Acquisitions Anonymous - #1 for business buying, selling and operating - Mills wants to buy a farm doing $12mm a year - Acquisitions Anonymous 199

Episode Date: June 6, 2023

Michael Girdley (@girdley), and Mills Snell (@thegeneralmills) chat through a farm that leaves Mills excited and Girdley running. Check it out here: https://mademarketdocs.s3.us-west-1.amazonaws.com/files/1684803951285-d3e9yj5euuo-e6f5465618105f1daecd1804e2e425ce/Grower%20BP.pdf?X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIA4PJCY62PLWPHOQHK%2F20230525%2Fus-west-1%2Fs3%2Faws4_request&X-Amz-Date=20230525T163257Z&X-Amz-Expires=604800&X-Amz-SignedHeaders=host&X-Amz-Signature=523d2dfe736502db43252b1c00572eb89f631a8aba08f6f4998c16bef875d5b3-----Thanks to our sponsor!This episode is sponsored by Acquisition Lab. Acquisition Lab, created by Walker Deibel author of Buy Then Build: How to Outsmart the Startup Game, is an accelerator with a highly vetted cohort-based educational and support community for people serious about buying a business. After going through the Lab's month-long intensive, you have ongoing access to almost daily Q&A sessions with advisors, regular live deal review forums with Walker, hand-picked vendors for your deal team, and a very active Slack group with other searchers on this path. Our team personally understands how to buy a business and will help navigate all the complexities of the process, as well as provide a trusted framework, tools, and resources to support you from search to close. The Acquisition Lab recently celebrated its 70th business being acquired and well over $100m in aggregate transaction value. The Lab is there to stand by your side, so you can take the right action (at the right time) and avoid wasting countless hours trying to "go it alone".For more information, check out acquisitionlab.com or email the Lab's director Chelsea Wood, [e-mail] to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey, Michael here. Welcome to Acquisitions Anonymous, the Internet's number one podcast about small business buying, selling, operating, and investing, and the case studies we do by looking at different businesses each week. Today, Mills and I got together, and we did a business that he kind of liked, and I definitely hated,

which is a perennial grower, so a grower of perennials, located, we think, somewhere in the New York tri-state area. And we had a ton of funds with this one, went a little bit longer, went into some other businesses we've seen that we think are interesting and really lucrative and then had an argument about the business being good or bad. And I told Mills he was wrong and I'm definitely right. So that's how that works. But anyway, tons of fun. And I hope you enjoy this episode as much as we did making it.

And we'll catch you next time. This episode is sponsored by Acquisition Lab. Acquisition Lab created by Walker Dibble, author of Biden Build, How to Outsmart the Startup Game, is an accelerator with a highly vetted cohort-based educational and support community for people serious about buying a business. After going through the lab's month-long intensive, you have ongoing access to almost daily Q&A sessions with advisors, regular live deal review forms with Walker,

hand-picked vendors for your deal team, and a very active Slack group with other searchers on this path. Our team personally understands how to buy a business and will help navigate all the complexities of the process, as well as provide a trusted framework tools and resources to port you from search to close. The Acquisition Lab recently celebrated the 70th business being acquired and well over $100 million in aggregate transaction value.

The Lab is there to stand by your side so you can take the right action at the right time and avoid wasting countless hours trying to go it alone. For more information on the lab, check them out at acquisitionlab.com. There's a link in the show notes, or email the lab's director, Chelsea Wood, at Chelsea at buy-then-build.com. And that's Chelsea, C-H-E-L-S-E-A at by-than-build. com. Mills, how's it going, man? Fantastic. Dude, I got the nicest compliment, and I'll tell you offline who it was from, but somebody

who's like a very popular podcast said, a podcaster said, told me this morning he loves our podcast. So I was like, oh, that's super cool. And the key differentiator for him was we're not full of crap. We are. We are, though. We just try to have fun doing it, I think. Well, I think his point was really good. It's like, oh, you guys are actually like practitioners. And I think we've done a good job setting this up where there's not like a, any sort of bias that comes in in the way we're doing stuff, right? Like, there's no brokers that we're open to it because we're desperate for money. There's no brokers paying us to have their listings on here. Like, we're just looking at it like a real person would. And I think that makes it much more, you know, hopefully much more genuine

for people listening. Yeah, we're like, we love this deal wink, wink, wink, you should call the You know, we get a kickback and then we get a success fee. I mean, that's, that's this world, though. You got to be honest. Like that, there's a lot of stuff that happens like that in the M&A space. It's like, hey, I want to introduce you to a buyer and I want a finder's fee. And then I want, you know, a dead deal fee or a break. It's like, what in the world? We're talking about like, you know, $200,000 revenue HVAC business. Like, why are you getting so greedy? It's almost like when you find somebody that's not shady, you're like, wait, you're not Shady? Like, what's the catch?

So it's what it is. So here we go. All right, well, speaking of something not shady, this literally, do you like that pun? I like it. I like it. It's not shady because the plants involved

are really short. Yes. My kids do not listen to this podcast, by the way, Bill's, would you like to know why? Because they get enough of your dad jokes. They get enough dad jokes without that podcast.

Super cool. All right. Do you want me to read this? one or do you want to do it? Yeah, I can read it. Go ahead. This is from Touchstone. It's a grower of perennial plants, well-established, award-winning perennial nursery with full and dedicated management team in place, producing over 1,500 plant varieties and serving a customer base of approximately 400 customers that include long-standing relationships with big box retail, garden centers, landscapers, and other wholesalers that value the companies

consistent quality. We've got a fantastic table of historical financial performance with a 2023 kind of, I guess at this point, we're halfway done with the year. But the business does, you can look on YouTube, we got it pulled up, but the business does between, you know, $11.5 million up to maybe about $13.5 million. There's some fluctuation top line. It looks like it was growing really nicely between 2019, 2020 and 2021, up to about 13 million. And then, you know, they dipped a little, not terribly in 2022, but EBITDA took a big hit. So they're showing us their gross profit. Gross profit margins are in the, you know, high to mid 30s. And their pro forma EBITDA ranges from, you know, two million, but in the low year, which was 2022, it was

1.7. So pro forma, again, pro forma, we don't know what all goes into that, but pro forma EBITDA margins are in the like low to mid-teens. Revenue growth is fluctuated. It says this is a 35-year operating history with 95% of customers recurring annually. I think that's a really interesting thing that they point out. This is not recurring revenue, right? This is reoccurring customer relationships. And those two things are a little bit confusing and you can blur the lines, but it's worth kind of pointing out, if you do a good job for these people and they're buying your plants, they're probably coming back next year.

Complete management team with employment contracts through 2024 wishes to remain to run the company long term for an acquirer, either as a standalone platform or as a division of a larger company. A one-time CAPEX investment of a little over $2 million may, increase EBDA by as much as 0.95 million or 50%. So basically, spend $2 million and grow your EBITDA, potentially by almost a million dollars a year. Exceptional reputation in container growth perennial plants backed by strong commission sales

reps. This is good info. I'm liking this so far in terms of the thoroughness of what they're giving us in a teaser. Yeah. 50 acres, and it includes a one acre glass retracted. roof greenhouse. A one-acre greenhouse, I mean, that's 43,000 square feet. This is a big, that's a big building with a retractable glass roof. That's expensive. And then there's seven other greenhouses and they have their own water source. It's well-maintained property, plant, and equipment

includes $4.5 million of assets at original cost, which includes several tractor trailers for delivery. Strong recent investment in CAPEX includes a solar installation that covers 90% of their electricity costs. And then there's contact info for the broker and a couple of nice charts about their EBITDA and gross revenue. Mm-hmm. What do you think? So there's one thing very glaringly missing from this listing that you find in a lot

of listings. I wonder if you're thinking it too, but it's free cash flow. Where is free cash flow? That's the first thing that comes to mind when you own a farm. Because this is like the best presentation. By the way, kudos to Touchstone Advisors. Like, this is a great listing because this has taken what seems like a really hard business

and they've taken what I know is a very difficult business to do well and to generate cash from and turned it into something that on the listing, when I read this, I'm like, this is a pretty good business. I should consider looking at this. But then the other part of my little brain says, wait, I know how hard farming is

and there's some stuff they're not talking about. Yeah, yeah. It's almost like they're trying to say the grass is greener. Or the perennial plants are greener. Yeah, sorry, Friday. Okay, so the cool thing about perennial plants, let's just start foundationally and talk about this deal. So perennial plants are good because they are typically once per year plants, right?

These are the ones that people come in, they show up at Home Depot. They buy this year's plants that they are then going to take home, plan in their garden, and then kill through some sort of mismanagement because that's what we all do. And so these guys grow those. They take and then sell them at big box retail, garden centers, landscapers and other wholesalers, and then those get resold to consumers? Is that the way you're reading how this business works? Yep, yep, exactly.

So, you know, if you're a guy who installs plants in people's, if you're a landscape, you know, maintenance or landscape installer, you don't go buy plants from Lowe's. You know, they're retail. You go buy through a nursery or a wholesaler. Buy them at a discount because you're buying, you know, 600, you know, whatever it is. And then you go install them and you mark them up. But if you're just planting an azalea or something like that in your yard or you know, you're just, you know, trying to plant some monkey grass or something like that, you go buy it at Lowe's

and you don't know any different. I do not. Also, I kill plants like crazy. All these plants behind me, those are total plastic. Yeah, I had some live plants in here. Somebody would be like, how often do you water your plant that I was like, huh? That's the answer. I ran an Airbnb for a while out of an apartment that we owned.

and I had a contract nurse in there for 13 weeks at a time. And she was like, hey, by the way, I just wanted to let you know that the plants were looking a little, like a little dry. So I watered them. They were plastic. She watered the fake plants. I was like, I'm not even going to tell her. Just keep water them. You're fine.

It's fine. Yeah. But you bring up a good point, right? which is the expertise related to farming is, okay, yes, you have to be an expert to know what you're doing. But also the information gap between the people who are growing these plants and the people that are buying them, the end user, it's a pretty big delta. And there's almost some built-in, you know, obsolescence of the inventory that you're sending out because they're perennial, because you're selling it to people who are probably going to not plan it the right way. you know, change their mind and decide they want more or they want something different or whatever. I mean, people work on their yards, right? It's a hobby. It's a pastime. It's something people

love to do. It kind of lines up with the revenue, which is that it's relatively flat. You know, they probably had a decent bump, you know, in 2020 and 2021 with COVID with like all the home improvement stores and Sherwin Williams and everything where people are sitting around and are like, you know what, I might as well, you know, I might as well paint the walls while I'm here working from home. Might as well work on the yard, cut the grass a little bit more. But I don't know how sustainable any growth is in this unless they just start growing their market share and all a sudden start selling to more customers or taking a bigger piece of the pie. But this pie doesn't double, you know, overnight. It doesn't double over five years. It just is probably very steady,

just kind of day and day out. I knew a guy that basically did this up in the Dallas area. And all of his customers were within like 150 miles. So I think that's the other thing about this business is, it's unlike, say, California produce, where the strawberries are grown in California and they're trucked across the United States. Yeah. This is something where your consumer base is very local,

which I think has pluses and minuses, right? Plus, obviously, you're not competing against the global market of suppliers for these little perennials because nobody's going to ship this stuff from Argentina or whatever up to compete with you, theoretically. at this kind of price. And so you have this opportunity that there is a big positive,

but the other side of it, I think you have to worry about, okay, well, what does my addressable market look like, and are these promises of growth really an opportunity here? There's only so many of these consumed in my local area based on population.

So you've got to think, you know, this $2 million cap-ex investment, you know, okay, you can probably finance it to a certain extent. but to buy this business, it's going to require probably pretty substantial amount of debt. I would be willing to bet, to your point,

the pro forma EBITDA and the free cash flow, you know, after CAPEX is pretty significant. They mentioned, you know, having their own trailers, you know, having equipment, they're, you know, keeping up 50 acres that is, you know, probably fairly utilized, right? This isn't just like 50 acres of woods. This is 50 acres of, you know,

revenue generating, product generated. dirt. And so that $2 million of CAPEX, even if you're able to finance it, at face value, it looks great, right? Return and investing capital could be huge. You know, even if you have to put 25% down, you put $500,000 down and you start getting back a million extra dollars a year. But if it's so good, you know, the question kind of to the seller is, if it's so good, why haven't you done it? And there are good reasons and there are bad reasons, you know, I mean, to be fair, and I see this a lot, and it's easy to poke holes in, but if the sellers are in their late 60s, 70s, or even older,

they're like, look, we don't want to spend the money. I mean, we're fine. We get enough money every year. We don't want to go take on the risk. We don't want the headache. We don't want the management of it. And, you know, we're fine with how much money we have in the bank. And we were going to pay cash for the whole thing.

We weren't going to finance it. Like, there's good and bad reasons, but that's the nature of those types of investments is It does look easy, but there may be good, you know, good reasons. I think that's the rub for me. How much is this thing really generating in cash? Like, EBAA does not pay the bills, right? And it wouldn't surprise me if you're on this horrible treadmill of CAPEX in this business where you're having to build repair buildings, buy new equipment, repair those trailers.

Like, that's just the stuff we can tell already. There's, you know, water pumps going out because they have their own water source, is great, but like somebody's got to fix that pump, you know, all the improvements going on here, which I think has a positive, right? You're like, okay, I get a tax shield because I get to depreciate all this stuff. But unfortunately, you have to pay for that because you're doing all this cap-ex, which is really scary to me. I mean, this is the typical farmer problem, right? We talk about you, you know, great businesses have this negative cash conversion cycle, right? Which is you get paid before you have to do the thing.

The problem here is this has a crappy cash conversion cycle because you have to spend all this money to build a farm. You have to spend all this money to plant the stuff. You have to water it. You got to pay the staff to watch it. You got to get it to market. Home Depot puts it on the shelf. And do you think Home Depot pays you ahead of time for those plants?

Hell, no. They put you on 60-day payment terms. 60 to 90-day payment terms. And you've been growing these things for four months. So you're talking about six to six to six. seven months worth of working capital tied up. Yeah. Well, it's one of my favorite

microeconomics terms. You've heard of a monopoly, right? So the fun term is, okay, a monopoly is when one supplier controls the market. Then there's the other side of it, which is when one or two buyers control the market. And that's called a monopsony.

Yep. Where there's very few buyers. And so you see this monopsony thing show up in all these different situations. that create a lot of consumer value or what's called consumer surplus. So like Walmart and Target, right? Exactly.

They're monopsony. They're the only two people buying at scale and you look at the people on the other side of their trades on the supplier side and they're all getting murdered unless they have some advantages, right? Home Depot lows, right? Another monopsity there, right?

Costco Sam's Club, monopsony. You just see it kind of go through and it happens so much in retail to where there's these two vendors and are one vendor sometimes, and like they own the market, right? And so, you know, that's the other side of this,

is your customer base is not necessarily that awesome. Selling to the individual garden centers, yeah, you're going to love that, right? They're not a big chain. They don't have pricing power. There's potentially not a lot of other growers to compete with you. But sure as heck, the buyer from Home Depot is going to be beaten the hell out of you

to get you down on price and playing you off the other guys because they have the platform, right? And that's what they do. And there are, I mean, there are some national people doing this. I think it's Monrovia is the one I'm thinking of that, you know, Home Depot and Lowe's, you know, carry a good bit of. And I had a friend who worked for some of these guys. I mean, and, you know, they are, I mean, I think a billion dollar, you know, business. I mean, they are, they are huge. I'm just looking at them up. They're a hundred year old business, you know, and they have, you know, they have places all over the country that are doing this and selling to, you know, they are huge. And they are looking to. And, you know, they have, you know, they have places all over the country that are doing this and selling to. And, the big box stores. I know like when I bought tomato plants and stuff like that at Lowe's it's their product. You know, it kind of makes you wonder what what niche or what need does this business serve that the 800 pound gorilla isn't able to. I had a client in the past who did heavy tree work for a very famous golf course in the southeast. And they literally had

tree farms, acres and acres and acres of tree farms. And the people from this famous golf course would come walk the property and they'd be like, we want that tree. And we want you to put it right here on our golf course. And we're talking, you know, 20, 30 year old trees. And they would crane them in, you know, with, you know, with these incredible, you know, big booms and bucket trucks and planners and all this stuff. And part of the value, right, was that they had, they controlled, they were vertically integrated. They grew the trees and they're like, look, this tree isn't worth anything to us out here in the field. I mean, if we sold it for, you know, timber, it would be worth, you know, a certain few dollars a ton, but, you know, this famous golf course is going to

pay us a lot of money, but we have to be able to install it. And we have to be able to install it and it not die, you know, two weeks later in the middle of the tournament and stuff like that. So there is kind of limited, I think, it's infrastructure heavy. You know, you can't just turn around and open one of these, you know, kind of production nursery. overnight. So it depends on the niche that they serve. If they, you know, for some reason, have a corner on a certain type of soil, right, in the region and they're able to grow things that nobody else can grow, that's awesome. I mean, you see that like with quarries and stone, you know, stone production, you know, people who make granite headstones or really specific.

I looked at a business and they make a really, really specific, they're the only place that you can get this one type of monument stone. And it was like super cool, very differentiated, incredible moat. But like the business is like very, very slow, you know, no growth, flat because, you know, there's not a lot of monuments growing, you know, going up. It depends on the niche that they serve. But could be very differentiated, very interesting. Still very capex intensive.

A million percent. Yeah, I know some guys that own quarries. It's like a pretty good business because like, ain't anybody got to ship no rock over here from China. No. But yes, it ain't going to happen. You don't have to worry about some magical supplier showing up. And it's really expensive to drive rock, you know, drive rock across the country. Yeah, or even drive it, you know, locally, geographically,

depending on where your, you know, where your quarry is, you know, and then you look at kind of are you in the path of progress? You know, if there's major infrastructure work, major DOT work, you know, or big, you know, big kinds of construction projects, it can be kind of boom or bust, depending on what segment you serve. One time when I was doing sell side M&A advisory work, we were selling a sand mine of one of our clients.

And it was like around the time that fracking was like really getting all this attention. And there's a very specific type of sand that you need for fracking. And so when we were calling buyers, everybody was like, is it fracking sand? And we're like,

no, it's just regular sand, just like regular aggregate, like nothing sexy about it. And they're like, okay, never mind. We don't want to buy it.

I'm like, but they make money. No. Yeah, I have some friends that bought land right before fracking kind of peaked because there's, you know, there's the Eagle Ford Jail south of San Antonio and then there's the fracking going out in the Permian in the West out by Midland. And that's like an order of magnitude more active out in the Permian. And they bought like when it was some partners,

it bought like a 250 acre like land plot here thinking they were going to open a sand pit. And like then fracking just went like, phew. COVID happened and it's like and so now there's cows on that land yes that's what happens there so they still own the land though so super super is what it is the other thing that you know

you talk about how business opportunities get created by the you know the expense to transport something right like it's super expensive to transport rock or cement or anything kind of so you kind of create these local businesses where like this thing

like a $2 plant, you can't be shipping $2 $2 plants like 700 miles when ones can be built right next door, like in the case of this business, which is one of the moats. It's also to see where people find ways to insert themselves as intermediaries

using that phenomenon. So like an example I see often is people who basically create marketplaces, like small scale marketplaces around like construction dirt or fill or gravel. And they figure out ways to find people who have like

both excess dirt or fill, and then construction sites that want to pay for it. So sometimes they'll figure out ways to where a property has excess fill, they'll charge them to haul it off, and then they'll get paid by somebody else to dump it off someplace else. And then the really smooth ones take that, and they figure out how to do it where they take excess capacity from truckers and get the truckers to offer it to them at a discount.

So they're like triangulate these three things and buy and sell the dirt and create like a little mini marketplace, and they can clean up because they'll get paid on both sides. It's amazing. They have negative cost for the product and then they get paid to deliver the product. So it's great.

What supplier do you know that pays you to take their product? It's pretty cool. It doesn't scale very well. But you can clean up. You'll make $5,000 or $10,000 profit on a load with zero investment. And I've seen them do it. They'll just be like, yeah,

I've got to make $25,000 this week. How are you doing it? Well, I'm calling this person. I know this person, I know this person, and I'm triangulating all this stuff together. Yeah, and I can connect the dots. Yeah, not durable, no real moat to it, but it's just like this like repeatable, like, okay, I'm going to take my network and I'm going to monetize it. Like, really pretty cool.

The way we would talk about those things in the past when I was at permanent equity is like, it's an amazing hustle, you know? Like, and there's no, like, not a negative connotation. Like, it's phenomenal. Like, kudos to that guy. He's probably making, you know, really healthy six figures a year doing that. It's just, you know, how dependable, how sustainable is it, you know, how predictable is it into the future on any given day, any given week, maybe not so much. It's the same. I think we've

looked at like surplus businesses, you know, like businesses that'll go and buy tons of product, you know, and like a fire sale and then turn around and, you know, buy in bulk and then turn around and try and, you know, move inventory to T.J. Max or Marshalls or, you know, whatever these kind of discount places are. The interesting. thing about, I think, you know, these farms and these growers, especially when it comes into, like, the kind of plant-based business, not, like, food products is, you know, it's a small network. I mean, my guess is, you know, if you figured out, they don't say where this is regionally. And I'm sure it's because if they said, you know, in the Carolinas, for example,

like anybody who knows what they're doing and is in this world even tangentially is going to be like, oh, yeah, it's, you know, it's Bill and Bob and, you know, I can't believe they want to sell their business. And wow, this is the revenue they're doing. It's that small of a pool, if I had to guess, because they say enough that you could figure it out, you know, perennial plants, 50 acres, one acre, you know, glass retractable roof. You know, somebody who knows these guys would put it together in, you know, in a few. few seconds. Looking at the brokers and these Touchstone guys, I think I remember Touchstone is around the New York, heavy in the New York area. Both of these are the area codes for Southwest

Connecticut. So, you know, just bordering on kind of New York City, which, look, I think if I had to pick places where I would want to be to have a business like this, like you're near the coast, there's relatively consistent weather, it's warming up in the New York area, warmer and warmer each year. Pretty steady rainfall. The land is getting built up, so it's harder to build a new 50-acre farm in Connecticut, probably harder than ever. Regulation isn't really helping you with all this stuff, and you're close to a lot of, lot of people, right? You're close to the megalopolis that is the New York PA area. So, like, I definitely like that aspect of this, for sure, for sure, for sure. It also begs the question, at what point is this 50 acres better for you to carve it?

out to a bunch of Greenwich, Greenwich, Connecticut billionaires, and let them build 50 homes on it. Yeah, highest and best use. Yeah, the highest and best use may not be growing plants anymore. And I think, you know, when we had Clint Fiore on the,

our broker friend here in San Antonio on the podcast, he talked about that deal in Houston where somebody had a nursery. And it's like the best use of this property is not a nursery. It's somebody building an industrial park on it. And it creates this kind of weird, weird issues.

So this could be a covered land play, which I like, right? So we've talked about the idea of a covered land play, which is you are really buying the land, but the idea is you just have a temporary tenant on there, and the business is that that pays the stuff on the land, and then you know, pays your payments and taxes and all that kind of stuff, and then eventually you make your real money when the land becomes super valuable, you know, three, five, ten years from now.

So that would be something to dig in on this one for sure. Sure. And, you know, they don't mention, you know, and I think they're fairly sophisticated. They know that this is kind of a lower middle market deal. This isn't a main street deal. But they don't mention whether or not the real estate is included. You know, they don't, they don't even mention really if it's owned, you know, by the owner or if it's leased or anything like that. Be willing to bet that the owners own it and maybe they own it in a separate LLC or something and they lease it back. But, you know, you're going to have to, you're going to have to pay for the land. where or the other. And it may or may not, just like the deal that we looked at the other day, the, what was that one, Michael, that we did yesterday, the $8 million worth the land. I'm totally drawn to blank on what the deal was. Oh, the airline hangers. Yeah, yeah, the hangers. So the business generates a million bucks a year, but the building is worth $8.5 million. This may be a similar kind of thing, you know, where the land makes it cost prohibitive to actually do anything unless you just had zero basis in it.

It's not the highest and best use. Look, this is one where it's like, do I want to own a farm? I don't want to own a farm. Like, farming is hard. Like, the cash conversion cycle is really hard. You're subject to the weather. You have your customers or kind of jackasses.

Like, no offense to anybody who sells to Home Depot, but, like, they're going to hose you. Like, you're dealing with, you're dealing with rodents, like, pests. truck drivers, like, this is just like, and then we haven't even talked about what the actual cash flow looks like

because they only give us EBITA numbers here, but our suspicion is this business doesn't, excuse me, generate a lot of cash. You know, the numbers make it look so good. If you showed me a software company with like these numbers, I'd be like, this is amazing, but when you double click on the dynamics of owning a farm, I'm like, oh, God,

like life is too short. Life is too short to own this business. But I will say, Bill's line, buyer business fit, not the right fit for you. There are people out there though who could have a phenomenal quality of life if they enjoy this, right? They could have an amazing quality of life. They could build an incredible net worth and personal balance sheet, you know, running and owning this business. But they're the people who right are happy to, you know, get up and go make sure, you know,

hey, the sprinkler line busted on our field and we got to get 10 guys out there and do this repair at 3 a.m. in the morning. Like, you're like, hell, no. I'd pay a million dollars not to own this business. And there's other people who, like, they love that, you know. And so buyer business fit is, obviously we talk about it almost every episode, but this is one that Michael says it's a pass for him for sure. Look, I think this is a pass for most people. I mean, you've got to think about that the dynamics just kind of suck. Like, there are easier businesses out there. Would you rather own this, or would you rather own a,

let's, whatever a hot franchisee is right now, or like an orange theory franchise? This. I got to say, I'm not ready to die on this hill, but I will fight on it. I want more info.

If they have to spend $500,000 a year on maintenance cap X, that's a deal killer, right? And they want it valued off of $2 million in pro forma EBITDA, but the actual free cash flow is, you know, 25% lower, that's a deal killer. But this is durable, right? Orange Theory, is Orange Theory going to be

around in five years? I don't really know. In some way, shape, or form, yes. Is it going to be around in 10 years? I'm just telling you, competitively, plants are not going anywhere. And I would rather, this is like the, this is like the Buffett-Bezos argument. You know, Warren Buffett is betting on people to say the same. And Jeff Bezos is betting on people to change. I am of the disposition that I want to bet that people are going to stay the same. Yeah, I'm with you. They're going to stay the same. You're just a crazy person if you think this is a better business that

owning an Orange Theory franchise. I just went through all the ways. Like, yeah, if somebody really wants to do it, like, great, but like, this is super hard. It's a farm. Like, come on. Like, I don't know what to tell you, man. All right, but so let's play it out.

To get to this level of Proforme EBITDA on Orange Theory, you have to own 10. Or have you looked at Orange Theory, an established Orange Theory? They're netting like 200, 250, right? I know a guy who is doing like 500 free cash flow per, and they have a positive, a negative cash conversion cycle, and they have recurring revenue. They have your credit card.

They have your credit card forever. They have waiting cards. You can't get out. Yeah. I've worked at Orange Theory when a friend of mine was opening franchise locations here and ended up selling it. It was, I broke my tailbone on a snowboard. And that was the only way I got out of the membership.

I was like, I can't work out for like four months. I don't know what to tell you. And they were like, okay, we'll let you off, but we need a doctor's note. It's just a better business. It's a better business. I just, yeah. Well, pick any other. Like this, I'm just going to argue this is in the bottom 25% of businesses out there.

Like, yeah, I love that it's durable. But like, this is freaking hard. Like, there's just, you're just waiting around for a tornado to come through and wipe everything out. It's going to happen. That is interesting. I've talked to guys who sell crop insurance before. And you know, you basically have like wind, hail and bugs.

Those are the things that kill, you know, plants, trees, you know, grass, whatever you're growing. I don't know enough to say that I don't agree because I don't know enough. If you get this thing and it confirms, I will shake your hand, I will send you a Chili's gift card. you know, if the capex is $500,000 a year, I will agree with you. It's bottom 25%. Ladies and gentlemen, I'd like for this moment to be recorded in posterity that Mills is

taking this so seriously that he agreed to do business with Chili's, which is something he's refused to in the past steadfastly. Are you okay? Did you drop that microphone the other day on your head? Oh, yeah, that was great. You literally drop the bike. It was really good stuff. I was like, oh my gosh, my microphone.

It just flots into my lap. They just made a point and dropped the mic. All right, let's wrap it up here. If you get the SIM on this, and we'll put the link below. I think we're doing a better job of putting the links below. All we want to know is, what's the maintenance cap eggs? Yes.

Freaking high. That's, I'll tell you what it is. Tell you what it is. This is a, but kudos to these touchstone guys. like if I had a business, so I would call these guys. Like this is a great presentation. Like fact filled, like top 5%. Like so good, good, I mean, good work by them.

These guys, this is impressive. And it tells you what, it covers all the basis. What the business does, scale a bit, numbers, get a general idea where it's located, how I should think about it, what's good about it. They don't really harp on the stuff that's bad about it. You got between the lines. And it looks like they, like they, highlighted what's great. Like, it's a steady eddy revenue. Like, just every year, okay,

we're going to do $11.5 million in sales this year. Okay, great. Like, rinse, wash, and repeat. I think the headline for this article is Mills and Michael disagree. I don't know that we've ever disagreed about a deal more. Well, we only disagree with you're wrong. Can you think of one? Do I? We only disagree when you're wrong. So you're saying I'm usually right. I've been right up until this point. You know, I think the podcast has a good level of kind of kumbaya, you know, riffing on each other stuff positively. Bill and I will quietly disagree with each other here and there. But it's also, I mean, it's a, like, I could never be on a crossfire type show just because I don't like conflict at all.

So even if I am going to be doing conflicts, like, I have to do it in a way that's friendly and fun and not serious. But like these guys, like, you remember the old CNN show, Crossfire? You know those guys? I could not be mean like that. Do you remember my culture index? No. Debater. Oh, well, okay. So I'm not a debater.

I'm just a philosopher. You're philosopher. I know, I know, but we worked. Super good. All right, well, hey, let's put this one to bed. If anybody knows anything about this or has looked at this deal or knows about this space,

we'd love to hear from you. And this was another listener deal I think, but I didn't remember who sent it to us. So if you keep seeing stuff that you think is cool and want us to cover on the pod, send it to us. It saves us a lot of work in research if you guys send us deal, so we're very thankful of that. So we'll click stop here and we'll get this one out into the world.

Oh, hey, the content is free, but we do have an ask. If you enjoyed this podcast, send it to one person. And that famous podcaster I mentioned this morning that I talked to, Mills, he got it that way. One of his friends was like, hey, you know, you want to be a small business owner someday? Like listen to these guys

because they're not full of crap. Or at least he didn't think so. So anyway, take this, send it to one friend that you think would like it, help us grow the pod, and help us help more people and keep having more fun and hire more staff and advertisers and the snowball just keeps going.

So please do that. And we'll see you next week. All right.