Acquisitions Anonymous - #1 for business buying, selling and operating - A $1.1mm funeral home service provider - A $700k custom sign manufacturer and installer - e22

Episode Date: March 22, 2021

We're joined by special guest Deepa Talwar (@deepatalwar1) this week!Deepa is a former early Uber and Stripe employee who is running a self-funded search in the Colorado area.We talk about two small companies for sale this week:- A $1.1mm funeral home service provider - A $700k custom sign manufacturer and installer 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, everybody. It is time for Acquisitions Anonymous. We're recording today with me, Mills, and Bill. And we have a special guest today. And I'm Michael Gurdley, one of the co-hosts of this crazily popular podcast. Did you guys know we're like in a top half percent of all podcasts? Just based on the number of episodes we've made, not necessarily based on this. No, actually, actually, you know, we're over a thousand listens per episode. And supposedly, that puts you ahead of like everybody. Yeah, it makes you super special. So I'm glad that we're actually even more special today because Deepa has agreed to join us and made our lives even easier by bringing deals as well. So with no further ado, I'd love to introduce Deepa. We're so glad you're here.

Thank you. Thanks for having me. Yeah. Well, great. Well, before we get started, maybe give us like a one-minute thumbnail sketch of your background and how you got to what you're doing today. And it's also, you know, as Mills was talking about, really cool, how unique it is. And definitely, definitely want to hear about that, too.

So over to you. Sure. So I spent my career in tech for the last 10 years, started off at Uber. It was early there, the 70th employee. So worked on sort of scaling it in the early stages. Move to a company called Thumbtack, which is in the home services sector and helped scale that team as well. Spending here in India, building my own e-commerce business. And then back in Chicago for three years, building sales.

teams for SaaS companies. When the pandemic hit, my husband and I moved to Colorado and so sort of sparked some life changes. And so decided in October about five months ago to embark on that search. That's awesome. And you're you're in Boulder, right? We are in Fort Collins. Fort Collins. Super fun. Okay. And then so you're buying the house next door? Maybe I'm not supposed to ask you this, but you mentioned it free call. I was like, wait, why is she buying the house next door? We've been Airbnb in this one. And the one next door came on the market, so we just closed yesterday. Okay, you know it is allowed to look at houses further than walking distance from where you're staying, right?

Okay, just figure sure. We really like this one. Yeah. That's great. Well, you've already tried out the neighborhood, so welcome. Well, we're so glad you're here. So you have deals. So we're going to talk about the funeral home one, right? First.

Correct. Yep. Great. Tell us about it. Sure. So this is an established company. It's about 30 years old. What they do is pretty unique.

it's all the equipment that goes in the prep room of a funeral home, this company sort of puts all of that equipment in that for you. So it's done as packages. So you sort of tell them the parameters of the room, basically the size. And they tell you, based on that, you're going to need package A. And then they basically put all these products together. A good chunk of them are white label. It's their product. Another chunk of them are sort of other people's products, but they put this package together for you. And then you put a deposit on it. When you're ready to finish the renovation or the bill, they then mail all that equipment out, and that completes kind of a transaction. Okay, so they are not necessarily, they're not like a general

contractor or a subcontractor who's like coming in and putting stuff on the walls. Yeah, think of them as a product slash manufacturing company. Gotcha, gotcha, gotcha, but it's all drop ship, no actual installation. You got it. They don't hold the inventory and they, yeah, don't move it to you either. Okay. What kind of things would this be? Is it like, I mean, without getting too gruesome, I guess, um, yeah, embalming room, but it is it, is it stuff that is pretty specific to the process? I've never been embalmed before, so I don't know. Yeah. So think about the fan, the HVAC fans that go on the ceiling. When you prep a body, you have all these formaldehyde type chemicals that are being used. And so this fan is basically sucking all of that up. Um, so a lot of it has to do with regulations, um,

safety of the staff. And so a lot of the equipment is sort of catered to these rooms because of the chemicals that are used. Okay. If this company doesn't kind of turnkey it for you, what do people do? Like if you had your own funeral home with an embalming room, if you don't use them, what do you do? You use a general contractor. And the problem with general contractors in this space is that there isn't anyone that specializes, you know, because it's so niche, this is a sort of bigger story here about the death care industry and how people don't really like to get involved with it. And so there aren't that many people who cater to the space. And so the alternative is to use a general contractor, they often don't really know what goes in the room. They can kind of spec

it out for you. They're usually the ones that are part of the rebuild or the new build. And so they can spec up the physical room, but they actually have no idea what goes in the room. And so you often end up with kind of this like Frankenstein type operation when you do it that way. Gotcha. Sure. Interesting. Okay. So in terms of actually what they provide, so they have, they drop ship, I guess, these products. Is that, are those commodity products that they get? Are there any specific to them? Or is it just stuff that somebody else could replicate? How does that work?

Yeah. So the history is that the father, so the grandfather, I guess, in this case, he started this company. And so he became kind of a name in the death care industry. And so he passed along his name to the son and the wife. And so they now run the business. So there is this sort of established name around who they are and what they do. And they started off with products. And so they've just sort of continued down that operation. So the products they have are generally in their name and they're accustomed to the embalming sort of space.

And then there's this, I think, some portion of it that's not totally specific to them. And sorry, again, I'm just going to keep pulling on this thread. But so it seems like air filtration is a big one. Is it also like a special stand? stainless steel table and like special like tools and like things that like a person would be using as a practitioner. Is that right? Absolutely. Yeah. So yeah. Think of it as a, they talk about it as like the kitchen of the funeral home. And so you've got a sink that's stainless steel that needs to be made in a special way. You've got chemicals that need to be used. And so you have, I think,

dispensers that distribute that. And then you've got obviously the table, the stainless steel table where the body goes, the fans on the top. And the rest of it, I didn't really get into deep. details with on this one because of how sort of black box this business was behind the L.O.I. Yeah. Yeah. Okay. All right. How did you find the deal? This was through a broker. Okay. You said you're five months into your search. How many businesses have you bought in five months? Zero. It's a rough time to start your search. No, you're doing good. You're doing good. All right. Tell us, I guess, a little bit about the business

from a just from a number standpoint, like revenue margins and how you thought about valuing it, and maybe how that differed from the seller's expectations? So the thing to keep in mind is this was, this is very much a lifestyle business. So it's owned by a husband and wife, and they are the only employees. So it was very much built to be handed off to just one or two people. So the asking price here was $1.1 million. And in terms of financials, they are pretty COVID-resistant. So they did a net income of $443,000 on gross sales of $826,000 in 2020.

So like two and a half times roughly? You got it, yep. Well, it's two and a half times the most recent year. But previous years were not as good. Are my reading that wrong? No, you've got it. Yeah. Yeah.

So what was the big change in 2020 besides, well, COVID? Is that? Yeah. Yeah, actually I think it's the typical story of sellers getting things sort of ready to go once they're ready to sell. And so these guys have run this business for 30 years. It's been kind of a lifestyle business. They've done things like spend six months in South Africa while they run this business passively. And so by the time they're now ready to retire and hand this thing off, it was one of those like let's get things in action.

And so I think the way to think about this business from what I learned about it is it's always been steady. And there were so many things that are low-hanging fruit that they could have done to improve sales, honestly. So they don't actually sell this. It's all word of mouth, and it all goes back to the grandfather who has this name in the industry. And so it's all been word of mouth. They've never really kind of turned on the sales or marketing machine. 2020, I would say, was just them kind of getting most of that in action. So how did you think about this?

You know, you said the grandfather has the name in the industry, and it's basically two people that are running it. They both wanted to retire, right, as part of this deal? So they were out. How did you think about kind of the transition risk there with this is basically a family business and you don't have the same last name, essentially? How do you think about that? I think my thought here was to keep, you know, everything exterior-wise looking exactly the same.

So don't mess with the branding. Don't obviously mess with the name. And the owners are really keen on this is a service business. At the end of the day, what we provide to people is this white glove, don't worry about it, we'll take care of you kind of attitude. They have high standards, high quality. They've never had recalls. They've never had issues with product.

Nothing has ever been returned. And so the idea was very much like, don't break it, keep it running. And they sort of talked about the service side being really important as well. And so my thought was keep it looking like it was the same owners. What's the average ticket size on something like this? It seems like there was something about, you know, how it could vary from $40 up to $150,000. Yeah. So 40 is like these sort of individual products.

So a good example of a $40 product would be a plastic glove compartment to put your disposable gloves in. But most of what they do is these packages. That's kind of the moneymaker. It's where 80% of the revenue is coming from. And those are all dependent on the size of the room. So the average ticket for a package is around $40,000. And what would their gross margins be? on that for 40,000.

So again, a black box. They didn't reveal a lot of this before the LOI was signed, but I would say from what I remember about 70%. It jumps out to me that they're asking price is not a round number. Like it's 1.1473 ASA. Right. I always think that's really funny when somebody does that. Usually they take the SDE and they multiply it by some number.

They're like, oh, four and a half times SDE. That's market click. Yeah. So Deep, I'm sure you look at a lot of stuff. What got you so excited about this one? I like that this one could be run remotely and with no team, honestly. The husband and wife are running it. The wife is actually a former engineer and the husband is an architect.

So you've got two very specialized folks who are sort of running what looks like a drop shipping product company in a very specific niche. So I love that you could kind of run it with one person. I love that these guys have figured out a way to sort of live elsewhere and run this business and sort of built all these. systems, which is, I think, pretty rare when you think about what's in the market at this multiple. So that was one. I actually like the niche. I think the more niche the better.

And I think this is a niche where when I first learned about it, I thought, you know, I thought I would have to be in these funeral homes. And I thought it was a physical service where you had to go in and do the estimate and look at the room, which I think gives a lot of people goosebumps. And the reality is that the way these guys have set up the business, they have never visited a site. they don't leave their homes. And so I think you get access to this death care industry, which is growing, but you don't actually have to be part of the things that make the death care industry

a little spooky for a lot of folks. Yeah, that's cool. You kind of even have a bit of an e-commerce, you know, digital angle. I'm sure you could grow the business that way and kind of never have to touch it. Absolutely. Yeah. Dropship is interesting because normally dropship, very often dropship is a garbage business model because the margins trend to zero and it's super competitive.

and you're selling a lot of the same stuff other people are selling. But in this case, it seems like they have a really differentiated product set. People aren't taking online courses to learn how to drop ship and bombing tables and airflow units, right? So it's a pretty cool. And you also mentioned kind of like the ick factor as a moat as well, which I love. This goes like one step beyond not sexy just into ick in a way, which is great. So it's interesting to see the dropship model, which often is terrible, kind of work in this sector.

Agreed. It's a dirty job that you'd actually want to do. Yeah, exactly. That's great. So what happened? You have referenced the LOI. What happened? It's a very strange L.I. So I submitted asking pretty quickly. There was already some offers on the table. This was a very quick process, too. I think this sim went out, and then within a week, they pretty much had it a full sort of gauntlet of folks. So I submitted my LOI, I think within a day or two, to the sellers, which is quick for me. And at full asking price and had met the sellers previously. And they took quite a while to sort of get us all wrangled up together and were kind of fuzzy

on what was even happening. Normally I get instant feedback when I submit an LOI saying, thank you, received, noted, we'll share with the seller. And I didn't get anything on this one. So it's kind of a weird like me checking in with the broker saying, did you get this? And so it looks like they had a lot of offers on the table. I think we were all at asking price. And there was someone that was willing to keep kind of upping the Annie

and keep increasing his asking price along with the amount of cash at close. And so they didn't, instead of what I would have thought would happen, which is they went back to all of us saying, you know, this seller is increasing it. Do you want to match or increase? They didn't do that. And so all I heard was radio silence from the time I submitted it through probably four or five days later when they said received, thank you.

And then they took another week and then said that they ended up going with another buyer who had a stronger business background. Were you prepared to bid up? Were you prepared to go up? Yeah, I thought, you know, for the right reasons, right? I think for me, what I've learned about my search over the last five months is that being able to run a business remotely is really important to me, just from a lifestyle perspective. And I think it's pretty rare that you can buy a business that cash flows, that you can then

run remotely and this had that combination. Man, brutal. So they chose an amateur hour broker and left money on the table. You would have paid more than the guy who got it. Correct. Yeah. Hate to see it, but you see it a lot. So what ended up happening? Do you, but did they close? I actually didn't follow up.

I just assumed they would let me know if I was next, but didn't hear anything. Oh, no, you got a, you got a hang around the hoop. I know. Now I know. Yeah, I mean, I've seen the hang around the hoop story is legit. I know of a deal that because a group hang around the hoop. They had offered two-third of what we did for an asset, and they got the deal

because they signed, you know, of course, somebody outbid us. They signed a deal. And then the hang-around-the-hoop guy was at two-thirds. They said, you can close in a week. You can have it. And it was a steal. Last and learned, yeah. Yeah. Yeah, this one also came out around the beginning of the year, which is when the new SBA program came out, those sweeteners. And so this actually, the debt service on this one fit perfectly with that $9,000 a month with the sort of benefit that you got at the time, which was really nice. So lesson learned, you got to offer full price plus $1. Is that what I'm taking away from this?

Yeah. That's the way this. Okay. Great. And hang around the hoop. Woo! I guess I got that figured out. But it is, I mean, I think this is a testament to how unprofessional so many of these

small business brokers are. I mean, you think the person like doing the realtor sales on the $75,000 dump house down your neighborhood is bad? Like, these brokers, like, how hard is it to send people emails when they get stuff? It's unbelievable. Great. Agreed. All right.

Well, that was a downer. Do you got to anything better? No, I'm just kidding. That was great. That was great. So quick question. How did you go about evaluating the value of the business to you? Did you build a financial model for it?

Like how? Or was it just so cheap? You're just like, yep. No brainer. Like full price offer. Here you go. Yeah. I think, yeah.

First, starting off, I thought that the multiple was fair. It was a three-x on. a weighted three-year EBITDA. And so I thought that was fair out of the gate. But I rebuilt the P&L for the last three years and then kind of redlined things that felt off to me. And on this one, I didn't have a pretty big dialogue with the seller because of how weird this process was with the LOI. And so there were things that I read line that I thought were odd. I think I asked a few questions about them, but I think generally nothing felt off or too high. They run the business in very much a way that I would want to. The only exception is that they have office space.

and I would prefer not to. That was the only thing that I kind of removed and adjusted for myself. But beyond that, I thought the P&L was really clean and fair. Yeah. As you look back on this process, what would you say you learned or is there anything you wished you did differently? I think throughout this process, I thought, you know, when I started Tier Point in the beginning of this, I thought I was pretty novel and I thought my background is pretty unique.

I think what I've learned over the last five months is that everyone and their mother has got into this search space since the pandemic hit. And so I don't think that my background is anything special and I don't think a seller honestly cares. I think at the end of day, what I've learned is that cash at close is ultimately sort of the thing that wins and the numbers also it wins. And so that's been a pretty big shift for me. I think on the cash at close on this one, it was a fair price. It was 1.1-ish. And so I thought that was, you know, fair enough. And you could probably up your cash at close pretty well there. The SBA loves this kind of business because it's got assets. It's about inventory. It's got 30 years of history. So I think, yeah, another one is

just pump up the cash at close if I can. And then the last one is absolutely, we've talked about it, but hang around the hoop. I just assume that, you know, someone would come back to you if you were the next in line, but that's clearly not how this works. I want you to email as soon as we get off this and check and see and then let us know as soon as you hear back. Yeah. I mean, it is the other thing I've been towing with in my day-to-day, which is interesting, and is how the brokers being present in the thing really defeats the ability of somebody like you or somebody like Bill who's like a very credible buyer and somebody that's trustworthy after you talk to Bill for 10 minutes. Mills, a little different story with you. It's the beard. But with Bill and Deepa,

like, it's pretty clear, like, these are people you want to do business with. No, Mills, you too. but the brokers are oftentimes keeping you out of actually talking to the seller at any point. And it sounds like that happened here. Yeah, it was a black box very much of what they were thinking, where I was in the stack, what I needed to do, if anything to move up. Yeah. Well, it sounds like you didn't even get a process letter or anything. Correct, yeah.

This is also an example of like when you come deeper from a professional background and you expect that you're dealing with professionals on both side of the transaction. And they're like, oh, well, clearly they'll come back to me if there's a tie. You know, you get to get burned because you assume you're dealing with professional. And it behooves you to go, if I didn't know what I was doing, how would I handle this process? And you realize you have to be so much more clear. You know, like, I will pay more than asking for this rather than assuming they're going to come back. It's definitely a recalibration when you come from like traditional professional finance into the micro market here.

Absolutely. Yeah. I talked to someone who he's a intermediary for the middle market, like very squarely in the middle market. And his thing was, you using an SBA is like not a great offer. It actually is a dearest offer. And it basically looks like you're not going to put very much at all in the game in terms of skin. And so his point was, like, don't think that you are competitive by saying, I'm going to use an SBA loan. Like, you really have to go above and beyond to prove that you are financially secure and savvy. And I get what the broker is trying to do.

They want to make sure that people are able to actually close and they don't want to go through a process of an LOI in a due diligence process where someone can't close. So I think another sort of learning over these five years has been, or five months, has been really, literally, yeah, just make it as clear as possible that you are financially able to close. So whether that looks like a pre-approval letter, a letter of support, whatever. The other aspect, you know, that I think he's probably keying on is that for a seller, it's a much more onerous process for them if you are going to jump through all the SBA

hoops because they have to jump through them with you. And it's like, do you have three years worth of monthly balance sheets? A lot of business owners don't. They're like, I don't close out my books every month, you know, in this specific way. So yeah, that's interesting to think about, you know, you're like, hey, look, this is all cashed close to you. What does it matter? You know, that's interesting. But I will say about this brokerage is they're a volume brokerage. They're national. Their whole thing is we, I think they actually hire former real estate brokers and they sort of put them in this business broker seat. And so to your point, all of you guys, like these aren't the folks that want this transaction to move really smoothly.

They kind of have the right incentives. And their incentive is volume, just move these through as quickly as possible. Unfortunately, what I like about this brokerage is that they have a ton of stuff. And they have a lot of things in the niche sort of spaces that I really like. And so that's the sort of push and pull of this one is I don't like working with the brokers. But on the same token, I like the variety of what they have because it allows me to sort of pick and choose. They actually also hire a fair number of business owners who have sold. Like the local, it's a franchise model, but the local guy here, he sold a signed business,

which we're actually going to talk about next. And he was like, that was fun, you know, and I did well. What am I going to do next? You know, I have my own learning curve, but now I can help other people. Yeah. But that doesn't lend itself right to necessarily like the market conditions that you would expect or that you would hope for. Well, one thing that surprised me, and if it makes you guys feel better,

in my experience, it's not like you can just go up to like the $5 million an EV or the $10 million or even the $20 million an EV level and suddenly find like intermediaries that are really good. Like they suck. They suck basically all the way until you get over $100 million EV, I think. That's what I've discovered. Like until they start, you start playing big every investment banker, every broker, it's just like, oh my God, I should have done this myself. That's my reaction so far.

My sample size is limited, but. Occasionally there's a good, but it's like you've got to assume they suck until proven otherwise. Absolutely. Yeah, like there's the one person that's transacting on a $120,000 tract homes in your town in the suburbs that's good, but there's $9.99 that are just brutal. Anyway, and so, and narrator says, and no broker ever called Michael again. Okay. All right. So Deepa, tell us about the second deal. It's a sign business. This is a sign installation business. It was started by two brothers. around 20 years ago. So this is a local Colorado business.

These guys, I think, got into it. One is more of the artistic guy, and then the other one is more of the business guy. And so they started this business. What they do is install signs, but mostly for franchises. So think of banks, but most of what we talked about

and their biggest customers were these quick service restaurants. Yeah. Taco Bell, Burger King, Chili's. McDonald's, right, right. Do they do chilies or no chilies? They do not do chilies as far as I know. They were also very secretive of their list.

Not interested. I'm just kidding. Michael's out. Out. Out. Do they do Applebee's out? So they don't, they're not making the sign? They do manufacture the signs.

Yeah. So it's an optional kind of thing, but most of their customers prefer that they both do the manufacturing of the sign and install it as well. I don't know why I would have thought like if I were opening a Taco Bell, I would think the Taco Bell says, no, you have to order the sign from our guy. But they're just saying, here's the specs. As long as it meets the specs, you can have anybody make it. Yeah, I guess you guys would probably know more about this. But I think every franchise kind of runs their shock differently of how they, they operate on the actual exterior of the building.

And so some franchise is kind of off-shooted and they say, as long as this, I think they maybe provide the design file. And so as long as you get this built exactly how it's supposed to, it doesn't really matter if you do it locally. Yeah. Well, I think, I think part of the, of why this business runs the way it does, Mills is a lot of these guys will do the permitting in parallel with doing the sign. And the way the permitting works in all these jurisdictions is there's somebody that used to work in the permitting department that works in the one or two companies who are the only ones that get signs through the permitting process. So you have to

figure out which two sign companies those are and then use them. So that's why Taco Bell HQ can't do it because they don't have the connect. Or the local labor for that effect. Are these guys licensed electricians? No, actually. I don't think they had any licenses as far as I remember. Okay. So maybe they sub that part out. Like there's a whip of electrical running out of the building and then they just come in and tie into it.

Yep. Most of their- We did our sign. That's how it worked. Their team is pretty small. So it's just the two brothers. And they had one installer who had been with them for around 20 years, so almost the whole time. So a picture kind of a crew of three.

And when they needed electrical on a sign, they would call in a sub. So this doesn't seem to fit as well, Deepa, with your kind of stated goal of ability to be remote. Like, I'm picturing you, you know, an employee doesn't show up and you're in the shop making the sign. Correct. Yeah. Yeah. It definitely didn't fit the thesis. This one I looked at about five months ago, I think at this point. Time is funny on this one. But yeah, this was an early one I looked at. What I did like about it was how small the team was. And so you could hit these numbers without having to hire more than technically two, installers. I don't think we've talked about the numbers, have we? They had a down year because of COVID, and so a lot of their commercial franchises basically put off doing construction this year because

of COVID. And so that's kind of why they had a down year. But that said, a lot of what they do is drive-thrues. And drive-thrus have had a breakout year. And so a lot of it was just delayed spend that from what I understand these franchises kind of have a window to say, we're going to order signs and install them or not. But you kind of have a go-no-go deadline. And it seems like a lot of folks kind of missed the deadline because of COVID. And so a lot of spend for this year got moved to next year. So past year's revenue, 2019 was around $630,000. The year prior was $650,000.

And the year prior to that was an up year of $800,000. And the lumpiness there is that a lot of this is project-based. So they'll do, you know, Chick-fil-A or some big, flashy kind of quick-service restaurant will open up shop in Colorado and these guys will be on that job. the next year they might not hear from them at all. Gotcha. I love the sim here. As you said, Deepa, the revenue goes 800, 650, 640,

and then right below it in huge red font, the broker goes, the portrayal of the financials may lead a prospective buyer to believe the business is in decline. That is not the case. Then they go on to explain how like, even though yes, this business is obviously declining, it's not actually declining.

And it's, you know, classic broker speak. Agreed. And I believe, I'm trying to. to remember, I think 2020 was around 550,000, so pretty down year for 2020. Whoa. Yeah. So they're down from 800 to 550 over the last four years, but it is not a declining business. Let me guess. They wanted five times multiple or higher. Nope. This was a fair multiple. It was a not fair, but it was a reasonable multiple of 700,000 was the asking price. The funny thing is this broker was actually representing two deals at the same time that I looked at,

and he priced both of them at a flat $700,000. So I think the number is very much a playholder. There wasn't really a lot of thought that went into that one. How do you think about this? Let's compare it to the funeral home business. How do you think about the motes around this business, therefore the sustainability of the revenue and profits versus what you had with the funeral home business?

Yeah, definitely a clunkier business. I ended up doing a site visit with them. And my first thought about manufacturing signs was this makes zero. sense. It's really cheap to buy signs. There's really no reason you should still be making them. And honestly, their facility, just the process of where they built these signs, it just looked so archaic and massive and messy. And so my first thought was these are two separate businesses, and I don't want them manufacturing one. So that was one piece of it. I think the install business is really interesting because you have the local sort of moat, right? So at the end of the day, you have

all these restaurants. Colorado is booming in terms of quick service. And so you have all these big brands that are coming into the city. And at the end of the day, they can buy their sign from anywhere and have it shipped to Colorado, but they still need a local installer to put it in. And so this is a game of having obviously these installers, but more importantly having the right relationships. So if you hook up with the franchise owner who has 12 locations, those are now yours. And the reality is that a lot of these franchises are kind of updating their out exterior pretty frequently because of what they want. And so you've got hopefully a nice moat once you get in

with a lot of the right folks. The other thing I liked was as a percentage of the overall sort of build, this is actually a really tiny line item. I think the average sort of sign installation ticket price was something like $10,000. And when you think about a new franchise going up, I would imagine that $10,000 at the last, the other issue is that this happens at the last.

mile. So signs are often the thing that happens all the way at the end. People kind of forget about it. And these installers are kind of rushing to get these deals done and get the job done. But that said, you're not going to launch a location without the signs. And so it's this unfortunate sort of afterthought, but it's only in the grand scheme of things, a very small percentage of what you'll spend. When you were thinking about this business depot, like whether or not you even separated the manufacturing out, I mean, this seems like a difficult business to grow, right? What were you thinking you would do with this business if you did get it? So you can roll up with other local installers as well.

So a lot of similar profile businesses and sort of eat up share by having more geographic reach. So that was an obvious one. I think killing off the actual manufacturing was an obvious piece as well. And then the only other thing that I thought made a lot of sense was just continuing to tie up with these franchise owners. So finding the folks who are kind of the big kingpins in the area and finding a way to sort of get all their sign and installation. business. Mostly, I think the spend happens when you launch a new location. I think it's hard to justify spending $10,000 when you already have a location that's coming until the signs are in a pretty bad shape. Yeah. How often do the signs, it says you're recurring revenue, which I don't

think it's recurring. It sounded like it was repeat or reoccurring revenue. So, yay, small business broker. But what, did you do an analysis or find out any data on how often like a typical Taco Bell or well, I know Chili's doesn't have to redo their signs ever, but like any other franchise, how often are they redoing those? No hard data, no like hard analysis. What I do know is they actually showed me. We went on a few site visits of work that they've done. And so they showed me some older signs.

And then they showed me the newer version of those signs, like literally in the next plaza over. And so I got a sense of old and new, obviously. And then also sometimes the franchise will force you to update your signs, sometimes they'll do yourself. So it was actually kind of hard to figure. out how, to your point, repeat this business wise. Interesting. I have a buddy who does exactly this business, but for gas stations. So, like, they'll be one of the preferred suppliers that bids on Exxon signs or whatever. So if you ever look at one of these again, let me know.

Put you in touch with him. He does sales for them. So he does, he definitely knows what the customers are doing. But they manufacture, they've kept the manufacturing themselves and they do it all out of the Midwest. Interesting. Yeah. What I learned about this was, so you've got all these local sort of installers. You have a lot of roll-up plays happening. And then on top of it, you have these sort of brokers that are the customers, their customers are these big quick service, big brands. And so they go to these brokers saying, we need installs in XYZ cities. And these brokers are the ones who are actually the customer of this company. So these customers aren't necessarily the owners. I think maybe half of them are, but the other half was this brokerage firm. And so that's where the repeat recurring sort of engine that the broker was talking about is coming from. And so you're just hoping that you're kind of in a better relationship with them. These guys hadn't invested in that relationship.

And as a brokerage, you want as many of these local installers to plug into as possible. And so there was an obvious sort of play there to keep developing that relationship, go on site, shake some hands. How did you go about figuring out what you wanted to offer for the business? Or did you submit an offer on it? He did a verbal offer, and the broker wasn't very helpful on this. So the offer, I think, I would call it a very botched offer. But my issue with this was that they were down in 2020, and they were looking to sell. The other issue at play was that they're two owners, the two brothers, 50-50, and they weren't totally on the same page. So the one brother, he was the savvier one. He was

clearly like the one running show. And he wanted to move for family reasons. So they wanted to move to a mountain town. And the other brother didn't really have an exit plan. And so he was kind of reluctant to sell. And so you have this like 50-50 brother owner combination where the broker hasn't really done a good job of prepping them and getting them on the same page. So they didn't quite know what they wanted. The broker obviously said a fake price and kind of just slapped a number on there and didn't have a good justification for where it came from.

And then on top of it, you have a down year in 2020. And so I kind of looked at it and I said like this feels like, you know, you're claiming that it's all deferred spend, they had shown me a breakdown of what was deferred to next year and when it would probably, you know, come into, in terms of revenue recognition for 2021. So I could see sort of what the story could look like in 21, but at the time, I thought, you know, 21 has question marks as well. What if COVID continues? What if commercial spend gets delayed again? What if other sort of things, you know, block this from happening and for these new locations going up? So I wanted to an earn out. And this was the first time I was, the first time

I had proposed an earn out. And so I basically, Mills helped me on this one, but I basically proposed sort of two options. One was sort of a lower price. I didn't think what they were offering was a fair asking price. So I think I did. They were asking for 700,000. I'm pretty sure I offered something like 500,000. And then the other option was a heavy earnout with more upside if things were got in 21. Then what happened? The broker didn't really know what to make these two offers. Like he understood theoretically you've got option A, option B. I didn't write this out. We kind of just talked it through, which was on me. But I thought that's kind of how you did this. And so he was really confused about how to package this and how to present it to the sellers. He had a lot of questions

over like, but the earn out, like how will it actually work? And can you cover the debt service? And what are the right numbers? And to be fair, I didn't really think about what the numbers would look like. I just had a theoretical idea of like it could be an earn out or it could be a full price, low price offer. So I had this sort of idea, but to my, I also didn't really help by giving any hard numbers of how this would work and making sure the debt service would be covered. So he took these rough ideas that I had to the sellers who didn't like the low offer price and they didn't understand the earn out. So I'm really sorry for giving you bad advice. Thanks. No, no, it was good advice. I think I now know you should probably write it out so that people are

clear on what you're asking for. Okay, so lessons learned, offer asking price plus $1, and don't listen to Mills. Got it. Okay. Man, this is the best podcast ever. I feel so much smarter. You already knew not to listen to me, Michael. No. Man, yeah, sellers are going to do some crazy stuff. So my personal opinion, and you didn't even ask for it, but I'm going to give it to you anyway, I think you dodged a bullet on this mess. This sounds like an awful commoditized business to be in that is lying their butt off about being recurring revenue, and it sounds like it's a project work all day long. Might as well start your own sign companies and buy what these guys have.

Agreed. Yeah. I think my sort of blessing disguise has been these botched LOIs, and I'm really glad that none of them went through because I avoided, I think, a lot of both. Makes total sense. Well, it's interesting because it brings up a good point, right? Like, your opportunity cost and the way that you view these businesses is changed, it seems like pretty dramatically, in a relatively short amount of time.

Yeah. So it'll be interesting to see, you know, how that continues to develop, even after you close, right? Because you strike me as the kind of person who is probably going to keep searching, you know, and keep looking at opportunities even after you close on something. And so I wonder if that bar will just get higher and higher. Totally. Yeah.

Agreed. Yeah. I actually am, I think, closer to Bill's world now where I'm now. It took me five months to realize that I'm, when I say that I want to be mostly remote, I think what that looks like is likely something e-com. And so it took me a while to get back to where I probably should have started from. You know what you do? Just start bidding on the same deals as Bill does. He'll really appreciate it. Yeah. Just offer a bill plus 5% and like you'll start winning stuff. It'd be great.

Ecommerce isn't competitive right now. Not super competitive at all. I'll also tell you you're probably going to find out pretty quick. Ecom isn't as remote as you think it is. The business has got to be based somewhere. Just because the customers don't walk in doesn't mean you don't have to have a bunch of employees in an office. Agreed. I can't tell you a secret. Are you ready? Nobody has discovered the vertical market software business.

There are no searchers in there. There's no refitting for those assets. True. No, I'm kidding. Everybody's on this. Everyone's in there. Yeah. I actually have also started thinking through, I actually think this is a good time to build.

You know, when I started in October, I had this hunch of this is a great time to buy. everyone's going to retire. multiples will drop. The market's going to drop. I sort of had this nice little story that I painted for myself. And I convinced my husband that this was a great idea for me

and I quit my job. And the market has literally been totally insane this entire time. And so what I'm realizing now is there's some deals recently that I've gotten outbid by 1.5X on. And so now that I'm realizing that I'm not price competitive,

nor do I want to be on my first deal, I am now realizing that I need to be be pretty patient and kind of wait for the right thing to come my way. That'll likely be proprietary. But at the same time, I think this is a good time to build. I think that's really smart. I've been thinking the same thing too. I know. Wait, oh, I tweeted that? Okay. Very cool. Awesome. Anything else, guys? Deepa, I think you've been great. So this has been amazing. Great. Cool. Should I click stop now? Anybody else want to say anything? Mills? You're good. Thanks, Deep. This has been good. Awesome job, Dupa. Thank you so much.

And Bill, congratulations. Your internet did not fail us from West Virginia, coal mine, wherever you are. Coal to my internet. Yep, so far so good. We'll see how it goes on the next episode. Cool. All right. I will click stop.

Thanks, everybody. We'll see you next week. Thanks to meet you guys.