Acquisitions Anonymous - #1 for business buying, selling and operating - A tradeshow booth designer in NY we like? - Acquisitions Anonymus 265

Episode Date: January 23, 2024

In this episode of Acquisitions Anonymus, Michael, Heather and Mills discuss a company for sale in Westchester County, New York, which specializes in custom trade show exhibits. The hosts assess the business, potential challenges, and opportunities, including real estate considerations, geographical concentration, and owner-dependency issues.  They consider the impact of COVID-19 on the trade show industry and the potential need for a sale-leaseback arrangement for the real estate component of the business. They also highlight the importance of understanding the true cash flow and potential transferability risks when evaluating this business. They suggest that potential buyers should have relevant industry experience and manufacturing skills to successfully run the business.Check out the listing here: https://www.bizbuysell.com/Business-Opportunity/global-custom-trade-show-exhibit-designer-builder-and-fabricator/2161267/Thanks to our sponsors!Acquisition Lab and their team have been longtime supporters of the pod.Created by Walker Diebel author of Buy Then Build: How to Outsmart the Startup Game, is an accelerator with a highly vetted cohort-based educational and support community for people serious about buying a business.Acquisition Lab exists to help people buy a business and navigate all the complexities of the process, as well as provide a trusted framework, tools, and resources to support you from search to close.If you are serious about buying a business, check out acquisitionlab.com or email the Lab's director Chelsea Wood, [e-mail].-------------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, everybody, Acquisitions Anonymous, Internet's number one podcast about small business, buying, selling, and investing. Today, three of the four of us, I got together and talked about a exhibit designer, so a company that makes the exhibits for trade shows. And this is the second time we've done a business like this. And it turned out that this business had some stuff about it that was much better than the one we looked at, well, I guess over 100 episodes ago. So I hope you enjoyed it or hope you will enjoy it because we had a good time making it. And here it is. This episode of Acquisitions Anonymous is sponsored by Acquisition Lab. Acquisition Lab and their team, they've been longtime supporters of the pod, and they provide a really great service for people who are looking to acquire a business. So it's created by Walker Divell, who's become a friend, the author of Buy, Then Build, how to outsmart the startup game. So Acquisition Lab is an accelerator with a highly vetted, cohort-based,

educational and support community for people who are serious about buying a business. So a lot of our listeners like you, you tune in every week to our deal reviews, you want to get in on buying a business. You're on this podcast because you're trying to learn how to buy a business. But if you're not quite sure where to start, acquisition lab is a great place to start. So they exist to help people buy a business and to navigate all those complexities of the process, everything you hear us talking about on the show. They provide a proven framework, tools and resources that support you all the way from search to close. They do it. There's a whole bunch of education material and support.

So if you're serious about buying a business, check out AcquisitionLab.com, or you can actually email the program director Chelsea Wood directly. Her email is Chelsea at buy then build.com. All right, guys, I have bad news. You may want to consider being on the podcast. Some guy on the internet called me a fraud. And it was what, who was this person that called you a fraud? I have some anonymous account. Anonymous. Yeah. Whatever. Like, fine. So anyway, The annoying part about it is not that, like, you get called a fraud because it's like whatever haters are going to hate. But it's like waking up and I have a bunch of DMs like, hey, did you see this? How are you going to react?

And I'm like, is not doing anything an option? That's how I felt about it. I was like, okay, this guy's clearly very young. And like, you know, it's kind of like, I felt like the moment like we have a young puppy cat now who's like super young and rampunctious and an old lady cat. and the old lady cat just sits there and the young puppy cat just attacks her and wrestles with her all the time

and then occasionally just takes her hand and just smacks the young puppy cat in the face. That was kind of the vibe I had today. I was like, oh, I just want to take a nap. So anyway, on that note, happy New Year's to you guys. I'm wearing my fireworks shirt, big day, big weekend, since we're recording this right before New Year's Eve.

Yeah, good luck with the sales this weekend. And happy New Year. It's, yeah, this is the last business. Day of 2023, and I am closing one more loan today. Nice. Oh, man. Down to the wire. Congratulations on your business journey this year, Heather.

Like, just amazing. Thank you. It has been super fun, and I've learned a lot, which I love learning, and I still have a lot to learn, but yeah, it's been a great year. That's awesome. All right. Well, I brought a deal because, you know, continuing my attempt to be host of the day to win my host of the day award every week.

But I brought this deal. Okay, so it is a biz buy-sell deal, and it is a company for sale out of Westchester County, New York. And it is a global custom trade show exhibit designer, builder and fabricator. And so what this is, they have pictures of it here. It's a company that designs, builds, and fabricates. What's the difference thing building and fabricating?

I don't feel like there's, I feel like one is just assembling. But it's like you go to a trade show, there's a bunch of people in khaki pants and have those things around their neck and they're at booths of different categories. And people are walking around booths on a trade show floor here. So the asking price is $8.8 million. Cash flow is $1.8 million. Gross revenue is $8.1 million. So about one-time's revenue is what they're asking for the business. $30,000 in inventory.

EBITDA is not listed. $7 million in real estate, $350,000 in furniture, fixtures, and equipment, and they have been established since 1957. The description listed by Licitan associates, and the broker's pictures here, he looks like a very nice man. This is a hard to find business. It's a full-service three-dimensional brand environment's company providing end-to-end client support for design, construction, and maintenance of and services for custom exhibit systems and structures used in trade show venues. The company additionally offers storage of all client-owned exhibit materials in a full array of pre-manufactured and hybrid exhibit systems to clients.

The company currently supports custom trade show exhibits, custom exhibit rentals, event marketing, brand environments, roadshow events, and on and on and on. The building that it is located is also for sale for $7 million and not included in the listed price. The company was first established in 1957 and was purchased by the present owner in 1997. the last 26 years, the current owner has provided turnkey trade show and event services for their client base. From design and conception through building and creation for their three-dimensional brain environments, the company additionally provides a full suite of offering to support all

logistics shipping and local on-site assembly at the venues for their clients. Currently, 90% of the business is supporting trade show-related construction and services with the remaining business comprised of work for museums, commercial installation projects, and customs graphics projects. Location is Westchester County, New York, not included in the asking prices, the inventory, and the real estate's not included. The building is almost 90,000 square feet, 16 employees, and there is not a lot of competition, including them,

and the owners are selling because they want to retire, and they will provide full turnkey transition and support from the owner. So cool. So what do you guys think about this trade show, exhibit designer, builder, and fabricator established in 1957, and now looking for its third owner? Well, I think that it brings back a little PTSD memory of COVID for me as a banker because we closed a loan for a similar business right at the beginning of 2020. And of course, what happened was their business became basically non-existent for quite some time as trade shows just all canceled.

So that's the first thing that comes to mind. I'm sure this business went through something like that as well, where there was just almost no revenue. So it would really be interesting to hear their COVID story. And did they sort of hibernate to get through it, you know, sort of lay off the employees and just kind of wait. And of course, if they didn't have debt, they could have done that. You know, the problem for many, many businesses was if they had debt, that was not an option. So it can be a great business. It is so very specialized.

And the picture that they're showing is one of these big booths. These are really expensive boots. So if you're making these kinds of boots, your customers are probably pretty good-sized companies. These are big companies. And often there's a lot of profit in moving and shipping the booth to the next trade show and setting it up. I didn't really get the sense from what you just read, Michael,

that they do that. Maybe they just manufacture. They say. What I read here, I thought, is that they are totally turnkey. They'll do shoot to nuts. Yeah. Okay. Yeah.

That's where most of the profit. Set up, tear down. The company additionally provides a full suite of offering to support all logistics, shipping and local on-side assembly at the venues for their clients. Sorry. It's early here. No worries. Why I went through it quickly.

The other thing that we looked at one of these that was in Houston, maybe 150 episodes ago. And one thing we keyed on that we really liked, and people followed up with D.E. about it later was a business like this, their building is 90,000 square feet because they have basically a recurring revenue storage business where they store the units on behalf of their clients. So they tear them down, they'll flatten them down,

and then you get recurring revenue. And I would be willing to bet that they got that recurring revenue during COVID when the clients were using their booths, they paid them to store them, because they pay by the month is the way I understand it works. Yeah, that sounds about right. Of course, that's the lower profit margin, and the high profit margin is, you know,

installing it and tearing it down and moving it. And it's very expensive. If you've ever, you know, had to look at what it costs to put up a booth like this, the cost of moving around and putting it up, taking it down costs way more than ever building it did. You know, it's quite a bit more. So, and you have to use,

specialized labor, you can't do it yourself. You know, there's all kinds of rules around these exhibit halls. So it's got a lot of moat around it, I guess I'll say, with regard to that. It's very specialized, and there's just only so many companies that do this kind of thing. I wonder, you know, who is their competition? Are they the biggest? Are they medium? I'd be curious about that. That would be an interesting fact to know. The first thing that comes to mind here is, as I look at this listing, they have $7 million for the real estate. So this building is, you know, a 90,000 square foot building in Westchester County, which so that's, you know, ex-urban New York City, and that is not cheap real estate around

there. And it's supposedly worth $7 million for the real estate. And they show the cash flow from this business is $1.8 million. It makes me want to dig into how much are they juicing the cash flow of this business by not really charging themselves rent. It wouldn't surprise me if there. When you dig into this business, it really is an $8.8 million business that they're asking for. And unfortunately, you need to be paying $7 or $800,000 a year in rent for this building. And the cash flow of this business is less than a million dollars. And suddenly they're asking nine times cash flow. Spidey Sense Gurdley is predicting that's why this business is not sold yet. I see it a lot. We have an item in our cash flow worksheet that says, you know, rent adjustment.

And I have to explain it to everybody. You know, it could be up or down. But if you're not paying the same rent as the seller, we need to make that adjustment and see what that does to cash flow. It happens a lot. Did they specify if the rent is owned by the business or if it's just owned by the owner? Owned by the website, too. Owned by the owner. It's usually not owned by the business. You hardly ever see that, but you see the same owner, and we call it a pocket-to-pocket rent.

So they can do whatever they want with it. They can pay above market. They can pay below market. And you'll see sometimes just kind of wild swings in the numbers. a lot of rent one year because they did it for tax purposes and almost no rent the next year. And a new buyer needs to normalize that, so to speak, in the cash flow to see what it would look like if you were paying rent at market. It is funny. This is another one of those cases that we talk about a lot where the real values in the real estate.

Like the business was just a passenger to afford the real estate. And it reminds me, we looked at that set of businesses in Savannah, Mills, it was probably like 200 episodes ago, where it was like real estate was worth like $7 million. And the business in it was worth like $750,000. So it's like one of these things where it's like, if you can use your business to buy the real estate, it's a really, really smart play.

It looks like these people did that. I just did a loan earlier this year where it was in Los Angeles, and the real estate was worth about $50 million. And the business was worth about, about 10. And frankly, they have to move the business out of this property. That was the key to the whole deal because they're selling the property to a developer to tear down the building and put something higher and better use there. And it was really a very difficult business to move.

And that was sort of the puzzle. That was the challenge of the deal. Could they find a buyer that could actually do the move successfully? And could the lender underwrite the risks of the move. And so it ended up being a strategic buyer, someone in that same industry. And the move is still going. It's a one-year move. They're still doing it. The nice thing about this is it's not retail. You know, there's not, it's not like customers are coming here and, you know,

purchasing goods and services. It's the unique value is cheap real estate, you know, cheap rent. It definitely smells like that. I would dig into it. But look, to speak in positively about this business, like, like you have a, it looks like they have a very diversified. client base, the nature of trade shows being essential to do human-centric business is not going anywhere. People are still needing sales reps and sales reps still want to meet with their clients

and take them out to fancy dinners. You've seen that in the conference business post-COVID. It just came back even stronger than before. I mean, I think this business has lasted since in 1957. It ain't going nowhere, in my humble opinion. You're not worried about China or overseas labor or, you know, the manufacturer of these things going to Mexico, that, that ain't happening because it's all bespoke work. The unions are involved drastically in this whole trade show thing. You have to pay some union guy $5,000 to hook up the internet to your booth. That ain't changing. So there's a, I mean, to me, as I look at the tailwinds of a business I would like to be in, like this is a nice, nice, just simple business that's not going anywhere. I don't know if you

I think differently. I think the one risk I see is like if, you know, their proximity to New York really drives their business in New York, whether or not it's global, kind of hard, it seems hard to imagine them servicing booths, you know, at conferences in Texas or Charlotte or something like that. But, you know, is New York going to continue to be a conference destination? Absolutely. But if, you know, 10, 20 percent of companies or trade shows decide to move out of New York, then they really, their hands are tied. There's only so much they can do. Yeah.

Geography would play in a lot to this. I know there are, you know, I looked at some trade show management companies that were based in Orlando and that was their specialty, everything, you know, to do with trade shows in Orlando. So, yeah, if they're focused, if their work is geographically concentrated, that would be something to pay attention to for sure. The alternative is, like, I looked at this business that owned a bunch of really, really expensive video and AV equipment that was used on like, you know, the PGA tour, where, you know,

it's intentionally mobile. It never actually lives in one place all that long, but it doesn't make sense for the network to own the equipment because of how expensive it is and how little they use it and then how quickly it becomes obsolete. And so it's the opposite of this. It's mobile all the time. Doesn't matter where it is, but there was massive customer concentration because, you know, like CNBC, NBC, you know, the Golf Channel, all these, you know, different ones were basically the only customers. All right. Taking a quick pause here, I have something to tell you. This is Michael. I hate bookkeeping. I hate bookkeeping. I hate doing HR. I hate doing all that kind of stuff. But for bookkeeping, I have found a solution. It is my friend Charlie's business called cloudbookkeeping.com.

So that's cloudbookkeeping.com. They are your perfect partner if you want to get bookkeeping out of your hair and focus on making your customers happier and more successful. So please give them a call, call Charlie, cloudbookkeeping.com, tell them we sent you. They're a great way if you're a business buyer, if you're a business owner, you're tired of hassling with getting your bookkeeping done. He's got a whole fleet of people that are well trained and work for him. He's located here in San Antonio, so I can tell you, because,

of that, he's awesome. And they're a great partner for you to potentially call to help with all your bookkeeping needs so you can do the important stuff in your business rather than worry about getting your books right. So give Charlie a call, cloudbookkeeping.com, and now back to the episode. I just had a quick search, and I was kind of surprised to see New York is not as big of a convention city by some of the listing as I thought it would be. In some of these listings, it's like, Obviously, there's Orlando, Vegas. Like, those tend to be the two that show up in Mothi's list. But then I expected to see New York and stuff like that ahead of places like Dallas or even San Francisco.

So, yeah, just pretty interesting. I guess there's also the long tail of conventions. I mean, so many, like, for fireworks, for example, like, we would go to these, like, we would have our convention every year. And there was literally a trade show booth. And sometimes it would just be, like, a dude from China with, like, a laptop. into like a notepad. That was his booth, sitting at a chair. But then other times people would have sophisticated. So, I mean, even in a niche corner industry like that, there's full-on people buying trade show booths and having them set up and stuff like that. So that may be not,

maybe that top listing thing is not as tied to reality as it might be. What do you think about construction trade shows versus, you know, other industries and how construction would fare? What do you mean by that? Like the construction industry, like your industry? Well, yeah, they're kind of saying that, you know, 90% of their business is construction-related trade shows. Oh, yeah, this thing here. Okay, you know, they read that. All these other verticals. Supporting trade show related construction and services with the remaining business work, comprised of work for museums, commercial installation projects, and customs graphics projects.

I don't think that means they talk to the, they service the construction industry. I think that means they mostly are doing construction and services for trade shows. And then there's just a random smattering of other stop. How do you read that, Heather? Yeah, I do. Yeah, now that you read it again, it could easily be understood the other way, so it wasn't a great sentence, actually.

But yeah, I agree, because that would be pretty tough to focus this kind of business on a particular industry. You've got to be able to service all kinds of trade shows, all kinds of industries, because your industry is a trade show industry,

I would say. So the reason we didn't like the Houston business, and it was very clear that when you read it, which I don't see here, but when we saw the Houston trade show booth designer, it was maybe like a third this size or a quarter of this size. And the reason we didn't like it was it was very clear that the owner had to be in there doing all the selling

and relationship stuff for the business. Do you get the vibe that this one has that problem or is this a different situation? I think that could very well be an issue here. This is the same owner since 1997. And only 16 employees. So there's a, there's a clue there. And I think it's a very relationship-driven business because it's so, you know,

focused and niche. You know, there's only so many people, you know, that you would talk to about this kind of work getting done. So, gosh, I would think there could be some potential transferability risk. You know, what does the seller do? What's their role? And can you really replace it? What does a transition period look like?

I think with 16 employees. and same owner since 97, that's very, very good point that that could be a risk. Something to think about, yeah, how much is this owner-dependent? I don't know if you saw my Twitter thread last week. I talked about the danger of buying yourself a job. So that's kind of what we're talking about. Yeah. So, I mean, in terms of who should buy this?

I mean, the obvious first thing is somebody should buy this that is in the trade show exhibit, designer, builder, and fabricator visit in Orlando or Los Angeles or, Like, those seem to be the natural strategic buyers for this. Right. I would agree. And outside of that, you wouldn't want to put a ton of leverage on it, I think. You know, just speaking as, you know, that there's some risk here in the transferability, the dependency on the owner. So you need someone with some manufacturing skills, too.

I mean, they are fabricating and they are moving parts of things. You know, I think that some kind of engineering background or experience. in manufacturing would be helpful. I totally agree with that. I mean, I think, yeah, I think this is going to be one that we discovered has not sold because it's, they haven't priced stupidly high.

Well, that. Yeah. That is, it is priced a bit too high. And we have that little real estate problem that we don't know, you know, where that takes the cash flow. And you really can't move. 90,000 square feet, you know,

it's not, it's, it's, you are maybe kind of stuck in that building. Yeah, I mean, there's a, there's a reason Barrett O'Neill and other folks are suddenly buying light industrial in the Northeast corridor because they ain't building any more of it, you know, and this is one of those things where like, good luck, good luck finding another building to replace this one. That's a big, that's a big risk. So I guess you could buy this. So let me pitch this out to you guys. Let's say you sign a contract to buy this business. Let's say, indeed it is $1.8 million. You know, is there a scenario here?

where you buy the land and the business from these guys. And then instantaneously, what you do is you sell the real estate to an investor and lease the building back from them. And let's say you decided to rent the building, say at $800,000 a year in rent, sell the business, sell it at a, let's say, eight cap to somebody. This was all easier when interest rates were lower. You could possibly generate some cash for the whole transaction there. So anyway, just do like a sale lease back of the real estate and end up with the building

leasing or end up with the business leasing the building. I mean, is that potentially a scenario somebody could do here? And I don't know if I explain that concept well. It's straight in my head. Yeah, I mean, I kind of get it. And a sale lease back, just to simplify it in my head, I always say it works usually only when the seller is sort of undervaluing the real estate. If the seller is properly valuing the real estate, there's going to be no residual unless

you pay over market. in your leaseback rent, you know, or agree to terms like that. So I think that's kind of the key to a sale leaseback. Are you getting the real estate at something below market? And if so, and can you afford the cash flow of the leaseback portion of it? Could be. This could be one of those scenarios. The story I told you about where the, you know, the real estate was worth so much more

than the business, they sold the business at a very low multiple because that was the only way they could, you know, so there's sometimes opportunity. in saying, fine, I have to move this. This is the cost of the move. I have to take that out of the cash flow. And, you know, I can only pay X then for the business in order to let you free up the value of the real estate. That's another way to look at it.

I mean, math-wise, if you agreed to lease the building back at $800,000 a year, you buy it for $7 million. You go and you try to sell it at an eight cap to an investor. That's a $10 million sale. So in theory, if you're able to do that and the business is able to afford $800,000 a year-end rent, which may be thin, given the cash flow is only $1.8 million, you could day one generate $3 million in cash that you use to buy the business. I don't know. Just thinking out loud. A lot of times to the sale leasebacks, like I just looked at one the other day.

It was an industrial building, and it was teed up for, it was a sale lease back from the tenant. and that business had changed hands to a private equity firm. And somebody came in actually and bought it in the sale lease back, packaged it in kind of a friendly, it was not a fully arms linked transaction. But they made it perfect for a 1031 exchange. It was a 15-year true triple net lease with some escalations in place. And so an investor looks at it and they're like for 1031, they're like, this is perfect. Like what can go wrong? And I don't have to touch it.

I don't have to do anything. And people are willing to obviously accept much lower, you know, hurdle rates around something like that where they don't have to worry about vacancy or turnover or things like that. But that's the situation that I see more times than not on a sale leaseback is I'll go really long on the term just, you know, to attract a certain type of buyer. We're checking out the broker here. Yeah, he looks, well, he looks like he's from the all caps, the all caps generation. I worked at a bank where the CEO was of a certain age and liked to write all company emails, not just in all caps, but highlighted.

Yellow, all caps. It was really quite loud. I'm an investor in a company back when I was still doing minority investing in companies, and the CEO is a delightful man, one of the greatest human beings in the world. and he writes, his investor updates are like 14 page, like just like stream of consciousness stuff. And I just, when they show up, I'm like, okay, like, you know,

let's fill up the bathtub, get some candles out. I'm going to read this. Missive because it's just like, it's just the best. So I think Mel looks like a typical business broker. Good for Mel. That's Mel Liciton is the name of the broker here. Dude, I think this is a business worth getting the book on. Like, I think there.

I think there's some kind of obvious questions, but the good news with something like this is, if you can get the broker to call you back, which is a challenge these days, I think there's some obvious questions about like, okay, what is the real cash flow from this business when the real estate's in? And why have all of the other people in the trade show exhibit business passed on this one? What's going on? You get into it and discover, oh, they actually only do the adult video news show every year, and that's their whole business.

you know what you're getting it to. Yeah, I think it's worth finding out. And I agree with you. Like, just go straight for what is the real cash flow as your first, you know, set of questions and what you want to get at. I find a lot of people try to do that. And the broker makes it really difficult for you to do that. You know, they string you along to try to, I don't know what they think the strategy

is there because eventually you're going to find out what the cash flow is. There's no point in wasting time. But, yeah, definitely try to find out the true cash flow around the rent and, you know, where the business really is, I'd say geography then. Focus on where your customers are, where your trade shows are. And then it could be pretty interesting. Yeah, I agree. And they say we only hate deals.

I like this one. It might be at a bad price. I mean, this is no worm farm, but this is pretty good. This is like, it ain't no worm farm or pizza boat, but it's pretty darn good, I think. So anything else on this one? Otherwise, we'll take our rabbit and. enthusiasm for the exhibit industry off to the holidays. All right.

Thanks everybody for listening this week, and we'll see you next episode. Good times.