Acquisitions Anonymous - #1 for business buying, selling and operating - A $475k Custom Aquariums Business for High-End Clients in Atlanta - Acquisitions Anonymous 302

Episode Date: May 31, 2024

In today’s episode of Acquisitions Anonymous, Mills, Bill, and Heather take a deep dive into a quirky business, a custom aquarium manufacturing company out of Atlanta. They discuss how this unique shop pulls in over half a million in revenue by crafting bespoke aquariums for luxury homes and businesses. Also, they talked about ideas on how the company could scale, whether this niche market has room to grow, or if it's too specialized. It’s the perfect listen if you're into unusual business ventures or just curious about the aquarium world. Hope you enjoy it! Check out the listing here: https://www.sunbeltatlanta.com/atlanta-businesses-for-sale/manufacturer-of-custom-aquariums?utm_source=acquanon.com&utm_medium=podcast&utm_campaign=ep-298Thanks to this week'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? Boopos.com is the #1 platform for buying and selling profitable online businesses with built-in acquisition financing for qualified buyers. You can source opportunities from exclusive listings and other marketplaces or bring your own proprietary deal flow for approval. Boopos can offer pre-approved financing for recurring revenue businesses, allowing you to access fast funding without 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 dealLearn 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]

I'm dying to know the average order value of these things because they got to be big. If you're getting a custom built aquarium, I mean, that's one of the reasons why small businesses in general are tougher acquisitions because you're almost certainly buying yourself a job. It doesn't feel like it's a real solid margin for such a small company. Is this a good business overall? I mean, this is this a sector you want to be in? Hello, everyone, and welcome back to another episode of Acquisitions Anonymous. I am Bill D'Alessandro, one of your hosts, and this is the Internet's number one podcast on, buying, selling, and operating small businesses.

Today, we have a small business. There's a pretty cool one. They manufacture custom aquariums. So imagine you want like a sick aquarium in your restaurant or your lobby or even your house. I think about 70% of the work is commercial. So a lot of it is the restaurants and lobbies and stuff. But imagine how cool it would be to have a commercial grade aquarium in your house. This company fabricates them, but then they also maintain them.

And they have a really interesting relationships with their subcontractors, where there are different subcontractors in their building. They parse out different parts of the aquarium build too. It's about half a million bucks in sales, but pretty substantial free cash flow. We talk in the episode a little bit about the difference between free cash flow, EBITDA, SDE, and kind of how brokers can play high the ball on that. We also talk about kind of how you value smaller TAM businesses, like this is a local business building aquariums.

How do you value it? But this is a really interesting one, a cool end market. If you enjoy this episode, please find us on Twitter or get on our newsletter on our website, Acquisitions Anonymous. We would love to stay in touch with you. I hope you enjoy this episode of Acquisitions Anonymous. Have you thought about exiting your current online business or buying one to start a new journey as an entrepreneur, but you have no idea where to start? You can unlock business opportunities with bootpost.com.

Boopos is the number one platform for buying and selling profitable online businesses and the first with built-in acquisition and financing for qualified buyers. At bootposts.com, you can source opportunities from Booposts exclusive listings, other marketplaces, or bring your own proprietary deal flow for approval. Booposts can offer pre-approved financing for recurring revenue businesses, allow you to access fast funding with no personal guarantees. Do note, this is their biggest differentiator. So what do you need to sign up as a seller or buyer? Sellers, your business needs to meet these thresholds, 24 months operating your business,

trailing 12 months of over 100K, and 18 plus months of track record. A buyer, you need to share your credit score if you're looking for financing, proof of funds, and sharing your LinkedIn profile. And that's it. Whether you're an entrepreneur looking for the right opportunity to acquire and establish profitable business

or a founder looking to exit and sell your business at the right valuation and dedicated support. Boopo's expert M&A advisory team is on hand to help you through every stage of the process. Want to find out more? Go to go dot bupost.com slash Michael Gurdley, sign up and get qualified to sell your business

or find your next deal. All right, Mills, so I was just telling the group before he record, hopefully you guys cannot get COVID for me through the podcast, but I'm feeling fine, but I'm positive for COVID. it. So luckily we are recording remote today. I'm glad my square is one over, though, from you because I feel a little safer over here. That's funny. On mine, you're in the middle and Bill's on the right and I'm on the left.

So I'm really not as safe as I feel. Okay. I'm about to get to know. Right before we hit record, we're reminiscing about when people reach out to us and tell us what we got right and what we got wrong on their deals. So if you hear anything in this episode or other episodes where we're just totally talking out of our ass, please let us know. We would love to hear about it. We actually do love it. It's fun to learn what we got wrong. And it's also fun to hear that we actually, our instincts are right sometimes, too. So that's great.

Yeah. All right. I get a deal. Yeah. So if you're listening and we're talking about your industry, head us on Twitter or via email. And then your comments will make it probably into the shout of the following week. All right, Chris. All right.

Mills, you brought us a deal? Yeah, there's not info, but this one just jumped out of me and seemed super interesting. So this is on Sunbelt, business sales, mergers, and acquisitions. And it is a manufacturer of custom aquariums. I don't think we've looked at anything like this before. Description is since 2020, three, four years. This company has been manufacturing custom aquariums. 70% of the clients are commercial while the remaining 30% are homeowners.

The business operates from a least 8,750 square foot facility and sub-leases portions of the space to subcontractors that manufacture components of the aquariums. The business also offers fish and accessories. The asking price is $475,000. Revenue is $513,000 in change. cash flow is 174,000 a year. They say they have FF and E of $100,000 plus and inventory of $70,000. They're not willing to offer any financing. Business is located in Atlanta, Georgia.

They say that a experienced team of subcontractors manufactures the different components, 70% commercial, but they see opportunities for growth in this. They think you could grow it by networking with pet stores to provide additional business and also work with high-end home builders and remodels to drive more of the residential side. They're selling because of other business interests. They lease the space. Monthly rent is $5,350. It's not a franchise, not home base, not distress, not relocatable.

They're willing to train for a smooth ownership transition, and they give like their business hours and things like that. So this is kind of cool. So they have their own building, and this is outside of Atlanta, right? So they've got their own building. And then I assume there's like a separate business that makes like fake coral or like the pumps or, you know, other parts of the aquarium that actually sub leases directly in their warehouse. So what they're doing, I assume, is the glass fabrication, like all the actual aquarium itself. And then there are other sim. It's kind of funny, like these little barnacle businesses.

It's very aquarium parallel, right? It's just like semi-o-businesses that are glued on to this one, and the finished aquariums come out at the back of the building. 15 independent contractors that are used in the manufacturing of the aquariums. And I got to believe, right, this is like, you know, big hotels or cool restaurants and 70% of their business commercial. 30% probably really sweet homes, right? Really nice residential aquariums. because you got to think. I mean, you could probably buy an aquarium off the shelf.

They get pretty big, I would think. I mean, it's not going to be a full wall, you know, aquarium or anything crazy. But you're talking about that I'm dying to know the average order value of these things because they got to be big if you're getting a custom built aquarium. Well, yeah. That's my first. It's a half a million bucks of revenue. Maybe there's $10,000 aquariums. that's only 500 aquariums a year or less.

Yeah. Yeah. I mean, I guess what is a $10,000 aquarium look like? That's kind of what I'm trying to understand here is, you know, who's getting these custom aquariums? How big are they? They're talking about a 34% margin on the revenue.

And my guess is at a company of this size, that's probably more SDE, seller's discretionary, versus, you know, after a salary, which I would like say adjusted EBITDA. And that's always tough because if it's only 174,000, you come along and you need a salary of 100 even. There's only $74,000 of adjusted EBITDA at the end of the day. I always kind of question that in these smaller businesses, what do they mean by cash flow?

That's a great point. Yeah, that's so hard. I mean, that's one of the reasons why small businesses in general are tougher acquisitions because you're almost certainly buying yourself a job because it is so rare. to find a business this small where the owner is truly hands off. Right. Right. This is somebody who's definitely working in the business.

And I'm assuming the 174 includes their salary. And in general, I just have a problem with listing SDE and kind of trying to value companies off of SDE, especially when they're really small. Because should you pay a multiple of your salary or the salary that's required to do whatever, you know, the replacement role here is, probably. not, you know, that's just an expense in the business. So that always gets kind of tough. So I'm questioning the margin. It's 34% margin if that's really adjusted EBITDA, but it's a lot less if you need to take a salary out of that figure first. So it doesn't feel like it's a real,

you know, solid margin for such a small company. So is this a good business overall? I mean, is this a sector you want to be in? I kind of love the subcontract. I have a contract. You know, like that makes it really interesting to me because I'm thinking that a large portion of their cogs, you know, are truly variable in cogs, not a ton of fixed overhead. You know, like you can't have the world's foremost or the southeast foremost coral expert and seaweed expert, you know, on staff if, you know, you're having to pay their salary 12 months out of the year and you may not generate sales 12 months out of the year. or consistently. So I like that part of it. I think it makes it, you know, a lot leaner.

They don't say anything about maintenance, too. I'm like, I'm thinking that the maintenance side of this business could be substantial. And maybe there's somebody who already does it and, and they can't compete and they don't want to do it. But I would build these things and you know how to build the filters and you know the right, you know, plants to put in it to mix with the right fish and so that it all works out.

Like, it seems like a no brainer. that he would get into the maintenance. Yeah, that's a good point, Mills. I mean, because these are all commercial, or if they're not commercial, they're probably in a big home. You know, I wonder if there's a whole different, you know, like the pool boy of aquariums, you know, probably that comes and cleans your aquarium, you know, checks the levels,

make sure your fish don't die, et cetera. It does seem like an easy add on. Or maybe one of the subcontractors in your building are doing that. Okay. But I mean, I think that a business like this has to transfer. Like there is, there is a buyer out there who would be like, this is perfect. You know, I, I can live off of, you know, $80,000 a year and maybe try and grow this thing and finance, maybe a reasonable portion of it. But I don't think, to your point, Heather, if the actual free cash flow that's available for debt service is, just say it's half, then we're still talking about, you know, a pretty high multiple.

at the $475,000 asking price. So I think that would have to come down. But for the right person to own and operate this under the right structure, there's something to it that I think is intriguing. Yeah, I mean, it's a young business. That's the other side of it. It is small, but it's also young. I mean, sometimes we see something that's really small

has been around for 15 or 20 years. And you kind of question, why is it so small still? This is small because it hasn't been around very long. And it sounds like the seller is selling for some other interests that they have or some other opportunity that they have. So for the right person, could they come in and make something better out of this? Maybe it's been a little bit neglected while the seller has come across this other opportunity. Maybe they can expand their reach a little bit.

This is in Atlanta. So it's a big metro area. There's got to be other opportunities there. It is manufacturing of something that kind of lasts, I think, along. time. So that's the other kind of side of it is. You definitely hope so. You think about the product defect liability. Like if you flood the Weston lobby with like, you know, a thousand gallons of water,

like they're coming straight for you. Yeah, you better do a good job here. So you are building, you know, so these are, I would just say it's very project oriented because unless they were in the maintenance business and kind of to your point, that would be great if that was a good, if that was synergistic with this, great. But if they're just manufacturing and installing these, you know, it's one and done. You know, you get it in to that hotel and you've got to go sell another hotel or another office building, whatever it may be.

And I think that's probably a little bit of a grind here, you know, based on the ticket size that there is. There's got to be some kind of a sales funnel. And a buyer could really look closely at what that is and decide whether they see opportunity or too much risk, you know, but this is the kind of thing where you don't know until you dig in deeper, you know, to what the sales pipeline looks like. That's a great point because I think the Tam on this, the total addressable market is a little bit concerning. I mean, how many buildings are there in Atlanta? How many buildings are there that could

actually, you know, sustain a large expensive aquarium? And then how many new ones of those are occurring each year, either buildings being retrofitted, you know, we're, new buildings being built that wants something like this. I think you're talking about a very, very small sample size. And maybe you're the only person in town. You're the only guy or gal in town who actually can do this work. And so your phone rings if somebody wants it. But I do think that you would have to grow geographically if you want this to expand

or you would have to entrench and start offering other services. I like that they say they offer efficient accessories because my guess is those are, you know, more curated items, kind of like the, you know, the aquarium itself. But maybe there's some ongoing, you know, redesign and things like that that happened. But by and large, I think that this is kind of a finite pool. And I think it brings up the point, too, of, you know, the facilities that they go into. The whole real estate market, as we all know, is really going through some major, major changes with people working from home. So we have far less, you know, investment in high-end office space.

In fact, everyone's kind of still shrinking down as the leases come up for renewal. A lot of them are getting smaller and smaller in terms of their fancy office footprint. The restaurant industry, it always goes through cycles. It's kind of going through another one right now. So I would think of this like seafood restaurants and whatnot. High-end restaurants might have these. All the types of buildings that this. product would go into, it seems to me are in lower demand right now and a little bit of

uncertainty as kind of where the demand is going to shake out. You know, ever since this business started, which is interesting too. The business started in 2020. So that was sort of the beginning of really changing the commercial real estate market dynamics. So that's kind of curious to me too. I would love to know where they've been installing these since 20. 2020. Who's investing in, you know, a big aquarium in their commercial property right now? Yeah, because you're, you're right. offices are cutting down on this kind of, you know,

maybe a little bit more discretionary capax. I don't think, you know, maybe some hotels. But again, how many hotels have you been into Heather that have an aquarium? Like, I can't even remember if they did have them. That's how like inconsequential it is. It's not like. I can't like every year. And I've been to a few. I've been traveling a bit lately. I haven't seen any. Yeah. What do you think, Heather, about this inventory number? It kind of makes me a little bit concerned that like 40% of their free cash flow on an annual

basis is tied up in inventory. Good. Yeah. I worry about inventory. Anytime I look at a small deal that's got really any inventory, it's kind of where my brain goes first is there's a lot of risk in a small business buying and carrying inventory. You know, how much to buy? Do I need to have that much on hand? What to buy? And as a new buyer of the business, I want my buyers to go in there and figure out if any of that is obsolete, if any of that's not saleable anymore because they bought the wrong thing or, you know, that's not the right, you know, size or whatever it may be. It's a big problem in small companies. And it's because it's so hard to manage at when you don't have scale. It's a, you know, it's a different, uh, picture when it's a much bigger business and they can have some margin for error. When you're

a really small business, you don't have any margin for error in inventory and it's really tough. It's a big number for this for this little balance sheet, I think. And I would be concerned what that is. I think what you see here is them, you know, utilizing something that's probably a little bit more just in time. I'm not sure. I'm curious about what the story would be. You know, you talk to on the owners and you hear these things like, oh, well, you know, we had a really great deal on, you know, glass that we had to, you know, ship and the freight was really expensive. So we, we bought three years worth of anticipated glass for the aquaer or something. You know, there's some maybe story behind it. But my guess is, is that when people are procuring this product as

your customer, they don't expect it like right away. You know, this isn't like a, hey, bring this next week. It's going to be a very, you know, drawn out kind of procurement process, you know, and the installation is going to take some time because some of these are probably, depending on the size, might even be built on site. If they only have 800 square feet, I'm guessing there's, there are probably some that they built. It's all that cuts, which their subcontractors are providing. But you think they probably, you know, manage their working up, especially around the inventory a little bit better. Yeah, and I mean, good point because I think there's a lot of businesses where knowing how much lead time they have is really important as a buyer.

If you're selling something where they're going to order it and they need it just in time, you're the just in time supplier, then you've got to carry the inventory. And that's a, you've got to look at the business from that perspective. Otherwise, I agree, this one's probably got a lot of lead time. No real need to carry a bunch of inventory. they can go get their inventory after they get the order. And that's how they probably should be managing it. I looked at a business once where the whole business was based on a particular type of metal that's used for like handrails and whatnot coming from Europe.

The foundries are all in Europe. It's not something you can get easily in the U.S. And it was all about just in time. That business's whole benefit was carrying about $3 million of inventory here in the U.S. on their in their warehouse because it is the kind of thing that in a project, they say, oh, shoot, we need this right away. We're ready for this. And they don't care about price, so they'll pay up for it to come quickly.

And that was the whole business. Most businesses, you know, it's not like that. And they shouldn't be carrying a lot of inventory. They should be playing the just in time game with their suppliers. So that's a really good point, something to look for in any business like this where it's going into buildings or construction projects. I think you're exactly right. It makes me think of a deal that I looked at once that they kind of played the niche,

incredibly focused, and they supplied only stainless steel fittings. So stainless steel fits substantially more than like brass or copper or galvanized, and nobody really wants to stock those, like at Granger and like your local supply house. And so they just said, hey, we're going to be the person. We're going to have way too much inventory on a relative basis. But because it's so expensive to hold, but everybody comes to us for it because nobody else has it in stock. And so they use that, right, that kind of drag on their balance sheet, one, to command, you know, customer acquisition, but then two, also to command a higher margin. And if you want one of these things and you, you know, you kind of had to go to them, otherwise it was going to take weeks to get it from.

the original supplier or manufacturer who was probably overseas or, you know, wouldn't deal with you unless you bought a large lot of them. Right. Really interesting. Yeah, you see that a lot. But I think with aquariums, it's probably not that way. Like, you've got to pretty much design the part of the building or the lobby or whatever it is around the aquarium.

So you've got plenty of time to know, to order the other materials. And hopefully also, they get a deposit up front. This is the other thing. Are they having to front the money for the inventory on orders they don't have? That's really risky versus, you know, we get orders, that we get a deposit and we use that money to go buy the materials. That's obviously what you want. So, yeah, the $70,000 of inventories a little, it's a question, something a buyer would have to ask. The other thing about this deal is it's really small for financing.

And I'll tell you what I mean by that. below about $500,000, most banks that do SBA loans don't want to lend. It's too expensive for them relative to how much interest income they could ever really make on it. So if you think about it, you know, the cost of putting one of these acquisition loans on the books for a bank is about the same, whether it's $5 million or $500,000. So there comes kind of a point where they are below their break-even. And so most of them have kind of decided that's around $500,000. So your pool, there was a few lenders that would go below that. But your pool of lenders is going to be pretty limited.

They're not going to be super responsive. This is going to be a small deal for them. And most lenders that will do the really small stuff, what they'll say is if it's really clean and easy, we'll do it. But if it gets hairy and messy and a lot of work and small, then they don't want it. It's not worth your time. Yeah. Heather, have you worked on? it kind of calls to mind like hyper-seasonal businesses.

Have you worked on any deals on like, I'm thinking, you know, things like Halloween costumes or Christmas, you know, themes or like maybe summer related products like beach umbrella. Or, you know, just something like that that you look at those companies and their balance sheet

and their sales and, you know, they sell everything in maybe two to three months out of the year. Like I wish Michael was here because you can talk about fireworks because this is the case. But you build. You know, you've taken all this cash flow, but then it takes you, you know, almost two seasons or, you know, six months out of the year just to build back the inventory. Have you worked on any deals like that where the working capital is like all the whole deal hinges on it?

Yeah, I have. And they're really, really tough to get financed because what you've got to do a few things. First, you've got to figure out when you're going to close. You've got to close before the busy season. You do not want to close after. then you're, you know, that's a terrible situation. One, 10 month worth of cash flow, you know. Right.

With all you've got debt, you know, so you've got to find the deal and manage to close it right before the busy season. So that's not easy because a buyer doesn't control enough sometimes of the whole process to really, you know, be able to hit a timeline like that. So that's first part. The second part is even tougher. It's figuring out how they've got to manage the cash that they get. So let's say they close before the busy season.

they get this influx of cash at the end of it after they collect all their receivables. And now they've got to manage that cash. Usually they've got to kind of go down to sort of a hibernation mode of staffing and whatever else they can cut during the slow season. And they've got to show a bank and convince a bank that they could manage the cash and pay the bank because the bank still needs to get paid every month, you know, during that slow season. It kind of boils down to you for the bank. Like, can you trust your borrower, your buyer?

to do that, to manage the cash properly. And a lot of banks kind of conclude, no. They don't want to trust somebody to do that. So it ends up being kind of tough. The ones I've seen get done are because the buyer has, you know, a good, strong personal financial stable with other cash and they're pledging maybe real estate. Like it's they have sweetened the deal with their net worth, so to speak. Yeah.

But otherwise, it's tough to do those. That is tricky. in a former life I was involved in some deals like this. And it's fascinating because you have to bring a lot of strength as a buyer if you're going to buy something that has those kind of quirks to it. But also, you're in a limited pool of possible buyers because what the seller learns pretty quickly is, hey, there's a lot of people who don't like this. And it gets put on the, you know, too hard pile.

And so if you can get good at doing, you know, something that everybody, else's thing thinks it's too hard it can really help you but yeah it's it's not it's not a walk in the park by any means yeah no yeah you might get a great price but you have a lot you know of work you've got to do to make it work yeah absolutely right heather what do you think on this one thumbs up thumbs down is this is this doable you know i'm a lender so i feel like i'm just always going to be doing thumbs to i don't think so i think this is tough unless someone's a strategic buyer of some kind they're kind of bringing this into some other product offering. Yeah, maybe you own like a big pet store or something like that and you go,

oh, and this would be awesome because we can cross sell them, you know, I don't know. I mean, what are you going to cross sell? Like fish food can't be very expensive. It's not like dog food, you know, it's heavy and expensive. And yeah, I think that the asking price, I'm probably thumbs down on this one too. The asking price feels like it's based on SDE, which we're making the assumption, but there's no way that there's an extra 100,000 worth of comp and their margins are even better than 34%. And really, I'm concerned about the small Tam here because even if you could spend up maintenance, where do you grow with this?

You don't go from Atlanta to Athens, right, or Atlanta to Augusta. You probably have to go Charlotte or Nashville or Jacksonville or something. And if you do that, then all of your efficiencies and all of the things that you might achieve, with scale go out the window because you're not going to build all these in Atlanta and ship them to Miami, you know, you need probably the close proximity just from a freight and cost standpoint. So I think that this is a very, very difficult deal to get done under the proposed, you know, price. And I think that at this price, there would have to be a pretty easy path towards growing it out of this kind of awkward middle size. Yeah, good points.

Well, it definitely piqued my interest and there's something kind of creative about it. Kudos to this person for four years ago starting a business at a really difficult time, growing a great, really probably a great livelihood. And I don't know if the way that the business is constructive, it takes them 40 hours a week to turn this, but it seems like with the nature of it being project-based, this could be a great, you know, a great kind of maybe probably more than a side hustle, but a great quality of life for the owner, making $175,000 a year. Yeah, absolutely.

I agree. Thanks everybody for tuning in to another episode. If you like the episode and if you're curious about what we talk about on a weekly basis, please tell a friend and subscribe. And if you know something about commercial aquariums that we got wrong, make sure to let us know.