Acquisitions Anonymous - #1 for business buying, selling and operating - Industrial Automation Business for Sale Analysis | $656K SDE Review

Episode Date: May 26, 2026

In this episode the hosts break down a Southern California industrial automation equipment business whose niche customer base, unclear recurring revenue, and likely customer concentration risks turn what looks like a profitable manufacturing deal into a potential acquisition nightmare.Business Listing – https://www.bizbuysell.com/business-opportunity/industrial-and-automation-equipment-manufacturer/2443997/Welcome to Acquisitions Anonymous – the #1 podcast for small business M&A. Every week, we break down businesses for sale and talk about buying, operating, and growing them.Looking to build a professional website in minutes? Try Wix: https://wix.pxf.io/c/6898629/3115214/25616?trafcat=templateHubSpot is the backbone for how businesses scale without chaos. Try them out here: https://go.try-hubspot.com/OeG9VrSubscribe for more episodes: https://www.youtube.com/@AcquisitionsAnonymousPodcast?sub_confirmation=1Subscribe to our Newsletter: https://www.acquanon.com/newsletter💰 Sponsored by:FRANZY - Thinking about buying a franchise instead of an independent business? FRANZY is a free platform built for acquisition-minded entrepreneurs who want to explore franchise ownership without broker bias. FRANZY matches you with franchise opportunities based on your capital, goals, and lifestyle—and includes free coaching from experienced franchise operators. If you're exploring ETA but want a structured, system-driven alternative, check out https://franzy.com/ Viso Business Capital — Get the right SBA loan tailored to your acquisition needs with Heather Endresen’s firm. Sign up for a free live Q&A on SBA loans at https://www.visocap.net and click “Zoom Sign Up” in the top-right corner.This week the Acquisitions Anonymous crew reviews a $2.6M industrial automation and system integration business based in Riverside, California. The company reportedly generates $2.1M in annual revenue and approximately $656K in seller’s discretionary earnings while serving manufacturers with custom automation systems, conveyor applications, aircraft windshield handling equipment, and proprietary aluminum framing products.Key Highlights:- Riverside, CA industrial automation business listed for $2.6M with $2.1M revenue and $656K SDE- Hosts suspect the “automation company” may actually function more like a machine shop- Potential customer concentration and project-based revenue create major transferability concerns- Discussion on how SBA lenders cap deal pricing and force acquisition discipline- Deep dive into QoE reports, accounting red flags, and why diligence matters before signing a personal guaranteeSubscribe to  weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking hereDo 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 Gridley here. Welcome to Acquisitions Anonymous. I am courting from on the road, so I'm on my laptop with AirPods, so apologize for all that. But today, we did a deal that was brought by Heather, and she only brings deals from Southern California. So we did a deal from near her house, and I think it'll be fascinated by the things we're able to discern about this particular deal just by reading a one-page teaser. And then we went into a bunch about how to figure out if this was a good deal or not. So stick around to the end to see what we thought. Here's the episode.

Hello, another episode of Acquisition is anonymous. We don't have 100% beers anymore. And thumbs downing on just the plus inventory line. One of the biggest risk in entrepreneurship through acquisition is buying a business with fragile systems. Unclear demand or a single owner who holds all the knowledge. Franchising approaches that problem differently. You are buying into an established brand with documented systems, unit level data, and repeatable operating playbooks. The hard part is knowing which franchises are actually worth evaluating.

That's why Alex Moresniak, former CEO of Two-U Laundry, built. Franzy. Franzy is a free platform that helps acquisition-minded entrepreneurs explore franchise ownership without broker bias. You answer a few questions and Franzy shows you franchise opportunities that align with your capital, lifestyle, and long-term goals. You also get free coaching from people who have actually built and scaled franchise businesses. If you are exploring ETA and want to understand whether franchising fits your acquisition strategy, visit franzi.com. That's F-R-A-N-Z-Y.com. And thanks to them for sponsoring today's episode. So Heather, maybe share with the audience. through a discussion between choosing between two deals. We had deal A that was very sexy

in Jacksonville, I mean, or we had deal B that was probably a good deal, but not that exciting in Riverside, California. Which one do you think we should choose? Well, I choose the boring one that's a more interesting business than the touring one because we got to try to make these boring listings that our listeners might actually buy, we've got to entertain them and, you know, make them sound a little more exciting. So I think that's part of our job, right? Fine. My logic. But now that pressure's on.

You've got to do that. The other one had people going down at river rafting. It looked amazing. A lot more fun. All right. You want to tell us about this industrial and automation. Oh, we have a guest co-host today. Will, do you want to introduce yourself real quick?

And then we can talk about the deal. Oh, yeah. Yeah. My name is Will McCurdy. I am a CPA. I started my career at the Big Four doing financial segment audits. I spent the last five years strictly doing quality of earnings and financial due diligence for private equity firms. And now I partnered with Michael here to launch Bedrock Quality of Earnings, where we provide quality of earnings reports and analysis for the lower middle market and in Main Street. And you can be a first-time buyer or you could be a seasoned acquire. We work with everybody.

Welcome. I'm proud to be your business partner. Thank you. Thank you. It's good to be here. Cool. Well, Heather, you have a deal. You want to tell us about it?

A deal. And it's in California. So it is an industrial and automation equipment manufacturer in Riverside, California, sorry, asking price $2.6 million, cash flow SDE, $656,000. gross revenue, 2,113,000, established in 1985, well-established and highly profitable. This is funny, the first sentence I think they meant to put at the end, but it says, contact business broker for more information regarding this industrial automation system integrator. That's the first sentence.

And then we go, since its inception in 1985, the business has been involved in ever-growing need for industrial automation and now enjoys a stellar reputation in the industry. The business is a system integrator for custom and standard product handling equipment and applications needed for automated processes. Over time, the business has developed several distinct product lines and a number of substantial market niches. Product lines include proprietary designs for equipment needed for these niches, such as fully automated machines for aircraft windshields and window manufacturing,

conveyor applications for counting and labeling, and equipment and system mounting, machine enclosures and frames necessary for safeguarding and protecting both personal and expensive assemblies. Ooh, that was a long sentence. In addition, the business has a proprietary standard line of aluminum products and connection hardware for construction of machine frames, enclosures, and conveyors. The business operates from two fully equipped adjacent facilities with a total of 10,180 square feet. the business has nine foot and three, oh, nine full time, sorry, nine full time and three part time employees slash technicians, and the growth opportunity is significant with just some inside sales activity.

The business differentiates itself through fully integrated services, its manufacturing facility, and its ability to meet all customer standards and quality service requirements. Customers include major industrial product, contractors and system manufacturers. The business has never marketed its services and capabilities and sales have been generated by its reputation. The owner will assist new owners in transitioning the business. There's this sentence again.

Contact the business broker. Inventory is $230,000 included in asking price. Furniture and equipment $130,000 included. Employees, again, nine full-time, three contractors. The two facilities totaling 10,000 square feet, they are both rented. One is 7,000 a month, and the other one is 6,180. Seller financing is available. They'll provide support for 20 weeks at 10 hours per week.

That's not very much. And reason for selling is retirement. And this is listed by Edward Fixen of BusinessQuest. Oh, no, there's two brokers. actually Ron Varner at Business Quest sponsored by Edward Fixin. So what do you guys think? Man, okay, so just so I have my head around

this business, they just do off-the-shelf product handling equipment and they come in and if somebody needs to like screw caps on tops of bottles or whatever in terms of their small manufacturing in Southern California, these guys are a reseller and system integrator who is simple stuff from different people, comes in and works services manufacturers or people building stuff, kind of in the SoCal area.

Is that kind of how I should think about it? Yeah, and they sort of, did they say manufacturing at the top? I thought they did. So maybe it's kind of light manufacturing sort of assembly of these systems, to your point. You know, they buy the systems and they they configure it in a way that is customized to that business. that's the way I imagine it. Counting and labeling. Yeah, aircraft windshields. Windshield handling.

There was, you know, basically just automated assembly line machines. And it is a growing field. They didn't really wow us with them using any of the latest technology because AI is definitely coming into manufacturing, automation, you know, robotics, basically, right? This is sort of, this is, to me, it's sort of old school robotics, you know, that's what it sounds like. There's a lot of, there's a lot of really big advancements happening there.

And what would be interesting to me about this business is if they haven't really, if they haven't really touched that part of, you know, manufacturing automation, that's an area of growth. They didn't call it out and they didn't really say much about it at all, but that's what it has me thinking. Is being in California here like a competitive advantage? because it is so hard to start a business at California from what I've seen. As far as starting a business here, you know, you can certainly start a business. You know, this business has got some employees, so they figured that out. They've got a labor pool. They're in Riverside County, which we call the Inland Empire.

And that's kind of a good area for an industrial-type business, a manufacturing business to be. That's kind of where a lot of them are in Southern California. You're outside of L.A. where things are a little crazy and maybe a little more dangerous. This is a pretty relatively better area. A good labor pool, I would say. And you're surrounded by manufacturing companies, small, medium manufacturing companies. So that's what's appealing about this business here, is that it's well located, I think. It's not doing a lot in sales. You know, 2.1 million. That's not a lot. And there is probably, this is probably a lot of project work. You know, this is probably a lot of, you know, install it and it's being used for years and years and years.

They don't mention any coming in and servicing or repairing. So it's probably a lot of new projects, which that's not great part of it. But I think they're in the right location for what they do. I mean, we'll look at this, how much they're spending on rent, $7,000 a month and $6,100 a month for 10,000 square feet for 12 people to work. inside the business. A $2 million in revenue. Wow. Yeah. And I would definitely want to make sure

that the lease is transferable or if it terminates soon, are they able to renew it for another 10-year term? Because the facility definitely seems like a key piece to this business and it posts close if you're renting it.

And the owner, the landlord, decides to kick you out. I'm not just quite sure what you'd do at that point. So we're definitely want to make sure you can get a long-term lease in place. And an SBA lender will make you do that because this is this is a business. What we kind of say is location dependent. There's no manufacturing business where the lender is going to lend when you might have to move in a couple years. They want you to know that you can stay there permanently. But to your point, Michael, it is, it is expensive real estate. It's not cheap. And given the revenue that they've got, it's quite a bit of expense relative to that revenue. I mean, it's kind of nuts. When I do the math here, right, they're spending $13,000 a month on rent. That's $145,000, let's say, plus or minus going out. So I'll say $150,000 going out on gross revenue of $2.1 million.

and then you've got 12 employees working for these people. Like, that is, you know, they kind of talk about this being a var. It sounds more like it's just like a machine shop. Like, why do they, if it's, if it's a real value added reseller for this stuff, like, why do they need 10,000 square feet? Like, that doesn't make sense to me. So there's something that just smells off about this listing. And I think we see this a lot and maybe we'll,

you've seen this too in listings, a brokers are pretty smart. They know like, oh, a machine shop is not going to get a good multiple, but a VAR is going to get a pretty darn good multiple. So they miscategorized stuff pretty quickly, but it doesn't add up here. Yeah, you'd have to go, you could assess that out a little bit by asking for the equipment list.

And if you see a lot of CNC machines and things of that nature, you might sort of conclude it falls into the machine shop category. but yeah, you're right. This is a, if we take the, the EBITDA, or I'm sorry, the SDE that they're showing of 656, I'm going to again lop off about 156,000 and say it's really 500 of EBITDA. You know, so 500 against sales of 2.1 is a margin of about 23, 24%. So it's not a bad margin. You know, that, that I kind of love.

bike so far? I wonder with it having a strong margin is the owner wearing multiple different hats and you would have to replace what he does on a day to day basis with two or three employees and then that could

potentially eat into the margins a little bit more. And then another thing on the owner, they haven't done much sales of marketing over the ever it seems like is what they said. So is the owner, is the owner dependent on relationships? Is he doing all the sales?

Does he hold all the relationships with customers that going forward you may not have? Yeah, exactly. It feels like they serve their neighbors, you know, basically around the industrial parks near them and the seller's contact list. But haven't done anything in terms of sales beyond that. One place I would dig into very quickly on this is customer concentration. and when they use these phrases like, hey, there's equipment needed for niches, and then they list some really weird oddball niches.

It's like aircraft windshields, convey your applications for labeling, system mounting, you know, and then weird like safeguarding assemblies. It's like, oh, these guys have three customers. You describe these different customers. Yeah. So I'd be willing to bet there's a huge amount of customer concentration here. Yeah, and does it rotate every year? You know, these are the four customers

they had last year and next year it's going to be four different customers because it is all project work. That could be interesting to know as well. So hard to know that you can repeat the performance as a buyer. Heather, how do you feel about this price? It's a little too high. I mean, again, I'm going to go off of an EBITDA multiple because as lenders, we just always work with EBITDA. So 500, EBITDA, a four multiple is two million. So they're asking, you know, they're asking four and a half. That's too much. Or is that five? I guess that's five. They're asking five way too much. So, you know, this is, again, kind of, it's below a four to me. You know, the lower middle market, small SBA size deals, if they have any hair on them regarding

transferability or customer concentration, they're below a four. four. So my guess is, you know, it's, it's at least two turns too high. One or two, yeah. Yeah. So how, where do you think, how would you structure this if at all, or is it just a better price at this point? It's a matter of price probably mostly. I mean, if their customer concentrations are too large, there's no lending possible at all, you know, because you can do the math and see that if they lose one customer, they wouldn't be able to pay the loan. So you'd have to look at the customer concentrations carefully. Maybe you could structure a forgivable seller note around one that was maybe 20%. But if it gets much above that and it's really only

four customers, thanks are just going to say no, period. But maybe you could borrow a million and a half on this if everything else kind of checked out and you had the right buyer. On the positive side, trying to be positive about this. If someone came along who's got like an engineering background, I'm thinking of someone that's a family friend, he's a young guy and he's selling manufacturing automation equipment, but all the latest stuff that uses the latest technology, if someone like that could come along to a business like this

and could start selling into those channels and really utilize the 10,000 square feet and whatever machines they have and know how they have, you know, there's a, there's a possibility here where this is a growth story. And if it is, you're not going to overpay for the growth, but, you know, it makes it a little bit easier maybe to go all the way up to a four because you can launch that growth faster than you could as a startup. That's, that's probably my best case scenario for this deal. Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the

right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size fits all. There's the best rate, fastest to close, the specific loan structure that you need, or a little of all of those things. That's why my company, Vizob Business Capital, works with over 30 different lenders to find you the best funding in less time and with less friction so you can focus on the deal. Sign up for a free live Q&A session on SBA loans at Vizoccap.net. Then click Zoom sign up in the top right corner. That's VISOCAP.net and click Zoom sign up. I love how lenders basically force some real levels of like professionalism, what business is like this, or a buying process, right? It would be really easy to get overly excited about it, make an emotional purchase. And here, you know, the lenders are basically creating a pretty good, like, break on things getting irrationally exuberant. And that's the one thing I love about the SBA program.

It's like, now we can't be paying nine times earnings for this folks because the SBA just not going to let it happen, which I think is great. Yeah. You can with equity. That's what I always tell people. You can do that with equity. You can only borrow maybe three, three to point seven five, but if you want to pay more, you can do that, but it's going to be with your money. I was talking to a lady a few days ago who's trying to buy a business. And so the broker basically suggested, you know, she's like, look, I can't, now that I've got your actual financials, I can't pay this price anymore that I offered because, you know, there's $200,000 a year in earnings that has disappeared from the SIM to this. And the lenders won't let me do that.

And so the broker goes, well, you should talk to this lender that I had worked with before with a previous buyer who had had it under contract for basically two-thirds to price. And I was like, what is this broker doing? Like, anyway, so that guy had fallen out of the deal and wasn't able to get it funded. And now he was expecting the same lender to help her funded at, you know, a third higher price. It was just like, what is going on in the world? What I say when I see that is I say, is there calculator broken? Maybe there's this broken. Oh, man.

Getting business brokers to do their job is sometimes very challenging. So, Will, how would you go about, you know, doing financial diligence on something like this? Yeah, definitely want to understand the customer concentration and revenue quality. Is it actually only a few customers or is it more spread out? Understanding if there's what contracts are in place and seeing how revenue has trended over time. If AI, if there's competitors using AI, how that's impacting this company and their performance, and maybe that's why they want to sell. Another item is inventory and margin.

That's another key piece that we would look into to see how that is trending. And if they're tracking everything appropriately to get a real good understanding of the business. It does look like it's a niche business, which is cool. But yeah, definitely want to understand the owner's involvement and what he is doing on a day-to-day basis and what potential replacement costs would be needed if he leaves and retires and maybe moves out of the country. But yeah, those are, yeah, a few of the items I would probably look at. And what is, like, if I'm a buyer, right, and I can choose between not paying for financial diligence or paying for it, like, what is the trade-off I'm making?

Obviously, if I do, I have something under LOI, I do a Q of E and the deal doesn't close, like, I'm at that expense. So how do you, like, talk to buyers about thinking through, like, when it makes sense to do it, how to baby step your way into it? I know, Heather, you do stuff with folks to kind of do a, basically a preliminary version of a Q of E and then later on do the full full baller stuff. So I'm just curious, what are you guys seeing people do to kind of mitigate the risk and also get the benefit of doing this diligence in a good way? Yeah, I would say two things. One is the price tag of equality of earnings can be high for some buyers, especially on the smaller deals. But if you are taking out debt and putting a personal guarantee with the SBA or you have investors, family and friends are investing in the business, you want to make sure that the business is feasible and can continue. to produce cash flow and earnings going forward.

So the price of the Q of E, I would say, is definitely worth it from a risk perspective to make sure that you really understand what you're getting. And I know Heather likes to look at the bank to book reconciliations. And so doing that will really tell you the financial quality of the business. If it reconciles mainly, then you may. may have a night's business and they're recording things appropriately, but if not, then if they're hiding costs, if they're not recording revenue properly, you can do a bank of a book reconciliation and see what you're getting yourself into. Yeah, I will say, I couldn't agree with you more,

Will, it's, you're signing a personal guarantee. This is the most important money you're going to spend maybe aside from your lawyer, right, to protect yourself and to protect the risk that you're taking with the guarantee is your quality of earnings. I think, What throws people in the SBA space is this weird thing. And that is that the SBA, as of now, does not require a quality of earnings. They require things like a business valuation. That's required. You can't get a loan without a business valuation.

They require the banks to focus on the tax returns and getting them verified with IRS. But a lot of times, and I'm sure you've seen this will, a lot of times the tax returns are, they contain all the accounting errors. you know, that you're going to end up finding in a Q of E. So, yeah, sometimes the tax returns are overstated in a number of areas. And when a Q of E comes along, we see that a Q of E is actually the more conservative number. Most of the time, that's the case. So the fact that the SBA doesn't dictate that you must get a Q of E, I think it makes some people think that it's not really needed,

that they're fine if the tax returns check out. And I couldn't disagree more. I think the one thing you want to spend money on, as a buyer is your Q of E for sure. Yeah. Yeah. And if a business is recording revenue and expenses on a cash basis, let's say, and they want to make the current year look strong,

they'll invoice a customer upfront for work to be performed next year. So that million dollars of revenue in 2025, well, post-close as the buyer, you're going to have to provide that work, and that's revenue that you don't have going forward since you bought it on a multiple that eididot, including that revenue. So, yeah, there's a lot of things to consider. Yeah, it's a great process to go through,

and I think it helps a lot of buyers not only know what the true earnings were and the quality of the different cash flows that they're buying, but a lot of times the accounting, the bookkeeping problems that might have existed, they can now know what to do when they own the company. They can fix those problems. They got a Q of E that pointed those things out. So instead of going on autopilot after they buy it, they know that's on their list of transition issues.

They've got to go in there and do some improvements to the accounting process or the bookkeeping process, which I think is another benefit. Yeah, definitely. In the Q of the report, we flag anything that they're doing incorrectly or things that they should fix if they're accounting for things incorrectly. if they need to hire people or their utilization is low. It allows you post-close to, if you do hire an outside fractional CFO or someone to help you clean up the books, their quality earnings report is a great start of point for that.

Yeah. Roadmap. Absolutely. So do we like this deal? I found it, so I was hoping you liked it. I'm trying to be positive, but I would pass on this. You're passing. This looks like buying a nightmare.

I'm maybe for the absolute right person who knows how to sell and already understands what this shop does really well and how they can kind of pivot to a more modern, you know, more modern automation equipment. Maybe for that person. But for everybody else, I'd be pass.

Did I already give a thumbs down or do I still need to get a thumbs down? I think you did. You said it sounded like it held, didn't you? Okay. Or nightmare. I'm sorry, a nightmare. I'm giving the deal two thumbs down and another one thumbs up. Or two thumbs up rather.

Well, thank you. Thank you. Will, are you buying it? I'm not buying it. So I'm thumbs down as well. I think, yeah, the asking price is a little high. And it's, yeah, for all the things we discussed, it's a specialized. It's maybe project-based and maybe customer concentration.

There's a few things you'd want to dig into before going forward, but I'm thumbs down. That's a first. The lender was the only one slightly positive. That'll do it for this episode of We Hate Your Deal. Thanks everybody for being here. Heather, how can people find you? Come to my website, v-isocap.net, vizocap.net, and join one of our Tuesday webinars where we'll go through our entire process. Very cool.

For getting an SBA-Lo. Sorry, yes, I didn't finish my sentence for getting an SBA loan. Yes, that is what the or we'll just hang out. It'll be fun. Yeah, or you'll just, you'll just hang out with me. That's fun too. Ed Will, where could people find you? You can find me on LinkedIn. My name is Will McCurdy. I can go to our website, bedrock, q.oee.com. Feel free to reach out to me at will at bedrockkw.com. It's my email address. And if you're thinking about buying a business or currently actively looking for a business, I would love to talk for all your Q of E needs. And you can find me at Chili's. All right, everybody. We'll get you next week.