Acquisitions Anonymous - #1 for business buying, selling and operating - Is a B2B Cooking Oil Filtration business a good investment? - Acquisitions Anonymous Episode 129

Episode Date: October 5, 2022

Want to receive this listing in your inbox? Signup for our weekly newsletter:https://landing-newsletter.acquanon.com/-----Michael Girdley (@Girdley) and Dave Housley (@housleyd), talk about a Cooking Oil Filtration Service located in Rally, North Carolina. Aside from determining how this works, we’ll also talk about how this business can be more on the helpful side for fast food deals or more on the harmful side for customers. Together with Dave, we will find out if this kind of enterprise is highly economical or threatening and unsafe as it compromises food safety. Most importantly, let’s find out if this deal is worth it.-----Thanks to our sponsor!Live Oak Bank - Whether you’re looking to build, buy or expand your business, let the team at Live Oak Bank be your financial guide. With Live Oak, you get a partner who believes in your success and is willing to take the journey alongside you. We provide small business loans tailored to your goals.Fuel the growth of small businesses across the country; bank with Live Oak Bank.You can contact Heather Endresen, Director & Founder at [e-mail]. Mention this podcast in the subject line and ask her about office hours to get in touch.*Live Oak Bank is the #1 SBA 7(A) Lender. The data supplied by the SBA reflects 7(a) highest dollar volume during FY 2021.-----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: (00:00) - Introduction(00:49) - Our Sponsor is LiveOakBank.com/aa(01:57) - Deal & financials: Cooking Oil Filtration Service (02:10) - Checking in With Dave(03:47) - Deal & financials: Cooking Oil Filtration Service.(05:00) - How Does This Work? What is the secret power of cooking oil?(11:22) - How do Green customers behave in a nutshell(12:17) - This is a franchise?! How is this so Adverse?(15:54) - What’s wrong with the American diet?  (18:16) - What is the Olive Garden Effect?(19:21) - Do we like this Deal?-----Additional episodes you might enjoy:#128 Who should buy this $4.4m EBITDA, cashflow machine?#127 Should we buy this Exhibit House?#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, Michael here. Welcome to episode 129 of Acquisitions Anonymous. We are continuing on our never-ending march towards doing, I don't know, a couple thousand of these, but we're having a good time doing it. So joined today by my buddy, Dave Housley, we talked about a very interesting business. It is a green recycler of kitchen and kitchen oil. So like the friars and all that kind of stuff, it's what they do. And they go in and they help companies that are running restaurants recycle their stuff.

and I'm curious if you either liked or hated the deal as much as we, spoiler alert, maybe didn't like it so much. So love to show you what's good or bad about this one. Anyway, no further ado, me and my buddy Dave talked about this. And thanks again, Dave, for stepping in with Mills and Bill out and see what you think about this deal. Thanks a bunch. Bye.

This episode is sponsored by Live Oak Bank, the number one SBA lender in the country by dollar amount. But they're more than the top SBA lender. they also provide USDA and conventional financing, tailoring each loan to their customers' unique needs. Whether you're looking to buy or expand a business, let Live Oak be your financial guide. With Live Oak, you get a partner who believes in your success

and is willing to take the journey alongside of you. Live Oak's M&A financing experts lend across many industries nationwide. They also have over 30 industry-specific teams whose lenders are experts in industry-specific small business loans. Some of these include health care, seniors housing and service contractors as well. With their dedication to efficiency, collaboration, and in-depth knowledge of M&A financing, they'll take you where you need to go. Visit live oakbank.com slash AA and make sure that's a lowercase a and another lowercase a to connect

with a lender today. So again, that's live oak bank.com slash aA with two lowercase a's to find out more about live oak and to connect with the lender there and tell them that the Acquisitions Anonymous folks sent you along. Thanks a bunch. All right. Back for a second episode. Me or Mano, Dave, off the bench to go through another deal with me. So thanks for being here, man.

Thank you. Okay, super cool. Oh, I mean, people should follow you on Twitter and stuff, right? Sure. Why not? Are you funny than me on Twitter? Are you less funny? I'm not.

I'm not. I'm middle of the road in pretty much everything I do. So not fun. money, not, you know, anything special, just whatever, right? I like the way you engage with everybody on Twitter. You're at Housley D, right? Is that that, that's H-O-U-S-E? Yeah, H-O-U-S-L-E-D.

Yeah, Dave Housley, so anyway. And you are, you, so I don't know if you saw it happen to me on Twitter today, but I had a post prepared where I, and last night I broke 120,000 followers, which is a vanity metric. Yeah, totally cool. But I post the post and then, like, the moment I posted the post, thanking everybody for being a follower, Twitter goes through and does another bot purge, and I'm back under 120,000 again. So it's like, the most gurdly move ever. It's like, congratulations to me. And people are like, no, you only have 119,800.

Well, I saw that. And the great thing about Twitter is sometimes you just can't tell when people are being serious or fooling around. And so part of me is like, Gertley is just fooling around. He's not at one. But he's doing a preemptive kind of thank you. He's doing a bit. I wasn't doing a bit. I wasn't doing a bit. Then people posted it out. And then I got back over at 120 and now like, let me look at it right now. Yep, I'm back over 120,000.

Well, we. My work here is done, people. All right. Okay. So we got a bangor deal here. This was actually found by Bill. Bill and Mills are both out today. I think Bill's is at a convention and Mills has like lots of stuff going on.

COVID is raging in his company. So you are off the bench. We have our bullpen of amazing co-hosts. And I texted you at 7.30 a.m. And yeah, you're happy to be here. And yeah, we're glad to have you.

So let me talk about this one. It's a B2B cooking oil filtration service located in Raleigh, North Carolina. So for those of you on YouTube, I have the teaser pulled up. Another biz by sell deal. And reminder, biz by sell is a future former advertiser of our podcast. We're looking forward to them sponsoring us someday. We really could use the help with the editing stuff.

So don't forget us, Biz By Cell. So they have a picture of basically one of those grease cookers. Is that what this thing is? Like if you're going to do fries and stuff like that, Dave? Yeah, it's fries and whatever else, right? Do you have fast food experience? Do I? You know what?

I worked in a yogurt shop. Is a yogurt shop fast food? I don't think so, right? I mean, is it okay. Okay, well, we're good. I'm going to consider you qualified. I know nothing about this. Oh, you know what?

You know what? I did wash dishes for like my very first job. I was a dishwasher and Italian restaurant and some mall. But anyway, not fast food, but food. Okay, okay, cool. You're eminently qualified. I've never, never done it. Okay, anyway, asking price, $725,000, cash flow, $215,000.

$215,000 gross revenue is $425,000. They don't list EBDA and they don't list FF&E. Very interesting. They have $100,000 inventory and their rent is $39.99. Exactly. So I'm curious about that. Like $399. Is this the rent or is this what they paid for their television at Costco? You don't know. I don't know. I appreciate them including that. Yeah, that's very material, guys. So thanks a ton. Asking price, $7,000,000, cash flow $250,000. Okay, business subscription, a strong recurring revenue model with lots of room for growth.

We service restaurants and similar businesses offering a green solution to cooking oil filtration. Not only are we helping local restaurants stay safer and save money, but we are providing an environmentally friendly service by extending the life of cooking oil and also turning waste into biofuel. This is a root-based recurring revenue business with strong margins, minimal staffing, and lots of room. to grow. Okay, so let's pause there, and I will tell you what I know about cooking oil. So cooking oil, here's the most interesting thing I know about cooking oil. Number one, it makes french fries. So you put like stuff in there and like you cook that way, right? So everything fried is cooked in this cooking oil. The second thing that's really interesting is it's recycled. So like there are people that come and pick up the cooking oil and then resell it or clean it up

and then they use it again for other purposes. So there are companies that do that. Number three, if you do it right, you can actually run a diesel engine off of cooking oil. Did you know this? No. Wow. No. So if you go on YouTube, go on YouTube, and there are people that have taken and converted cooking oil and put it into their car, and basically they will run their diesel car on used

cooking oil. So here's the funny part, though. When you do that, what do you think your car smells like? What does your exhaust smell like? It's going to smell like McDonald's. smelling french fries. Golly. Are you kidding me?

Yeah. So anyway, okay, so that's the third fact that I know. Okay, so what these guys do is they're part of this economy that buys use cooking oil, because you can only use the cooking oil so much before it gets ruined, and then, you know, either recycles it or resells it or turns it into running, you know, VW bugs that smell like, like, like french fries. Okay. So, and then what I understand it is these guys who buy the cooking oil, they go and

make deals with the restaurants. And it's like, okay, we will buy your cooking oil or you charge us for you pay us and we come by and we take your cooking oil. And you'll see it because there's like those, they have like a separate thing next to the recycling thing, next to the cardboard thing, next to the cardboard thing, behind the restaurant. And it'll be a cooking oil kind of repository thing that's like this vat of used nasty cooking oil that you definitely don't want to fall into. That's what I know about that. Okay, this is a root-based recurring revenue business with strong margins, minimal, and lots of room to grow. Our revenues have grown year. over year by 26% and admittedly could accelerate that with more aggressive marketing and business

development efforts, including in the asking price, our three fully fitted vans, plus all the tools and equipment need to provide our services as part of a leading franchise system. Oh, no. It started out so good. We have collectively saved nearly one billion pounds of oil going into our environment and growing daily. This team currently services rally in the surrounding areas with tons of room for growth. Real estate is leased, 1,000 square foot building that they're paying $399 for. they lease expires in two months, 12-22. Basically, is that what I'm meeting here? So it looks like, are they running this out of a storage unit?

I mean, $399. A thousand square feet is not very big. I mean, do you think it's one of those like little contractor spaces that people are talking about? It's got to be. It's got to be, right? It's at, well here it describes that a small flex space and storage and servicing equipment as well as three fully fitted vehicles, mobile filtration unit, storage totes, pumps, filtration dumps, and all over equipment.

to perform touch not services to our clients. They have grown 26% year every year, and the owner will insist in initial training and corporate will provide a comprehensive initial training for new owner as well as unlimited ongoing sport, and the owner is retiring. And we get to the money shot here, which is the business is an established franchise.

So that is what it is. Okay, so this went from like a nice thing where you own your customers and you're doing good service to where there's a franchisee or looking over you, which has me, not, is much fun. Yeah. Yeah. So is this, is this then one of these companies, they'll come into your restaurant, take all your oil, kind of clean it, and then, you know, filter it and then give it back to you so you can reuse it. Is that, is that how I'm reading this? That is what I'm,

the way I'm reading this as opposed to the other guy. There's other guys who I think mostly just take it and then filter it and resell it back at their headquarters or maybe sell it back to you. But yeah, that's what's going on. That's what's going on here. These guys show up. They'll filter your oil and they'll make it so you can reuse it again, which to me as a customer sounds kind of nasty. Yeah, so I'm wondering, just for like one fast food place, how much oil do you use and how much would you need? I mean, this company is going to show up with their van and how much are they going to filter?

I mean, do you have like 50 gallons you use that you need to exchange? I just don't know what the volume would be like per restaurant. I've looked at those, I mean, I've looked at those receptacles, you know, that I talked about before where they put their oil. And it looks like they're going through a lot of cooking oil a day. And I, you know, I've kind of, you know, what I've learned from fast food is all come from actually better call Saul, Los Poyos Hermanos. And if you care about it, I think you're supposed to clean out the oil every day. So if you're doing that, you're going through gallons of oil, you know, tens of, of gallons of oil every single day in order to run these friars.

But I think the problem with this whole franchise concept is, you know, it comes back to this thing, the green solution to cooking oil filtration. And I think that comes back to something that is consistent with everything green. Like people want to buy things that look and make them look like they're being eco-conscious, but when it comes down to it, they care much more about looking like being eco-conscious than they do about actually being eco-conscious. And if a dollar is involved, they don't give a crap about the environment. You know what I'm saying?

So like it's kind of the idea of if you were serious about, really serious about the environment, a Tesla is actually not the best way to do that. It's called driving less. And nobody actually really wants to do that, right? So the same thing here, which is how many customers do you think showing up to Taco Bell or McDonald's give a crap where the oil comes from? They don't. They do not. And I think that's the problem with this business. And what I would tell this franchisor, it's like, what are you thinking? Like, how many restaurants really care about, you know, a green solution to cleaning out your grease, which these guys show up, they filter your grease or you filter your oil? Like, it just doesn't make any sense to me. Like, these restaurants don't want this. Like, I don't know restaurants. Yeah, they're trying to sell this as a green solution. And so I'm wondering, okay, if this is a green solution, what's the not green solution to filtering your oil? I mean, what's the difference?

How is this method green versus, you know, a more traditional method? Well, here it says they extend the life of cooking oil and then they turn the waste oil into biofuel. So those are the two things. The biofuel is what I talked about. the you know the the the french fry smelling vw beetles that's fair i totally want one of those and then if you so i've got this restaurant and my oil is no good anymore and so they're just going to take the the oil that can no longer be recycled anymore i mean i mean i wonder how many times you can do this right how many times you can use the same oil over and over and over but eventually it'll get to a certain

point where okay it's reached its life and now it's time to make it into biofuel So as a restaurant owner, do I benefit in this biofuel stage? And like, you know, do they purchase this used fuel, this used oil from me at some point? Or does this franchise get the full benefit of that and sell that biofuel to somebody else? Yeah. I mean, in theory, you're part of a franchise and they could go along and give you some connections to where you get better prices when you're reselling your oil, like they do national contracts and stuff like that, or potentially you're, you know, they're going, this, this franchise system is going

and taking care of, you know, local McDonald's, you know, signs with McDonald's nationally. Like, that's all pretty good. But it's not really clear what's going on here with why this is actually attractive. And to me, the fact that this is a franchise business is a huge red flag, right? Like, the fact that this is an existing franchise. And here's what I've seen happens. And what happens with good franchises is, let's say you're an orange. theory, right, which is arguably one of the greatest franchise businesses going around in America today or a McDonald's. Like, when was the last time you saw a McDonald's franchise for sale on biz by sell?

Oh, never. Never. They don't. You're not going to see them, right? You're not going to see them. They don't. Because if this was actually a good, if this was actually a good franchise system, the other franchises are going to be buying them.

And here you've got to find some. So schmuck to take over your terrible franchise, right? And so that's the thing I always tell people about that's the thing I tell people about franchises is like there is a huge long tail of crappy franchises that you just don't want to be part of, especially if you're a mom and pop. They're the ones paying all these franchise brokers to try to sign you up when in reality you want to be doing, you know, the top 10 franchises are the ones that you really want to be part of, right? It's like orange theory, chilies, obviously. Is Chili's a franchise?

They have any store-owned locations? I believe they are a hybrid of that. So there are Chili's franchises, Applebee's franchises, all that kind of stuff, yeah. Oh, Applebee's. Applebee's is so terrible. My goodness. Applebee's Olive Garden, I mean, just they're the mordor of food. That's the way I describe them.

It doesn't matter what you are. order, it's going to taste the same. Well, that's because it's all like, have you ever, you ever walk through their kitchen and see what the cooking actually looks like? No. They're just microwaving everything. They're microwaving or deep frying. It's designed to be done in a way that somebody with basically three hours of training

can make all the dishes. And, yeah, it's brutal. It's totally brutal, right? But it's, I mean, it's, here's a rant for you. But it's just a testament to their, they are cooperating with what the American consumer wants, right? Like, like, I spent time and I'm about to lead us to myself here, like, but I go to other countries and they, like, serve me normal portion sizes, right? And, like, you can go and have a normal meal. It's not, like, all full of sugar and butter and salt

and all that kind of stuff. And you can leave feeling good the next day. Whereas you go to, like, applebees or olive garden and you eat a normal meal there. Like, you're going to have a hangover the next day if you're me. But in their defense, these people are just responding to American tastes and what Americans have become accustomed to as normal, which is these enormous portion sizes, food that is mostly bland, the cheapest of crap ingredients, and then only made good because it has lots of sugar, butter, and salt in it to actually make it tasteful. Whereas if you go to, like, other countries or even in California, like, we would ask, when I went to California last, we asked the fancy restaurant, like, so how do you prepare the fish?

and we expected like your typical like middle of America answers where it's like, oh, we put some butter on it and we do this and then there's gravy and then there's salted butter. And the guy's like, yeah, we just put a little olive oil and some salts on it and we put it on the grill. Like that was it because the fish by itself just tasted good. So anyway, and if it's all these people, they're just building what Americans want to buy, which is enormous portions, calorie dense and, you know, cheap ingredients. Well, that's, that's crazy to me. I mean, there's so many terrible.

chain restaurants and so many terrible chain food places. I just can't believe, I don't know how they stay in business. I just, it's crazy to me. How can, how can so many people go to them to keep them in business? It's, it's crazy. So I call this, so this is, this is something I invented. I call this the Olive Garden effect. And it's like, uh, you, you, you basically, you drive by, you, you, you, you drive by Olive Garden or you think about Olive Garden. You're like, who the hell goes in that place? That is so terrible. I know nobody that wants to go to the Olive Garden. And then you drive by the Olive Garden on like a Friday and the parking lots like overflowed.

Like there's just people everywhere. And there happens to be over and over again. I'm like, who possibly wants to go to that beach? Who possibly could want to go like hunting? And then you go, you drive by like some hunting thing and there's like a billion people there all hunting. And like that's the Olive Garden effect. Precisely that.

Who would possibly want to go there? Well, and you go to these foreign countries and like Burger King McDonald's, like in many of these countries, it's considered like a treat. Like it's not like lunch. Like people go and eat lunch at McDonald's. It's like, well, no, like this is basically a dessert on a plate. Like you should just do it every once in a while. So fascinating.

Okay, anyway. So back to this deal. It sounds like we hate it. Yeah, I hate it. I mean, the margins, if they're real, look good. And I do like the fact that, you know, it's got a recurring revenue model, it says. I mean, that's a positive for it. But, you know, other than that, you know, I would pass on it.

Yeah, I don't like that. You know, I think the thing we haven't really talked about is, you know, this is the type of customer that is, like the worst, right? So, you know, I would envision that all the big chains, the McDonald's, the Burger Kings, Subways, they've gone and, like, optimized this kind of grease thing that they're doing, you know, the oil reclamation stuff with national established providers who are going to be the lowest cost people. So now you're trying to go in and talk to a struggling mom and pop restaurateurs who are dealing with their oil recovery and recycling stuff and try to get them to go to you to buy something that is probably more expensive because it's green that their customers really don't

give a crap about. It just seems like a total mess. And then you combine that terrible customer base with the asking price for this is $725,000 on a $215,000 your cash flow. And you're driving around in trucks, recycling oil, hoping to break even. And you're dealing with some franchisee or in who knows where that sold you this kit. And like, it's just a recipe for disaster. Like, I would start so many businesses from scratch before I would get into this one. And maybe there's something I'm missing about it, but like, man, I just hate everything about this. Yeah, this would be a job and not a very fun job, you know, to that effect. Yeah, yeah.

I mean, I think this is just a testament that if you're looking at buying a franchise, like, go buy a winner franchise that you want to be part of, right? And like, yeah. Like, I would go start an F-45, which is another gym concept. I would go try to get into the Orange Theory franchising business, which isn't dealing with all this mess. You know, I would try to, yeah, there's just a million other things that I would go deal with before I dealt with a small B2B services business like this with a terrible customer base, tiny, and with all these red flags. It just hurts my brain. And maybe the amount of hate we have for this is why this whole episode turned it to me ranting about the American diet. Well, you're really selling me on this one.

Look, it comes back to the same idea, right? You want to find deals that are good. You got to go look at a lot of frogs before you find your prints. And yeah, this just happens to be one of the frogs that has been rolling around in its own feces for the last couple of hours. It smells like it. Yeah, it's just nasty. Oh, man. Other than all of that, this is a great deal.

You should totally do this one. Yeah. send your money. Where do you, where do I, where do I get my checkbook? And then Dave, people can follow you on Twitter at Housley D. That's right. Yeah, follow me. I've got so many good insights about food and, you know, being a dad and, you know,

lots of exciting things like that. Good times, good times. All right. And then one ask for all the listeners, please open up your podcast app and give us a review. Five stars are appreciating. If you're on YouTube, give us a like and subscribe. We want more people to hear our rants about the French food scene, right? And oil, terrible oil recycling businesses.

All right, on that note, we'll catch you next week. Thanks for being here, Dave.