. But like running this business. I mean, we don't know how many employees they have, but they're in 51,000 square feet and they're slaughtering 60 hogs an hour. And then there's a production line. I mean, we're talking dozens of employees at the very lease. This is manufacturing and food production, which are both very hard. And like you mentioned some of the, you know, some of the elements of dealing with the federal government, but you're also dealing with the FDA. You're dealing with food. And so it's highly regulated, lots of compliance. And if you're, you know, they say this, there's kind of a clue here. The slaughter

house is a different building, probably on the same property than the one that's actually packaging the food because of all the like foodborne illness and you know contamination all those kind of things i think i've mentioned on the podcast before but i have a friend who owns a business here in south korel that washes lettuce and they have a massive i mean it's they have 600 employees but they have you know tens of thousands it's over 100 000 square feet and like 90% of their facility is climate controlled to like 42 degrees Fahrenheit because of ecoli so their energy bills are just astronomical because at a certain temperature, all they do is wash lettuce. They don't grow it.

They just wash it and package it. And like if you go to, you know, Whole Foods here in South Carolina, they basically package and label a version of lettuce for Whole Foods. And they also sell like lettuce to McDonald's and a bunch of different people. But there's all these funny things about food production and especially packaged food. Like at the very, the last step of the product going out. of their facility is multiple metal detectors of like to to metal detects bagged lettuce shredded bagged lettuce and I was like why are there multiple and it's because they have to have all this

redundancy because if like a little part breaks off you know in a piece of the you know processing line and gets into a bag of lettuce then you know it's bad for everybody it's bad for McDonald's or whole foods is really bad for the company it comes back on them and they have multiple so there's all these layers of redundancy in case like one metal detector goes, you know, goes bad. And that's just one example, right, of all of the potential kind of headaches. So this company has figured out, I mean, to net $4 to $5 million a year selling sausage that you make. And there's that analogy, right, of like, I don't know if they use that analogy in other parts of the world, but in the south, you know, like people would say like, you don't want to see how the sausage is made.

We see it everywhere. Yeah. We see it everywhere. We have some weird Southern saying. So I just want to make sure I wasn't being toned up. But like this is this is how the sausage is made. I mean, this has got to be a terrible smell. I don't want to be there. Sound. Yeah, this is this is a job. Like you are, this is work. I'm just thinking about quality of life, you know, owning this business. Buyer business fit is very, very important here. And Heather's making a face for those of you not on YouTube. This is not a deal for her. This is not the worm farm. This is not as attractive. No. I mean, I'll, I'll, I'll, fast. I stopped eating meat about a year and a half ago. I am. So, I mean, this is really not

for this for you. Okay. I do eat fish, but no more meat. And it's mainly for health reasons, but, you know, yeah, it's interesting. It changes your taste palate. And anyway, no, this one's not for me. Even if I was eating meat, it's just, you know, people don't, they don't understand what goes into the packages that they buy in the grocery store. And this, you would absolutely know every single bit of it. And I think that would be really tough on a lot of people. I do. I do. think farming this kind of, you know, this kind of food operation usually appeals to people who want to live off the land. You know, they have kind of a different philosophy about life. I know that when I was at Live Oak Bank, we had a poultry vertical. And I learned a little bit about that business. And what I

saw was that a lot of small poultry farmers aren't really making very much money. I was kind of surprised like, wow, that's a lot of work. And it was just, you know, along the lines of this, it was a lot of work for relative to how much they were making. And what I was told, by the folks that really work in that space is it really appeals to people who want to live in a rural area, raise their family that way, you know, live off what they make. It's just a kind of completely different mindset than most people might have. So this is kind of a, yeah, a unique person that would want to be in this business. Yeah, yeah. And if you like sausage, you probably should not get into this business. You should be like sausage agnostic, because if you like it,

You probably will not like it anymore, you know, if you're living and breathing this environment all the time. Absolutely not. With this size deal, Heather, I mean, $4 to $5 million in EBITDA, this is like, this has private equity or, you know, add on or, you know, or platform acquisition written all over it. Is there an environment where you could imagine an owner operator buying this and being anywhere near competitive? it would be really tough because of the amount of equity that they'd have to bring in. A typical single owner operator type person needs a little bit of leverage because they're not going to be bringing in that much equity. It kind of doesn't pencil if they have to bring in as much as you would.

So once you're above like three and a half million of EBITDA, really above two, you're outside of the SBA realm. But when you're above three and a half, you're at least in the in the ballpark of what conventional lender or cash flow lenders would look at. you're going to have to find a lender that likes, you know, agriculture, basically, an ag lender. It would be the right kind of lender for this. I have no idea what their terms look like. But that's the kind of debt you'd get.

It's probably an add-on for like a bigger company is my thought. Maybe they need that geography or something. But I don't see someone just going out and buying this one as a platform, at least from what I can see. Yeah, yeah. I think there's so much activity, too, in this section. of the market size-wise and in like consumer package products and food products, there's so much strategic acquisition that happens where you have one corporate entity who goes, hey, look, we have, you know, we have these product lines.

Like maybe we do, you know, bacon and packaged ham and like lunchmeans and things like that, but we really don't have a good, you know, sausage line or vertical or product. And so they grow kind of via acquisition that way. And they look at it. And I don't know if you've looked at many of these because it's, I don't think it comes up as much in the SBA. But when you look at like corporate divestitures or corporate, you know, acquisitions, kind of, you know, an entity that's going to, you know, kind of assimilate another entity into itself.

Like all the traditional rules go out the window, you know, I've looked at a handful of corporate divestitures. And they're so weird because that whole like, why am I the lucky one? You know, why, like, why is this owner selling? Like, that's an important question. And why am I the lucky one who's talking to you is even more. so that way because you're like, you guys are really good at running a business and maybe a set of businesses. Why is this one the one that you want to sell? It's probably not because it's doing great. And sometimes there's a great answer. Sometimes it's, you know, well, it just is not in line

with our company's strategic initiatives and like, we love it. And there's a good team there and all kinds of things. It may just be kind of, you know, our board decided it's one that we're not going to keep. But a strategic buyer would look at this and go, okay, look at all of the synergies that we can put in place. We have, you know, corporate buyers and corporate, you know, sales folks who operate regionally already. We can get rid of a huge cost center that way. We have relationships with distributors that we can open up doors that we're closed to this company. You know, we don't need their payroll and their accounting and their admin folks and their, you know, all we need is a person to answer the phone and a person to manage the plant. And then we're going to

outsource everything to our kind of core team that can really fold this in. And we make, one or two hires and eliminate a bunch. It's just a totally different financial exercise, and it allows somebody to look at this and pay, you know, at this size, I mean, I would think a business like this is probably trading for five, six, maybe even six and a half, seven times, I would not be surprised if the right person comes along because it's of a certain size that it's very attractive and it doesn't have to pencil the same way. Right. I agree with you. And, you know, this is the size of deal we tend to see on axial, you know, the bigger companies, different kind of financing perspective and how you get them to pencils completely different.

We do sometimes do carve-outs, what we'll call carve-outs in SBA. And the trick there is, it's kind of similar, but it's like we're reconstructing a P&L that's outside of the combined tax return. And you have to be really careful because it's in the seller's best interest to, you know, game that, the set of answers that they give you as far as, oh, well, no, you know, the costs are really low over there. Well, maybe they're not so low. So a lot of lenders won't even touch those. And I will work on some, but it has to be something where I feel like it's a clean separation. It's in, you know, I ask a lot of questions. And if it seems like the companies are too meshed

together, I don't want to touch it because I know it's going to be too hard to figure out what you're real, what even die you're buying, you know, really tough. Yeah, sometimes they have separate P&Ls by division, but then you look at a lot of times with those, you have to enter into like a shared services agreement with, you know, with the seller or the divester in this case and go, hey, we don't have our own IT department. We don't have our own accounting department. Like we're going to have to kind of pry those things apart, but it can't happen day one. So can we agree on a fee structure and a scope of work where, you know, your, our IT guy, really your IT guy will continue to do it for me for a year.

And our benefits and our payroll and all those kind of things, it's very, very tricky to tease it apart. And the, like, reality is you don't get the same cost structure standing alone as you would in that shared environment. And so, like you said, it's very hard to project the, you know, pro forma cost structure and cash flow. Yeah. And actually, the one case where I saw the most seller fraud, and it was pretty,

in a court case was a carve out. And, you know, despite really, you know, smart, sophisticated buyer and a lot of great diligence, the seller has the upper hand in lying to you in that situation. And that one did, you know, he had, so that's one thing I learned, you know, the hard way is, you know, if the seller wants to misrepresent something, they're going to get away with it, maybe not get away in the long run, but they're going to be able to convince you of that because they hold all the cards. So this is a situation where it can be even more tricky, right? Yeah. Yeah. That information asymmetry is like it's natural in any deal. Like you've forgotten more about the business. Like I could do like 24-7 due diligence for six

months and I still can't uncover everything that you know and have forgotten and all those things. That's right. So yeah, I mean, I think this is a really interesting, it doesn't, it doesn't really scare me. I think it's just difficult to understand and contemplate a scenario where this deal could happen without a big kind of strategic kind of edge, right? Either you own something similar or you have a background in this space and a lot of people will get comfortable backing you doing it. I've had friends who sold a construction products business and they get liquid and then they buy another construction products business that's drastically different, but it kind of sells in the same way and it's, you know, in the same submarket. And it may be like the type of

person who does this deal as like an owner operator, maybe has a background in the industry, you know, if it's not a traditional private equity deal. But my guess is, I mean, we don't have all the info, but my guess is is that this company probably went through a traditional investment banking process with a mandate and kind of a, you know, a managed, you know, auction type process like a dog and pony show. And depending on when it went to market, I wouldn't be surprised if, you know, if they've already transacted, you know, in based on what they're saying, they had, you know, forecast for 2023. And here we are, you know, in August, late August, 23, I wouldn't be surprised if the company's already transacted. One thing about businesses like this that

can be really tricky in the closing process is when there is volatility of the underlying kind of inputs, like hog prices and anything like that, you can get really, really far into due diligence. And through no faults of your own and through no faults of the sellers, the whole table can move out from under you. And all of a sudden, you know, hog prices spike, right, or coffee prices, you know, crater or oil prices. It happens a lot, right? In oil field services, all of a sudden, you know, some political event, some geopolitical

event happens. And, you know, or like there's a salmonella outbreak or an ecoli outbreak or something like that. And hog prices just crash. And now the deal doesn't work. And it just, that's the risk. That's the company specific risk that is not, you know, seller specific or buyer specific. I have a story. I remember it was a long time ago. It was a deal, a seafood, two seafood companies. They were, one was buying the other. I don't remember which one was the buyer. the seller, but one was in Seattle and one was in San Francisco, and they had different types of fish, you know, types of seafood that they, which if you think about it, it's extremely seasonal. You know, each type of fish even was.

Yeah. It was such an interesting deal. And the deal, it did, I think, finally close, but oh my gosh, all the numbers changed because they intended to close a certain time of the year when they knew where, you know, between the seasons of different kinds of fish and they couldn't, you know, to close. Closing gets delayed. Guess what? Whenever you do that,

whenever you plan on closing, a seasonal deal, oh boy, this happens a lot. And they ended up closing at the height of some of the seasons that were going on. The inventory levels were,

you know, triple what we thought they would be. All the numbers had to be redone. More equity had to come in. It was wild. So, yeah, yeah, totally know what you mean there.

That makes like an already hard process even harder. Like any, like there's been a lot. I've seen a hand. handful of like packaged, you know, consumer products like if, if you sell like Halloween products or like Michael, right, sells fireworks, you know, and he's talked about that. I think on some episodes, it's just very tricky if you want and need to sell or buy a business

like that because, like you said, you build the whole pro forma on a target networking capital, a target amount of inventory that's going to transfer, what your, you know, inventory purchases are going to be kind of coming into or out of the season. And then all of a sudden, uh-oh, you know, we missed closing by 45 or 60 days and now we don't have any inventory and they have all the cash and they don't want to give it to us because we agreed on a working capital number or, you know, calculation. So that's interesting, two different seafood companies. Yeah, and that's like anybody that wants to close a deal, if there's any seasonality in it, you obviously want to close it just before the busy season starts. And I've closed quite a few

like that where we made it, but what if you don't? What if it gets delayed in the most stressed out people in closing situations are unseasonal businesses where we miss the deadline and everybody, that stress too kind of compounds, right? It makes everybody a little crazy and it gets pretty wild. So you're trying to close on a business as any seasonality at all, you know, you really have to plan it out. And even when you do, it may not work the way you think. Yeah, yeah.

Oh, interesting. There's always that kind of like, you know, long tail risk. type thing that can happen. We looked, I looked at it buying a business several years ago that really benefited from the H-1B visa program. And then when Trump was in office, like, changed some of the rules and like the thresholds and everything. And all of a sudden, like their entire labor force.

And it was like legal, you know, legal immigration, seasonal worker immigration. And all of a sudden, like, their massive workforce just got like completely chopped. And it really impacted. really impacted the business in a really, really negative way. And what do you do? I mean, part of their cost structure really benefited from that. So those kind of risks, everybody puts them on their kind of like SWAT analysis, you know, but it's always like what, you know, what you can't plan for.

Yeah. We call that stroke of the pen risk. Just one signature. And that whole, you know, part of your business model could go away. So, yeah, it's super interesting. Well, are you buying this one, Mills? What do you think? No, I don't, I, if it were in South, like, honestly, honestly, if it were in South Carolina,

I think it would be super interesting. You want to see how the sausage is made. Yes, I do. I do. I couldn't do it, wouldn't do it on my own, like from a size perspective. I think it would be difficult. I think it would require like a lot of, a lot of focus and a lot of handholding to migrate this type of business from that like kind of independent like salt to the earth.

That's like we saw a 2020 number that is like almost half, right, of what it is today. And so you got to imagine if you go back maybe two, three, four, five years prior, like, if you go back to 2015, 2016, this business was probably barely, you know, barely generating any cash flow. So the owner of this business, right, is like probably not like, you know, textbooks, cereal, you know, food product entrepreneur. They're probably a guy who was like just really, really good at like raising. and packaging and, you know, slaughtering, you know, animals. So I think it would be very difficult to transition.

But if it were here, but that's just me as a buyer. I have like a huge bent towards it being in the Carolinas. You could send me the like the deal of a lifetime, you know, in Ohio. And it's just, it would be very, very difficult. Right. So wherever this is, if it's someone local, yeah, that's, it's more appealing for sure. Mm-hmm. Yeah.

Well, we've established that I'm. It was a fun one. Yeah. Yeah, exactly. This was a fun one, Heather. Any other thoughts on it before we break? No. I mean, I think it's a cool, you know, another big axial deal, you know, good size.

Yeah, yeah. Well, the guys missed a good one. But thanks for everybody for joining in and stay tuned next week for another episode.