Acquisitions Anonymous - #1 for business buying, selling and operating - People are getting rich with Med Spas. Will we? - Acquisitions Anonymous Episode 131

Episode Date: October 12, 2022

Want to receive this listing in your inbox? Signup for our weekly newsletter:https://www.getrevue.co/profile/acquanon-----Michael Girdley (@Girdley) and Bill D’Alessandro (@BillDA), we discuss a very profitable Spa And Beauty Center located in Clark County, Las Vegas, Nevada. We will find out how a business like this works and what’s interesting about this kind of enterprise.Moreover, we will be unlocking vital information on how this business is winning and how they strategize to keep their customers coming back. Comparing this to the previous episode’s Las Vegas Wedding Chapel Chain, we will find out which one is better for Bill. Also, we will know if Michael already had an experience in Med Spa!-----Thanks to our sponsors!* CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----Show Notes:(00:00) - Introduction(00:36) - Our Sponsor is Cloudbookkeeping(02:03) - Deal & Financials: Very Profitable Spa And Beauty Center (03:26) - How does this business work?(08:04) - Has Michael already tried Med Spa?(09:10) - What is so interesting about this business’s customer base?(12:35) - What secret is Michael sharing?(14:53) - What do we like about this deal? Why is the Cost Of Goods Sold (COGS) so low?  (16:20) - Is there a retail operation behind the main business?(17:58) - What is the moat and strategy for this business? Why are these guys winning?(20:32) - How do these guys sell their services?(22:24) - Are there hidden capital expenditures?(23:21) - How to get your employees to overperform?-----Additional episodes you might enjoy:#130 Should we buy this Vegas Wedding Chapel Chain?#128 Who should buy this $4.4m EBITDA, cashflow machine?-----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 Acquisitions Anonymous. Today's episode is killer. Me and Bill went through one of the coolest businesses I've seen in a while. It is a med spa for sale in Las Vegas, Nevada. So been around for a number of years, and these guys are absolutely making a ton of money, and they are selling their business. Spoiler alert, the place operates at over 50% net margins. Just kind of a killer business, all operating out of a 3,500 square foot facility in Los. Las Vegas. So, uh, enjoyed this episode a lot. Thanks to our sponsor today. And here's the episode. Hey, Michael here. Want to talk to you about today's sponsor for the episode, uh, which is cloud bookkeeping.com. Uh, so cloud bookkeeping is actually run by my neighbor, Charlie. So I've met him in person and, uh, can attest that he's a real human being and a good person. And what cloud bookkeeping does is offer a full suite of bookkeeping services, uh, all in the cloud, uh, for you around QuickBooks and other technologies that you're using as a small business owner. So if you're interested in getting the bookkeeping part of running a business off of your

plate and focusing on running your business, Charlie and his team are one to call. They can put together a bunch of other stuff in terms of helping you manage and grow your business besides just bookkeeping, sophisticated reporting, definitely helping you get your quickbooks online set up in the right way, and a number of things around pay role as well. So definitely know them and recommend them. If you want to find out more about cloud bookkeeping, you can go to their website at cloudbookkeeping.com, reach out to Charlie. I know many of you have and see if he can help you, make running your business easier and more fun by letting them help with a lot of the bookkeeping solutions. And when you call, mention this podcast,

it would help us and help Charlie know that we're supporting him as well. So thanks bunch and cloudbookkeeping.com as the sponsor for today's episode. Bill, are you feeling beautiful today? Well, not right now, but I will be after we record this episode. All right. We got a deal. We got a deal for you. Okay. So I don't know if you remember, this is the context here. I don't if you remember, but we had Heather. She talked about, we asked her like, what is the hot space for SBA searchers right now? People are using SBA loans to go buy a business. What is hot? And she said, med spots. So we have a med spot today. Because guess what?

You and I just spent 10 minutes looking at med spa. So we picked one. So I will go ahead and read this one and then we can go from there. So let me pull it up here. It is listed as a skin and beauty spa with tremendous growth located, just like in our last episode, in Clark County, Nevada, Las Vegas. So it has a clip art picture of a couple ladies at a getting beauty stuff done, I guess. The asking price for this is $9.5 million.

dollars, it cash flows 1.8 million per year, and they do revenue of 2.9 million. So asking nine and a half, cash flow 1.8, gross revenue of 2.8. So I don't know, I don't know if my mass right, but that's like 70%, 65% cash flow on $2.9 million in revenue. Is that right? It's 5.2x EBIDDA or cash flow. Okay. At first, the numbers seem a little crazy, and now you say it that way, it doesn't seem so crazy.

So, all right, here's the business description. all caps turnkey, absentee, exclamation point. Very profitable spa and beauty center for sale in Las Vegas. Tremendous following, excellent social media reviews, 50% revenue increase in 2020 and 40% in 2021. Growth is accelerating in 2022 at a good pace with over 2 million of projected profit, according to seller, with 18 employees providing treatments in men and women's laser hair removal, skin bleaching, tightening,

and limelight facials with all the latest equipment and procedures. seller who is currently working remotely about 10 hours a week, administering and training new employees, is willing to train a bona fide buyer for an extended period to assume a smooth transition. Don't wait, Bill. All caps, call now. For a quick response to your inquiry,

please call listing broker, George Caras, business worker permit, or Kathleen Nichols, business broker permit, whatever. Let's check out Kathleen's picture. Two good things. No hat, not touching the face. Seems trustworthy. He also has glasses.

Yep. Bill. Yep. Bill. All green flags from Kathleen. Green flags from Kathleen. Way to go. Yeah, for those of you that don't listen to this that often, we are really scared by people

touching their face or business brokers that have a hat on in their picture. They scare the crap out of us. Facilities, this is a lease location of 3,600 square feet with a total monthly rent of $7,100, $7,142. The lease ends 2024 with two four-year options after that. So it's leased up through 2032 if you want. Sellers active with 12 full-time and six part-time employees. They are open 9 a.m. to 5 p.m. Sunday to Thursday and 9 a.m. to 2 p.m. on Friday. They have $10,000 in furniture, fixtures, and equipment included in the asking price.

They did $2,000 made in leasehold improvements and a business license is required. Financing a, the seller will do seller financing of, it looks like about $2 million over 24 months. they asked 9.5 million and they said they want 7.5 million at close. They will support and train you for a day, healthy two weeks, and the seller wants to move. And this is the second listing in a row. We've looked at Clark County where the people are like, I want out of Las Vegas. Very interesting. Okay. Bill, are you ready to own a skin and beauty spa with tremendous growth located in Las Vegas, Nevada? So I feel like when you meet the owner, it will tell you everything you need to know about this business because if you meet them and they're like all Botoxed and hair removal and everything,

like they're high on their own supply, like yikes, right? Like for sure, this business is a disaster. If you meet them and they've like clearly never been in a med spa in their life and this is like just a business to them, like now I'm interested. Um, well, right. Sorry, sorry to interrupt, but isn't, isn't the sign of a good med spa that you can't tell somebody has gotten a lot of work? All the more reasons. If they look like they've had a ton of work, run the other way. Exactly. You had a second point. Go ahead. And so the second point is, so our friend Brent Beshore says about pool companies that as long as people dip their bodies in water for fun, the pool company will be in business. This is like as long as people want to look hot, this business will be around, hot and young, right?

Like that's what this business does. It sells look hot and look young. You know, that's about the most evergreen market that there is. So you've got a long-term lease. It sounds like you've got an evergreen. market. I kind of like the way its position seem to be growing. 50% revenue increase in 2020 and 40% in 2021. Maybe there's some COVID in there. I don't know. Med spots don't seem like a COVID bump business to me, though. Yeah, I can't imagine that they are. I mean, the other meta comment I have about this, this was, we chose this one out of the like, what, five or six that we looked at before the episode. You know, this is one of these had been submitted by a, by a listener. and we didn't do that one because they didn't have good numbers.

It was interesting that this is the only one that A, had good numbers, and B, it also happened to be the one that was highest price, which made me really, really interested, right? The other ones would not list asking prices, and they had, didn't tell you, or they told you the earnings, or they didn't tell you the earnings, and they told you the asking price, and they did tell you the revenue. It was just kind of interesting as I think about what type of people maybe are in this business, and also the context that we're in right now, which is,

I think a lot of these sellers, I'd be willing to guess, They think this space is pretty hot and they think they can get a big dollar multiple for selling their business right now. It'll be curious if that continues. Yeah, I mean, 5.2 times EBITDA, that's pretty good for a small business. So, Michael, I don't know how to say this, but have you ever been to a med spot? Like, what is it like when you go to a med spot? Is it obvious? No, you must have gone to a good one.

No, frankly, I never have. You know, I think, I think, you know, my exposure to this type of elective beauty type stuff is I see my doctor friends trying to sell me this stuff all the time. Like, I have a friend who's a gynecologist. You know what she got into selling? Can we say it on the air? Well, yeah. I mean, they were testosterone replacement. Yeah.

And I mean, it's a crazy thing about being a doctor, like our medical professional. they don't really care what kind of doctor you are? Like, would you like some endodepressants? Well, what kind of doctor are you? I'm a dermatologist. They give you some beta depressants. They could just diagnose you and give you anodepressant. So that's my exposure to it.

So no, maybe I need to get more vein and stuff, but like I'm trying to age gracefully. It doesn't involve somebody shining lasers of my skin. So one thing that's interesting about this business model is you actually end up. I don't know about in Vegas. Like, I don't know if it's tourist based in Vegas. But if you're kind of like a med spa in a regular area, you have a lot of repeat customers, right? Because you've got people like regular laser hair removal. You've got, I don't know, what do they got here?

Skin bleaching and tightening, like all this stuff, right? You've got to, it kind of like wears off, right? And so once it becomes part of your look, you got to keep going, right? So you've got a really high recurring revenue. So that's something I want to understand. In Vegas, is it the type of thing? It's also, you know, maybe fly to Vegas, pamper yourself, have a tree. treatment, stay in the Belagio, fly out. I want to understand if that's your customer or if it's more your

Vegas locals that are, you know, you just ring the register every couple months for their regular Botox or whatever it is. Yeah. It is interesting to see the people, you know, for whom their livelihood in Vegas is dependent upon their appearance. And, you know, I've, you know, when I used to spend a lot of time out there, like, I would go to CrossFit gyms and stuff. And, like, how hard those people worked, like, to make themselves look good was incredible. Like they were so, so investing so much time. And I assume, you know, based on this, a ton of money, because this one's so much bigger than the other ones we looked at, right? Like it's a three times the size of those other, of those other med spots we saw. Yeah. Yeah. So what you've got here is, you know, the meds spa industry is basically like when you, I don't know if anybody listens to the radio, but like med spots for whatever reason tend to advertise on the radio. And it's like all of these like trendy things like the red light therapy, the cool sculpting, the laser hair removal, like all that. stuff, that's what a meds buy is. Like, it's not like you don't go for a massage. It's like you're going for a beauty treatment that usually involves some equipment. So these guys have $400,000 of

equipment, it says in the listing. I imagine you would, like as the new trends come out, you've probably got to buy some stuff. You know, so when something new trendy comes out next year, you got to buy the machine that does that, train your tax. I don't think it's going to be that hard, but I would account for some level of ongoing CAPX, you know, around that. So, maybe dumb question. You don't have to be a doctor to own this. You just get a supervising doctor and that's what you make them payments and they just come in and supervise what you're doing. I would think you could employ a doctor if even, like I don't even know, Michael, how much of this is even prescription.

I mean, Botox is. Botox is. I know that. This listening actually doesn't mention Botox. Right. Very interesting. There's a ton of this, like, laser hair removal. Like, you don't need to be a doc for that, do you?

I don't think so. Yeah. And that's what you did when you had all your hair removed. What, was it a doctor? Up top. It's because I have a bald joke. Actually, one of the most uncomfortable moments in my life, I was at my gym once, and a young lady walked up and she goes, I love bald guys.

They have, that means they have high testosterone. And I was just like, huh? I don't know how to react to this. Thank you. I was like, okay, that's cool. Anyway, so I did look into, at one point, I looked into starting a business that would do IV treatment. Have you ever looked into this? Oh, yeah.

I have patronized these a couple of times in Vegas when I was younger, actually. In Vegas. Okay, so for those of you don't know, this is the secret of the IV thing. And I heard about it before any of these clinics came around because what my friends who did rounds or like residency and you go, I guess it's a residency, right? You go, our internship, one of the two in medical school, you go do a little bit of everything. And so you have your ER cycle and then you go do other stuff, right? And so when what I learned was the ER docs discovered that the best way to make sure you didn't get hung over from drinking too much was when you showed up to your

when you showed up to your shift the next morning, you sit down 15 minutes early and you give yourself an IV and you feel great. Like, it turns you around, like, immediately. So, you know, 10 years ago, before these spas started to come out, I was like, oh, you know, I need to do. I need to go open these right next to college campuses, and you sell 75 bucks for that stuff. So I talked to my friend who's a surgeon. I was like, hey, we should do this.

And, of course, that's a very currently move. And she looked at me and she goes, uh-huh, but I make a half million dollars doing surgeries. Why would I fool with this? But anyway, that was her first response. But the second thing she said was, if you want to do these, you want to do these, these injections like that, you have to have a nurse or a tech do them and has to be under supervision of a doctor.

So maybe that's the distinction in these medspaws, like how deep are you going into medicine to do this? Doesn't sound like these guys are going that deep. For what it's worth, Michael, when I was in Vegas and I was hungover and I got an IV, I was talking to the guy as he was sticking the needle in my arm. And he tells me, and he goes, yeah, I used to be a firefighter. And he goes, as part of being a firefighter, I had to get EMT training. So I knew how to place an IV. He goes, I make three times doing this, what I made as a firefighter. So now I put IVs and hungover people on the Vegas strip.

And I'm like economics in a nutshell, holy crap. You know, like these create a lot more value. So did it, um, did it work? Uh, yeah, it helped. It did. Yeah. Well, and there's now like there's whole these IV businesses like mobile IVs. So like at any time in the more like any time before noon, you can walk out of like any

of the big strip hotels. and there's like a van parked in the front. And you can like walk in and they'll stick you with an IV. You sit there, you know, or they'll come to you. You page them. So this has gotten really big. That's great. Okay.

So let me give you some stuff about this that I like. I use some stuff that I like. Number one, I like that this is like I would describe as a net positive in that you're doing things here that are actual real like proven things. Like, yes, you remove people's hair. And the reality is, that makes people happy. Like, we're doing that.

Like, I think we're brightening people's day with this whole thing. So I like that it's actually a real thing as opposed to, you know, a deal where you're selling people snake oil, which is a lot of this kind of stuff that you see, right? It's the opposite of whatever Tera rating is. You know, the thing that I think I also like about it is exactly what you're talking about. This stuff, you become a trusted vendor for this stuff once people use you because you're going to be shining a laser on their skin. you can screw that up. And they don't want to go to some new vendor who's going to save 50% for them.

So I think that's the other thing is an established business like this, just through relationships with those repeat customers. It's just like a huge deal. Oh, yeah. There's definitely like a trust factor, like the same person's going to do your hair removal every couple months, you know, et cetera. I think this is a pretty good business. I mean, the margins are insane, right?

The gross revenue is $2.9 million and their cash flowing $1.8 million because there's no cogs, right? It's lasers and, you know, a little bit of. I don't even know what else, like Botox or things like that. You know, you pay your practitioners. You could probably pay them well and they're still not that expensive. I'd also be willing to bet there is a retail operation attached to this thing, creams and, you know, stuff to help you heal after the treatment,

but also stuff to, you know, that maybe questionably works to improve your in-between treatments, all that stuff. So there's probably a margin there. I mean, people will pay a lot of money. I mean, I think you could see a multi-thousand-dollar treatment with basically zero cocks in this business. Yeah. Totally.

Well, that's the funny thing about those IV places. Guess how much that bag of saline cost to make? A dollar, a couple dollars. It's salt in a plastic baggie. And I know there's some security stuff, but yeah, then you're turning around selling it for $150. Yeah. Okay, welcome to the hospital business.

So, you know, this does remind me of one of those scenarios and this whole med spa thing reminds me of there are lots of models where people have gone and you find the two or three things that are like, like, like, of a bundled business and you go and like unbundle those into their own thing, right? And that's precisely what this whole thing is done is just say, oh, here's this ridiculously like recurring revenue, like reoccurring customer, high margin stuff. And we're just going to make a whole business out of those things. And I do have an example in my mind, but it's my buddy's business so I can't actually

describe it without him getting mad at me. But like, I've just seen that thing over and over where somebody's just like, well, our coffee business is that, right? Where it's just like, hey, like, here's what we're going to do. we're just we're going to take your typical coffee shop, um, which sells food and all this different kind of stuff. And we're just going to, we're going to get rid of all the seats and we're just going to sell the high margin coffee to you and you can drive away.

And that's the whole business. So this unbundling kind of ideas, what has created this whole thing. Um, and it's kind of beautiful, I think. Oh, yeah. Yeah. I mean, so I would like to understand, right? I mean, 60% even dumb margins. Relatively, I would think commoditized service, you know, much, much like the last deal we did

the Vegas wedding chapels, right? Like not a lot of cap X, you know, 400, is still not a lot, you know, to be earning 1.8 million bucks a year. I'd want to understand what the mode is on this thing. I think you've got a great industry. You've got evergreen demand. You know, I bet location doesn't really matter a ton here. People are willing to drive to it. I don't want to understand why are these guys winning. It says they were established in 2015, businesses like eight years old, roughly. I want to understand why they're winning. And it's got to be something around customer acquisition, I would think.

I did look when we Googled these and we were kind of looking for some examples and two or three franchise systems of own your own med spa came up very quickly. Which to me thinks there's a there is, we're trending up to there being a lot more supply of these things, especially when bankers are telling us they're really hot and stuff like that. The trendy or where we are on the curve adoption curve here has me worried. That's fair. As soon as it starts being franchised, that's when you start to get worried. Yeah. So, okay, that's a good observation to talk me down for the ledge. Would you rather on this or the Elvis Wedding Chapel? Ooh, I think I would rather the Elvis Wedding Chapel. You know why? Because this is the type of thing. It just feels like a little bit. Like you think you're like the hair removal of probably helping people. But like some of this cool sculpting. Like this can get a little dark. Like people can get addicted to this stuff. Like there can be a lot of personal insecurities like all that stuff. You know. And also you got to you got to iterate on this model. like there's a new trend every year.

You've got to stay up on it. Like Elvis, how long has the Elvis ceremony been in Vogue? Since the 70s? I mean, you know, it's like, the Vegas wedding chapel, go back and listen to that episode if you haven't already. You know, that thing is just a cash machine and you just show up to work and ring the register. This one takes a little bit more thinking. Okay.

All right. You're going to notice a theme here. I got a way to blow this thing into the stratosphere. And for those of you listen, the Vegas wedding chapel idea. This, this is the same thing. I think, I think this presents a perfect opportunity to do a reality show around your, your beauty center and spa center. You know, somebody going through a tough thing in their life and their journey to come in and get some Botox and they look great on their wedding day and you like have video of their wedding day.

So total reality show opportunity. Oh, and you tie in with the wedding chapel people, right? You just refer them both ways. Well, then you get, then you go to these guys. Well, so the other side of this business is, you know, and we haven't talked about it, there's the $400,000 in furniture fixes and equipment, but there's like the different brands of all these different treatments, right? And so the game, the game these guys play is, oh, you're not getting a regular facial. No, Bill. You're getting a limelight facial, right? And they actually talk about even what that is. trademark. T.M. TM, right, because, you know, they're all trying to create a brand, you know, are you getting PRK for your eyes? Or are you getting LASIC? It turns out.

you want LASIC. Why do you want LASIC? It turns out they both hurt like hell. I can tell you officially. And it turns out neither one of them work for me. So there it is. But the, so that's the other thing is on your show here and potentially your vendor relationships. Like there's an income stream for you where the Lymlight Facials promoter really wants you to sell that to your clients. So not only you're going to get $1,800 from your client to do that facial, potentially limelight's going to give you a kickback for selling it or being their exclusive provider or featuring them on your reality show. Just saying.

There you go. I think there needs to be code up slash hire with near reality show. Alamo fireworks reality show. We had the fireworks show reality thing. People were like, this would make a great reality show. And then I actually like step back to watch what happens with a normal business running well. and they're actually really boring. It doesn't make for good TV.

Yeah, you need people blowing their hands off or getting botched facials or, you know, marrying their cousin, like whatever. You know, stuff's got to go wrong for a reality show. Oh, wow. Look how stable and profitable this business is. It turns out reality makes for a really bad reality TV. That's the line I heard once, which I think is so good. Yeah.

Yeah. Man, you know, I just the, so we haven't talked about this for insurers and fixtures and equipment thing that has me scared as well. $400,000, I bet there's some hidden Kappex in here somewhere that they're just, you know, you're buying these new machines, you're investing in new training, you know, there's a bunch of stuff going on there. And then the second thing that has me worried is, I bet your turnover of these 18 employees that you have in a 3,600 square foot space, I bet it is really significant. And it says here that the seller is spending all their time training new employees and spending time recruiting and

bringing those people on. I bet turnover is a nightmare with a business like this. So anyway, just something to think about from a buyer business fit kind of standpoint. Well, a nightmare, I mean, I would think like if you're a, you know, laser hair removal tech, right, how many different places are offering exactly the same thing? You can take your talents anywhere for an extra dollar an hour, you know, or closer to your house or whatever. Yeah. I mean, the other nice thing about a business like this, because it's so high margin, you can cut everybody in on that sales number. You just say, okay, here's what we're doing.

15% of your location sales is going straight to you guys. Here's your amount that you're going to work up to. You invest over a period of time. And then as long as you're here, you keep getting a cut. And I guarantee every one of your employees is going to be pushing all kinds of high margin crop at your people. Do you need a skin motion? How about nail restoration?

You know, like Brazilian, whatever you want. We'll do it for you. Oh, yeah. I mean, that's one of the things that I've never understood about many businesses, frankly. is this is a really high margin business. Turnover is probably your biggest quality of life nightmare if you own this thing. It is very easy to, as you just described, Michael, essentially overpay your people, right? Just like just overpay.

And it would cost, you know, a couple extra bucks an hour on average to be the best paying medsbaugh around. You'd be earning 55% net margins instead of 60% net margins. And you wouldn't have to spend 10 plus hours a week dealing with churn and training like this person does. And I don't understand why more businesses don't just overpay their people. I'm cool with that. I don't get it. I mean, I mean, I would just say like in our business, like we operate a warehouse, you know, pick pack ship, you know, relatively commodity skill set. We just, the whole time, we've just paid a dollar or two above market. And you get way less churn. You get higher quality folks. I mean, it's just so much easier. Like, it's a quality

of life investment for me, you know, as the owner. It's, I don't just don't understand why people don't do it. It's not that expensive. I hear you. All right. Cool. Great job today. This is a cool one. I've been dying to do a med spa.

So I think super fun.