Acquisitions Anonymous - #1 for business buying, selling and operating - Building $5mm pools in San Antonio - Acquisitions Anonymous 204

Episode Date: June 20, 2023

Michael Girdley (@girdley) and Heather Endresen (@EndresenHeather) review a pool building business in Michael's hometown. You could say our mind is on summer.Check it out: https://www.bizbuysell.com/Business-Opportunity/pool-construction-and-service-co-w-40-years-in-business/2095591/?d=L3RleGFzL2JvZXJuZS1lc3RhYmxpc2hlZC1idXNpbmVzc2VzLWZvci1zYWxlLz9xPWNHWnliMjA5TXpBd01EQXdNQSUzRCUzRA%3D%3D&fbclid=IwAR2trjNs5Of0LmORgz8KDkbVNA4xMB-JTC3hdFzAF5IzvSWlL7zKWIHJNgY_aem_th_ARGWbKKnItZHcBSDnUeyerPQijB0ihWDPB94-ocRZK5z7gUZmEKZOeHSgVdG0MLbAOo "Building $5mm pools in San Antonio"_____Thanks to our sponsor!This episode is sponsored by Acquisition Lab. Acquisition Lab, created by Walker Deibel 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. After going through the Lab's month-long intensive, you have ongoing access to almost daily Q&A sessions with advisors, regular live deal review forums with Walker, hand-picked vendors for your deal team, and a very active Slack group with other searchers on this path. Our team personally understands how to buy a business and will help navigate all the complexities of the process, as well as provide a trusted framework, tools, and resources to support you from search to close. The Acquisition Lab recently celebrated its 70th business being acquired and well over $100m in aggregate transaction value. The Lab is there to stand by your side, so you can take the right action (at the right time) and avoid wasting countless hours trying to "go it alone".For more information, check out acquisitionlab.com or email the Lab's director Chelsea Wood, [e-mail] 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, Michael here, Acquisitions Anonymous, back for you again today. We have an episode that was super fun. It was actually located here in my hometown of San Antonio, and of course I did the girly thing to figure out which company it was, and it is a pool construction company that we think had some interesting dynamics to it, and worth digging into and a lot to learn from it. So with no further ado, here is the episode. This episode is sponsored by Acquisition Lab. Acquisition Lab, created by Walker Dibel, author of Buy and 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. After going through the lab's month-long intensive, you have ongoing access to almost daily Q&A sessions with advisors, regular live deal review forms with Walker, hand-picked vendors for your deal team, and a very active Slack group with other searchers on this path. Our team personally understands how to buy a business and will help navigate all the complexities of the process, as well as provide a trusted framework tools and resources to port you from search to close. The Acquisition Lab recently celebrated the 70th business being acquired and well over 100 million in aggregate transaction value. The lab is there to stand by your side so you can take

the right action at the right time and avoid wasting countless hours trying to go it alone. For more information on the lab, check them out at AcquisitionLab.com. There's a link in the show notes, or email the lab's director, Chelsea Wood at Chelsea at buy-then build.com. And that's Chelsea, C-H-E-L-S-E-A at Bidenbill.com. Heather, what's going on? I am trying to, again, still just survive summer in Southern California. It's tough. It's rough.

Are you guys wearing Parker's because it's like 65? Yes, exactly, exactly. And we're moaning and groaning about it, and then we're going to be moaning and groaning in August that is too hot. So that's just what we do. So I don't think I ever told you, but I found a place on the planet with actually better weather than Southern California. Do you know where it is?

I'd say Hawaii, but... It's better than Hawaii. I've been to Hawaii, I've been to Maui, it's better weather. It is actually Medellin Colombia, or Medellín, Colombia, as the Colombians say. It's the home of Pablo Escobar. Yeah. And in Spanish, they call it the city of the Eternal Spring.

Because basically, every day is the Eternal Spring. And you would think human, would eventually, the weather would be so perfect. Like in the morning, every day, it's like a crisp 62, 63 degrees, tops out around 82, 85, and it rains for five minutes at 5 o'clock. It's every day.

That's every day you're there. So Pablo Escobar knew what he was doing, at least where he lives, right? Well, it turns out the Spaniards and before them the Incas and Aztecs were freaking geniuses, right? Like, they put all of their cities in incredibly smart places

in South America and Latin America where it's amazing. And it's like one of the jokes we have here in San Antonio is in the summer the best thing to do to get out of the heat, which is oppressive here, is to get on an airplane and a half south to Mexico City, which is at 7,000 feet of elevation and the weather's like 25, 30 degrees cooler than sweltering San Antonio. But if you look at like there, like Guadalajara, which is, you know, the second or third biggest city in Mexico, Kali and Colombia, Bogota, Columbia, Medellin and Colombia, Caracas, Venezuela, these are all cities at altitude that are just incredibly pleasant and have arguably better weather than most cities in the United States because

these Inca's Aztecs and then the Spaniards were very smart in terms of what they put cities. They didn't have air conditioning, so they were the best spot, of course. Yeah, we do all these artificial things to try to live different places. But yeah, that makes sense. Yeah, my wife and I talked the other day It's like if San Antonio, if air conditioning didn't work, like we couldn't. You just can't. San Antonio would be inhospitable. Yeah, I believe it. So speaking of making use of the heat, so we have a deal today that I'm excited about

because I know intently the place where it's located. I have it pulled up. It's off of Biz by Cell and it's titled Pool Construction and Service Company with 40 years in business. And that's an exclamation point. So it is in my county. So Heather, we worked on some schick before this. And I was going to ask you how to pronounce this county.

Do you want to try? Yes, it's Bexar County. We had a fun of you dig. We were going, I was like, oh, no, that's not pronounced. It's B-E-X-A-R. It's Bear County. It's the county around San Antonio. And it's basically our filter to understand if somebody's from here or not.

How you pronounce our stupid county? I have no idea why Bear it's pronounced that way. If the X is silent, then how do we say Texas, right? I mean, I'm confused now. Well, the Mexicans and the Spaniards would refer to them all as Tejas. That's true. It was pronounced those ways. Anyway, my Spanish is basically Elmo level of vocabulary with John Wayne pronunciation.

So I'll keep working on that for you. So here is, they have a picture of this pool construction company. There is a beautiful infinity pool. That's what this is, right? Heather, is that what this is called? That is. It's a beautiful one too. I like it.

And then a picture of a yard with some trucks. and look at this. I think you can actually see on the name of the, you can actually see the logo on there. I think, well, given this is in San Antonio and I know the names of the pool companies, we may be able to do the gridly thing and figure out which one it is.

Yeah, detective. I think this is called Gary Pools. That's my guess based on that logo. So we'll get there. Asking price is $3.2 million. Cash flow is not applicable. gross revenue is $4.6 million. EBDA is $920,000.

Furnisters, fixtures, equipment is $1.2 million. Inventory is $150,000, and they have $3.2 million in real estate. It was established in 1983. And again, asking price is $3.2 million. EBDA is $929,000. So a little over $3.2x, basically, is my math there,

of a multiple of EBDA. Interesting, there's no cash flow. So, in A. In A, yeah. It's applicable. Business description, great team value out opportunity and real estate owner finance available. It's not every day a business with 40s experience. Customers and operations comes to market.

Here's your chance to buy a highly successful business with over $1.2 million in vehicles, equipment, and materials for a low EBIT of multiple. Company leadership will stay on for 12 months of transition, is offering owner finance on the real estate and has lots of room to grow on their service business, operations, systems, and process. Heather, I'll take a moment and pour one out for them having a typo of the word business. You and I go nuts from that every time. Look at that, yeah.

People, spell check your stuff. Yeah. Please. With consistent growth in top line revenue over the last 40 years, this company did $4.2 million in gross sales in 2022 with an EBITDA of $756,000. So I guess, well, how does this math work? They showed us some numbers before, and then they showed us 4.2 million. in gross sales.

But he says 4.6 above. So is that? So maybe that's 2023 estimated. Could be. That's maybe what they're doing. So really, really, the multiple is not as sweet because here they showed us 930,000 in EBITDA, and I think that's forecast for 2023. And then 756,000 seems like actual for 2022, which puts us closer to exactly four times.

I think if you divide 3.18 million by 756,000, you get almost exactly four times. Cool. All right. So a bit more. Located in Bear County, Texas, that's San Antonio. Inventories including asking price. Real estate is owned by the owner.

The building is 10,000 square feet, 26 employees, includes all furnishers, fixtures, and equipment. They have a bunch of facilities, trucks, back hose, excavatories, and that sort of thing. The business is growing, running smoothly with minimal owner oversight,

multiple leaders, managers in the business that can handle all incoming requests, manage employees, and continue customer relations. The market of the area has few established businesses that outmatched this one in terms of reputation. There's a lot of growth opportunities within this business as a current operation lacks digital CRM in billing, service businesses could be larger, and they currently turn down more business than they can support due to labor bottlenecks. Outsourcing these jobs could create additional revenue while holding labor costs low.

Cellar finance is available. Owner will stay on 12 to 24 months, and the owner is retiring. Yeah, and so that's what I know about this. So you've looked at a lot of pool companies. What do you think, Heather? I have. I like pool service and maintenance a lot better than I like pool construction as a lender. And that's because one is recurring and one is totally projects.

So this one, they don't say anything about maintenance contracts. This looks like it's all new construction. So it's going to be all projects, lots of trucks and equipment. and, you know, excavators, I guess, is what those are. And so I would really be interested in a business like this knowing what it has looked like for the last 10 or 15 years in terms of revenue. I'm going to guess it's pretty lumpy. You know, there are good years when people are spending and putting in new pools,

and there are bad years when people just aren't going to spend that kind of money on new projects. And so that would be sort of the first question that comes to mind in any kind of project, business, you know, how much of that there is. Sounds like, I'd want to know a little bit about their sales process too. There's no CRM, so it sounds like, you know, it's probably word of mouth. Your friend puts a pool in and you think it looks beautiful and you ask for, you know, who that was and you give them a call. It's probably something like that.

What do you think, Michael? Sorry, I got myself distracted trying to figure out which cool company this was. So you were doing so good. I was like, keep going. I almost figured it out. You think. You just keep researching. I think there's a, you know, this is a tough business is my general assessment because of the project nature and the fact that also the margins kind of usually swing around, you know, in tighter times, they might have to, you know, bid lower and

not make as much money on the projects. Pasting is also a really big thing in contracting businesses. Yeah. Because you have to be an expert to bid the right price. at the right time and know that what your profit margin is going to be. I've seen a lot of buyers step into those kinds of businesses. And even though they had a good transition period with the seller training them and all of that great stuff, still struggled with the costing and the bidding after close. So I think that's always a big risk for these kinds of businesses. Yeah, we've had a couple, we've had two different groups on that have acquired or owned pool construction companies. and one of them is enduring ventures.

So Xavier and those guys have raised money and deployed it to buy a pool company. And they did one in Phoenix. And then I'm pretty sure Brent Beshore and Permanent Equity owns the other major builder of fools in Phoenix as well. And I think I recall both of them talking about there's this natural phenomenon in most mid-sized, or smaller markets, where you end up with basically two kind of pool construction companies.

Because you're basically to be efficient at building pools, you need to have all of this equipment and stuff and being a subscale pool manufacturer or contractor is really problematic. So it makes me wonder if this is one of those top twos or the other ones are bigger. Because ultimately, like, let's say you spend $125,000 to put in a pool or $100,000 to put in a pool, which may be low. You know, we refinished our pool four years ago pre-pandemic, and it was $25,000. Like, we're not messing around.

You know, it makes me wonder how many, if you're just doing $4.6 million in gross revenue, how many pool projects that really is in the grand scheme of things. Right. And then what is the housing market? You would know you're there. Are there a lot of new homes going in? C. Antonio keeps building homes like crazy.

We love the suburbs here. This is a great market. With a heat of pool, you can swim all year round. When we moved into our house in 2018, my kids were still young enough that they would actually start swimming in March and keep swimming until November with an unheated pool. Kids are nuts. I don't get in. My skin is thin and I spent many years swimming in college.

I don't get in the pool until August now. I'm in the ocean hearing Southern California anymore. It's just, you know, it's doable. but I just can't do it. Not for me. No. No. Not at all.

So, yeah, so we've seen these groups that have liked that aspect of it. To me, I always wondered how much pool construction is tied to low interest rates because, you know,

very few people are writing, uh, writing cash checks for pools. You know, your percentage of buyers has to be relatively small for that. And you're getting a new home, you know, and if you're at seven or eight percent,

interest rates or 6% interest rates, that's radically different than 0% or 2% financing, you know, on some of these pools. And then I think you also have the COVID bounce back happening here where people have built their pools, right? And they're getting out and about and living normal lives again, the pendulum swinging the other way. So yeah, I think the macro here and the san Antonio environment is a really good one. You know, it's warm, sun state, all that's really good. I like that aspect of it. I worry about the macro in terms of, you know, beyond financing all that kind of stuff. I would too.

And on any kind of project business that's discretionary like this, I would think that. And I would also think, yeah, the COVID, the COVID boom was great. That's why I like the pool maintenance businesses, because there's more pools than ever now. You know, there was a lot of growth in pool building and they've all got to be maintained. So I like that because it's nice and recurring. This is tough. I think this is a tough business. I wouldn't want to see debt on something like this.

or very little. That's fair. I bet they've if they've been around since 1983, I would be really interested to understand what their, what their history has been.

Like, how many years do they actually really make money out of all those years? I'm not quite sure. Yeah, exactly. And seller sounds like he's been with it for a long time and we'll train, but I guess the reason was retirement.

Is that what it said? That is what they, said. Yeah. That is what they said. But I do think it could be timing. Like you just pointed out, it could just be that they had the hot run since COVID of everybody wanting to put pools in with low interest rates.

And maybe now they're seeing that it's going to be a slow cycle again. And maybe that's why they're selling. Yeah. So there's this, there's a fascinating history of pool manufacturing or building in San Antonio. So the two biggest names that I know are Keith Zars. And the other one I think is, Zars Pools or something like that. Anyway, there were two brothers

that were in the pool business together, and then they got like in a huff, and then they each went and created their own company. So like you would have these two totally separate brands, but it turns out they, like it was the same DNA. It's the same guys, but they weren't partners or anything. And then I knew the guy who went in and like his dad, he was a product of like a second marriage,

like all this kind of stuff. And like his dad was much older, so his dad retired. So he got out of tech and he went to go work at the pool company. Like it's just like, it's like any industry like this one. You kind of dig into the history and you're like, oh, man, some stuff happened back in the day.

Yeah. And so that's how I'm somewhat familiar with kind of the pool, the pool type stuff. Anyway, I think I got this off topic again. No, that's okay. I mean, this is, you know, again, this would be a tough one for me. I don't know how to value it because it's project-based

and to your point, there's a tougher macro environment. So what is it really going to look like for the next couple years? But people are still building, like you said, and they're going to be putting pools in. And especially if you look at the demographics, if people have children, especially, they're going to want pools.

So I think there's definitely a nice company here, just tougher for me to think about how to value it. And I would really want to dig into way back historicals. Rather than just three years in an interim, I'd want to go back, I'd want to go back to 2008, if you could. How bad was that? Yeah. Yeah, that was a long time. 15 years ago. It was totally different. I had more hair back then. It was really good.

Actually, I got to maybe pick different habits or hobbies, but I actually pulled up, this is the picture they have of their actual yard. And I think I recognize this, this is a highway that goes north-south on San Antonio. And there's a, there's this here, this, I can see in the picture they have here when I did like the Blade Runner thing, and I was like, enhance, enhance. Like, you can all see this. And yeah, I think this is one with a little bit of work. You can figure out which company it is.

It's not too hard. I think this is right there. Back to Bill's point last week, like, if you think your listing is a secret, like, think again, like everybody knows. Like, don't think you're going to keep it a secret. And when we sold our business, our coffee business, you know, we decided to do it last fall and we told one employee like a few weeks after we decided to do it like right when we enlisted the broker and then we were pretty transparent with the other managers um

through the process because i was like look everybody knows like they're going to figure it out so like it's the same thing with the sellers like don't worry about it everybody knows your stuff there's a book i think it's old it's a little little tiny book called uh never confuse a memo with reality. And it has all these little truisms in business. And one that always made me laugh was never expect to keep any secrets in your business. Oh, 100%. Not whether you're selling or anything else, everybody will find out no matter what it is. Look, people are in your company. They're doing work, which by Stefan is just not fun. And they want to build bonds with the other people in their company. And they have common bonds

around what's going on in your company. So sure as heck, they're going to talk about what's going on. There's going to be a lot of gossip. And it's usually one or two people who are responsible for all of it. That's true. So you might as well just accept that that's the way it's going to work. So I think it's this one called Keith Tsars Pools. And they're right here on 281 next to the Red Lobster.

That's who I think it is. And that's one of the two brothers. So, yeah, that's what I know about this one. Anyway, pretty funny. Well, that's interesting. You know what I'm at then. Who knows? I mean, what do I know?

I think it was interesting to hear kind of the Xavier and Brent's talk about why they felt this was a good business. And they actually, I think they all, if I recall correctly, their thesis, they actually like construction much better than they like recurring revenue service. And the logic was that

people are going to keep buying pools. So that's an assumption. But also from a, from an entry to the market standpoint, there's big barriers to entry to compete against guys like this particular pool company. I'm not sure if it's this one. So their idea was, look, you're going to have, you have high fixed costs. So the larger providers are going to be more efficient.

So you're going to win if you're first or second place. And then also the transition of customer acquisition and efficiency around that is going to support larger vendors as well. well. There's going to be one or two top-tier vendors that are going to own the Google spots and they're going to get the customers and they're going to be the known brand. And you notice me, like I named off the top two brands in San Antonio and then a third one. Yeah, Zars Pools, Keith, Keith Zars Pools, and Cody Pools. Those are the three I knew. There may be more, but those are the only three construction. And I know there's a been on the other side. I think

the argument for why pool service kind of sucks is the barrier to entry is incredibly low. You just need a truck and a bucket. And, you know, one of my, one of my, I'm blinking on his name Tim, I think, on, who's on Twitter with us. He's in the pool service market. And he was telling us the reasons he got fired from 4% of his business today was like these random things. Like somebody ran out of money. Somebody blamed him for their own mistake. Another person blamed them for their own mistake. Like just top to the bottom. So I think that was the argument from Xavier and Brenton, those guys, and of why they thought they're, investments or superior in construction.

You know what we forgot to talk about with this one was the real estate. Oh, yeah. There's real estate here that the seller owns, and I think they put a note in there that said seller will help finance this real estate. So the question I have in that EBITDA is what sort of rent is being paid by the business, the seller? You find a lot of times none or well below market. or, you know, all kinds of things.

And so that's one of the bigger adjustments. And when I see something like seller will help with the real estate, real estate's pretty easy to get financing for. So maybe they're kind of hinting at, you know, the EBITDA is going to be lower if I don't help you finance this real estate. A million percent. Yeah, right. That I've seen, I actually saw a deal not too long ago where once we realize that the seller

was going to increase the rent. They were going to keep the real estate, but increase the rent to market for the buyer. There was no EBITDA lift. You know, basically the only reason

they were showing any EBDAs or paying below market for real estate that they won't. My long way of saying that. Oh, for sure. And I think there's tons of ways that you see that they're hiding profits or they're magnifying profits

if they're doing all that kind of stuff. Yeah, yeah. I think people are going to keep buying pools. and I like the multiple but I've never really gone deep in this space and frankly it's one of those things where there's buyer business fit

like if I'm going to do this business or I'm going to go get into software or something I know really well software seems a lot a lot easier than this digging holes in the ground and they talk about labor shortages and project-based work

and then they got 26 employees and they're doing 4.2 million in gross sales there's a significant pain in the butt factor on this business. Totally. I agree. I wouldn't want to run one of these. No way. It's tough. Yeah. If I remember the numbers also, I think the guys doing like we're doing Xavier's business and stuff like that and Brent Bishores, they're substantially bigger than this business. I think this is a subscale business compared to theirs. They were in Phoenix and I recall them doing like 15 to 18 million a year. revenue. Right. And so this may be, the problem with this business may be the other one's won and this guy lost. Yeah, right. This could be the smaller player and it's just tough. At this size,

it would be really tough. Absolutely. All right. Well, I'll get them a check and we'll get going with this one. It'd be great. Every once in a while. Well, we got asked on Twitter yesterday. Somebody was like, have you guys ever bought a business you've looked at? I'm like, no. I think some people have. But somebody buys this, right? Well, actually, the reality is what percentage we fight about this or argue about it, I guess, what percentage of listings never get sold? Yeah. Yeah, we don't know. It's probably a pretty big number. Yeah. I mean, I think the quality stuff always gets sold. But stuff like this that's challenged, I mean, this guy may have to get very comfortable with seller financing or something like that to make the transaction happen. There's a good reason, I think also that all. the bigger pool companies in San Antonio would have passed on this. That's right. There's something going on. And you know, I mean, we all talk about this all the time.

1.2 million they list here, 1.2 million in vehicles, equipment, and materials for a low EBIT of multiple. Like, there's no way those trucks. I mean, we looked at the picture. They're all old and back hose falling apart. They're not worth $1.2 million. That's what they may have paid for them. They ain't worth that now for sure.

No, and I don't like when they break out the equipment on a business like this separately. Like it's an added value. You know, you need that equipment. to run the business. So it's not really, it's worth what the cash flow is, not really what the equipment is. You know.

Super good. Okay, well, somebody should hit on this one. We'll put the link down in the show notes. And if after hearing this episode, if you decide to buy it, like kudos to you. Go make it happen.

And let us know how it goes. Or if you're an expert in pool construction, like fill us in on how we got it wrong. But yeah, I don't know. I'd rather open up a franchise. than do this business. Yeah, this is a tough one. It's a rough one.

All right, well, cool. On that note, well, it's the, like, there's so many podcasts that are like this thing can grow rich content, like where they just gloss over like, oh, here's how I make all this money on Airbnb's, or here's how this guy like magically figured all this stuff out. That is not reality.

Reality is like you're grinding it out. You're kissing a lot of frogs. Like, for every, you know, for every home run, bang it out type, thing. Reality is like there's a lot of a messy metal where you're kissing a lot of frogs and stuff happens. That's my experience of business. Absolutely true. It is. And like you said, some businesses are so much easier to run than others. Why not pick one of those? Unless you really have some expertise in this space, this would be tough. You know what I would start? An SBA loan brokerage.

That's exactly what I did. Oh, really? I heard that's a great business. What's funny about that is for about a year, I imagined myself running other kind of, or starting another kind of business or even buying a business. And then I kind of went, wait a minute, I think the answer is steering me right in the face. I do what I already do. Do what I do best. Yeah. Yeah.

Yeah. I mean, I think you have an unfair advantage at it. You have a reputation in the market that people trust you because you've been out there on the banker side. You've been at Live Oak forever. You know, all those things put together. are a huge leg up for it. So thank you for spending some of your now independent entrepreneurship time with us.

Yes, absolutely happy to do it. Super cool. All right. Well, hey, everybody, if you enjoyed this episode, please take this episode or your favorite episode and send it to a friend and say you need to listen to it. Actually, we've had some famous people become listeners because of that, Heather. Really?

So, yeah, people with millions of followers on Twitter, like, big names. Like, I've talked to some of them. And they're like, I'm a fan. I'm like, okay. Kind of scary. Kind of scary. Yeah, just keep putting out good content. Yeah, and we'll go from there.

All right, everybody. Thanks a ton. Bye.