Acquisitions Anonymous - #1 for business buying, selling and operating - HVAC for fun, profit and not buying yourself a job in Toledo w/ guest John Wilson. - Acquisitions Anonymous 227

Episode Date: September 12, 2023

In episode 227, Acquisition's Anonymous features John Wilson (@WilsonCompanies) for another episode. He joins Heather (@EndresenHeather) and Michael (@girdley) in discussing the potential acquisition of an HVAC and plumbing company in Northwestern Ohio. They analyzed the listing, priced at $980,000 with a cash flow of $235,351 and gross revenue of $1,217,347. They point out that the business seems stagnant, operating in a region with limited growth opportunities, and stress the importance of understanding customer acquisition costs. John and Heather caution against overpaying and highlight the significance of having a clear strategy for growth before acquiring a home service company.Check out the listing here: https://www.bizbuysell.com/Business-Opportunity/northwest-ohio-heating-and-air-and-plu[…]lVnUjVkUU1rVlJjNDB6Z0lGVzc5eW9CNXkxNXBOUm9Db0ZNUUF2RF9Cd0U=Thanks to today's Sponsors!HoldCoConference, the conference exclusively focused on HoldCo Entrepreneurs and Executives. This conference is where Holding Companies meet, learn, scale and grow. From tech to Home Services, Holdco Entrepreneurs from around the globe will be meeting in Cleveland this September 18-20th in Cleveland Ohio.Check out holdcoconf.com for more details.-----------------CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey, Acquisitions Anonymous. Michael Girdley here, one of your co-host. Today, Heather and myself and special guest, John Wilson of the Wilson companies, located in Akron, Ohio. We recorded a special episode around buying an HVAC company located in Ohio. And I chose that because John happens to own a big HVAC company in Ohio. And we dug into this listing and learned a lot about the space. And I was reminded, once again, how little I know about home services.

and John really stepped in and helped us with that. So we had a ton of fun. I hope you enjoyed this episode. Also, John made fun of Texas, which I'm not sure how I feel about it, but I did talk about the socks. So you'll see how it all turned out, and I hope you enjoy this episode.

And we found what was a deal that you really probably don't want to do. So these make for good episodes. Here you go. This episode is sponsored by the Holdco conference. This is a conference exclusively focused on holding company entrepreneurs and their executives. It is where holding companies meet,

learn and scale and grow. From tech to home services, Holdco entrepreneurs from around the globe will be meeting in Cleveland this September 18th to the 20th, 2020, 23. And it will be there in Cleveland, Ohio, which has me super excited,

also because I will be one of the speakers and attendees of the conference as well. So I encourage you to check out their website and consider joining us there. The website is holdcocomf.com. That's H-O-L-D-C-O-N-F-N-F. and get more details there and sign up to join us. See you soon.

All right, we're back. Should we get past the sock thing, John, or do you want to just let it go? It's up to you. Are you going to let it go? Probably not. Now I have like this image of your ankles burned in my brain, and I think it's a personal problem. Yeah.

Anyway, we'll stick to business. Heather is with us here also. We're back for recording two in a row, so we're having a good time. So I got the privilege of hosting. So welcome, John. Love to give you a chance to, well, first of all, you're promoting HoldcoConf. So I'd love to get that out of the way.

So what do you hear for? Yeah, so in three, four weeks from recording, so September 18th through the 20th in Cleveland, we're hosting Holdco Conf. So that's where holding companies get together. We learn how to grow, scale. We get best practices from each other. So we have over 120 other entrepreneurs

We're CEOs, COOs, presidents, from other holding companies in all types of industries getting together. And we just get to meet each other and learn. So we're really excited. Michael's going to be there. Save is going to be there. Thomas Sins is going to be speaking. Mark Brooks is up on stage.

So we have a great list of speakers for main stage. And we have a bunch of really cool events throughout the days. So programming is good. And we're slowly dropping it. So check out holdcodeconf.com. or follow me on Twitter at Wilson Companies and we're dropping more information every day on hold co-comf so we're pumped amazing amazing and so you know what what is like the ideal like set of people who should come to the conference and then like what what should they

expect to leave with so the ideal person has one company or more so for the most the average attendee has five so for perspective but uh the ideal ideal attendee has one or more companies. They're looking to scale through the Holdco model. Now, that looks a lot of different ways. Obviously, it could look like your model where you launch more like Venture Studio style or it could look like others where they're fully acquiring. We have a lot of people doing independent sponsor work. So that's really the sort of the minimum attendance is one company. You want to grow through Holdco, you know, owning different companies. what we expect you to get away from it is best practices in how to scale that business.

Get to whatever that next step is. So we have a variety of programming based on the size of your hold code. Some people, the smaller ones are around eight figures, but we also have a number of them above 50 and 100 million. So we have different programming for each size to help people figure out whatever the next step is for them. So there's legal, there's a lot of people talk, whether it's recruiting, recruiting operators, or executives. Last year, we had some really great conversations on family legacy and taxation

and formation of how to legally form your holdco. So it's really the ins and outs for two and a half days on how to run a best in class holdco. Amazing. All right. Well, I'm stoked to be there.

Yeah. And you own a holdco around HVAC and home services. That's right. So we are subjecting you today. to go through a northern Ohio heating and air and plumbing company and tell us why it is either a great idea or a terrible idea to buy this and how we should think about it.

And Heather, you're going to read it for us? I am going to read it. So this looks like it was on Biz Buy Sell. We found this one. It's a Northwest Ohio heating and air and plumbing company for sale. Asking price is $980,000. Cash flow is listed at $235,000. 351, very specific.

Gross revenue, a million to 17, 347. Inventory 240,000. They're paying $4,000 a month for rent. FF&E is $200,000. And it was established. Get this. In 1945. Wow.

This is actually older than me and maybe the end, Michael, combine. That was like World War II. Like, come on. Oh, combined. Okay, combined. Okay. You put a chop in a job. Yeah.

Okay, so the description is an incredible opportunity to own an extremely or a extremely, which is a, you know, that's not proper grammar to own a extremely. Is it time for Gen X Corner? Have you heard our newest segment, John, Gen X Corner where Heather and I go nuts about typos and teasers? It's pretty, yeah. Yeah. Anyway, you wouldn't understand.

I'll fix it. To own an extremely long-term, long-term heating and Air and plumbing company in Northwest Ohio. Well-trained staff are in place that are, that this isn't more typos or more grammar, that are all cross-trained in each trade. 90% of revenue is from residential, 10% commercial with no refrigeration. Less than 5% comes from new construction. These are all good things. QuickBooks for accounting. ESC is the CRM, flat rate pricing. Inventory is included. That's nice. That it should be. Real estate lease, building is 23,000 square feet.

The lease expires pretty soon here at the end of 23. Nine employees. FF&E is included. Facilities, central location, owner is willing to sell or lease the building. Oh, so the owner does own the building. So I guess you could extend that lease. Competition, the HVAC plumbing industry is full of competition. However, companies that focus on quality work and great customer service remain busy year-round.

reason for selling retirement. What do you think, John? A lot of thoughts. A lot of thoughts. All right, so this is in my state. I'd like to say the very first thought coming to mind is Patrick Lange, specifically, has a lot of deals in plumbing and HVAC. So if this one doesn't work for somebody, you should click on him and check.

I think he's down in Florida, right? Yeah, I know Patrick too. Yeah, Patrick is prolific. Yeah. in a service contractor space. Yeah, lots of deals, HVAC and plumbing focus all over the states,

and he seems to tend to focus on these smaller deals that aren't being picked up by like the SFMPs of the world. So he's got deal flow. He's got a lot of deal flow. So if this one doesn't work, it's worth checking out. I do have a friend that has bought one from him,

and he said it was a pretty good experience, so I'm not trying to get Patrick too much of a pat on the back, but just check out his other stuff. Yeah, he's a well-known guy. You know what I love about him? If you look at all of his listings, which I've pulled up here,

every single one of them uses the same clip art. Yeah, yeah. Yeah, it's just like, it is the exact same clip art no matter what. Oh, there you go. Yeah. And it pretty much is the exact same writing. He's cutting and pasting these.

So incredible. Okay, sorry. He's efficient. He's got a system down. I think revenue was 1.2. cash flow $230,000. So that feels pretty good.

90% of revenues from residential. What I would watch out for is what I see is residential is not an answer. That's not like enough information. It could be residential remodels. It could be residential new construction. Now they say here less than 5% of revenue

comes from new construction, but residential isn't like a category. So, you know, residential is just like what you're working in. So, you know, we had a company once that they were like, yeah, we did $15 million in residential. And I'm like, oh my gosh, like, heck yeah. Let's like, absolutely let's talk. And then I get there and it's like, you know, $15 million of new construction residential. And I'm like, okay, great. So this is not going to go anywhere.

1.2 is on the smaller range. So to me, this feels like the best fit is for somebody who's already in the space and you're looking for the next spot. Because 1.2 is like, they say they have nine employees. 1.2 to me is like five. And that's a really small team unless you're really going to go in there, you know, and buy yourself a job, which some people want that. I think the biggest, like, glaring thing is just what I happen to know about Ohio. So if we look up population, you know, this is a local service company.

So, like, you're dealing with local. Like the last one we talked about was events. So you're all over the place, so population is a little bit less relevant. You just make sure you hit the hubs. But this is Northwestern Ohio, which is a very sparsely populated area. So if you buy this business at 1.2, they may very well be close to their cap because it's a very rural community. The biggest spot out there is Toledo, but Toledo's known for not being very economically prosperous. So you're buying a company and it's either rural, a lot of farms, or it's in Toledo, which is not

economically doing amazing things, right? So it's not a spot in the state that I would personally want to buy a company. Just because I don't feel like you've got, it's not growing population. It feels like you're running into headwinds. So something you tweeted the other day, that was really interesting, is you talked about at a certain size, many of these tiny HVAC companies or home services companies, they're really not businesses.

They're just a job with like a customer list or like a phone number. And like, so A, did I understand that correctly? And B, like, how do you think about like how does a company turn from like just a one man shop or a one woman shop to actually

like a real business that could be bought based around kind of financials and opportunity and all that kind of stuff? I'm going to answer this. And as, I want to give an example. So I bought a business

this size 62 days ago and I bought it for less than half of this asking price and I don't think that's because I'm an amazing negotiator.

I think that's just what the business was worth but it was doing 1.2. Cash flow was about 240 and we bought it for mid-force.

So that's because of exactly this. I don't see 1.2 as this enduring business. I think I'm seeing this as like a project that's going to take me a lot of personal time and energy

to pour into it to drive it further. When I start getting really attracted to something, which we don't have this information, but what's their online presence look like? What does their growth trajectory look like? Given the fact that they've been around since 1945 and they're doing $1.2 million,

I assume there's not much of a growth trajectory. So, you know, it's not like you're catching something on a wave. You know, you're, you're buying something that's probably been really steady. And they also have nine people doing 1.2. So I really think there's not much of a growth trajectory. Sounds like a lot of like family members or something. But how good is your online presence? What does your inbound lead flow look like? And those are really the two big ones that make this anything other than an aqua hire for me. Because the company that we just acquired, the things that we got out of that was we got a phone number. We got a decent Google My Business that we could

run some LSAs through. But really for us, $1.2 million isn't a lot of money. All that we're getting out of it is the trucks and the techs and a phone that occasionally rings compared to our other lead engines. So I think driving lead flow is really the big thing for us. But I think at home services, you're not a real company until, and I'm saying that lightly. I'm not, uh, this is going to come off rude probably, but I don't think you have most of the good stuff until you're over five million. Like you don't have a strong recruiting practice. You don't have strong inbound lead focuses. And if you did, then you wouldn't be less than five million. So it's sort of like that's where the good stuff starts to happen. Yeah, without growth,

this is way I always look at things with it. To pay this kind of multiple without growth opportunities would be crazy. You know, an individual searcher to come along and buy this, to your point in this area, this old a business that has still not grown past that point,

you can't afford to pay even three because maybe you can afford three. But if that cash flow is really SDE, which I suspect it is, then you really can't afford to pay three because you've got to pay yourself.

I ranted about SDE last time. I won't do it again this time, Michael. It was, I really enjoyed it. So let's, I'm curious how Patrick, who appears to be a broker, that A, is pretty smart, because if I was a broker, I would do exactly what he's doing. I would just become the guy for a specific niche. And I would just get really good at that and know how to price it and separate myself that way

instead of doing a geographical-based thing. But so Patrick is pretty much priced this thing now at a price where a savvy strategic like yourself is going to think it's overpriced. Like, what do you think's going on here? It's like Patrick trying to target a searcher or like an HVAC tech who doesn't really know what he's doing and thinks he can run a business, you get an SBA loan to do it? Like, you know, how do I triangulate that with Patrick, who in theory should know what he's doing to price stuff so it'll sell?

I think the target for this is a strategic of some type. It's not attractive to me because it's not in my neck of the woods. so maybe I would feel differently about this if it were in a different, like if this were in a prime spot inside my existing service area and this offered me some benefit because of their customer list,

maybe I would be willing to pay more. But just knowing physically where it is and the lack of growth, I'm not like, yeah, let's do this. But I was talking to, I was talking to a really large PE firm. they own basically the three biggest players

in the states and they just bought a new Chicago hub that's doing $250 million and they're trying to get more of these things and I was like, okay so what's the smallest you would go and he said I looked at $800,000

in sales company yesterday and I'm like, okay hey, one, that's crazy. And two, maybe that's who this is for. I would agree. I've seen some roll-up HVAC groups. Yeah. And they paid high multiples when it was just like the perfect one to fill in that geography

and that particular work mix that they were looking for. They kind of overpay for it because it rounds out the whole picture for them. Yeah. And they had, you know, relatively low cost of capital to do it. So, yeah, I agree. That's probably who Patrick is going for. And I wonder, Michael, why there aren't more Patrick's out there in the brokerage community that do just become great at one vertical.

We don't see very many. He is definitely one of them. So Patrick doesn't plumbing in HVC, and there's another guy. It seems to be Florida. I don't know what's going on in Florida. But there's a guy that does just restoration. I think his name is Rohan. but he just does restoration.

So I think it's like restoration business seller.com or something like that. And all he does is take restoration companies to market. All right, taking a quick pause here. I have something to tell you. This is Michael. I hate bookkeeping. I hate bookkeeping. I hate doing HR.

I hate doing all that kind of stuff. But for bookkeeping, I have found a solution. It is my friend Charlie's business called cloudbookkeeping.com. So that's cloudbookkeeping.com. They are your perfect partner if you want to get bookkeeping out of your hair and focus on making your company, your customers happier and more successful. So please give them a call, call Charlie, cloudbookkeeping.com, tell them we sent you. They're a great way if you're a business buyer, if you're a business owner, you're tired of hassling

with getting your bookkeeping done. He's got a whole fleet of people that are well trained and work for him. He's located here in San Antonio, so I can tell you because of that, he's awesome. and they're a great partner for you to potentially call to help with all your bookkeeping needs so you can do the important stuff in your business rather than worry about getting your books right. So give Charlie a call, cloudbookkeeping.com,

and now back to the episode. So yeah, I definitely think that's the way to do it because then you just get known for that very specific thing. But yeah, it seems like a strategic, you know, if he was in my area, if he was in my neighborhood and it offered me something of value, like maybe that's good. There's a guy in Texas who's doing a roll-up.

I think he's sponsored. And he will go in and he'll overpay. But it's like a different set of math, right? So if we think about this, for me, this specific one wouldn't be good for a second location, because I don't have any infrastructure there. But if you have existing infrastructure, then it's okay, how many phone calls came in? And did they come in organic? And that's almost the only thing that matters when you're looking at some of this roll-up math sometimes is, okay, I know my inbound book rate, I know my in-home close rate, and I know my in-home average ticket by segment.

So their 20 phone calls a week to me is, let's say, $100,000 a month, or $200,000 a month, whatever it is for your business. So some of these businesses are getting valued purely off of inbound phone calls because they can figure out the rest. And then you just sort of, you keep the team, you drop the team, whatever. So maybe that could be a play here too. But you have to be pretty aggressive for that to work. But there is a company that just sold for $80 million in Vegas. They were doing $30 million in sales and six in EBITA. And then they did six acquisitions exactly like that.

It was basically very aggressive acquisitions of phone numbers. So they'd pay a million dollars for your phone number. And that phone number for you was a million in revenue, but for them turned into six. Yeah. It's a different game. I have no idea what I'm doing. That's what I think.

That's what I hear stories like that. I have no idea what I'd be. Well, like you said, their marketing channels are so critical in these businesses. I worked with a company last year that was acquired that did SEO for a very targeted a vertical towards service contractors. And I thought the story was so interesting. The seller of that business had the SEO business first, then went and bought an HVAC company or two,

and put the two together and figured out the secret sauce of doing a great job of SEO for service contractors. And then, you know, the SEO company really flourished by focusing on the vertical. It was really, really great story. Yeah. Yeah. We're hoping to do the same thing.

that's like an active project that I'm working on right now. Oh, okay. I should introduce you these people. Building like a digital arm? Yeah, so we, it's called service scalers, and we're trying to do exactly the same thing. So the biggest issue that we have to sort of get through the next part of organic is running a best in class marketing team,

getting our customer acquisition cost down. Like customer acquisition between a year ago, today has tripled, which is insane. Like, that is crazy. So we're trying to... Most lead flow inside home services like put a quarter in, get a lead out. So Google LSA's PPC or, you know, direct mail. But Google LSA was $15 to $25 a lead.

It's now $45 to $70 a lead. And then it just gets dropped into the funnel of, okay, what's your inbound book rate? What's your in-home closing rate? So sometimes acquiring phone numbers like this that get consistent organic phone calls is a lot cheaper than outbound marketing. I was going to ask why is Google

and all that stuff tripled? It's just getting bid up by P.E. money? I think bit up. Yeah, I think just bit up. So a year ago, the LSA product, the LSA products is only two or three years old. And a year ago, it's like Facebook ads, right? Like the first couple years, nobody really knew they existed, so you could run them really cheap. And that was LSAs.

And now everybody knows they exist. So now they're very expensive. So companies are starting. So Leadflow now is not as cheap as it has been. So now companies are starting to drive much more. They're putting a lot more weight into SEO and how they're presenting organically. So we're trying to do the same thing. And we're investing heavily into it.

That's great. Yeah, I wonder how many buyers of these businesses understand. the customer acquisition cost side of what they're getting themselves into. I don't think, I know many bankers don't really understand that, especially the service contractor. So it's a really important part to understand before you value a company like this. Well, and having a really clear strategy around how you're going to convert them to roll into your new one, how are you going to maintain outreach? So I have a friend who has a way better than me, outbound.

sales program through his call center. And like aspirational, I hope we can get there one day. So what they do is they buy customer lists, which are very cheap in our industry, because that's just a list of phone numbers, basically. But their outbound sales process is so effective that they can buy this customer list and convert a solid portion of them into new clients. So, you know, their customer acquisition might be like a dollar or a customer, whereas for me, it's $80 for that same customer.

went through Google search or some other format. So this is just a non-starter for you because it's Toledo. And by the way, thank you for, I'm so excited you're here. I didn't expect that I would open up Google Maps and really dig into the geography of Ohio and understand how Cincinnati's basically, Cincinnati's basically in Kentucky. I had no idea. And, you know, my wife grew up in Youngstown and, like, I didn't know, Akron was that close to Cleveland.

Like, I just, I always just, it was like random over by Detroit somewhere. But it turns out it's not. It's right over there in eastern Ohio. Yeah, so we're northeast Ohio. So, yeah, like, Akron and Cleveland are 30 minutes apart. And really, it was sort of funny because one of the big, you know, I'm looking at this business and I'm seeing our business seven years ago, but they don't have a market to grow into.

So we were based in Akron. We were doing a million to 1.5, but we just north of us had three and a half million people. So we could just grow into that market and we would be fine, right? they have Toledo, depending on where they are in Western Ohio, and there's some population,

but I think Toledo's like 200,000 people or 300,000 people. It's not a lot of people. 268,000. Yeah. So that's not a lot of something. I mean, maybe you could move,

but there's licensing. If you move further west, you've got Fort Wayne, so there could be something attractive there, but then you have to deal with licensing requirements. So I feel like growth here would be really tough. Yeah, I can't. Yeah, Toledo.

I can't remember when I thought about Toledo. No offense to both of our listeners in Toledo, but it's not anywhere near top of mind. Yeah, there's not a lot going on. I only hear about it mainly. I heard a lot about it in bigger pockets because there was a bunch of people buying like $30,000 houses there forever and ever. It might still be. That sounds horrible. Yeah, again, that's not like a great, if that's what the city is known,

known for. That's not like the spot that I want to build a residential home service company. We're like most of my customers are landlords. Like that sounds, yeah, that sounds rough. I just paid half of what their house costs for a new HVAC system myself. Yeah. Yeah. Here's just 15. Mine was 10. It was 15. It was 15. So, okay, so funny Girdley, HVAC story. You know, it's like 105 every day here because it's Texas and it's horrible here in August. And so we have, we have an enormous house building. in the 70s, and there's three air conditioning units because it's an enormous house built in the 70s. And so the one that did our bedroom in that side of the house, it's been out for like two weeks.

So my wife and I've been sleeping under like four or five fans, like under the thinnish sheet. And so she's like, we need a new AC units. So we get the new AC unit in on Monday. We fired it up. We set the temperature to 75 degrees. 30 minutes later, we're literally both like, in sweatshirts because we're freezing because our bodies were so acclimated to sweating to death that I was like, I'm so cold, get the comfort around,

I'm dying over here. So that's it. That's my H-FAC story. And then I paid the guy $10,000 to wear a park guy. That's a good story. I don't understand how people live in that weather. Like, I don't get it in any way. We were down in Phoenix in April,

and apparently that's like their nice season or something. And it was like 90 degrees at 6 in the morning. and I just don't understand it. And then it's like 120 or something right now. I don't, I really don't get it. I don't get it. Give me like 65, 70. I want to wear pants to work, you know?

Booties. Booties. Yeah. I want to show my ankles, but not my calves. That's inappropriate. I want to show my ankles. I'm wearing shorts today. Super good.

Okay. So anything else we should think about this one? It sounds like this is a horrible. recipe to go move to Toledo and not make too much money. Is that what we think? Don't recommend. Yeah. Don't recommend.

Who thought this was a good deal? Oh, it was me. I think it's a good one to talk over because honestly in this just like one purchase price is too high. Two, it's in the rough spot. Like I think this is a good, hey, here's a list of things that you should not want in your home service company. So as far as like a don't do it, I think this is a great one.

Perfect. Well, that's how you find the prince as you get a lot of, frogs. Heather, any thoughts on this one before we close it up? Nothing other than that. I think that someone might get an SBA loan for this and maybe probably shouldn't. You know,

they'll probably still qualify. And this, like to John's point, just because the numbers might work doesn't mean it's a good idea. I think that's where, in terms of what you do, Heather, I think working with somebody who,

you know, a broker that does what you do, who is of high integrity and willing to tell you not to do something is super important. Like I would hate to work with a broker who's like, sees a commission on the other side and sets me up for failure. And I know those people are out there. And I'm glad you're not one of them because you have super high integrity.

Super cool. Okay, well, cool. So, John, holdcocomf.com. Is that where they can find out more? Holdcoconf.comf.com, September 18th through the 20th up here in Cleveland. It's going to be pretty good. Pretty baller. Do you guys have a theme song yet?

Did you decide? I'm pushing really hard for flowers by Miley Cyrus. However, it is most likely going to be like a malice. millennial punk rock playlist. That's probably, you know, it's going to be some yellow card, some micmen on Spotify so we can listen.

Yeah. It'll be good. I'll share it. All right. See you're good. All right. Well, we'll wrap up here. Thanks everybody for being here.

Another great week on Exquisitions Anonymous, and we'll talk to you soon.