Acquisitions Anonymous - #1 for business buying, selling and operating - A $2.5M EBITDA Bathroom Partition Business in California For Sale - Acquisitions Anonymous 307

Episode Date: June 18, 2024

In this episode of Acquisitions Anonymous, we're breaking down a niche deal: a high-end bathroom partitions in Orange County, California. The company is priced at $11 million with an impressive $2.5 million EBITDA. Also be ready for an episode full of puns. Thanks to this episode's sponsor:Have you thought about exiting your current online business or buying one to start a new journey as an entrepreneur but have no idea where to start? Unlock business opportunities with Boopos.com!  Boopos is the #1 platform for buying and selling profitable online businesses with built-in acquisition financing for qualified buyers. Boopos can offer pre-approved financing for recurring revenue businesses, allowing you to access fast funding with no personal guarantees.Want to find out more? Go to go.boopos.com/michaelgirdley, sign up, and get qualified to sell your business or find your next deal.Learn how to buy a business.If you are interested in buying a business but unsure how to start, you should check Michael's Buy a Business Course:You will learn:• Build a thesis for the type of business that's right for you‍• Learn how to stand out in a sea of buyers• Create a working, scalable Deal Engine getting you leads• Maximize your chances of finding great dealsSubscribe 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]

So bringing it back to this deal, though, his guy's got to line out the door for it. What is it about this deal that cause him to have a line out the door? I think it's the size and the margin. I mean, Heather, for the first Acquisitions Anonymous Fund One, I think we could put together an investment. I want nothing more than for people to think that South Carolina should not be on their radar. Welcome back, everybody, to another episode of Acquisitions Anonymous. We've got all of our hosts here today, and we have an amazing deal. I'm giddy with the excitement. When I saw this listing this week, I sent it to everybody. I would have stopped what I was doing. Come back here, recorded the episode right away. This is an amazing business. It's so amazing that the broker even put the deal on hold is what Biz Buy Sell says. They're not accepting any other inquiries. This is a $11 million asking price, $2.8-ish million free cash flow, toilet partition, partition, manufacture, and installer. In Orange County, it checks so many boxes. It's a really fascinating discussion. You also, the puns, which,

We need you to send us your best bathroom puns. We had a bunch of them on the episode. The jokes abound. There's some great stories about toilet partition, nightmare scenarios that Bill has. But I think you're really going to enjoy the episode. It's a great deal. We talk a lot about the mechanics of how a business like this runs. How do they make money?

What would be a preferential revenue mix? Maybe what wouldn't be a great revenue mix? And why does a business like this have a line out the door for the broker? Hope you enjoy the episode. Business buying comes with a lot of questions. What type of business should you buy? Where are you going to get the money? Who can guide you with true expertise?

Bootpost.com and its team of expert acquisition advisors are here to help. They are one of the leading online platforms to buy and sell online businesses. Unlike others, they have financing included within their marketplace of impressive SaaS and subscription-based companies for scale. As soon as you sign up, one of their advisors will guide you through their platform of Bootpost's proprietary deals, deals from other brokers, or you can bring your own deal and they will help you pre-vetted. Don't do business buying alone. Do it with Bootpost.com and tell them at the Acquisitions Anonymous Podcasts,

sent them your way. Michael, you don't have it hooked up on the stream deck? You need the buttons to control it all. Oh, you know, the this, all this lighting, the GoDoc's lighting, it only works on the app. It won't work on the computer. So, yeah, I don't even have my stream deck plugged in anymore. I basically use the phone is that. So does it have, this is nerdy, but all of my smart home stuff that doesn't work with the stream deck, you can use if this, then that. And stream deck will fire an if this then that event, which will then fire whatever API GoDox has. Oh, okay. So you can use your stream deck again, if you want.

This is peak nerdiness. That sounds like something I should probably do. For those of you not watching on YouTube, Michael and Bill are experimenting with lighting. Yeah, Mills, Mills, you're like, you're like three months behind us. You just bought the nice camera. I know. I know. I'm in, guys.

I want to be a nerd. I'm just aspiring. I'm excited about your investments because people were not happy with your audio. I know. I know. What a blunder. But we got it. I tried listening to our last episode. I was like, why does Mills sound like a robot? It's because you did sound like a robot. We're on the right track. I hope. I saw a deal this week that I got so excited about. If you if you guys had said we need to record an episode right now, I would have stopped what I was doing to record about this deal because there are so many different directions we could take this deal and there's going to be tons of jokes.

But this, I've never looked at a company like this and I've not pre-checked out the listing at all. Are you guys ready for this? I have never been more ready. That was the best introduction of all time to any deal that we've ever done on this show. The other reason I'm super excited about this business is I know Bill has come in with a banger of a story to share about this. And this just reminded me of a story I want to share too about the business. I totally wish I had done, but I didn't do. So anyway, we'll work it in.

But yeah, this is one of my best stories. Let's hear. This is going to be a good one for everybody reading between the lines. This deal is on hold on biz by sell. So I don't know if that means they're under LOI or if they change their mind or, if they're, you know, waiting on their, you know, revised financials. But this is a manufacturer and installer of toilet partitions. There's a great photo up on BizBicel.

It's located in Orange County, California, and it says there's real estate available with it. The asking price is $11 million. The free cash flow is $2,815,000 a year on $9.9 million in revenue. They have $750,000 worth of inventory. and $8.5 million worth of real estate that's not included in the asking price. Business has been around since 1996. They say it's a $2.5 million EBITDA with 20% revenue growth since 2021. On hold, oh, here we go, due to the high amount of inquiries, this listing is on hold. Family owned and operated for nearly 30 years, this well-established and highly profitable company

operates in the niche market of toilet partitions. It manufactures, distributes, and installs toilet partitions, dividers, and accessories for schools, stadiums, hotels, office buildings, and the like. Companies benefit from the multiple streams of revenue generated from installing the products that they sell. Known for their great service, high-quality products, and fast lead times, the business has grown over 20% in revenue from 21 to 23. Still, there are opportunities to scale by expanding the service area and or the product

accessories being offered. The quantity of potential customers are innumerable, as every commercial, bathroom needs stalls and or bathroom accessories. Located in a highly desirable area of Orange County, the real estate is available for lease or for sale. Businesses offer for $11 million, primarily on the West Coast, but they have nationwide reach, high customer count with low revenue concentration, 18 loyal and experienced employees, not including the owners, $3 to $4 million in backlog, $750,000 of inventory included in the sale, additional inventory sold separately. I don't know what that means. Real estate offered for sale for $8.5 million or leasing it.

Let's see, it's a 16,250 square foot building on a 29,000 square foot lot. Prime location, freeway access, two closed-in fence yards. It room for LTL, less than truckload trucks, loading and unloading. Only 80% capacity they can grow in the space. Serious inquiries only. You can sign an NDA. You can get the detailed sim. Moser, John Moser from Sunbelt Business Brokers of Los Angeles. I think that's almost all the detail. Anything else is kind of repetitive down here. What do you guys think about our toilet partition deal? This is a microcosm of what's going on in the small business M&A,

brokered small business M&A space now is a shitty deal like this. I'm just joking. Let's just do a fun count, okay. A shitty deal like this. The broker has so many inquiries. that they've had to put a moratorium on receiving phone calls. Like, basically, it's a Southwest Airlines call center that's guys running, right? Like, they're not answering the phone anymore because it's so, it's so busy, right?

I just, I think it's just. Could you say that they're backed up a little bit? It seems like a very constipated way of going after the market as far as I think John Moser here deserves an award for perhaps the most compelling business. by sell listing I have never read. I mean, this guy just nailed it. Everything about this listing makes me want to buy this business. Don't you want to reach out to knowing that it's on hold?

I mean, I know that it's a crowded process, but part of me wants to be like, John, buddy, come on. Bro. Send me this film. Come on. I've been searching for five years and, you know, my Stanford MBA is worth nothing by this point. I really need to buy this toilet business. Help me out. Yeah.

So, okay, so it's got $2.8 million of cash flow on $11 million, and they're basically installing. No, on 9.9.9.9. Yeah. Wow. Big margin. It's 28% I think. Yeah. So I got to assume, right, just to we really understand what this is, this is probably a subcontractor that if you are building a commercial bathroom or if you have an aging commercial bathroom, they need to be upgraded, they come in and they literally install the stalls. right? The little rooms that the toilets sit in, that is what they make. Not the toilets, nothing else, just the walls and the doors and the lashes and all that stuff. Yeah, they're not plumbers. They're not tile guys. This fits into the category of after paint hardware installation. Like in a house, it would be blinds and closet partitions and, you know, maybe interior doors. But this, they're, I don't think they have any licensure. You know, I don't think anything is required.

for this. Yeah. It's glorified furniture, right? It's just a screwed down to the floor and the walls. I think of it, Bill, I kind of think about like you see window and glass, commercial window and glass businesses. And when I first got exposed to those, I thought, oh, they must be like making glass in some little shop.

And actually those types of businesses, what they're really in is the window frame business. They're creating, they get the glass. They'll cut the glass sometimes, but oftentimes it shows up precisely from the factory the way they want it. and then they're building the frames around that, then they install the whole thing. Like, that's their business. And so there'll be like a light manufacturing or light kind of thing going on here. And I think, you know, to Mills's point, what these guys have is a shop where somebody says, hey, I want specifically this color of bathroom stall and you want this

much, you know, this type of fixture and all that kind of stuff. And they're assembling all these things from the manufacturer, but then they're often cutting and laminating stuff to make that stuff fit for what they need exactly. So I bet that's the type of light manufacturing these guys are doing. But most of this stuff is coming like halfway done. Like the fixtures and, you know, the lock mechanisms and stuff, those have to come just straight from the factory in a big box. They're just putting it all together. So they're getting like the substrate, like the, PVC vinyl or whatever these things are made of. And they're cutting it to size, finishing the edges and bringing it to the site and installing it, I would think. Yeah. Yeah. I think

That bar at the top is like a piece of extruded aluminum. They're not making that stuff. They're buying it, you know, already made in 20 foot sticks and they cut it the length, you know, when they go to install. So there's a lot to like about that. I think because it gives you a moat, right? You end up with a, like these guys have probably 15 or 18 folks working in a big shop doing that kind of stuff.

So it's hard to replace those people. You have equipment that's a moat also. You go into, I guarantee these folks shop have a big. set of machines, $150, $250,000 machines that are doing cutting. And then they have a fleet of CAD people as well, like doing the designs and programming the machines. And the nice thing about that is it's also the type of manufacturing you kind of want to do.

It's like subscale, it's hard to offshore to China and other places. It's heavy. So it's kind of got to be done right here because it's expensive to ship. Yeah. Have you guys ever noticed on these, like the, the, the screws they get used on toilet partitions are security. They're labeled like security fasteners. And they either are a very odd bit.

Michael, I know you're laughing, but next time you go into a public bathroom stall, you're going to look at this and you're going to think about it for the rest of your life. But they are specific fasteners that they're like one way. You can only tighten them. And when you go to loosen them, like the bit will not work.

Or they're an odd bit, like a torx bit, a star bit, but they have a dot in the middle. So, like, you know, if these were all Phillips heads or flatheads and somebody sitting in the urine, sitting in the stall, they would be unscrewing this thing. And it would be falling apart, you know, within a matter of weeks or months. But they, they use these special types of fasteners that allow them to not be taken apart by, you know,

whoever's just in there using them. Is this a problem? Like, people are bored on the toilet that just start unscrewing anything in sight? Bill, have you never been in a public restroom? You should see the port of johns on the job sites. There's port of john graffiti that is like this amazing burgeoning kind of, you know, a subculture of art. The actually like truth be told.

What is going on here? Truth be told, the technology behind these things is kind of interesting because they try and make it graffiti proof, you know? They make it either that like, you know, you can very easily clean it if somebody writes on this stuff with a Sharpie or they make it really durable because, what people will do is they'll just take like knives or sharp objects and just like scratch their name in them. Yeah.

So and that's what this stuff is made of, right? This kind of bulletproof plastic, vinyl, whatever you would call it. Yep. So do you guys want to hear the story about why these are really important? These toilet partitions? Yeah. So I was, so I have a younger brother and he went to a college that shall not be named on the show.

And I went to visit him. I was out of college. I was working in finance, and he is a, you know, like a junior in college. And he's living in the fraternity house at his school. So I go to visit him. I'm going to stay with him in his dorm, you know, one night. And, you know, I arrive, unpack my things and I need to use the restroom. So I go, where's the bathroom?

Oh, it's down the hall, right? You walk in and it is a restroom, you kind of your typical commercial restroom, you know, with a couple sinks, a bunch of toilets, except there are no partitions. So just picture like a whole bunch of toilets just lined up next to each other against the wall. No privacy. And the toilet paper holders are just screwed into the wall. And I'm like, so how do you use this bathroom? And he's like, you just use the bathroom.

And I'm like, so there's multiple. And some of them are across from each other. So if you're, and this is all guys. It's attorney house, right? But still. So I'm like, if me and an. other guy are in here using the toilet. Like we're just eyeballing each other straight up.

And you live this way? You have lived this way for three years in this house, just pooping in public with no toilet partitions. And I asked him, I said, why on earth do you not have toilet partitions in here? And he said that the bad things were going down inside the partitions. And so they needed to remove the partitions. And so they needed to remove the partitions to discourage use of the bathroom for things that is not going to the bathroom. And so there's like this group of a hundred dudes living in a home with no bathroom partitions, just eyeballing each other while they poop.

And I had to participate in this for a weekend when my 20s. It was not enjoyable. So these things are very important, toilet partitions. That is a great story. I have read a story that in, I think it was England or some part of Europe that people came over to the United States. And they saw that we have little gaps in the, you know, if you look very carefully, like, you know, Mills just told us to look at the screws. Well, you know, there's a little gap. But I mean, none of us are sitting there trying to look inside. But apparently it really bothers some other cultures to come and see that that's even there.

Like in their, in their country, it has to be completely flush where there's no way you could possibly. possibly see inside. So that would be, I would, that would be the first thing I would look at is, do these have gaps? Or are these perfectly sealed? I think to Mills's point, they probably have gaps on purpose, like for easy cleaning. Right. Because like anytime you have flush mound or like stuff gets banged around, like then it won't close, like if the tolerance is too tight, you know, so like, I imagine these things get beat up. People slam the doors. People don't care. And you don't want, then if it doesn't close, it becomes basically nonfunctional. Right. Like if it gets, if the tolerance is tight and it gets out of alignment a little bit and the door won't close and you can't lock it, no one can use that toilet.

So I guess I imagine our tradeoff is like the slight bit of privacy for more more resiliency in our lashing mechanisms. And airflow. You want air, you want air moving through your bathroom. You don't want to walk into the little toilet thing. It's like airtight. That's a good point. That's a good point. As a person who causes that problem a lot, I'll tell you don't want it airtight.

As someone who eats in chili's a lot, you're familiar with that problem. Pretty much, yeah. So let me ask you guys, like, okay, so this business is getting a massive amount of phone calls. Like, I'm curious, like, is it justified? Like, yeah, this is a great listing. It looks like a great business to own. And I can see why it's getting a lot of phone calls. But, like, are we missing anything about, like, are there tailwinds or are there headwinds for this business coming up?

Like, I'm just thinking about, okay, like, this requires, like, a more, in-person office style work, right? You know, is that something we're still betting on? Or like, are we worried about that for this business? I'm worried about that for this business. And I live in Orange County. So, you know, it's the same here as any of the major metro areas. The offices are, you know, pretty empty. They're not being used. And lots of businesses are getting out of their leases when they can in terms of office lease. So I would really want to know what kinds of businesses are these going into? Do they do any maintenance or replacement? You know, how much is replacement versus how much is brand new? I do think that's a headwind for this business. I definitely do.

And the other thing I'm worried about financially is the value of the real estate versus the cash flow. Great point. I'm always worried about that in places like this because I think he said $8 million worth of real estate and these guys have owned the business for 30 years. Are they paying market rent? Is market rent included in that $2.8 million? Or is that $2.8 million going to go down when we have to pay market rent? And is it the highest and best use of a property like that to have a business like this? And it becomes a difficult question in these higher rent districts. If I had to guess, so I'm actually going to give John J. Moser here a little bit of credit, the broker.

He has talked enough about the real estate and the fact that the buyer can either buy it or negotiate a market rate. lease, that I would think if he has not adjusted the financials for it, this is a pretty slam-dunk adjustment where you just basically hold up a mirror to his listing and you go, I need to negotiate a market rate lease, right? Now, the question though is, and this is what I've seen, I think you're alluding to, Heather, this business has been owned by these guys for a long time, the current owners. When they bought this real estate under the business, it was probably worth substantially less, right? It's probably appreciated a fair bit. And to your point, I think that's when you come into your point about highest and best use, it probably would no longer make sense to locate this business in exactly this location and pay the amount of rent that a property that is worth what this property is now worth will command unless you already own the property, which these guys do.

So I think you may end up either realizing that you're paying more rent than you should or I think this is probably conversation about the real estate ends in you moving the business or wanting to move the business. Mills. How big is this real estate that they have? Like how many square feet? 16,000 square feet. Okay. And on a 29,000 square foot lot, I mean, just rough math, I think with a conservative cap rate, they're probably paying $200,000 a year in rent. On an $8 million piece of property? I would think so. If the net operating income, if you're talking about a six cap, if the net operating income, like it would have to be about $141,000. a year of NOI. So depending on if it's triple net or whatever, I'm thinking they're probably spending 150 to 200,000 on rent. Well, a 10 cap is going to be 880,000 on an $8.8 million piece property, right?

So let's say they're paying $7 million a year rent you'd have to pay. Yeah. So to Heather's question, I wonder what they're actually paying. But yeah, that's, to your point, Bill, that's where my mind went on this deal immediately was like, oh, why am I paying Orange County salaries and Orange County real estate prices to do something that could be done in Phoenix probably for a lot cheaper? And in a million dollar building, rather than a $9 million building. And my only cost there is I have to put stuff on a truck and drive it west, you know, out to Orange County overnight for job sites. So I think I'd be

interested in, is that really feasible? Could you create a lot of value by getting out of this getting out of this high-cost area. No offense, Heather. Well, and there's even places in Southern California they could move this business that aren't as far as Phoenix that are a lot cheaper than being right in Orange County manufacturing something. And I think that's what we're going to see over time

is that as these legacy businesses get sold, yeah, they're going to move out to those cheaper areas where it makes more sense for the cost of the real estate. So the other part about that idea, though, is how expensive is it to move? You know, when you're talking about heavy equipment and however they're set up in there to do their manufacturing, it can be very costly. You know, downtime and just the cost alone of moving for a buyer to come in and say, I'm going to buy, I'm going to transition, and I'm going to move. That seems like it adds another layer of risk. So I'm always curious how these turn out when the real estate is worth almost as much as the business.

And I think about it from the seller's perspective, too, you know, they want to unlock both of those values probably to retire, right? They want the $8 million and the $11 million. So, you know, it's an interesting conundrum for the buyer in terms of how you structure your offer, whether you include the real estate or you don't. The other thing, Heather, about moving is you move this thing to Phoenix or even if you move this thing an hour down the road in Orange County, you might lose all your employees. Suddenly they've all got an hour commute. Right? Right. And that's a big deal. The other thing that I'd like to understand about this business, which relates to kind of how local is it, is most of their revenue manufacturing this and shipping it to the site? Or is most of their revenue kind of the turnkey, we manufacture it, we bring it to the site, our crew installs it, and you're good to go. Because those are very different businesses. If a lot of the value you're creating is installing it and kind of turnkey, now you don't have the long arm reach outside of your local market. that you would like to have, right? Because you've got, I mean, you probably could still do it.

You could partner with subcontractors or GCs in various markets and teach them how to do it, but it's a little bit harder, right? And you might not be able to capture as much of the value. Versus if right now, if they have margins like this and they're basically just supplying it, and then whoever happens to be on site from the G.C. Is installing it. That's a much better business because you can do two things. You can move it out of Orange County, get your cost down, as Michael implied,

or leave it in Orange County and expand your reach nationwide and grow your business by bidding on jobs outside of Orange County. So that would be the first thing I want to understand is how much of this is manufacturing and how much of this is install as far as. And I don't just necessarily mean the financials as far as where the revenue is, but how much of the value proposition of the business is turnkey installation versus we make really good bathroom partitions. See, I think, I agree with you. I actually, I like the service and install model better than the manufacturing model. And I think based on their margin, they're controlling the labor. You know, I just don't think there's any way they're just a distributor. I think the space is probably too crowded.

Like, I don't know what the tam of bathroom partitions is, but we know they're a very, very, very small part of it. I remember looking years ago at a distributor, they would help kind of connect people to installers, but they had an exclusive distributorship over certain manufacturing lines of, like, very high-in, cabinetry, like, think like collegiate locker rooms, NFL locker rooms, you know, all those like cubbies that you see the player sitting around. Also, like, police stations, like lockers, you know, and, you know, evidence, evidence rooms and things like that. They had some exclusive distribution rights on those, but their margins were way below 10%. And it was a much larger business than this, but it was because they weren't controlling the install.

So my thesis, as I looked at some of the other ways to buy bathroom partitions is my thesis is these guys specialize in high end and very custom stuff. I would be willing to bet if you just like I just Google like buy bathroom partitions and like the low end of this market is totally what you expect. like Chinese imported, commoditize cheap stuff, right? Like, since we talked about like the roadside public bathroom stuff, like I think that stuff, the stainless steel stuff, like the common generic stuff, I think it's all super commoditized. I would be willing to bet when you dig into this, this is very much the higher end custom into the market.

And that picture they have there, like, I'm not even sure that's one of the ones these guys have done. Like, I bet you the stuff they're doing is actually potentially even higher, higher end than this and custom fitting and you know kind of like hey we're spending $250 a square foot to fix up our law firm office like you call these guys when you're doing your bathrooms and so that's my suspicion and I think reinforced by that large amount of margin for somebody at the scale you know handling a physical product so that's my thesis the other thing that you all mentioned that I think is important is like you know you look at

their customer mix or they're in in market mix if this is office I think it can be very scary because they're not doing this, you know, in DFW, right? They're doing it primarily in Orange County. But if a lot of their customer mix is K through 12, if it's schools, this process is kind of interesting. A lot of times the architect who's designing the entire school, which might be an $80 million school, they're picking the fixtures and the finishes. And they're saying, we want this color tile and this color carpet and this style.