Acquisitions Anonymous - #1 for business buying, selling and operating - $900k revenue parking lot at Houston Hobby airport / $5mm railroad terminal logistics business - ep 44

Episode Date: September 23, 2021

Joined this week by guest Brandon Laughridge (https://twitter.com/laughridge and http://www.brandonlaughridge.com/), the team talks about two small businesses for sale:  - a $900k revenue parking lot at Houston Hobby airport - $5mm railroad terminal logistics business  Brandon is CEO of North Terrace Property Management and an avid real estate investor.  Enjoy!-----* 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.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe 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]

All right, welcome everybody to another week of Acquisitions Anonymous. We're really glad that you're here. This is a podcast where me, Mills Snell and my co-host, Bill Di Alessandro and Michael Girdley, we talk about usually a couple, usually two small businesses for sale. And we do it as anonymously as possible. So we want to get down into the details and cover specifics, but do it in a way that doesn't break confidentiality or disclose anything that these companies don't want public. We have a really fun guest today, Brandon Laughfridge. We went through this beforehand and I'm botching it already. Brandon Laughbridge. Brandon, really glad you're here, man, and thanks for joining us. Tell us a little bit about yourself, what you do in Flyover Country, as they like to call it. Thanks for having me. Yeah, I have bought a couple of small businesses myself. I spend my time mostly on a property management company that I bought, but not just operating that business,

also doing value-add multifamily deals, bought that company about five years ago. And then my wife and I, about three years ago, bought a fairly good-sized, high-end kind of custom furniture and home goods business in Kansas City. And she spends all her time running that. So pretty deeply entrenched in the small business acquisition world, although I've been pretty good, the last two years of not torturing myself on, you know, Biz Buy Sell and BizQuest and all those sites. But excited to do that today. And it's fun to see how the sausage is made. I'm kind of a OG acquisitions anonymous fan if there is such a thing on like a nine-month-old podcast. Well, we're like three minutes in and we probably already disappointed your expectations. egregiously. Brandon, is your wife's business? Is it mainly retail like storefront or does she do

online or wholesale or things like that? No, it's basically all retail. There is a little bit of online, but it's really insignificant in the scheme of the whole business, probably, you know, one percent of revenue or less. Yeah. Well, that's cool. That's really, yeah, well, I'm sure you'll have some cool operating, just kind of nuance to bring to the conversation. So, really glad you're with us. Michael, you have a word from one of our sponsors, right? Yes. Well, in our continuing quest to stop losing money producing this podcast, we have a sponsor today. It's a new sponsor called Financial Clarity. They are a cloud bookkeeping service, so you can find them at f-inclarity.com. So global team have talked to Jason about their business, and if you're a small business that's looking

to get out of doing bookkeeping yourself, you want to outsource it to a cloud team. know how to speak startups and small business, no contracts, fix monthly fees, and responsible and dedicated. So they know how to do stuff around QuickBooks and Zero and that sort of thing. So if you're interested in focusing on your business rather than focusing on your bookkeeping, this week's sponsor is Financial Clarity and can be found at finclarity.co. So over to you, Bill. All right. So we've got two cool deals today, the first of which is an airport parking lot. found this one on Biz Buy Sell. I especially love this one because it is represented by the seller and the entire listing is written in first person, which is great. So I'll just read you guys

the first, the intro paragraph, you know, we're used to hyperbolic intro paragraphs. But here it is. Let me start by saying that it's once in a lifetime opportunity. You will hardly see this type of business for sale, especially at such a prime location and a low price. I would never sell if I didn't have to be absentee staying mostly overseas due to my father's demise, taking care of my other businesses. So he goes on to list his Gmail address and says you can email them if you have questions. This is your basic airport parking lot. I mean, he probably offended that I said basic. This is a super prime, amazing airport parking lot at Houston Hobby Airport.

Houston Hop. Yes, Houston Hobby Airport. It says it's got a main canopy with aluminum sheets. It's got two entry and exit gates. It said it has a modern parking gate system with license plate recognition, checkout booth, a self-pay checkout kiosk, which means I think this is kind of trending toward that, you know, maybe you don't need a manager.

Maybe it's passive cash flow. You know, people just drive in, park, and then swipe their car on the way out. It says no expense was spared to build the infrastructure of this facility. The asking price is merely to recover the cost of building the business, plus three years struggle to maintain and build running. this very valuable, very durable, lots of goodwill business. There are so many things.

There are so many things we can say about this. So let's get in the numbers. It says that the business has $917,000 of revenue and $644,000 of EBITDA, which leaves you with $619,000 of cash flow on that $917,000 of revenue. So that's pretty good margins, if you ask me. It was established in 2016, and they are asking $5 million for it. So my mental math tells me that's about eight times cash flow for this airport parking lot. It says 45% of their business is booked by six third-party vendors and on our website.

The other 55% is mostly direct booking, where our customers are playing by credit or debit cards. I think this might also include their drive-up business, or some people. but he just kind of shows up and says, here I am, I want to park. So they're asking for $5 million. Oh, important to note that $5 million does not include the land. That is ADAC's cash flow for the operating parking business does not include the land. He does say here you may buy the land from him later once you get established with the bank and you feel comfortable with the business. He says there are five workable growth plans and you can add about $100,000 of monthly income.

For those keeping track at home, this business only makes about $50,000 of monthly cash flow. So this would be a significant growth plan. It says that Houston is the fifth fastest growing airport in the United States, up 35% from 2007-2017. This is a great airport business. It says we are 30% capacity and net profit will for sure exceed a million dollars over the next two years. once a customer comes in for sure he is our permanent parking customer he never switches to another parking lot at houston hobby so this seems like a great business at least uh from here the guy listed what do you guys think what's your take on airport parking bill bill i did some research on

this while you were talking i have to break him into breaking news i googled the guy's email address he's also selling a cash checking business in sugarland which is at the other end of houston so he's wheeling and there's some serious stuff going on He is. He's liquidating his United States assets. His mother's demise, is that one? Because his mother's demise? No, no idea. And for those of you that don't know Houston really well, this is the secondary airport in Houston. So it was the original, this is the one on the southeast side of town, which is not the nicer side of town of Houston. Apologies to everybody. I'm insulting on the southeast side of Houston. You could join the people in Corpus Christi be mad at me.

but the nice airport, Houston Continental, which is where United runs out of and is the bigger airport is up on the north side. So this is actually the secondary airport, not the primary one, but this is where Southwest does all their work. I love here that he says, I can provide training for 10 days after the closing date. Should convey complete knowledge in 10 days, but $500 a day after that. You know who this guy is? He's that uncle that you have that's like the scheming uncle. that's always scheming stuff and, like, takes you right before the main course at Thanksgiving and it's like, take a look at my business listing. Isn't this great? Give me some feedback, and he doesn't really want feedback. And he shows you something that looks like this. This is exactly that guy.

Okay. So this is, they want eight X. This is an operating business, right? Doesn't come with land. So it's not, there's not really a real estate play. Land's not priced in. Who knows what he would want for the land if he ultimately wanted to buy it from him. Obviously a diligence point here, would be what are the terms of my lease? Because, right, I would make sure I extracted a very long-term, very renewable lease from this guy as a condition for him keeping the land and selling me, the operating business. So the valuation of this thing, 8x cash flow for an operating business, do you guys think that's fair? We got some feedback on Twitter that folks would like to hear us talk more about valuation. You know, how would you guys think about valuing a business like this

without the land, just the operating business? One quick point on that. to make matters worse, so to speak, is that I'd be willing to bet that this guy doesn't charge himself rent on the land, right? I think this EBITDA number, this $644,000 is obviously unadjusted, but if you buy this thing and you have to lease the land from the guy, you could be taking 100, 150, 200. It depends on what he wants for the dirt, right, for the lease of the space. So I think the valuation that he's asking is actually, it probably gets higher on a multiple basis just because I think the true cash flow after the adjustments of what your life is going to be like post-close, I think it's going to be worse.

And Brandon, so, I mean, comparing this to kind of a real estate, like yield-style investment and a lot of the stuff you do, like, this guy's basically asking a 12-cap for something that seems kind of risky? What are your thoughts? Yeah. Does it say anywhere how many employees he has? I mean, he did mention he's only selling it because it can't be absentee, which is it's maybe like refreshing for a business listing.

Usually they're always absentee. Employees, five. Yeah, you almost have to be correct on the not charging himself rent when you look at the expenses with five employees there unless they're all just minimum wage. So I was taking notes, a few notes, as you were reading that, and all of mine had to do with the terminal value of the real estate that I was assuming was included in the $5 million. So throw my notes out.

I thought it was borderline interesting at that price if the land was included and if there was some other use for that land. Because I was mentioning to you guys before we went live in Kansas City, I'm noticing tons of these parking places pop up and they're getting further and further from the airport. So that would be my fear if I'm buying this, that this is kind of institutionalizing and people are, you know,

maybe it's becoming more of an asset class like self-storage or something. And I know it already is, but I'd be afraid of, you know, just that 30% going down to 20%. There's nothing you can really do. I'm not so sure I understand why once they're a customer of this parking lot,

they'll never go anywhere else. As it said in the description, there was nothing that, he stated in there that was, you know, especially unique to this business. So as compared to a real estate deal, I think it's pretty terrible valuation. Well, I think you also have the problem with, you know, parking, and I've gone really deep into parking recently because of reasons, but like parking is an amazing business because you're competing against only other parking options within walking distance of where you are, right?

And if you're the closest parking thing to a very desirable thing, like the Empire State Building or the Alamo here in San Antonio or anything like that, like you have a monopoly where especially people are just one-time visitors, you can charge whatever you want. You know, this, you know, at first glance, I was like, oh, a parking lot. Like, let's talk about it because I realized parking is such a good business and runs at 90% gross margins and all this stuff. But the problem with this is you're actually competing with everybody within a bus ride

of where you are, not within a walking thing, because you're having to haul them back and forth to the terminals. And especially like you're talking about Brandon, if you're at the Kansas City airport or the San Antonio Airport or Houston Hobby, like there's so much vacant land around where this thing is. I've driven that area before. Like, it's just a matter of time until once you get any sort of interesting yield on your investment, somebody comes in and builds a bigger one right next to you.

And next thing you know, you're having to put a million dollars in CAPEX to grow your space and buy more buses and make all that happen. And so. Well, and I know, so I Uber to the airport always. I don't want to park there, unless it's one night, you know, one overnight thing. And then I park at the terminal itself. And it's expensive, but it's one night, whatever. And but my parents are the exact opposite. And my dad is the kind of guy. He probably would park 10 miles away if it was two bucks cheaper. So I'm not sure who would have this loyalty to a place when it's kind of like self-selecting for people that are, kind of, you know, as frugal as possible, basically. I think that's who parks in the economy

of parking lots. So I will say, when I lived in Denver, Denver's airport was very far from my house, and I went on business trips frequently where I was gone for a week. And I didn't want to, I actually did drive a lot. And the one thing I don't see mention in here is a loyalty program, because I parked regularly at the same parking lot just like this in Denver. And I did always go back to the same one because there was a loyalty program. They gave me perks like they picked me up first. They dropped me off first. They made it a better experience. So I'm interested. I'm coming around to maybe a very naive view that this might not be as terrible as I initially thought it was, assuming you could lock up the lease for a long time. Here's why. If you bought this,

I think maybe you could put in a loyalty program. I'd like to see some data on repeat customers. The other thing that's interesting about Hobby Airport in Houston is hobby is actually like the close-in small airport in Houston. This is not like the in the burbs miles of desert all around airport. So I wonder, and I'd have to get more familiar with the local area, but I wonder if this is actually not a case where someone can drop a huge one in right next to you because this is a little bit more of an urban airport in Houston. I'm again, not super familiar with it, but it's maybe at least a little more confined, you know, than like Denver's airport, which is just surrounded by dirt for miles

in every direction. And if you could get this to the point where it was actually relatively passive, I mean, five employees seems like a lot, you know, I don't think this is the smash it out of the gate, but, you know, if you're getting 15, you know, 15, 20 percent yield here and you kind of grow with you know, Houston, right? I'd have to understand the demographics of Houston, you know, like, and I don't know. Maybe it doesn't suck. What do you guys think?

Is this the naive view? I mean, I think it kind of sucks. But to riffle what you're saying, like, like I think one of the benefits you can do with something like this is, especially when the guy is so optimistic and wants to retain the, you know, the land with the deal, like, I think a situation in which you could de-risk it and increase you return on invested capital by making your rent a percentage of the gross or a percentage of the profits could be pretty darn powerful here, right? And, you know, the game, the game is not

just total return, but return on investing capital. And you could de-risk some of the downside by just being like, okay, like, yeah, we'll rent it for 20 years. It's 10% of the gross. And that's just the way it's going to be. You know, I think you could, you could do some cool stuff around that in terms of, in terms of thinking about how to structure this in a way that could work. Think about, I mean, think about the replacement cost of something like this, right? If a competitor wants to come in, they've got to buy the dirt or do a ground lease. And then it's not, you're not like building massive buildings, right? But you're talking about a ton of paving that's going on.

That in most municipalities means you've got to have, you know, on site or offsite retention ponds. You've got to have like a fair amount of, you know, environmental and engineering related work going on. Your upfront cost is probably pretty significant. I don't know that it's going to be, you know, his asking price, right, or the equivalent. but he's only at 30% capacity. So I would have a lot of questions around demand on this, right? Now, in my mind, he's basically pricing it for the demand he anticipates in two years and the amount of net income off of that, right?

That, to me, seems a little bit more reasonable. So I think you're right, Michael, you almost have to tie, right, the valuation and the structure to this kind of future scenario that he's anticipating and make them all in sync versus just, sure, I'll take on all the risk and you take all the consideration. Yeah, and I think you're also making, to some extent, a COVID bet one way or another. Like, is there going to be a Delta plus plus, a Lambda, whatever the next thing is, you know, is this, is this going to be the new normal now where there's just like a depression around, a slight depression around business travel and all that kind of stuff?

Because business travel still hasn't bounced back, you know, like it was before. And a lot of these folks that are willing to pay a little bit more to do this, you know, how many of those are business travelers, I guess we don't really know. It depends, too, on how asset light this is. So, you know, we obviously don't have, like some of the feedback we've gotten. We don't have their income statement. We don't have their balance sheet. But is this guy running his own shuttles or are there, is there an airport shuttle service

that just happens to pick people up at all the parking lots? What's the economic, you know, agreement between you and the airport? There's these six third party folks who are utilizing, I think he said, 45, percent of the space, but they're still only at 30 percent capacity. So if you are running buses, right, and some of these five employees are your bus drivers who have like a CDL, right, or like you're having to upkeep equipment and buses and maintain them and buy new ones, the business has only been around for two and a half years. Like, I have a lot of questions about what's actually going on here and how it works. And I think this is the kind of seller that probably needs to get disappointed

for a little while that people aren't thinking it's as great as he does. But then things may come back to reality. I think it would be also interesting if the location of this, as, you know, there's a big, there's a big percentage of the people that just drive the airport and don't premeditate where they're going to park. And if this has one of those kind of tourist trap locations where they're the first thing at the Houston Hobby Airport where it's like, park here, 12 bucks a day, you know, that's got some potential. Looking at this picture, Mills, it looks like he runs his own. shuttle because I've never seen a professional airport shuttle that's purple and orange like that one. So we think that's even the real picture. Is that even a real picture though of the business?

This looks, this is what hobby looks like. If you go drive around the area around hobby, that's what it looks like. There's a bunch of fields, hobbies kind of sleepy. You got Southwest in the background. Southwest, yeah, that's exactly what, you know, I think Southwest has like 80% of the traffic there and maybe more. And then the whole thing just feels like you're too good rainfalls away from being under six feet of water. Like that's what it feels like. I've been there. I've probably driven down this street. Michael, you actually bring up another risk you're taking on here, which is Southwest Airlines risk. Because if they pull out, this airport is toast. I mean, it's over. So, and all of a sudden, your dirt is not worth anything. So there's the business travel risk. There's the Southwest Airlines risk,

slash Houston Hobby Airport risk. I don't know about the other airport if it's taking share or losing share or whatever. There's a lot of embedded risk here. Yeah. Well, so, you know, just data points. Southwest has been growing their presence here. They're also growing their presence at the hubs,

like Intercontinental, which is the other airport, the Big Boy one where United has their big operation. And then also going to like O'Hare and stuff like that. So Southwest at least so far, like the past five years has grown and like pushed all their international flights and stuff like that through this airport.

So it's going the right direction. But yeah, you're exactly right. You're hugely dependent upon what happens with Southwest. The question I have on a listing like this is, why hasn't a consolidator or a competitor bought this? Like, the fact that it's been sitting on Bizby Sell is a little bit worrisome to me because there are multi-location providers, right?

Like the one that I'm thinking of a lot in the southeast and I've seen other places is like parking spot, right? right, where they have these like polka dot buses, those guys could totally afford to pay this guy, probably what he wants, right? But they're going to, they have tons of reps. They know how to underwrite these things. They know how they're going to drive more revenue and, you know, utilize some of this excess capacity and put their own efficiencies in place. Like, they could blow this thing out of the water and they are more than likely, right, acquisitive. They are buying businesses like this and taking a mom and pop to a professional.

professionally run, the fact that they haven't bought it and we're looking at it makes me a little bit skeptical. You know, like, what's wrong with it that they don't want it? Maybe they're already there, but I would just really want to dig into that. Brandon, is there a world in which you pursue this deal? Oh, absolutely not. At what price? At what price would you pursue it? Or is it? How much would this guy have to pay you to take this business? Yeah, okay. Yeah, you're right. There is a world, I suppose. Yeah, he gives it to me and, Ann convinces me that I'd love to live in Houston, I guess. But, no, interestingly, there's, so he mentioned those aggregators, those booking aggregators. I actually, I didn't remember this until the middle of this discussion, but probably 10 years ago,

I used to be kind of in the lead gen world. And kind of a friend of a friend, I believe it was airport parking.com, actually was a really successful outcome for an individual guy who he built, I think it was airport parking.com and sold it to Quinn Street or one of those public lead gen companies from about 10 years ago for something on the order of $20 million. And that may be one of those aggregators that is sending them a lot of leads. I'd be interested to know if you could come in and go nuts on, you know, that customer acquisition, like a big one-time thing that you could budget for if you could like target business travelers to Bills Point and, you know, really like inject a bunch of, you know, customers that are, if they're truly as sticky, as he claims,

which I know they're not, but if they're, if they're sticky, period, and look at that as a one-time upfront outlay, it's kind of interesting. And then the second thought I had is, I wondered if there's, and this takes away from the notion that it's, you know, a passive sort of real estate type, you know, annuity that, you know, is just a coupon clipper type business. But I wondered if there's just totally unrelated non-airport business that you could get. Like, is there a, you know, a miracle mile car dealership kind of thing nearby? And you can take that excess capacity, you know, and give them 20% at really rock bottom rates, you know, something like that, or RV storage.

And I know there's, you know, a million potential issues there, but something like that. Yeah. Well, I think we're running out of time. One point I want to make on this is I would, I would personally not even call this person or even consider talking about unless I had a really, really good compelling strategic reason to do so, just because this is, anybody that writes a write-up like this is never going to be a reasonable seller. Like, you're just dealing with a crazy person who is going to waste a ton of your time and going to talk you in circles. And I've just,

from a pattern matching standpoint, like, I've just seen so many people that talk like this. And I'm like, I don't want to talk like two people like this ever again. ever again. So it's, it's an insta pass just in terms of what he's telling you by the way he's talking. Absolutely, Michael. That's very nuanced. By way of wrapping this up, if you are interested in the airport parking space during kind of my research for this episode, there is an article in Appraisal Institute Journal called They Pave Paradise Appraising a parking lot. It is 13 pages long and quite good. They go into like all of the financial metrics like valuation per space,

CAPEX over time. If you are interested in buying a parking lot, you should definitely read lists. And you can find it by Googling. Airport parking lot valuations is the first result. It's called Bay Pay Paradise appraising a parking lot by the Altus Group. You can check it out.

It's amazing, Bill. That's a huge gym. Thank you. As you know, I'm really good into parking lots. All right, Michael, you got deal number two, right? Yeah. Okay, we got another one that's a little bit out there. So, cool.

So this one is, I forgot which brokerage this is out of the firm. Yeah. Who's an interesting firm to say the least. So this is a railroad terminal logistics business, and the headline is railroad terminal logistics with 32% profit margin. If you're watching us on YouTube, we pull up the teasers. And so you can see them there, but we'll read them out for those of you just on regular podcast audio. So says it's been in business for 20 plus years, four locations in Pennsylvania and New York.

It cash flow is $1.4 million per year. They are asking $7.7 million for it. So what is that? That's about five times free cash flow. And it runs about $4.5 million in revenue. Profit margin about 32%. So really pretty good. $2 million in equipment, 36 employees, owner operations,

and then it lists a whole bunch of different people here. Night managers, mechanics, train load operators, crane operators, truck drivers, and clerical, all cross-trained to work at each location, and they have four locations across Pennsylvania and New York from the Mid-Atlantic to the Northeast U.S. And so in terms of what they do, I think that was something we talked about when we were preparing for the episode here earlier. The way I understand this is like when railroad cars come into the terminal, like they have to end up someplace, this is a logistics company that handles all the getting stuff on and getting stuff off for that. So they have four

locations, been in the Northeast for over 20 years, and so they do terminal operations for inbound and outbound freight clients. They do clerical inspection work for inbound and outbound rail freight. Equipments made into repair, transloading of commodities such as fraxans, swamp mats, propane, residual waste, hazmat materials, and agricultural products. So this is like dirty jobs incorporated is what these guys do. Diverse customer base is transportation providers, oil and gas companies, agricultural industry clients, PIN dot, the energy sector, plastics and lumber clients, and everyone on the team of 36 highly experienced staff as cross-training can work on each separate entity within this company.

The owner is retired and has an adult daughter who will stand for five plus years and continue as general manager. That's something to put a pin into. Corporate Headquarters is in Scranton, the Electric City, headquarters from the show The Office, so pretty great. This entity supports, oh, the funny thing about the office, I don't know you guys noticed. If you look closely, it wasn't filmed there.

It was actually filmed in NLL. in L.A. And you can see it when you kind of look past, you're like, that doesn't look like Pennsylvania. It's because it's L.A. So super cool. This entity supports the accounting, bookkeeping, insurance needs, and HR. There is an intermodal terminal operations company also located in Pennsylvania and a bulk rail facility in New York that is a short line railroad and is project oriented handling everything from mats for pipelines, rebar for rail construction, and utility poles for the power industry. And then they have another one, which is a rail facility in Pennsylvania with a certified truck scale and multiple conveyors and people, grains, heavy construction pieces,

all that stuff. They think that substantial growth is inevitable for this family and companies, expanding their service area further south, adding more terminals, increasing commodities, and looking further into increasing residual waste removal services would be tremendous and diversified. And here they kind of go through this stuff. Again, owner is getting out because he's retiring or she's retiring and the business is for sale. So 2 million in assets of which 2.2 million is equipment and vehicles. So sand loaders, construction pieces, then some inventory and a 200K in accounts receivable, which may tell us something about the way their cash flow works. And it looks like they put a big asterisk here, which is interesting, around the value of the

assets. And they may be depreciated, replacement cost or foreign market value. for that 2 million in assets that they say you're getting. So that's it. Railroad terminal. And, oh, and then we have the P&L over the past few years. And it is a growing, no, it's a shrinking business, actually. No, it goes, oh, yeah, yeah, it is. Yeah, they have it backwards.

I hate this, by the way. The most recent years should be on the right. Not if you're shrinking, Bill. That's not. Rule number one of business brokering is you've got to trick people. Yeah, so this is a shrinking business. this is a shrinking business and they've been making less money each year. They've gone from 6.8 million in sales to 4.5 million in sales over the last three years.

There's got to be somebody that's bought a business and just did it without thinking very hard and then looked back at the SIM a year later and said, oh my God, I read that backwards. What do you think this management fee line item is? It says paid internally. It's 500,000. a year in an ad back. And it says paid internally, phantom expense 75%. There's already a line item that's compensation to owner. Yeah, is that intercompany resource chargeouts? Because they talked about centralizing billing and a bunch of that stuff in Scranton. But Phantom expense. That's allocations. It makes me think. I think they've got two entities. So when Mike was reading it, he said the corporate headquarters are in Scranton, this entity supports the account.

bookkeeping, insurance needs, and HR. So I think they've got an HQ and they've got like four terminal field operations and there's probably some intercompany transactions here. So that is definitely going to be a diligent point. I assume you're requiring the essence of both and they're not going to try to keep the service org. But you definitely want to understand why there are two orgs. Is this some sort of tax thing? Is it even kosher? Is it, you know, are we trying to trick each of the individual terminals to thinking we're, a single unit operator. I want to understand why they did that.

I'm always interested in the ratio of, you know, unadjusted to adjusted earnings. And in this case, you know, the amount of seller's discretionary earnings that they're advertising is 1.4 million. The book net operating income is one-tenth of that, right? So for every dollar of true net income, there's $9 of adbacks.

That scares me, right, because it's messy. Some of this just, yeah, I mean, to your point, some of this just should not be ad backs, right? Like, like, reality is, like, depreciation is a representation of capital. I'm going to have to keep into the business on an ongoing basis and put in to upgrade equipment and all that kind of stuff. Equipment rental, like, to run the business, like, you clearly went to go rent equipment that you need to run the business. Like, you can't get not credit for that.

Like, that's an expense. That's the way it should be. And then I don't know what the travel is. Maybe they went to the Bahamas or something. But like that's just, yeah, that's also why I'm like a huge non-fan of like putting personal expenses in your boat through your corporation if you plan on selling it at any point in the future because people look at it and they're like, why are you doing that? And then you start, you know, looking at what else in here is fake, phony or shouldn't

be counted in the ad backs as well. I take a little bit different approach. I'm okay if it's. this is going to sound weird. I'm okay if it's more egregious, right? Like, if you spend $500,000 a year on your boat, unless it's like every weekend you're taking clients out on your boat and I can never replicate that, I'm like, okay, that's great. It's all falling through to the bottom line. But this whole like inner company management fee trying to adjust back the pension, you know, like, or you'll see cases where they're like, oh, we, we overpay our employees. And so we're just going to, you know, reduce their comp,

you know, by 25%. It's like, who in the world would do that? Like, no new buyer can come in and just arbitrarily, like, eliminate the bonus, you know, and keep their folks. So I like when it's egregious like this. I agree. You start to illuminate, right? This person maybe wants to play in the gray or they maybe want to kind of stretch the limits

of what's possible with the IRS, which is not great. But I like when it's egregious. I think that the deprecise. appreciation line is interesting. If you look, 2018, it's 450,000, 2019, it's 67,000. 2020, it's 172,000. Relative to 2 million in assets, which there was an asterisk, so we don't really know what that represents, whether that's the book value or whether that's what the replacement cost would be or who knows. Maybe it was what they paid for it all initially, whatever that value is. It sounds like an asset heavy business and $172,000. Your point was good about how that shouldn't be an ad back in the first place, but $172,000 does not sound like, unless crane's last 20 years, which they probably, well, maybe a crane does, but trucks and things like that certainly don't.

That does not sound like a recurring number that'd be reasonable, let alone the fact that it shouldn't be added back. Well, and do you think this kind of signifies that maybe they've been languishing or underinvesting and keeping their equipment up? That's what that smells to me. It's like, oh, you bought some new trucks, and did a lot of maintenance and spent on upgrading that stuff back in 2018, and then you've been not spending as much as you should have. Yeah, I don't know how much visibility of business like

this has into future revenue. Like, I just don't know enough about how they, you know, kind of get their customers, but it almost seems like maybe they lost a client and then started preparing for this sale or lost, you know, something because revenue has gone down so significantly and, you know, depreciation has gone down. So like you said, maybe they stopped that investment. thing and yeah, kind of paints a really bad picture. Well, they shrunk by $1.5 million from 2018 to 2019, and then they shrunk by about $900,000 from 2019 to 2020. So I would be very curious to understand, you know,

at zero and first, like, why are you shrinking? Because things like this, like, theoretically, should be really good businesses. Like, if you look at Coke Industries, like the core of the Koch Industries businesses, they have like this amazing monopoly on a, refinery up in Wisconsin, Minnesota area that just pummles out cash all the time, because it's one of these odd things where it's like at the right place for the fuel coming in and the type of

fuel coming in, like they're the only ones that can process it. Like stuff like this should theoretically be good on a microscale to you, but I'm super curious why it's actually shrinking. Brandon, who do you think like would actually, who do you think is a plausible buyer of something like this? I don't know, the industry at all, but this is certainly not, uh, you know, I, I've bought an AC from my house, and it was really expensive, so I think I'll buy an HVAC business type situation. I don't know what the analogy in this space would be. I've bought something online, and it was shipped to me, so I decided to buy, you know, the infrastructure. This seems like an ESOP or something.

Sell it to the employees. Why is he not selling it to his daughter if she's going to go run it? And, you know, ESOPs can be so attractive on a tax basis for the seller. Why wouldn't you do that and sell it to your daughter? In this case, I don't think you have enough employees. I mean, you can totally sell to your daughter, but you end up with an ESOP this size. You know, you end up with this dynamic where, like, if five guys want to retire, the company's cash strapped because they have to redeem all those shares. But you're right.

There's got to be some, like putting it out on the open market does not seem like maybe the most judicious way to divest it. It's not a parking lot in Houston that you can learn in 10 days. Well, there's got to be, like, so these guys have four locations, right, at four different rail terminals. Like, there are, I don't know how many rail terminals there are in America, but there are a lot. There's got to be other businesses like this at adjacent rail terminals in the same region that would probably love to expand and eliminate that whole central HQ in Scranton and combine it with theirs. Like, this could probably make a ton of sense for the right strategic buyer. but for anyone else, I would think this is probably hard to get into it. I have a friend who bought a business that's not totally like this, but it's a transloading

business. So they, you know, they're on a rail spur. Stuff comes in on freight cars. They unload it. They hold it for a little while. And then they move it to a different transportation method. And it's a very interesting business. But, and I will say this guy didn't know any, he didn't really know that much about it before you got into it. But there's this idea of dealing with railroads that just really scares me because they basically have all the power, right? And they make decisions very, very slowly. And so if you are relying on, you know, any of the major rail carriers to do business with you or to refer things your way or to hopefully get, you know, get things unloaded at your terminal versus a different one. I don't have those relationships, right? I can't call the guy

at Norfolk Southern and say, hey, really throw me a bone here. Well, there's a reason Warren Buffett bought those businesses, right, like on Union Pacific, because they have a monopoly on the only railroad going through town and, you know, they can charge whatever they want to some extent. And they're going to put the hammer on little guys like this. So I don't know. The enthusiasm for this one is palpable, by the way, guys, just so you know. I've never seen it. This is like, it's right there with the Lego mini-figs one, like level of excitement. Maybe I'm, I end up being more enthusiastic than many about this.

This could be really interesting. There's a bunch of red flags here with the central management, all the adbacks, the declining sales. But, but if it is possible that they have essentially a local monopoly on these terminals and that they're the only ones that can do it, and they're entrenched, and they've got long-term leases, and there's probably a price at which, if you believe in the future of these terminals,

there's probably a cigar butt price at which this thing is very attractive, and you can model out a stream of future cash flows that may be trends towards zero, and there's not very many competitive threats potentially, besides just the broad competitive threats to rail, if there are any, and I'm not well versed in. I think there's a price for this one.

I don't know that it's four and a half X, even dial like they want. Well, this is all, it's a case where it's probably, no offense to whoever the broker is, you said who it probably is, but probably not the right broker for something like this. They definitely don't have any strategic relationships, and it's pretty clearly not your classic kind of, you know, search fund or corporate, you know, kind of exile business acquisition. So from a competitive standpoint in terms of, you say a cigar butt price, but sort of a cigar butt structure, too, is probably not going to be a great process run on this thing where, you know, there's going to be 10 offers. It's probably going to be very uncompetitive.

This smells to me like a business being very poorly run, right? Like, there's not a professional manager there. Like the daughter is staying as a GM. So clearly, unless they ran a very broad process and then hired the daughter, it's unlikely that they did that. Like, you know, there's, I think, secondary thesis that I would have going in is what kind of operational improvements can I make here just unlock a ton of value? Because you can see it just in here from the little things in terms of these, you know, these cross-entity things and this company doing that for this company. Like, it's just like, man, why are we making things so hard? I think there's tons of operational improvement that can be done based on what's here.

Well, we love it. I would ask more information just because I'm curious about what's going on in here. I don't hate it. I don't hate it. This feels like one where you could go dig in and discover like, oh, this is one that looks terrible, but it's actually good, which is basically the only deals you're going to be doing these days at a reasonable multiple. Like, you've got to go find it that ostensibly, like at first glance looks awful.

and then you're like, oh, when I double-click on it, it turns out like, you know, the broker was not that great, and they positioned it in a weird way. And if I make these two changes, it's really good. And, you know, that's, that would be a reason I would look at this is because I know other people are just going to pass on it. Exactly. Well, boom, I'm killing it today. Yeah. Brandon, we're so glad, so glad you joined us. Thanks for helping illuminate some of these deals and some of the nuance around them. I want to say thanks again. Yeah, yeah, absolutely, man. We'll have to have you back and we'll find a retail furniture business so that you can just blow our minds. Thanks again to our sponsor for this week, too. Thanks for supporting the podcast and I hope that some folks will go check them out for their bookkeeping needs. Yeah, they are finclarity.com, so cloud bookkeeping service. And then Brandon, I'm pulling up your Twitter page, which is super entertaining. you burst on the scene with like a super cool SBA thread back in the day. And, you know, how can our listeners and the Legion of Acquisitions Anonymous people support you? What can we do for you?

Yeah. Send me weird DMs or something on Twitter. That's fun. Mission accomplished. I got one the other day. They just said something like, it's cold here or something. I was like, okay, great. But yeah, Twitter.

Twitter is my spot. So at LaFridge, which just looked like. like laugh ridge. Laf Ridge. Got it. Okay. Well, cool. Cool.

Thank you guys. Thanks so much, Brandon. And thanks to Bill and Michael. It's a fun one. Would you say 10 out of 10, Michael? This is like 11 out of 10, the new baseline. Yeah. Yeah.

Yeah, it's always 11 out of 10. We'll be back for another episode. Thanks.