Acquisitions Anonymous - #1 for business buying, selling and operating - An Asphalt Surfacer and a Dry Bulk Business - e58

Episode Date: December 30, 2021

Joined this week by special Twitter anonymous guest (@guessworkinvesting), we talk two really cool companies for sale.  Guesswork is super cool in that he's a future former investment banker who's making the switch to SMB. Exciting to take part in this journey.  Sponsors this week are:  David C Barnett Small Business Dealmaking Podcast - If you're interested in learning about buying, selling, financing and managing small and medium sized businesses then you should check out the David C Barnett Small Business and Deal Making Podcast on YouTube and all the major podcast apps.  David is offering our listeners a FREE copy of his book; 21 Stupid Things People Do When Trying to Buy a Business.  You can find links to download your copy here:https://dbarnett.gumroad.com/l/21stupidthings/aapodcastAnd find David's YouTube channel and other links here:https://www.DavidCBarnett.comhttps://www.youtube.com/channel/UCbR8hQfFxBI4Idh4Zw65yZQhttps://podcasts.apple.com/us/podcast/david-c-barnett-small-business-deal-making/id1234025671  SMBash - SMBash is a 2-day conference that includes two full days of programming plus an opening night happy hour and key note send off.  The event is hosted by operators for operators with a goal of connecting like-minded folks in the acquisition entrepreneurship world.  Learn more about the cost to attend, speakers, and other details by visiting the event website at SMBash.com.-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#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]

All right, welcome back to Acquisitions Anonymous, the Internet's number one podcast about small business M&A. We are both first place and last place, which has me excited because we are a category-defining podcast about this topic. We have a great show for you guys today. Me and Bill Delisandro are here, and we also have a special guest who will remain anonymous, but is known on Twitter as guest work investing. And he will be helping us look through a couple of deals that are pretty exciting. So with no further ado, I'd love to welcome our guests. Guest work, thanks for being here.

Great. Thanks guys for having me. I'm excited for this. Yeah. So you're staying in on today, but could you give us some sort of hint about your background and where you're coming from today and give us some context and introduce yourself? Yeah. So my background is in mostly institutional investing.

I've done a mix of private equity, distressed debt, like weird private loans, all that kind of stuff. generally in what I think people would call like upper middle market like writing checks of you know for not my checks for other people writing checks of 100 to 250 million dollars and so that that's been my investment arena for the last several years and I'm now sort of making a transition over

into the self-funded search space I'm in the process of leaving a private equity firm and will be full-time searching pretty soon or I'm effectively full-time searching and I've got a deal under LOI and I talk about all of that on my Twitter. But the focus for me going forward is definitely on search, and I love these small business deals that you guys talk about. That's great. That's great. Cool. Well, and I think you're, we have two types of guests that come on the show. One who are,

you know, very deep in one thing. I think Heather from Live Oak was a great example of that, and that's magical. And then we also have folks like you, Tanner Doss, folks like that that come in that are really wide and know a lot and have seen a lot of stuff. And that brings a whole different flavors. So I'm excited about today and hearing you talk about some of the stuff because, well, we got some cool deals. So, yeah. The danger is I might not know anything, but I like to say that I have a wide scope of knowledge. That's all that matters. So there's like, do you actually know something and can you sound good actually not knowing anything?

Those are two things that could get you far in life. Cool. All right. So let's talk about sponsor number one. So sponsor number one is the guys at SM bash. So for those of you don't know, this is a conference that a number of kind of Twitter friends of all of ours, Sam, Brandon, Matt are putting on in Orlando. So this is a very niche get together in February for folks that are involved in small business. MNA. They're search funders, investors, and that sort of thing. Should be about 100 people or less. A lot of folks that we all know, Tim Ludwig, Rich Jordan, Alex Bridgman, and the three of us, including. Mills will be there and we're actually going to record an Acquisitions Anonymous episode on stage and then both Bill and I are giving talks on Saturday. Mine is on hiring. Bill,

Bill, what is yours going to be on? You know, they won't tell me. I think they're going to let me say whatever I want to say. It's going to be on e-commerce grab bag of kind of what's going on in the e-com and A space. Yeah, super cool. I'm excited to see that. I'll be there too, by the way, and I'm hosting a panel. Oh, nice. Oh, great. So I'll be self-doxing at that event. You'll be like, I'm guesswork and I'm out. Yeah, super cool, super cool.

All right. Well, yeah, so if you can, I think last we heard this thing's about two-thirds full. It's in February in Orlando. We'll be there. And if you're interested in seeing people in real life in this space, definitely sign up for S&Bash. And you can do that at Smbash.com and follow them on Twitter as well. So I'm super excited about that.

And thanks to S&Bash for response. sponsoring us today. So with our first deal is Bill. So over to you, Bill. So I am super excited about this. Thank you to guesswork who brought both of these kind of, you know, like an hour before recording. He was like, I got both these and these are spaces I know and they're fascinating. So the first one is a titled a Marine Cargo Handling Company seeking a loan in Washington State, United States. So I've got to imagine this is sent around Port Seattle. So this business is has been around. They say it's for 10 to 20 years. They have between 10 and 50 employees. They have reported 2.5 million of sales and a 10% EBITDA margin. So 250K,000, roughly on 2.5 million of

sales. They're a dry cargo transportation ship management company. So what they do is they provide dry cargo vessels, technical and commercial management, cargo brokerage. They sell and purchase ships. They have a new shipbuilding consultancy. They have a ship repair consultancy. They do marine survey and hull and machinery claims and cargo damage surveys. They have 10 dry cargo vessels under management right now, four of which are called handy-sized bulk carriers, which sail worldwide, and the other are small coaster vessels, the other six,

mainly trading in Europe, the Mediterranean, and the Black Sea waters. They have 26 clients and have been completed 80 projects since they were founded. Currently, they've got three projects active. the promoter, I guess that would be the broker or the guy that runs it, has more than 15 years of experience in this business. So they've got, as we said, two 24,000 dryweight tonne handi-bulkers,

two 18,000 deadweight tonne handi-bulkers. So I guess those are both the same. They sail worldwide. And then they've got three, I guess this would be six smaller ships. And they manage all those ships. Ten vessels total under management. So this is for a loan they're seeking. They're not trying to sell the company.

They would like to borrow two and a half million dollars, so one-time sales or 10-times EBITDA, at 8.2% annual interest for five years. So guesswork, you told us you know a lot about this industry, and I'm fascinated to learn. What are your thoughts on this one? So setting aside the 10-times EBITDA loan ask for a second. We can come back to that point.

I love this sector. So in my prior life, I did do some investing in shipping. But what I was doing was we were investing in actual physical ships. We owned handies, we own supras. We ended up owning post-Panamaxes and capes as well, mostly in dry bulk, owned some tankers as well. And owning ships sucks. It's just a brutal industry. It's like owning commodity shipping is the most perfect supply demand.

I've ever seen in any market ever. And so the only people who make money are basically small family owners who are actually able to own their ships for 25 years through the cycle and earn their cost of capital. Any like oak tree made like a billion dollars in shipping pre-recession and then lost a billion dollars of equity post-recession. And so like that's the way that industry goes. But what this company does is they provide services to the shipping industry, totally different business model way, way better and has some levels of countercyclicality that we can talk about.

But at its core, when you own a ship, your option is to either try to run it yourself, right? You go hire your crew, you hire somebody to go find charters for it, and you hire somebody to like take care of its technical management, right, whether it's repairs or just general upkeep of the vessel. That's one option. You do it in-house. Second option is you outsource that. So you find a commercial manager, you find a technical manager, you find a crewing manager,

and you pay them fees to run the ship for you. So this company does basically that technical and commercial management on behalf of shipowners. So they are totally asset light. And the way in which they get paid generally is technical management is paid on a dollars per day basis. And so it's very recurring. It's very sticky because it's painful for a shipowner to take that in-house. And then the commercial management side is usually a mix of both dollars per day and a percentage of revenue just to create some incentive for them.

And so those two revenue lines are like as good of revenue lines as I've ever seen, I think, in any sector. The one caveat being that it's not super hard to change out, you know, management provider, but as long as you're not really screwing it up, the

odds of taking that disruption is just not worth it usually for owners because these ships trade at, you know, like they earn $10,000 to $30,000 a day. So like the risk of losing four days of occupancy he is massive, it's just a lot of dollars, and it's usually not worth it. And like when we modeled the ships, like the occupancy we assumed for the year was like 95% plus.

Like they are almost never off higher. Especially now in 2021 with supply chains the way they are. Exactly. And then there's an element of countercyclicality, which is that when the cycle turns, what ends up happening is ships get foreclosed on by banks. And banks are like the last people to run the ships in-house. so they definitely outsource it. So when there is a turn in this sector,

you see more ships getting outsourced versus insourced. So there's a little bit of a benefit there. And like you might get some pressure on the rate you're getting paid. Like your revenue share and commercial will probably get squeezed. But like there should be a more aggressive market for you to go after to just get ships under management. So question. So it sounds to me like these guys are basically like a general contractor

and they'll probably sub out the crew management, the technical management, all that stuff. or do you think they've got crewmen on payroll on these ships? Yeah, the crewing is a little bit funky. Like, basically every ship in the world that does, you know, basically any tanker, dry bulker or container ship, the crews are almost always Filipino or Indian. And so, like, they have to have local operations

in one of those two countries to be able to do crewing. So often crewing is, like, a little bit carved out and done separately. But technical management and commercial management, that's just that's like your secret sauce is like being good at that. That's what the company, that's what their employees do. What do you think? So they've got two and a half million in revenue and 250K of EBITDA. What is in their expenses?

Because it seems to me like they would just be kind of taking a management contract and they got maybe a couple secretaries and the guy who runs this and we'll get to probably the keyman risk in a little bit here. But it seems like it'd be pretty asset light and their only expense would be maybe a little bit of headcount, but 90% of sales and headcount seems like a lot to me also. What do you think their expense profile looks like? I think it is all headcount, because if you look at, it looks like they have like 10 to 50 employees, it says. And like I wouldn't be surprised if they were running, like if they were

running this like a proper ship management company, the owner is really a manager and he's not the one going out and brokering actual charters. And if that were the case, then like, yeah, like if they've got, I don't know, 15 people making 100K, that's, you know, one. $1.5 million a cost right there off the top. That would not shock me if that's the, if that's the kind of the profile of this business. Okay, that makes a lot of sense. So it really is the ship owner is almost like,

you know, if they, if they outsource all the management, they've almost got what would amount to a triple net lease, you know, because they're not actually doing anything. They're accepting lower returns and outsourcing all the management. Of course, the big difference is that they're, you know, quote unquote rents in this case whipsaw like crazy. based on supply and demand.

So it's definitely not. I don't mean to liken it to real estate at all. But from a business model point of view, the ship owner is more like the triple net leaseholder. And these guys are more like the man. This business model is better than that because the ship owner continues to pay all expenses and anything related to maintenance. And these guys probably generally charge a margin on it.

So like if you have to go fix something, they'll handle it for you, but they charge a margin back to the owner for it. So what you're talking about like a triple net lease equivalent in this space is called a bear boat charter where you just give the boat to somebody and it's called bear as it comes with no people it comes with you know everything is paid for by the the person who chartered the boat in and so that's and so they'll do those like a 10 year bear boat charter that's the that's like a triple net lease that you're kind of talking about whereas this is really more of like a property

manager who's going to charge back um he's going to charge back fees to the shipowner yeah yeah very interesting. So why do we think, I mean, we don't have a lot, but they want two and a half million dollars of capital here. As you said, 10 times even da of debt is maybe a little aggressive. If you own a business like this, you know, are there capital needs to grow? It feels like it's kind of, you know, asset light. You know, I wonder why they would need two and a half million dollars of capital. So this is why I've never been able to buy one of these. It's because they don't need my money for anything, has been my experience, right? Like, anytime I've, I've, I've approach several of them to see if they'd want to buy or if they'd want like an investment from

my prior firm and we can partner to help them grow. And they're like, what do I need your money for kind of? And so that's the part, like setting aside that I love this business model, I have no idea what the loan is for. Man, interesting. There's also, and tell me I'm wrong here, it seems like there'd be a huge amount of key man risk. I mean, I love Brad B. Shore of the permanent equity guys. He characterized a lot of businesses as a hustler with help. And this seems like it would define a hustler with help, you know, kind of at this scale. Do you see a lot of that? You see a lot of that. It just depends on whether or not these guys have sort of built in real processes and actually built people into their platform, which I suspect they have given the

margin profile. Because like, if the owner is the guy like doing all sales and doing like brokerage of the actual, you know, commercial charters, like then yeah, it's not really a transactable business. But to the extent that they've actually put the people in place to run, you know, do that, then I think there's a way less key person risk. I'm just not sure based on this. How big did these businesses get? Because, I mean, I know the shipping industry is massive, massive, massive. And this is a tiny company at two and a half million in sales. I mean, can these get really big? Or is this an industry that's dominated by just like a bunch of small small guys running around. So it is generally dominated by a bunch of small guys running around. There is

one massive one called V-ships that the private equity firm Advent International bought several years ago. And I'm just looking online. I think at the time they bought it at V-ships had 70 offices. They had 47,000 people on ships, and they had like 3,000 of their own employees. So there is a version of this that is big, but the vast majority of it. So like basically, if you are a family owner, and you own like two to five vessels, you don't have the scale to be able to really get good purchasing and to really run a strong operation. And so once you get to like 10 to 20 vessels,

you're kind of doing okay. And so there's just a really long list of commercial managers that can operate 10 to 20 vessels on behalf of others and like do fine. You don't get a lot of scale advantage is going from like 20 to 100. Interesting. So it seems like this is a really good business.

that never transacts and not even in this case because they want debt. I think that's right. That's why I've sort of stopped looking at it personally, just because I can't figure out an angle to get into it. Why are they making so little money? Yeah. Yeah. The only reason I can imagine is because, like,

if the owner is, like, quite hands off, these things should be way higher margin. I just don't know, like, why. Yeah, it's a good question. Like, when I've looked at them in the past, they're definitely much higher margin. they look like a property manager making like 50% margins? The sale, it's not that their costs seem high to me.

It's that their sales seem high to, sales seem low. Like I'm like, it just doesn't make, two and a half doesn't make sense for kind of what I would expect them to be getting. But anyway, also, I know nothing about this business. I just learned about it in the last five minutes that you started talking to it. My sense is they talk a lot about projects. And then they also say we provide not just technical commercial. management, and there's a long list of other stuff they do.

Sailing purchase ships. I think this might be as much a consultancy. I mean, I think they're probably smart to lead with dry vessel technical and commercial management because people like you guesswork think that's sexy. But then they've got this whole list of hauled machinery claims, cargo damage surveys, marine surveys, prepare consultants. That's a great point. Yeah, yeah.

That might be the issue because there are firms that when you want to build a new ship, for example, you hire them to oversee the shipyard just to make sure. like things don't go wrong. And like that's not a good business, right? Like that that's low margin. That's pretty commodity based and that's really short term projects. Or not they're not short term, but they're projects. They're not recurring.

And so if that given the language is like we've completed 80 projects, you're probably right, actually. They're probably doing a lot more of that kind of stuff than the stuff that I like, which is the, you know, true technical commercial management. Yeah. So, okay, so they're trying to borrow 10 times EBIT dot, two and a half million dollars. I would think it was rich if they were selling the whole business for 10 times even down to $5 million. So I think unless there's something, and there's clearly not a lot of assets here, this isn't like an asset back loan.

So I think on its face, the ask here is a bit ridiculous. I'm not even sure I would buy this for $2.5 million. But let's say I did want to deploy $2.5 million into this industry. Is this something I can just go start? Like can I start hanging around Porte, and take a bunch of guys out for drinks, you know, and hire, hire an industry veteran or two and kind of muscle my way into this industry for $2.5 million or less? Or is there some sort of moat here that I don't understand? I think the moat is you need to have some basic ability to

get commercial charters done, right? Which is not really a hustle thing. It's a little bit more of like, I've spent five to ten years in market, kind of, you know, like learning how to do that. that's not a great moat which is why there's like a million small players but i think once you are one of the million small players you're pretty happy with yourself and so like i think what it really is is like you go work for clarkson's for 10 years become a commercial charterer and then if you have some gumption you go start your own thing and if you don't like i can hire that guy though right for for less than two and a half million dollars maybe split it with him i mean that you would hope but like i just like what i'm not sure is kind of the leverage you get on the people which is why i'm

thinking that's why this guy's margins might be so low is potentially those guys are like too or wiseed up to like the amount of value they bring and so you just might not get the leverage you'd expect on them so that that like that's my intuition but I don't know for sure obviously I have two questions one one thing here why is why do they have a office in Washington DC that's nowhere near a port like oh these are never these are generally not located like anywhere related to ports anyways they're never like they're never like they almost like never actually touch the vessels or see the vessels. Yeah, but they're not even, they don't even feel like they need to be anywhere near the water.

Like being in Seattle or New York or Philadelphia, like none of that makes Hampton Roads. None of that makes sense. It's a fair, it's a little unusual, I would agree. Just because like usually people with shipping experience live in those cities and therefore start companies in those cities. It doesn't strike me as like any kind of a requirement that or run one of these. And then why is this called a promoter? it says here promoter has more than 15 years

in this business like is this really like a hustle for somebody trying to get private investors to buy ships so they can manage them or is that or is that an industry term where they're that's that's I've not heard that term before so that strikes me as like it does say

listed by business owner and so that strikes me as maybe him trying to sound more than he is potentially I don't know what he means by promoter at all yeah this would not surprise me if this is just a veiled, like, hustle to raise money from unsuspecting high net worth people. Right.

I'd be curious. Here's the other part, right? Like, shipping industry as a whole is just the scummiest industry you've ever seen. Wait, wait, wait. No, no, you haven't dealt with the lotions and potions e-commerce industry. Okay, fair. Or the women's shapewear e-commerce industry. I might not have the context.

But... Oh, that's... For listeners about that inside joke. That's the, we joke about there's, you know, there's e-commerce, which is a rough and tumble kind of industry. But then there's these ones that grow all the time inside of direct consumer e-commerce. And they're usually shapeware or weird supplements, weight loss pills and stuff like that. And if you kind of see somebody who is newly making a bunch of money in e-commerce but refuses to tell you what they're doing, they're usually doing one of those two things because they're embarrassed about it. You either die an influencer or live long enough to sell women's shapewear or supplements.

Also, I just crossed 50,000 Twitter followers. I'm going to need you guys to buy some vitamins and ten foil hot stuff that I'm selling. It's on my website. Sorry, back to our regularly scheduled program. No, so it's like these, this industry just, I don't know. I don't know why it's this way. I mean, look, it's one of the oldest industries in the world, obviously. And it just seems to have, it has that dynamic to it.

there, you know, like in the public sphere, you know, you can look at dry ships. I don't know if you guys followed that story several years ago, but there was a public company called dry ships that the CEO had his own personal company. And they more or less, like when the ship markets were bad, like his personal company would buy ships from dry ships to give it like liquidity. And then when the ship markets are strong, the public company would buy it back from him. Like, just, just heinous related party stuff that these guys do. I remember when I covered this industry, I think it was Wells Fargo.

I think the South Side guy at Wells Fargo. He used to run this study every couple years where he ranked all the public shipping companies by, like, quality of governance. And then tried to correlate it to, like, equity returns. And they, like, actually, it was a pretty good way to run returns math, if I recall correctly. But, like, all of them are bad. So guesswork, believe it or not, in my investment banking internship in 2007, I also covered, dry ships. The MD that I work for.

And if you want to see a bonkers stock chart, pull up the dry ships stock chart from the late 2000s, like in the greater section, it was nuts. And you have to get it adjusted for like stock splits and like issuances and all that. They were issuing like every two months. It was insane. Yeah, it was crazy. More frequently than that, like every couple weeks they were issuing.

It was so crazy. The stock had like 20x. It was bonkers. So for the sake of time, it sounds like there's maybe something here, but also some stuff that just doesn't make sense. I just got excited about this because I love the business model. The deal is what it is. It sounds like we hate the idea of the loan. Let's talk a little bit broadly about that.

I hate the idea of any loan to businesses this size, generally, because let's be real, you're taking equity risk. You know, like, businesses this size are not nearly as stable as larger businesses, especially you've got keyman risk, you know, some, you know, they lose a big customer or whatever. There's some equity-like risk up and down the cap table on small businesses like this. I would leave that to the SBA to make these kinds of loans. 100%. And it's because you can't hire anyone to run it, right? So they're not big enough that you can't attract like a real CEO to run this kind of a thing.

So like unless you're planning to step into its shoes And if you are, that means you're taking equity risk, right? And so there's just no like if you don't have any real, you know, anything to go after and any way to stabilize this without this becoming your whole life, like you're not making a loan. Cool. All right. Well, let's put a pin in this one and let's give our thanks to our second advertiser.

And then we can move on to our second deal, which Bill will also have. So our second advertiser today is actually a new advertising. and it is another podcast. It is the David C. Barnett, small business and deal making. And by the way, I'm so thankful often to have the last name Gurdley because there's only like three of us in the world

because I don't have to use my middle name. Everybody just does who I am. But David is out of Canada. We've spoken a couple times. And he has a podcast and he's done, I was looking here at the number of episodes. He's done 418 episodes. Holy cow.

Yeah, that is a... Purple heart for you, David. Stick to it in this to David. And I've listened to a number of, a couple of the episodes. This one was pretty cool. David appeared on 22nd century management. David just seems to go through a bunch of deep wisdom for people that are doing, buying, selling, financing, small and medium businesses. And so he's got a whole podcast around that stuff available on YouTube and podcast apps. And he also has a free book, 21 stupid things people do

when trying to buy a business. And you can find those links below in our show notes and also on his YouTube channel and get more there and also on his website, David T. Barnett.com. So thank you, David, for sponsoring us and the podcast of yours doing that. So we're very appreciative. So onwards to our second deal. Bill has that one as well. All right. So it is Seattle Week on Acquisitions Anonymous this week. We have our next deal is in an industry that is also kind of a classic search fund darling or industry. And we love doing these because we know we've got a lot of searchers in our audience. And I have, at least, especially

when I lived in Denver, I knew a bunch of searchers who were looking for these. This is an asphalt and parking lot maintenance and repair company. So it says, this well-established company has earned a reputation in the greater Seattle market as a preferred vendor for asphalt and parking lot repair, paving, patching,

striping, and seal coat. Notable past and current clients include C.B. Richard Ellis, Dunlumber, and FedEx, in addition to a long list of residential and commercial property management companies, both big and small. They say they've basically never done any marketing. Their marketing is less than 1% of revenues,

so all of their clients are organic. They have many repeat clients. Revenues are steady and consistent through the pandemic, and 21 is going to be a record year. They say further growth can be achieved by increasing the marketing budget, hiring additional project manager to help manage the load. Of course, you can always expand geographically

outside of the greater Seattle area. They also say you can develop additional complementary services and sell those to existing clients. The owner has a current caseload of potential projects and bids extending into mid-22 and beyond. So this is, it sounds like they take care of people's parking lots, which does not go out of style easily. What do you guys think about this business? Oh, besides, they have $2.2 million in gross sales and $600,000 of cash flow, hell of a lot better margins than the shipping business. and they want just under $2 million for it, so a little over three times cash flow.

What do you guys think? So this one, it seems to strike all the cords of that good self-funded searcher type deal. The part that I'm trying to understand, I'm curious to get your thoughts on is when I look at these service businesses, I try to put them into groups. Group A is they're actually good at something in particular that is hard for other people to do their customers to do? and group B, is there kind of an equipment rental business at the end of the day?

And they're just sort of allowing their customers to not have to buy some really annoying equipment and deal with it. And like what I'm worried about this one is maybe it's in group B. Like if their customers include like big commercial GCs or something or commercial property managers, like I'm just wondering if, like I don't know how hard this is, I guess what I'm saying and whether what they're really offering is like we have the equipment to do it and we've put and the money to buy that equipment and we do the CAPEX every year for it. But then it's just like a guy driving on the asphalt, like painting it or doing basic repair. That's sort of my

question. I just don't know enough about it, though. I mean, I think what they sell is, hey, property management, never think about this again. That's what they sell. Right. You know, like, you don't deal with the, not just the equipment, but the people, like, your phone doesn't ring, like, you know, or if your phone rings just for the call to me, I'll take care of it. I think that's what they sell, you know, and it's probably a relative. small line item on the P&L of a mall, for example, you know, with acres and acres of parking rights. But do you think those guys do a little bit of this in-house and then they just do the big stuff with these guys? I would bet it's the other way around. I bet they might be, they might consider

doing the big or like subbing out the big stuff, hiring a big construction company, but the little stuff. There's a pothole here. The lot needs to be repainted, you know, all that type of stuff that these guys just make it go away. Got it. Yeah, because I'll give you the example, like a comparison that I've seen in the past is there was a business I looked at several years ago that basically for utilities, they would do line repairs and like they do basic like put a bucket truck up, you know what I mean, and like fix stuff up high for utilities. And which in theory sounds a lot like this, I think, and has some really nice dynamics. But what we realized when we did was this company is just swing capacity for the utility. Right. They just do all their stuff in-house. And then one thing, like, after a windstorm or if things are really busy, then they'll call these guys in because they don't have just enough bucket trucks to get around the whole county or whatever. And it's like that, that's what I'm trying to understand.

You know what I mean? Yeah, I don't think this is that. Because in the case of the utility, right, they're always repairing poles. You know, like that makes sense to vertically integrate. Yeah. It sounds like the customers here are companies that don't do, like FedEx, you know, those types of things, and property managers who really don't want to think about asphalt repair

and vertically integrating into asphalt repair. has got to be way down a property manager's list. It's just not core. Yeah, it's not core at all. I also, I knew a searcher when I lived in Denver who bought a business that was similar to this. It was parking, it was not just the repair, but they also did all the snow removal. So, you know, Denver snows a lot and you need to, you're parking lot to scrape.

And, you know, they build those giant, you know, brown, disgusting mounds of snow like in the corner and they just wait for it to melt in the spring. But he said, that was a great business. He'd have these recurring contracts that were super sticky. It was like the other search funder business, which has been a darling in the past, is corporate window washing. Like, you know, big high-rise window washing.

It's the type thing where the property manager doesn't want to deal with it. As long as you give great service, show up on time, you're kind of this invisible, you know, vendor line item expense. And it just keeps recurring. And that was, I wonder if, you know, I'm sure the Seattle market, it snows a lot. I don't know if this company does snow removal in addition to the kind of the maintenance. but in these bad weather markets, this is great.

Because not just the snow removal, but the potholes, all the salt, like, destroys it. Oh, that's another thing that you can sell them is putting down the salt. Like parking asphalt maintenance in garbage climates is the best. This business probably is not nearly so good in, you know, in Orlando or something like that. Right. I think one thing to like about the niche these guys are in is you're not dealing with an immediacy kind of situation, right? looked at some services business like this where the people are like, hey, there's water damage. You need to be over here right now. I think you have the ability here where an additional

level of seal code or restriping, you know, a parking lot. That can happen this week. It could maybe happen next week and not a big deal. Like you can still park there. So I think, you know, that that does lend towards this being a pretty attractive services business relative to some of the other ones we've looked at. Yeah. Yeah. I like this. Like, I'm curious to get to your guys's take. This is like as someone who's never brought anything in his life and has like the hubris to go buy a small business. I'm curious what you guys think about people buying like multiple, you know what I mean? Like going and buying the first, adding a second on like a year after, even within a year after. Because this is one that strikes me as like,

would be primed to go buy another one in the area or even buy something related. The commercial property managers also use like a landscaping or whatever maintenance landscaping business. but I don't know if like for people who have run stuff if that's just like that's just silly. So I have thoughts. Gurley, do you have thoughts? Please go ahead. So guesswork, to some degree, this is what I did in my business, is I rolled up econ businesses. I actually, I founded one in the first place.

Then I bought one and now we bought, you know, like eight at this point. You see a lot of people that want to do that in, you know, what I'll call sweaty businesses after, you know, Nick Hoover, you know, like real. world touch and feel with your hands businesses. And I think what you said is was really key, which is how do you feel about somebody buying more than one of these, maybe buying one of these, maybe buying one and then waiting a year. And the waiting a year is the key part. Because, you know, if you close on like, I mean, we had the guy that, where all the doctors bought the landscape company, you know, like three or four weeks ago. And it was like a complete disaster because they didn't understand that small business is a knife fight. And, you know,

shit goes wrong. And let me promise you, if you buy, you. buy this asphalt company, within a year you're going to be waking up at 5 a.m. to drive an asphalt truck. Promise you. I mean, not every week, but it's definitely going to happen. So, like, I think if you are interested in buying sweaty businesses, which sweaty businesses are awesome, you know, there's a lot of awesome sweaty businesses out there, not trying to take anything away from it. But I think buying one and working in it for a year and understanding what it really takes to operate one of these things is critical before you try to add another one. one. Understanding, you know, the labor dynamics, I especially think something adjacent like landscaping

would scare me even more, has totally different labor dynamics, you know, totally different equipment, you know, totally different ticket size, all that stuff. I would be, you know, there's a lot of folks that, you know, like two or three years ago, people got real hot on HVAC and home services and all this stuff, and people rolled up a lot of related things. And I think people are now finding out it's really, really hard. And there's a, there's a labor crunch as well. with technical labor. And I think a lot of searchups have gotten burned on that recently. So I would, for something like this, I would say buy it, own it for a year.

If it's going well and you don't mind being in the truck a couple times, I would either try to expand organically geographically or try to buy one in an adjacent market or add some additional services on, you know, to your core business rather than trying to buy something adjacent like landscaping. I would just add it. and I also would not do more than one transaction in their first year. That makes sense. That's good advice.

It's very tempting as an Excel junkie to look at the math of it and be like, this is awesome. But I think you're right. Clearly, the reality of it is more important. Yeah, the math is awesome. It really works in a spreadsheet. I mean, but just, if I were looking at this business, I love this business. I think it's cool.

I think someone could buy and do well. the biggest risk I see in this business is you end up in the truck risk. Like key employee quits, you know, something goes wrong. Like there's a million things that can happen that put you in the truck, resurfacing a parking lot. And you're just like, what is happening to my life? I'm resurfacing a parking lot. And my entire net worth is on the line. Like that's a unique place to be and it only happens in small business.

And until you experience that once, we've all, you know, if you run a small business, exactly what I'm talking about. Until you've experienced that, you should not buy another one. There was a great video of Sully, Brian Solentrop on Twitter, driving 45 minutes to deliver a new vacuum to one of his employees, only to discover the employee had just not plugged in the broken vacuum. That's why it wasn't working. He's doing it like at 9 o'clock. But yeah, that's exactly right. But I do think guesswork, like, just hearing you think think and talk about these deals, I think your background is going to help you really deeply think about these businesses, maybe more so than a lot of searchers do, right? Like, I think you would go into a business like this based on the way I've heard you talk. Understanding, like, the moat here is, like, for all these, like, clients who just want to fire

and forget on, you know, resurfacing a driveway or a parking lot, like, your mode is you're their guy, right? And so you're going to start to think deeply about that. And, you know, I think that's going to give you a leg up on other folks. or like if you told me your plan was 18 months from now to go buy a second one of these to expand into Spokane, right, like the next city over, I would be less worried because, you know, just hearing you talk, you're somebody that thinks deeply about business and your experience has helped with that. So, you know, I think some of that, to Bill's point,

ties back to who the buyer is and your ability to not only think about what it means to be in the business, but how do you create systems to get yourself out of the business and maintain that moat? Like, I'm pretty optimistic about your ability to do it. it. I appreciate that. And not to go off on this tangent too far, but the other thing I've thought about is, like, when do you start to build yourself out of the business to then go grow inorganically? Because it seems to me, like, when you buy the search fund business, there's a bunch of immediate opportunity. And, like, you could potentially chase that for 10 years, right? And the alternative, I think Zeller on Twitter, it talks about how, like, the best thing you can

do is get yourself out of the business. But if you do that, like, in year one, you've maybe grown at 10% and now you're out of the business and you're hoping it grows from there. Like, I don't know. Like, it seems to me like you should put yourself 100% added for a couple of years, grow as hard as you can yourself before you build yourself out of the business. I think some of that ties on where you are in life. Like, I'm 46. Like, I'm at the stage in life where two years ago I started figuring out how I never get

in the business. Right. Like, I don't want operational roles. So if I have an operational role, I'm doing it wrong. And if they call me and I have to go do an operational role, that means I really screwed up. You're not trying to drive asphalt trucks anymore? I mean, I'll do whatever you want.

Like, if it pays, I'll be there. But, but yeah, like, there is a journey that you go through in life. And I think at this stage for you, like, it's entirely acceptable for you to be in there and go through that experience that Bill talked about where I've done that. Like, where you're like, well, somebody's got to go work on Christmas Day. Like, I'm going in. Like, we'll make it happen. I've got to drive over there and plug in the vacuum for my teammate.

Like, it's just part of the deal. But yeah, some of it just depends on where you are, I think. That makes sense. Yeah, and I'm also pre-kids, which makes a big difference probably. Yeah, yeah. Well, and then you get to a point where I am when my kids are like teenagers, right? Where it's like, they don't want to spend time with me. I'm boring.

Just this guy with the same old dad jokes over and over again. Did you tell them about having the number one podcast in the small business M&A space? They don't care about nothing. No, none of that is interesting. There is enough. So anyway, back to this deal, you know, it seems like we don't, don't dislike this. I mean, you really, you really are buying here, I guess, a combination of resources. You're going to get a fast track to learning the expertise of how this market works.

But then really, I think the number one you're buying here is those client relationships with these folks that you're their guy and they call you and they just make, you just take care of them. You know, I like that, I like that aspect of it. I don't know if it's worth three and a third times EBDA, but it's not terrible. In this market, I think it is, Gurley. Oh, it is worth it? Yeah, okay, fine. Well, also, and this is cash flow.

I'm sure this is SDE. This is definitely not EBTA. So it's going to be higher. But I agree with Bill's read that, like, based on what I've seen, that SDE multiple is about as good as it gets. I don't know why buying it should be selling. Got to do deals, Girdley. Got to get the capital out.

I know. Well, I meant that I meant the phase in life where, you know, like I'm 10 to 15 years away from being in harvest mode, right? And so I've got to just got to just keep doing it, no matter how painful it is sometime. This is a good one. I mean, I'm sure there are warts on it if you dig in, but, you know, at first glance, really not bad. Yep, agreed. I am actually one of the things I'm pretty excited about here. Like this, you know, it won't surprise me also just looking at the names of the folks kind of involved here.

It won't, it won't surprise me if you kind of get tied into some pretty strong ethnic communities in the Pacific Northwest as part of this. So that would be, that'd be pretty fun too. That's cool. All right. Well, that's it. Okay. Well, on that note, so thanks again to our sponsors today. We have the David C. Barnett, Small Business.

and deal-making podcast, first-time sponsor today. Check out that podcast. It's available on Apple Podcasts, YouTube and all those kind of stuff. And to the S&B Bash guys, links to both of those will be in the show notes for this particular thing. And thanks for doing that.

And guesswork, thanks for being here. What can our listeners do to support you and really help you further your causes at this point, since you're still a non? Yeah. Well, I think, you know, if to the extent you're curious, like I write a newsletter that kind of chronicles my search, which you can find via, you know, exactly through my Twitter, guesswork invest. And though I will say if you're, if you don't enjoy learning about like a private equity guy trying to find a small business to buy, I would not subscribe. It's really boring. But if that's your kind of thing, like, I think it's interesting or at least I, my girlfriend tells me it's occasionally interesting.

And so that's probably it. But otherwise, I'd love to interact with people off of Twitter. So feel free to DM me or reply to the newsletter emails. I'm always down to chat. Yeah, super cool. And I definitely enjoy your Twitter a lot. And the thoughtfulness that you show here today, you know, you see it in your tweets. So really pretty cool.

And thanks again for doing this. And look forward to seeing you at Essen Bash in February. Appreciate that. Thanks for having me. And, yeah, I'll see you guys in Orlando. Sweet. All right. Bye, everybody.

Thank you. See you. I'm