Acquisitions Anonymous - #1 for business buying, selling and operating - A $5mm tent rental company for colleges - Acquisitions Anonymous 178

Episode Date: March 24, 2023

Michael Girdley (@Girdley) and Bill D’Alessandro (@BillDA) review a company that rents tents to colleges and universities.Girdley also tells some stories and Bill is smart as always!-----Thanks to our sponsors!CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey, everyone. Welcome back to another episode of Acquisition Anonymous. This is Bill Alessandro, and this week, Michael and I dig into another favorite type of business on the pod and equipment rental business. This one rents tents, but we talk specifically about dynamics of colleges as customers. Michael tells a really fun story about parenting, and we get into some great discussion. I think you guys really like this episode of Acquisitions Anonymous. Hey, Michael here. Want to talk to you about today's sponsor for the episode. which is cloudbookkeeping.com. So cloud bookkeeping is actually run by my neighbor, Charlie.

So I've met him in person and can attest that he's a real human being and a good person. And what cloud bookkeeping does is offer a full suite of bookkeeping services all in the cloud for you around QuickBooks and other technologies that you're using as a small business owner. So if you're interested in getting the bookkeeping part of running a business off of your plate, and focusing on running your business, Charlie and his team are one to call. They can put together a bunch of other stuff in terms of helping you manage and grow your business

besides just bookkeeping, sophisticated reporting, definitely helping you get your QuickBooks online set up in the right way, and a number of things around payroll as well. So definitely know them and recommend them. If you want to find out more about Cloud Bookkeeping, you can go to their website at cloudbookkeeping.com, reach out to Charlie.

I know many of you have and see if he can help you make running your business easier and more fun by letting them help with a lot of the bookkeeping solutions. And when you call, mention this podcast,

it would help us and help Charlie know that we're supporting him as well. So thanks a bunch and cloudbookkeeping.com as the sponsor for today's episode. All right, we currently have one viewer.

It's me. Well, we'll just get started. to join us. We go. If not, it's super fun. It reminds me of the very first, the very first Joe Rogan. Have you ever watched the very first Joe Rogan podcast live stream?

It literally looks like this. It's, and by the way, welcome, welcome guests. We're live streaming today's recording for shits and giggles. But the very first Joe Rogan thing, Bill,

is like 20 minutes of like video up Joe's nose, trying to figure out how to live stream and doing it like, is this thing on? Is this working? like tapping the microphone and stuff is like, and then, you know, big things start small. That's what I would say.

So shortly when we are no longer just the Internet's number one podcast about buying and smelling small businesses and are in fact, the Internet's number one podcast about everything, you can come back to this episode and say this was their first live stream. This is when those morons really jumped a shark. That's right. That was the beginning of the end for acquisitions anonymous. Cool.

All right, we'll see how this experiment goes. So who's reading this tent rental? We got a tent rental deal to look at? I'd love you to read it, but I'm so psyched for this because this falls into one of like, I feel like the repeating categories on this pod that we always have lots of fun stuff to say about, which is equipment rental.

And it also touches equipment rental and weddings. So this is a very interesting business. Tell us a little bit about it. Crazy. All right. This is one on Biz Buy Sell. The title is founder CEO selling top market, share tent rental company,

4.5 out of five rated and located in Avon, Massachusetts. They're asking $5 million for this business. It cash flow is $500,000, does $3 million in revenue, $500,000 in EBDA, which I guess we can put a pin in that. It worries me when EBDA and cash flow are the same in an equipment-based business. FF&E is $823,000, and they own $3.9 million worth of real estate, which is not included in the asking price.

And it's been around for 43 years. If my math is right, started 1980. and the business description is... All right, so just stop there, okay? It's just like initial impressions, right? So they, this business is three million in sales, half a million in EBITDA, and they want $5 million for it, 10 times, right?

Like, what's your initial impression of that, Michael? What? The sandwich impression, like, hell, no? Well, look, what I wonder immediately is, like, what else am I getting besides the business because like businesses with half a million and even though don't usually trade for 10x. So, you know, like is, are they trying to sell me, this is a tent rental business, right? Is, are they trying to sell me a bunch of tents?

Like do they have $5 million worth of tents that they need to get out from under? They already answered the question, which is their real estate included. There's not. Immediately I'm going, either the pricing expectation is totally whack, but very often that's usually not it. It's usually they're trying to embed some other thing they're trying to sell you with the sale the business. Yeah.

Well, maybe we'll figure it out because this is also one of the longest listings we've ever looked at in the history of acquisitions of anonymous. So, okay, well, here, they're going to, I'll keep reading a little bit more. Maybe we'll figure out the mystery. All right, no seller financing will be considered, only upfront consideration and maximum 10 to 15% sellers equity deferred for one year. Well, okay then. Well, that's very nice.

Property value is separate from the ass price, growing over 2019, pre-COVID numbers on both the top and bottom line and valued on a near term in the next 12 months forward this is a forward multiple oh well why why not it's a SaaS business a SaaS 10 business it is what it is by the way we have three viewers on our live stream so it's going super well all all right what's up viewers me uh in 1980 the owner started project blue with 110 and his father's garage under the Boston party rentals. The company has expanded significantly since then and now manages over a half a million square feet of tents. We have party rental equipment, rental tents, wedding tent rentals, and awnings. Business is 100% owned by the founder owner and the majority of customers

are recurring revenue in nature and are price agnostic due to the nature of the customers being in higher academia and able to pass up costs in terms of student tuition fee increases. So it turns out, according to this guy, the reason that your tuition is going up 40% you're over a year for higher education in college degrees is because tents are too expensive. Please read the next sentence. These students are also most usually from more affluent families and are very capable of sustaining year over year price increases every year. Dude, this is amazing.

The owner also has several long-term employees who have been loyal to business for multiple decades and would therefore decrease any integration period of need be. The owner also owns 25,000 square feet of warehouse space that houses the company's primary assets, tents, chairs, tables, and party equipment, and is open to either leasing the warehouse at market rates or selling the real estate in a combined offering. The real estate is highly sought after and constantly gets offers every year and it's highly, therefore, highly liquid, parentheses. Furthermore, due the nature of trade balances and capital flight from China back, what? Okay, let me read this slowly. Furthermore, due the nature of trade balances and capital

flight from China back to the U.S., corporations are spending significant sums of money to purchase real estate, including warehouses. The demand vector will likely not have bait for another decade or more. By the way, Bill, I will give you one guess which cable news channel this person listens to for 12 hours a day, and you can only guess once. There's just no way this person doesn't watch Tucker Carlson tonight every night. Oh, man. Anyway, this business is a highly sought-after company. The owner has received multiple exploratory requests in Q4, 2020, and has received multiple offers over the past two years. Do the high caliber nature of the business

in predominant market share in the industry, business has retained Oxford American capital to represent them in the sale of the business. Please have a look at the projected financials and valuation model provided as well as returns metrics on the returns profile tab. There's also a bunch of assumptions and considerations and stuff that gets you

what a buyer would receive if the purchase price is made at the ass price of $4.75 million. Wait, that's internally inconsistent. Didn't the top say the first The top says $10 million. The tops is $10 million or $5 million. $5 million, but down here it says $4.75 million,

which to me is always one of the fun things when you know there's a broker involved is the owner will say this is the money I want to make and then they add the broker's fee to the top of it. So that's what I can guarantee a million dollars that the broker fee is $250,000 on this deal. This is the broker's only job is to put out of this listing and it's internally inconsistent. $5 million versus $4.7.5 million. unbelievable. Even a name like Oxford American Capital, the most August name you could come up with is not good enough to defeat incompetence. I don't know if you saw on Twitter, but one person called me

out for like pooping on sloppily prepared listings and kind of tried to cancel me a little bit. And I was like, look, dude, like this broker has one job. And if you can't run the listing through a spell check, like you do not deserve to do, you deserve for us to poop on it. And that's my point on it. Not that I want to shame somebody for not speaking English as a first language. Of course. I mean, like, I mean, obviously, like, ESL is a separate thing. I usually think that is not what is going on here in the listings we review. Like, these are American people who are sloppy.

This is not, like, ESL stuff. Like, this person is from Boston. Oxford American Capital is not an ESL situation. I don't think. But what kills me, I mean, with these intermediaries, like, this is some of the most highly paid work for no effort, like, ever. I mean, the only thing that takes the cake is residential realtors, but don't get me started on 6% realtor fees in a leverage transaction, which end up being often like 50% of the equity gain. Like when you buy and sell a house, like your partner is their equity partner is Uncle Sam and the realtor.

And there's very often very little left for the person who owns the leveraged real estate has. Anyway, that is also true for these business brokers. Like you're going to make, by the way, the typical business broker fee is between 8 and 10. percent of a small deal like this. So a guy's going to sell a business for $5 million. He's going to take home half a million dollars. There's no cogs in it, you know, except some of his time or maybe he's got one or, you know, an employer or two.

So if you can't spell things right or be internally consistent on the numbers or like due addition, like, I'm sorry, you know, find a new broker. Anyway. All right. So here, let me give a, oh, my God, this thing keeps going. They have 48 employees. Well, a lot of tents. Half a million square feet of tents.

Yeah. So interesting anecdote for you. In much of the country, you can sell fireworks out of tents. But the industry in the state of Texas has always resisted it. Do you want to know why? Because tents are a freaking nightmare. Like the seconds of breeze blows in, like the tent's blowing over, people are breaking into them.

They fall down when customers are inside. It's like kids lost in the ball pit. at Chuck's cheese. Like, it's just a mess. So every time people are like, can we sell out of tents? They're like, no, it's terrible. Don't do that. So is it illegal to sell out of tents or you just don't do it?

Illegal. 100%. So basically in the fireworks business, there's a hierarchy of what wins, like a rock paper scissors. The very best thing you want to be in is a very good looking permanent store. The next thing you want to be in is a mediocre permanent store. Then it's tents. And then a tent will beat a fireworks stand.

right so that's how it works like rock paper scissors so because tents are such a pain in the ass like every time tents get have been discussed in terms of changing the regulation everybody fights against it because they're like we don't want to do that because everybody with stands the little booths would have to switch to tents otherwise they get crushed right it's just a nightmare it would be like an arms race horrible and guys like this would say my customers these stupid fireworks guys can sustain price increases every year because they're rich. All right, so they include some assets,

capital inventory and equipment related to running dated operations, tents, chairs, tables, glassware, as well as heaters, tools, trucks. Five trucks included are a 2016 Chevy Silverado, $22,000 of Ford F-150, $1,50,000, anyway, and a freight liner along this very product of equipment. They consider themselves in a prime tent rental location, ideally situated in the northeast

where there are 100 plus academic institutions within the metropolitan institution area of greater Boston. Have you and I talked about like how Boston is like the Silicon Valley of college? Have we talked about this? Not directly, but I agree. There's so many colleges in Boston. It's crazy. So my son and I, like, we went up there to do a college tour, I guess it was maybe like

two months ago in January. And so we go to Northeastern. And they're, and it's like a pretty big university. And it's like a machine. They take you in this room and you go do this stuff. and like is fascinating. But the guy who gave the tour, by the way, if you work in a college admissions office,

you have to wear a bow tie. That's what I've learned. That's just the way this goes. I don't make the rules. But the guy reported that the average age in Boston decreases by 10 years every Labor Day when the students come back because there's just that many kids.

Wow. Boston's the biggest college town in the country, essentially. Totally, totally, totally. So just skip to the last. sentence of this listing? The owner. The business is an established franchise. What?

It's a franchise? Are we sure? So I don't know if that's true. I think they might not know the definition of franchise. But maybe they also say that the current owner will stay on, will stay on to ensure the business he is built from the ground up over 43 years ago is transferred successfully as he would like to see his legacy. live on to the next generation in good faith.

He would also like $5 million for it. So what do we, I mean, Michael, what's your take here? Like they're written tents to, it seems like colleges for events. And they think that they can charge anything for it because it's student tuition fees and activity fees and culture fees and all that stuff. Yeah. I mean, and I think that's right, right? Like, I love that this is going after a niche and it's recurring.

and he's right, or the listing broker's right. It's not like you're doing weddings, right? Which are like, okay, let me go see if I can get the venues to like me, and then they're going to hammer me down on price over time, and I'm going to have to worry about it. Like, you're not dealing with intermediaries here. You're going directly to the universities. And frankly, like, you know, the psychology of college choice

and the psychology of the stuff is the pretty buildings are not there to make the learning better, right? It's to make the parents think that the college learning is. better, and that's why they spend so much on these fancy buildings. And the same thing goes for the tents. You got to understand that that's the way it works. So, like, I love this niche. I totally do. Like, I think if I was to be a tent business and it's just like, I'm just going to sell and lease to universities, I think they're right. They're going to pay up for good-looking premium tents that don't fall down, and they're not going to nickel and dime you for the cheapest thing possible.

And it's probably nice, too. You probably set up the same tent on the same quad with the same crew every single time versus having to go to a different wedding venue like, oh, there's a slope, you know, the different tent we haven't set up in a couple months, you know, and you're kind of learning on the fly, but just go set up, take down. Oh, we got convocation, go do the tent. Oh, we got, you know, concert on the claw, go do the tent, you know, whatever it may be. It does seem like a good business. I don't know, though, if that's purely what it is because they said they got half a million square feet of tents, they have party rental equipment, wedding tent rent,

and awnings. So I think it may be a little bit more diversify than this guy is letting on. Yeah, well, potentially, potentially you have a broker being smart enough to know he had to do or she had to do two things, one of which is, number one, like, hone in on the thing that's going to be attractive

to a potential buyer, which is exactly, you heard me get excited about, oh, we're going to just be a tent provider to the universities, but like, but the reality is it isn't. And the second thing, it looks like this broker, we're smart about is with unreasonable founders and owners who want to sell their business for a stupid high price based on what they heard at the country club. Sometimes some broker's

strategy is to say, you know what, we'll go get that for you. And then they just wait them out until the seller gets more reasonable. And like, that's what I think happened here. Like you got this broker who's just like, yeah, yeah, we'll get you $5 million for your business, 10 times earnings. Why the hell not? Yeah, I'll do some math to make it work. It's like, no. So, yeah, oh, yeah, next, Yeah, next 12 months earnings. So actually, this reminds me of some really bad broker behavior that I have investigated before. So, you know, as you specified, Michael, many owners talk at the country club and they're like,

yeah, my business is worth 10 times EBITDA. It's the best business in the world, you know, et cetera. There are a lot of brokers who are ethical and will say, no, sir, your business is not worth 10 times EBITDA. It's worth four times EBITDA. You know, that's the market. And I'd be glad to sell it for you. What does the seller do?

Screw you, man. I'm going to go get a broker, a different broker, like that knows how to sell my business, right? And then they eventually find, there are one of the other lots of brokers out there, that they will say things like, yeah, we just tell the seller whatever they want to hear, get them under an exclusivity agreement

and a tail agreement, and then let the market tell them what their business is worth. So there is this whole broker strategy. So, you know, just in case people aren't aware, when you hire a broker, and retain the broker is usually nothing up front. The broker prepares the SIM, the confidential informational informational memorandum, and probably the biz by sell listing in this case, and then tries to sell the business.

If the business fails to sell, you are still obligated to pay that broker a fee if that business sells any time in usually the next two years. So if you, if a broker goes, yes, Michael, your business is definitely worth $10 million and you sign exclusivity with Michael the shady business broker. And then you go to market and the best offer you get is $4 million. Right. And then the broker's like, well, you know, it's the best we got. You should take it.

If he takes it, the broker takes a fee. If he doesn't take it, the seller has to go find another broker and pay two fees the next time. So there's this whole like set of shady brokers who will tell sellers anything they want to hear just to get them under agreement. it's very scammy. I really hate it. The more we deal with this, the more I'm like,

being a business broker just seems like the worst. Like, I know we have friends that do it, but like it just is so hard. Like, I look at this and I'm like, do I want to be a business burger that does this? Or do I want to go try to sell commercial real estate? Like I would go do commercial real estate a million times to Sunday than try to be a small business broker.

Have you ever done that, it's probably just as shitty and we're just not as close to it. I don't know, man. Like, I'm, you know, I'm doing two different commercial real estate leases right now and deals. And those guys are going to make some money. And they're not working as hard as this business broker's having to work to sell this business price that that dives last year's earnings. Yeah.

And also a lot of the commercial real estate guys are dealing with funds and, you know, much more dollars and upmarket and all that. It just is easier. Small market M&A is brutal. It's a, as Brent B. Shore says, it's like, eating glass and having a knife fight. Brutal, well, and in testament to him, he used to be a business broker and got out of it.

So I think a lot. Brett used to be a business broker? Yeah, that was how they got started. Don't quote me on that. That's a goodly fact. So that's what I recall reading. He started as a business broker. Wow.

Yeah. Yeah, it's tough business. One of my most successful buddies here in San Antonio was a business broker and realized that he was on the wrong side of stuff eventually. And then he just went and bought the business. best business that came along that nobody else wanted it, bought it for cheap, fixed it, took everything he had learned in the whole process, and like, he's super rich now. It's like, how much better than being a business broker.

He's like, yeah, it sucked. So let's talk a little bit more about some of the weirdness here. This business is an established franchise. I have no idea what that means in this context. I think this is like a franchise, like an ongoing business, and he checked a box. I don't think, I mean, it sounds. like he started from scratch 43 years ago. Like, I don't think this is a franchise, like, actually.

I hope not. This is like franchise in the definition, like you pay franchise tax to a state, like, for being an entity, you know? So they have a financial model somewhere, Bill, that shows that this is a good investment if you pay their purchase price. I would think that would be the first thing I would start with is to make this 10 times trailing 12 months earnings work, you need to go figure out how. much you are willing to bet that that financial model and prediction that they have totally makes

sense. I guess that's the first place to start. I mean, like, I would be flabbergasted if there is anything that justifies this business selling for 10 times half a million dollars of cash flow. I mean, it's just not, there's no way. And then Mills is not here. So for the second episode in the road, now it is my turn to channel Mills, right? Eventually, like, you're renting equipment, right? eventually that equipment must be replaced. So the cash flow is not the cash flow because the equipment is depreciating. Now, I don't know what the useful life on a tent is. It's probably longer than a useful life on a bulldozer or something, I would think.

But I don't know, maybe not. Maybe they get set up, take down too many times. They kind of get crappy. And eventually you have to buy new tents. And I bet they are not cheap. So like any, I mean, for our listeners, like if you are in a business renting equipment or owning equipment at all, you must. must factor in the depreciation on the equipment to the cash flow. And I don't think this probably

does, because sellers never do. Though you do have to imagine tense, right? There are canvas and some steel and some stakes and you have some hammers. I mean, it's not the most rapidly depreciating stuff. So you got to like that. I'm just saying, and these guys is defense. There's not as probably it's not like they're renting diesel generators or something stupid like that. There's $823,000. of FF&E, which I assume is the value of the tense is what the listing says. Yeah, 100%. Okay. Well, look, I mean, let's wrap this one up.

But I think I like the ability to potentially buy the property. You know, you can get that appraised and figure out if that's a good deal. And then you can take a look at this guy's model and see if there's any universe in which 10 times trailing 12 months earnings make sense. And then, you know, the good news is I think the yes or no kind of the kind of answer here is just like, is it worth 10 times earnings? Or would you be better off putting your money in T-bills and then going to the Bahamas? And I'm kind of thinking it's probably the latter. Yeah, probably.

Probably. All right, good one. Thank you to everybody that joined our live stream, all two people who are probably our moms. No, no. Seven people on the live stream. Very nice. I don't know if we'll do this again. Maybe we will.

Stand your toes. Follow us on Twitter to find out. Cool. All right. And look, the ask every week is the same. Actually, it's different every week. The ask this week is go leave us a review on Spotify or on Apple, whichever platform you listen on and tell us what you think,

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