Acquisitions Anonymous - #1 for business buying, selling and operating - Can you grow a business in a shrinking market? – Acquisitions Anonymous Episode 83

Episode Date: April 6, 2022

This is an encore episode of our original episode 24.Michael Girdley (@Girdley) and Mills Snell (@thegeneralmills) are joined by John Wilson (@WilsonCompanies) as a special guest! We talk about the septic service business & pool services: Barriers of entry, payroll exposure, growth potentials, synergies, and much more!Deals:-$5mm pool services and lifeguard staffing co-$2mm septic services businessGreat episode. Enjoy!-----* 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.-----Show Notes:(0:00) Intro(1:20) John's current businesses(5:05) A lifeguard Staffing Co(8:03) Are those 2 businesses together?(9:55) Why are they selling?(10:58) What are the risks from the buyer's side?(14:59) The advantage of the staffing company & growth potential(21:28) A septic company for sale(23:47) What do we like? Growth opportunities?(25:41) How did you find this deal? What do you find valuable?(30:46) How are you structuring this deal?(31:53) How does the depreciation work with trucks?(32:49) What are your next steps when thinking about integration and synergies?(35:44) How do you consolidate a business when growth is flat?(37:33) Why are usually plumbing and septic companies bound together?-----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#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent EquitySubscribe 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. We have a special episode today. It's an encore of our 24th episode, which turned out to be one of our best here on Acquisitions Anonymous with our good buddy, John Wilson. So we dig in us a pretty cool and fun services businesses located around him in Northeast Ohio. So excited to bring this one back to you today. And I hope you enjoy it as much as we did. All right. It's time for another Acquisitions Anonymous recording. Believe it or not, guys, We are the number one most popular podcast on small business M&A. I do believe it. Do you want to know why?

Because we're the only one. So it totally works. I'm Michael Gridley. I am one of your co-hosts, and I'm here today with Mills, who is a regular co-host. Millsdale, good to see you. Morning. Beard is looking fierce. You're always commenting on the beard.

I'm going to get it trimmed, and you're not going to know what to do. You're just so handsome. You do look good. It's like a lumberjack thing. like honestly I was surprised because I've only ever seen your your Twitter picture and I was like dude who's this new business homeless man who wandered into our Zoom recording yeah yeah so we have a special special guest today John Wilson has joined us and I think John's going to be great because you already started talking before I got a chance to introduce him so well well done John you're

going to be perfect I'm glad to be here cool well before we get started you've brought deals so we're so excited to talk about them. But before we get started, I'd love to give you a chance to just give us like a one minute for the audience, like thumbnail sketch of your career and what you do and what they need to know about you. And then we'll get on and talk about some deals. All right. So I'm a novice business buyer. We've been buying businesses for four or five years. And they've all been on the very like main street size company. And they are all in truck-based businesses. So we're in plumbing. We're in damage remediation, HVAC. And, And we tried handyman once.

It was a whole thing. And then we have some commercial real estate. And the big projects right now is we're working on hopefully doubling this year through a couple acquisitions. That's great. That's me. So what kind of just so scale of business? How big are your current businesses and typically the stuff you're looking at? Yeah.

So we're current trade companies are just over $5 million in sales right now. And then the businesses that we're looking at are all between two and three. So in the truck-based world, we're going to hit scale, new and air quotes, with just one more acquisition, how we measure scale. So sort of individual silos of roles, we'll be able to bring in a CFO, marketing manager, HR manager. So hopefully within the next 30 days. Yeah, that's great. And then geography, like, and I'm sorry if you mentioned it, but where you're located in kind of your target area of where you're looking at? So we're, I'm in Akron, Ohio.

So we're really only looking in Northeast Ohio right now. We don't have the systems in place yet to manage from a distance, but we're hoping at the, by the end of 22, we'll be able to work down towards Columbus and Cincinnati, which are a couple hours away from me. In South Carolina. Of course, South Carolina. I really want John to buy a business in South Carolina so that he has an excuse to visit. I have always, I think that, I think there's a good thesis there.

Like, I was on vacation up in the Upper Peninsula of Michigan, which is just like one of the most beautiful places in the world, right? It's pine trees and like cold lakes and all that stuff. And it's like, man, don't you just want to open up a business here or buy something just so you can visit like once a month and have a great excuse or like a ski town something? I don't know. I think that's a good, I think there's a thesis there. It is funny. One thing I would encourage people to do before you go to a ski town or like someplace beautiful like San Diego where things are easy and gorgeous all the time and there's so much fun around. Go try to work there for a while before you make the leap because like I I spent a summer trying to work in a ski town and I realized I was the

only person working hard like nobody else and then like I was in this co-working space and like literally nobody else did smack anything nothing and then this guy shows up one day and he looks like a local whatever and he's like working his butt off like he's there at 6 a.m. with me like making phone calls doing emails of meetings and stuff and I was like hey what's your story man he's like oh I'm just here for the summer. I'm visiting from D.C. So all the people, once you got to these beautiful places, it was like 3 p.m. mimosas every day.

Like, no hard work anywhere. It beats, it beats... I mean, that sounds pretty good. I don't know. Unless you're trying to manage a team. If you're trying to manage a team that way, that might be hard. But then if you could figure it out, you'd outperform everybody.

I think there's a pattern. If you look at this podcast, like, look at the geographies. San Antonio, Akron, Ohio, and whatever that town is called that you live in in South Carolina, like Mills, like there's, these places make you hard. And that's good. I like that. Well, John, you have some deals. So let's let's talk through them. These are fascinating. Can we start the lifeguard one first? I am fascinated by the lifeguard one. Yeah. Yeah. All right. I'll give the, I'll give the 32nd. So I just want to first say how we got this one because I think it's hilarious. I was sitting with

Kelsey Lerich. Someone from his team came up and said, hey, my dad's selling a business. And I don't even know if he knew what I did. And it just sort of evolved. But it was a very funny. Like I wasn't looking for this. It was not on a broker's site. Someone literally walked up and said, hey, I've got a deal. So it was kind of funny. You just have that effect on people, John. I must. You know, I just walk into a room. Can I sell you my company? Please. All right. Okay. So this is a, This is a pool, service, and repair, and lifeguard staffing business. So they do pool service for commercial, mainly commercial. I'm thinking of like schools.

Like I go to a small gym that has an outdoor and indoor pool. So they would repair it, service it, change the chemicals, do all the different stuff there. Supposedly they're the largest in Ohio. I don't know how they measure that. But that seems like a, you know, to be. in the northern end of Ohio, which is like the smaller end of Ohio, and to be the largest of this industry in Ohio seems like a stretch to me, but that's what they say. They finished up last year at $4 million in sales. They're going to do $5 million in sales in 21 at $700,000,000

EBITDA, extremely seasonal, obviously. So I guess they usually know how the year's going to end up by May, just from pre-bookings and I guess the service and repairs pretty steady. They're going to take the company to market later this year. They've been trying to sell it for the past couple years, and I think he's been prepping it and sort of pulling himself out. But he's going to go to market last year, but then COVID affected the business a lot. 35 full-time employees, 25 trucks on the road. This, I'm just going to add some, like a cliff note.

I found this interesting, 25 trucks on the road to only do $4 million in sort of a very niche specialty where you probably have to pay these staff a lot. Like that's kind of, that's weird. That's low. I would consider that to be pretty low for that many employees. His business is 50, 50 split between residential and commercial. So that's like if I had a pool at my house, you know, they do 200 pool cleanings a week. He owns a big facility. And then this was sort of the weirdest part. I didn't even know that this was like an industry or a thing, but he's a, he does staffing for lifeguards. So if, you know, those commercial facilities that he works at, if they need lifeguards, he staffs them and he staffs about 200 a year. And that's about 1.5

million of their company. That's the breakdown. So it's really two, two businesses together. So he has a pool cleaning business and then a staffing company, like a niche, staffing company. Yeah. That's my favorite part about the business. I mean, they have the same, they have cross-pollination, right? And they share the same customers and the same lead funnel. The other thing about this is, to me, I would not say that this is pool repair, right? Now, maybe I'm missing it, but I feel like a lot of pool cleaners will say, yeah, you know, we do repair. Like, we can mess with the pump or the heater or, like, repair some, you know, concrete or whatever. But I would bet, right, I mean, in most cases, it's going to be 80 to 90 percent service, just regular cleaning,

you know, and adding the chemicals and stuff like that. But probably very little repairs. Is that right? They're not like a contractor. They don't have like multiple skilled trade guys on staff. Is that right? I think I agree. That's my understanding.

I don't think they have guys out there like patching concrete or, you know, inside pools or however liners work, I guess. Yeah. They probably do some small pump repairs or, but you know, they're not touching. gas lines for heaters. They're not doing any of the specific contractor stuff. Yeah. Yeah. What are they, so this is in a very cold part of the country near you. What do they do for the other eight months of the year? A lot of indoor. It's a cold part of the country. So I think, I think that's actually the strength of the commercial side is that they can

keep working. But again, I think that's why they know how good their year is going to be by May. because, you know, yeah, you might keep a little bit busy during the winter with commercial stuff, but if a million and a half is lifeguard staffing, that's during the summer, right? And not to mention the other stuff. Yeah. So tell us a bit about the motivation of the seller. What are they trying to get out of all this? What are their priorities? It was a funny phone call. So I called the guy directly. He's a nice guy. But I have never heard any seller say how many times, like it was like five six times. I'm not emotionally attached to this business, top dollar only. And I'm like, you've been running this business for 35 years. I would be very surprised if you're not emotionally

attached to this, but it has your name on it. So that's sort of the seller that we're dealing with this guy. He wants to exit. He wants to exit big, as big as possible. He thinks he's got a real asset. And I think he does. I think it's a cool business with, I don't know who the buyer is for this, though. Like, would P.E. get into something? Because that's who he's trying to market it to, I think, is like PE. But it just seems so seasonal. That doesn't feel like they're back. Size is going to small. Yeah, size is going to go. Oh, sure. Yeah. So one million EBDA. And I mean, to the right buyer, the mix of, you know, cleaning and staffing is probably interesting. But to a financial buyer, they're going to look at that and go, what do we do? Like, their whole,

their whole plan is going to be scale, right? And how quickly can we scale the revenue? And it's just a distraction. Like, you're not going to stay. You're probably not going to scale staffing in the same way that you could actually scale cleaning. The issue I have with cleaning is that it's fairly commoditized work. So if you probably put it on some kind of recurring contract and those contracts are not usually that hard to break, it's like a mosquito squad or somebody, you know, cleaning your lawn or whatever. But I mean, a guy in a pickup truck, right, with chemicals could come in and undercut you. And so, I don't have a ton of experience with this, but at permanent equity, we owned a swimming pool builder. And Brent's approach on that was always, you know, I don't want to be in the service business

because the barriers to entry are so low and it just ends up, you're just fighting for price, usually. Do you feel like these guys are sort of protected from that? Because I guess my take is that there's so much commercial going on between the lifeguard staffing and the commercial service and repair. I don't know that a guy in a truck could satisfy like a public school system that has 10 pools or a university that has 10 pools. I don't know if they would be able to keep up with that. I think on the residential side, 100%.

I could go grab a pickup and some chemicals and probably start. Yeah, I think if it's multi-location, obviously just the professionalization and the ability to fulfill is big. I mean, you know, the guy in the pickup truck would probably prefer getting paid in cash, right? and the school's not going to do that. I mean, they want invoices. They probably want to pay you on terms. You know, they're going to want to see proof of insurance, you know, just a lot of things that the guy in the pickup truck is not going to want to mess with. But if it's, you know, if it's a bunch of, you know, like gyms, right, just a gym with an indoor pool, then they may be, they may be fine. If it's the difference between, you know, 50 bucks every two weeks and $100 every two weeks, then my, my guess is that they could probably be persuaded. One of the unique risks that we saw in this business when we first heard about it was 200 lifeguards.

So like on one hand, it's like, okay, that's kind of cool staffing, recurring whatever. On the other hand, what type of HR practices do you feel like you need to have in place to place 16 year old lifeguards? That sounds like dangerous. Well, it depends, right? It depends on how they do it. If those 200 lifeguards are on their payroll, right? then yes, that creates a big headache. But it could just be that they're taking placement fees, right?

And, you know, the county says, hey, we need 25 lifeguards and they just say, great, pay us, you know, $250 per placement or whatever it is. I mean, that's a lot of freaking revenue. The other issue is, so based on that amount of revenue, it's probably that they're staying on his payroll. So I'm kind of backtracking here, which means that the margin on that is incredibly low. just because he's only charging a toll, in essence, on their payroll amount. The other problem a lot of times with staffing in this instance is you are basically fronting their pay, right?

So, I don't know, you probably have to pay lifeguards weekly, you know, or at least every two weeks. We didn't get into payment. That's a, yeah. But then I bet you that the county's not paying you every week or two weeks. They're probably paying you once a month. You know what I mean? So you're floating for them.

the payroll each week. And it's obviously, it's a lot of payroll. You know, it's probably at least, I mean, it's at least a million dollars, right, of payroll for three months, right? Or four months or whatever it is. I bet the margins are pretty low on that. At first, I thought it probably is a huge profit center. But now that I'm thinking about it, it's probably, I mean, it's all, it's all profit, right? Every, every dollar that falls to the bottom line is good. But yeah, I don't, that's, that's a really interesting aspect of the business. Here's the bull case for the lifeguarding. part of the business, it makes them so much more sticky to these commercial customers. Because if you're going to fire them from the commercial service side of it,

like, that means you also have to go figure out how to recruit 16-year-olds and, like, get them in there to, you know, get $9 an hour to watch your pool and make sure they're trained and all that kind of stuff. So actually, I really like that aspect of it. It's super smart. Yeah. Yeah. Yeah.

I think that's the value of it. Yeah. And you get, you know. I wonder which one grows more. just like as you, I don't know, looking out over the, if I bought it, what's the first thing you think you would tackle? Do you think you would double down on lifeguard staffing just because the talent is more accessible? I think it depends on saturation on both. I mean, I wouldn't be surprised if this business is basically hitting a geographic ceiling. You know, it's like I would be surprised if they could grow much above four and a half or five million in the markets they're already in, unless there's some other big player. They have a talent ceiling. right now in their service and repair because again they're the biggest in this commercial sort of zone so you know obviously this is sales talk from the seller but he's had to turn down a few fairly significant contracts in the past couple years last year he said it was 800,000 he turned

on 800,000 in contracts that were basically handed to him doing air quotes because he couldn't find the service techs to do the work, I guess. And see, I don't know. I mean, I've heard a bunch of sellers say that kind of thing. And it's not that I don't believe them, right? But I think that I'm in the cheap seats, right? I'm not running this guy's business. But to me, that's a little bit, it's a little bit lazy, right?

Because you guys know, this is not, I mean, it's hard to find skilled labor. But pool technicians, pool cleaning technicians are not, I don't, is it regulated in Ohio? No. So I don't think it's that hard. I think it's, I mean, it's easier than getting a pest control guy because that's regulated. So, and it's way easier than getting a plumber, John, you know, who are licensed. I think, I mean, I would be surprised if these guys who are cleaning the pools are making more than $12 or $15 an hour, right? All right. So you think this is more of a like, yeah, the works out there, but the seller just doesn't want to, I mean, you know, he's 62. He runs a good business. Like, why keep going? Yes, exactly. What seller in their 60s is trying to, figure out how to double their, you know, semi-skilled labor. No, they're like, look, this is hard, but I'm fine right now. And I'm kind of at a plateau. And it would be a hell of a lot of work for me. And I don't have the energy to, you know, go to the next level up. That's, that's great. I love that. But I just want to know, you know, is that $800,000 in contracts you turned down last year? Is it real? Or is it just your buddy at the country club saying, hey, I got some pools I want

you to look at and I think it'd be about this much. You know what I mean? Because the other, the other factor is, you may be able to double the number of trucks you have on the road, but you've got to do it from a second location. You can't dispatch out of your current one. You've got to go do it in a new geography. So you've got to add overhead. You've got to add a skilled manager who can do that. All of a sudden, that revenue is not, not all revenue is created equal, you know. I like this in a post-COVID world. I think the key thing here comes down to, you know, he said, looking at the notes, he said top dollar sales price is the game. So you got a three-quarter of a million dollar EBITA business.

He's got some slate. What is top dollar to this guy, John? Do you know? Yeah. What does he want? I don't know. I don't know. I really didn't even get that into them.

I'll email you guys in a month or two because I'm going to keep the conversation going because I mean, I'm interested in it. I think it's kind of cool. And I think that, you know, it fits some of what we look for. And I think that we could value add with what we have going on. So I think it could work. I'd be very curious because sometimes top dollar is, you know, know, very surprisingly low and sometimes top dollar is just laughably high.

Like, this guy might want nine times EBITDA for his business because he, you know, heard right of a business that sold for something like that. That's probably not even close to the similar. I think he's worked, the company he's working with to go to market, I feel like they've got, I think they're helping probably steer him in the right direction, but I would expect a four to five times is what he's attempting to get out of this. Evida, right, not revenue? Yeah.

Yeah, yeah, yeah, yeah, yeah, four to find them. It's recurring, guys. It's just basically a SaaS. It's closer to that than it is project-based. So, yeah, I mean, yeah, usually I'm the hater on the show. And I'll tell you, I don't hate this one. I kind of like this one. All right. John, what type of firm is he working with? Is it, is it a broker? Is it an actual advisor? Or is it like his CPA firm is giving him advice? It is an M&A. It's a boutique M&A legal firm up in the equivalent. Okay. It's better than use it as accountant. to run the process, dear God.

Well, because what you get is you get a lot of people's of accountants who are like, oh, I could totally get you five times for this kind of thing. And it's like, well, based on what? This happened a month ago. I submitted an LOI for like a tuck-in, right? This thing is tiny, 100,000 in seller earnings. And I gave them, I think it was like 200,000, which for me, that's overpaying for that size of a company.

like usually we do one times. And he brings out this valuation from his accountant. And it was a five and a half times. Yeah. I'm like, what the hell? I heard about it on the news. It must be true. Well, I definitely keep us in the loop on this one.

My just mental back of the envelope model says it's probably a good deal at four and a half to five. So curious, curious how you end up underwriting the whole thing. Yeah. Yeah. Unfortunately, this one's not in Texas. otherwise it'd be a ton of fun. You know what happens in Texas. You can swim most of the year.

I know. I know. But how many more competitors? Right? Maybe the seasonality up here kills off anyone in the middle. So you either have to be one or two guys or you have to be 35 guys. That definitely, you know, we're in the fireworks business. And the seasonality of that just puts the degree of difficulty that much higher.

Yeah. like totally wiped out. Only the hardcore remain. Cool. Well, this is great. I love this one. So very, very attractive deal.

What do you have for number two? So we have a septic company. And this one I know much more about it because we're like somewhat far along in the process so we can talk through it to your heart's content. I'll give the headlines. So two million in sales, 430, I think,

and EBITDA. Two brothers own it, like 50-50, partnership. It's a second generation company. I do always like to see that. I think that's kind of cool when it's a 60-year-old company. That's cool. And they are in drains, septic, and grease. So that's a fair amount of restaurants and industrial. That's really where those VAC trucks get used a lot and then some residential on the septic side. That mix. Yeah. Because they have the sales broken out by category. Is that healthy? Is there a rule of thumb where you would say, hey, look, we want majority septic. But like, if it, if it was majority grease,

would that, would that be a red flag? Would that be better? All right. So I'm looking at that right now, too. I would say that this is, this feels pretty healthy to me. That said, this is my, the first one that I'm sort of doing this on. But I think we have a nice amount of growth potential. So I'll give the breakdown of revenue. So on two million of sales, they did just over 500 in drains. So that's like drain cleaning, you know, sewers backed up. They did 300. in grease cleaning. So that is restaurants have outdoor grease traps and those need pumped at varying intervals depending on a lot of factors, but it's EPA regulated. And then the septic accounts for one million, so half their business. And that is septic cleaning at homes or

businesses that don't have access to public sewers. So this feels pretty healthy to me. And I kind of like that breakdown because the drains, the way we're looking at this, is drains in Greece are really the big opportunity here. This specific company is almost 80% residential, which means less recurring revenue versus another one that we're looking at that is 80% commercial. So like, it's, you know, it's basically a SaaS, right? I'm going to use that again. It's basically a SaaS, guys. It's B2B recurring revenue. Come on. Just asset heavy. Yeah, you just have a several hundred thousand dollar truck. Yeah, or eight of them. I don't know. I I don't know. But so this one I like the drains is the big growth opportunity. They're dramatically

underpriced compared to anyone in the market. And they don't do, they don't go the whole process on drains. They only snake it or jet it and they don't replace them. And replacing is like, that's the whole game in drains as you get to the replacement. And could your companies do that? I mean, that's, that's in y'all's wheelhouse. Yeah, that's in our wheelhouse. So our big plan for this company because we're under, you know, we're worked towards L.O.I. on it. Our big plan is to improve the drain and the grease side because septic is sort of septic is a shrinking market like it's good, but public sewers are, you know, constantly getting built in. So it's hard to aggressively grow the septic business. But Greece, you know, EPA is getting

just more and more firm on restaurants. Like a lot of restaurants, they have to pump monthly, sometimes every other week. And that's $300 a pump. So, you know, you put a biz dev person in there and start trying to rack up those restaurant contracts. That'd be pretty sweet. And then the drain side of things, they don't offer that replacement. So usually the metric is you can triple your current drain capacity. So we would come in and we would add replacements and it would turn into a $2 million drain division in and of itself. Super dumb question here, but is it the same truck that's used for all of these?

No. So there are pumper trucks and then jet trucks and then just excavators. So pumper trucks are those big things that you've probably seen driving around. Four thousand gallons on the back and, you know, they're big. Remember I was in pumper. I was quoted in pumper. Yeah, yeah. Yeah, you were. You were in pumper mag. Yeah. I forgot to retweet that. So there was that. And then jet trucks are like high pressure drain cleaning machines. So they, you know, they blow water at 4,000 PSI to clean a drain out. Got it, got it. All right. So how did you find this one? How did it come about? And what has the process been like so far? It's probably been just no bumps in the road. Yeah, yeah. Totally, totally smooth. Never had a smoother deal in my life. This one was just a cold, like a cold email. Hey, I've got a deal from there's an intermediary. It's not a broker. It is an accountant, I think, down to the Carolinas down near you. He's a super nice guy. But, you know, I wish it was a broker kind of because he's super slow. So the process is taken like we first touched base in early February. Yeah, now it's tax time. So he goes away for two or three months.

Now the deadlines may. So you like you won't hear from him. Yeah. So it's getting a little frustrating. But yeah, it was just a cold email. Hey, would you be interested in this?

My client's looking to sell. This specific business is within 30 minutes of our existing companies. We're going to be able to integrate really. easily and management's not much of a problem. It's not quite a roll-up. We're going to leave some of it separate just because there's unique risks in Septic that we're not currently exposed to. EPA, that's any environmental, that's a whole thing.

And then you essentially have semis driving down the road. So we're going to try to silo those separately to protect from accidents or something like that. Yeah. So what does a business like this trade at in terms of multiples? I was actually going to try to dive into. to some of that with you guys and see what you thought about heavy asset businesses. Most businesses that I've seen, I've seen a pile of these septic companies over the years. This is the only one I'm sort of this far along on, but they all seem to trade at one time as revenue, which feels typical for

like, I don't know if you guys have ever looked at like trash pickup services, like dumpsters. Those seem to trade at like 10 to 10 months to one year revenue. Okay. So this one is, is like we're, we have it under LOI for a little less than revenue. And it's a split between the equity and then the assets, because the assets are such a big component of the deal. It looks like on the on the numbers you sent us that, you know, they've got about $8 or $900,000 of FF and E. That's probably all trucks, right?

But they're about two thirds of the way depreciated. How, what, what shape are those trucks in? I mean, are you going to buy them and immediately have to start replace? No, not immediately, but shortly after. You know, there's going to be some CAPEX here by year three. We're going to be switching over to a lease model just because I think that's going to work better for what these guys are doing. But yeah, they've got some old assets. Most of the pumper trucks are in pretty good shape. A lot of the really depreciated stuff is excavating machines, which those things can keep going for a while. That's like to dig a trench or something like that to lay in the line. Okay. What's the rule of thumb around how much one of these trucks cost and what they should get. So you said there's eight trucks, right, in about two million in revenue. So this one has four pumper trucks. I wasn't trying to confuse. There is a second deal that I'm looking at. I think the attraction here is you can roll them up somewhat easily. So there's a second deal I'm looking at that has eight bumper trucks. Gotcha. Okay. All right. So this one,

you know, a truck, it looks like it can do about $500,000 a year in revenue. As a rule of thumb, is that good? Or is that, or is there a lot that they're leaving on the table? in terms of utilization. So the septic, just to clarify, the septic is a million dollars in sales. So it looks like each truck does about 250,000. Oh, sorry, sorry. I'm lumping in draining grease. Okay.

So I would say that they're leaving stuff on the table. One of the big takeaways here, we're in the same market as them. So we understand sort of where pricing's at for market, and they're dramatically lower. So there's an opportunity there. Do you have to have a Class A CDL to drive those? You do. Yeah. So those are hard to find.

at least down here. I mean, I think everywhere they're hard to find, but they're getting really, really hard to find. Yeah, that's, that is one of the tough things about this business. So I'm, I'm talking to two of these guys right now. And this specific company has been using recruiters to find it, which feels a little like they spent so much on recruiters. So you see they want to add that back? They want that as an ad back. Yeah, they wanted that as an ad back. This thing that we have to do is a normal cost of business. Give us right for that. Yeah, yeah. That's what I said. But you could have taken all of those dollars that you spent on recruiting, which was like $40,000.

Yeah. And just paid a tech more. It doesn't seem that complicated. Like, I'm sure you would have gotten someone great. Yep. Yeah. That's interesting. But the other guy just grounds up them because I guess the road to CDL is not that complicated,

as long as you have a clean driving record and a couple of things. I've never really looked into it. but this other guy, he hires people sort of like, hey, I want a job, I want a new career, whatever. I'll help you get your CDL, but you have to work for me for three to five years. So you're structuring the deal that you're basically splitting out the fixed assets and then you're doing a purchase for the remainder of the business? That's kind of how you said you're doing it? Yeah, so we're buying the equity at a 3X and then assets at,

market. So does that mean you're doing a stock purchase of the equity? Yeah. And does he have them in two separate entities right now? No. The assets and the, okay. No. I mean, this deal has gone through a lot of iterations.

I think the first time it was a clean asset purchase at like 1.6 with some various clauses. And then they came back with 2.3 as a, I'm doing your quotes again, tax enhanced. I think I talked to you about that one. Yeah, yeah. I was going to say, I remember that's nice language. That's a good language. So as a taxed enhanced price, they made it 2.3. So we ended up, you know, obviously they wanted a stock sale and obviously I wanted an asset sale. So we somewhat met in the middle so I could step up depreciation and they got their tax benefits. What is the, I apologize for not knowing, but for the trucks and stuff like that,

what is the depreciation timeline for those or is there just instant one year bonus with those? Like, what are we going to do when acquire? Yeah, what is the, what is the tax treatment for depreciating those. We're going to expense it, year one. Oh, nice. Okay. Yeah. Yeah, people, I think we talked about buying them.

So in just, you know, my Googling, and I talked to some people off Twitter when we started looking at both these companies, it seemed like market for these trucks was 110 to 150. But I talked to this. One of the sellers I talked to reconstructed a truck. Like, it's 2019 chassis. And he went through a company. so it wasn't like him personally like wrenching it as in I could replicate this process. And he did it for $65,000, which that's great.

And then he had at least through whatever his custom lease program is. So that's pretty sweet. That's great. And so what is your timeline to close? It sounds like you've been working on this one for a long time. Yeah, we're emailing back and forth. He just called and emailed me. So I assume that means the final sign stuff is in my inbox.

We signed it off this. Yeah, we signed off the LOI this morning. So we go into due diligence next week. That's awesome. What will, I mean, this is close by. What will your due diligence look like on this from the technical side? I mean, the accounting due diligence and the legal due diligence and the documentation, all that is just kind of normal.

You got to do that for any deal. But given that it's tangential to what you already do, but not exactly what you do, how will you handle that, those aspects of due diligence? Would you be taking, you know, your text on the? the ground. Like, give us a picture. I think the big first step is figuring out what happens with septic. I think right before we were recording, we were talking about how I don't think septic, it's a shrinking. Septaic's a shrinking market because public sewage is just becoming more and more widespread. And that's probably a good thing. So we have to figure out what happens there and can we

grow it anymore? Because that, and that's the big cap X. Right. So that's going to be the first part of due diligence is just figure out what the next five years, 10 years looks like in the septic industry. So I can plan recruiting, talent funnels, training, and then what type of CAPEX do I need? Like, if I don't need to buy a bunch of tankers in three to five years, then sweet. I just, you know, saved a million dollars. So I think that's the first part. And then figuring out integration, integration is going to be weird because we are going to leave it a little bit separate and we do share a service area. So we're trying to figure out right now, how do we, how do we make this a one plus one equals three or four without cross-competing or stepping on

each other's toes? Yeah, because you want other plumbers to keep calling this business, but if they are sending, you know, if all of a sudden affiliation becomes known and they're sending all their work to you, there can be bad blood. Yeah, I think so. And then the big growth plan is what can we do with the drains? Because that's a, that takes no work. So we already have that built out inside our existing company. So all we need to do is sort of flip the switch. And then boom, we're doing more of this type of work that we really like doing. So figuring out how to incentivize the operator of this new septic company is going to be tough because I don't, I don't want to eviscerate the current plumbing company in order to feed the new acquisition. And I also don't

want the operator of the new company to feel like they're passing all this great work at high margins to the plumbing company. So I think that, I don't know, it's a little nuance. It's, but yeah, I haven't figured out how to solve that problem yet. It'd be easier if they were an hour away. But then we wouldn't have the same growth plan. So I don't know. Well, and it's interesting because then if your thesis does play out and you win, yeah, yeah, when it plays out, I'm sorry. Yeah, yeah. And you're able to acquire another one of these in another market. Are you thinking about it that you could almost be, you could pull yourself into new territories

on the plumbing side too? Because if you own to seven business an hour away, it would be easy to start hiring techs there just to start at least doing your own work. I think so because, again, it's super recurring. So you've got a nice platform. You can start throwing plumbers in to a septic company to do drains and then you start talking about water heaters and all these other sort of related services. So yeah, I think so.

And I also think, Mike, you were saying it earlier. There's not a lot of growth, but if you're able to consolidate a bunch of them, then you can do pretty well. And there's currently no one consolidating septic yet, at least in my area. And there's a ton. They're all this size. Like almost all of them look exactly like this. profile. They're all doing two million in sales. They're all trading about one time's revenue.

They all have about the same, you know, work composition. So like, it's all just sort of identical. And you can just snag them all up and, you know, I love the rate price is 50%. I love the fact that their revenue projection is, it's truly flat. Like it goes up on, on, you know, two million in revenue. It goes up like $15,000. Yeah, yeah. You know, a year. I mean, they're not, I kind of appreciate it. I love it. I love it. I'm glad that they weren't. aren't like, yeah, you can immediately, just market. Yeah, yeah, exactly. Yeah, we haven't updated our website ever. So just do that and your revenue is going to triple. Yeah. But, you know, honestly, probably will. Yeah, I think the growth thing is, the growth thing is interesting.

They're expecting extremely modest growth, but it should be pretty stable. Is there any reason why plumbing companies in septic usually are together or usually are separate? Like, what is, what normally happens? Because you obviously don't have your own septic. right now. You refer it out to somebody. Yeah, I think it's just a mom and pop consolidation thing. You know, my industry is just starting to really feel this in the past maybe five years where almost every company out there, like you could throw a rock and hit a company doing two to three million in sales. Like they all do two to three million in sales. But and then there's like one or two Goliaths, right? But now there's more Goliaths and just,

way less at these two or three millions because they're all being thrown together. So there's a lot of companies and there's even a few in our market that are PE backed that are doing what we're doing. Like they added damage remediation because the average ticket is $3,500 and you own captive lead source. It makes a lot of sense. You almost have to do it, right? And then with septic, that makes sense too. It makes way more sense inside a plumbing company if you can replace the drains and you're already touching plumbing. So that makes a lot of sense if you have, you know, the dollars to make that happen. Yeah. Reason it doesn't happen earlier is it just takes money and talent. And most of these guys don't know how to do that. And I would think a lot of them, you know, in that, in that lower,

you know, lower revenue category, their owner operators for a while and all of a sudden they kind of get out of the truck and they start hiring some drivers. But it's like they're meeting all their goals. Their ambitions weren't to grow a $10 million septic business. Like their ambitions were like, I just want to take care of my family. And then all of a sudden, they could do that without driving the truck. and they've got, you know, three or four trucks or whatever it is. I mean, they're cruising. Yeah, I've seen it. You know, these guys start making $300,000 to $500,000 a year.

That's usually more money than they would have ever thought that they would make. And they almost all started as techs. You know, they're not coming in from any sort of advantaged background, but they started digging trenches at 18 or 16 or whatever for their dad. And now they, now they're making half a million dollars. Yeah. And like, yeah, what more do you need? from that perspective.

Good for them. It's great. Well, cool. I think we are running out of time. This has been super cool. It's great to hear from you, John, in terms of the deals you're doing. And you've definitely brought some interesting ones for sure. It'd be fun to do, it'd be fun to do like a check-in, like a recap, you know, further down the line,

especially on this one that you have under LOI and on the information you get on the pool one. But, you know, if it falls apart, why does it fall apart? if it goes through, you know, what are the things that you just about your thesis that were wrong or you had to update along the way. That'll be really interesting. And you and I will probably talk about it, but I want everybody else to be able to hear too. Yeah, we have an interesting, I have an interesting journey ahead of me just in the next three months. So, you know, we usually acquire one to two deals a year, but they're smaller. So right now I have, this is probably smaller to most people, but to me, these are big, right? I now have two deals under diligence and I have like a strong suspicion that

they're both going to get to the finish line because we did a lot of due diligence before LOI. That's just the way both of these have gone. So it's just going to be an interesting ride for the next 90 days. So yeah, we'll see how it all goes. Thanks for joining us, John. It's a lot of fun, man. Yeah. All right. Great job, guys. We'll wrap it up here. And yeah, we'll talk soon. I hope you come back, John. You go great. Sweet. Thanks.