Acquisitions Anonymous - #1 for business buying, selling and operating - Recovering insurance claims for profit and sometimes fun - Acquisitions Anonymous 181

Episode Date: April 4, 2023

Michael Girdley (@Girdley) and Mills Snell (@thegeneralmills) talk about the messiest listing they've ever seen.----Thanks to our sponsor!Acquira - your acquisition in a box service. Acquira offers training to help you find, evaluate, and close on a small business. All in under a year.    Their team has bought over 30 businesses across  3 different portfolios. Whether you’re just beginning your business search, actively pursuing a specific deal, or looking to grow your existing company, Acquira’s training and team of experts can help. Their M&A advisors provide individualized support through the entire process. They will provide guidance toward your offer structure, drafting your LOI, in-depth due diligence, and securing funding for your deal.  They will even fly out to the business with you.  Once you acquire a business, they can help you grow it too.Acquira’s ACE Framework will help you transition that business from owner-operated to management-led, increasing profits and allowing you to step away from the daily operations and enjoy doing more of what you love.  And if “more of what you love” is buying and growing more businesses, they can help you build a portfolio of businesses, and eventually get liquidity from that portfolio by selling it to a financial buyer, or selling it to its employees.Space is limited each month, so if you’re looking to acquire a cash-flowing business this year, sign up now at acquira.com/pod-lander----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, the internet's number one podcast about small business, buying, selling, operating, and talking. And we do some talking for sure this episode. Mills called in from Austin just up the street from me. And we talked about a pretty interesting deal and a listing that was perhaps one of the worst written ones that we've ever seen. But we think we know what this business does and we dug into it anyway, which made it a ton of fun. We talked about the insurance markets, recovering money, all those kinds of things, lots of learnings that I thought was really cool, and we had a good time doing it. So here is the episode. Today's sponsor is Acquira.com. And Acquira is your acquisition in a box service. They offer training to help you find,

evaluate, and close on buying a small business, all usually done within a year. And their team has bought over 30 businesses across three different portfolios, whether you're just beginning your business search, actively pursuing a specific deal, or looking to grow your existing company, acquire us training and team of experts can help.

Their M&A advisors provide individualized support throughout the entire process. They will provide guidance towards your offer structure, drafting your LOI, helping with due diligence planning, and securing funding for your deal. They will even fly out and do on-site visits with you as you look at the business to consider.

Once you acquire your business, they can also help you grow out as well. They use a proprietary framework called the ACE framework that will help you transition that business you buy from owner-operated to management-led, increasing your profits and allowing you to step away from the daily operations and enjoy more of what you love. And if more of what you love is buying and growing more businesses, they can help you build a portfolio businesses and eventually get liquidity from that portfolio by selling it to a financial buyer or selling to your employees. They run cohorts each month, so space is limited. So if you're looking to acquire a cash flowing business this year, sign up now at Acquira.com slash pod hyphen lander.

And again, that's Acquira, A-C-Q-U-I-R-A-com slash pod-hyphen lander, and tell them that the acquisitions and I'moos folks sent you. Mills, buddy, where are you today? Austin, Texas, right up the road from you. Did you, you didn't even drive down here to see me? How far is it? I don't have a car, so I was thinking you would come to me.

It's like 70 miles. I don't go to Austin very often. I don't like driving up there. Come on, man. Come on, man. Come see me. a taco. I've heard this is like between San Antonio and Austin. This is where I should

get a good taco, right? The whole San Antonio Austin Taco thing is so lame, and I think it's the worst look on San Antonio because every year, San Antonio, there's some stupid, like, Texas monthly or like eater.com thing about who has the best tacos

and like Austin wins primarily because nobody from outside of Texas realizes there's a fourth city in Texas called San Antonio. And then St. Antonians make like a huge deal about it. Like a huge deal about it. Like,

oh, our tacos are the best. Like, number one, in your face, Austin, it's so wrong, whatever.

And then, you know, Austin does the worst possible response. They just say, we don't care. Like, that's it. That's the retort.

And like, it makes San Antonio just look weak. And that's why I'm like, we can't do this anymore, guys. Like, just shut up about the tacos. Just make,

the best marketing for your city, for your tacos, whatever, just make excellent good tacos and food, and people will figure it out. Otherwise, shut up. Who cares what eater.com thinks? Like, big deal. So does that mean you're coming to see me today, tomorrow? I'll be here until Sunday.

What do you do it? Are you like at a conference or what? Yeah, yeah, a roofing conference. Oh, roofing conference. That must be a banger. Yeah, they are wild. No, I think they probably are, but I'm not here for that.

I'm speaking. Oh, good for you. What is your topic? It's about workforce development. We've been doing some stuff inside the Department of Corrections, training people who are incarcerated and then give them a job when they get released. And we've been doing a lot of that with this manufacturer. It's a manufacturer's conference, but it's cool. Very nice.

Okay, well, cool. We have a listener, now for the actual topic of the podcast, we have a listener that sent us a deal today. and I looked at the first half of it and it looked good enough for us to do on the episode. So I hope you appreciate the level of diligence and prep that I've put into this podcast every week. Just this thumbnail picture at the top, this banner picture, it looks,

it looks like it's like a disaster remediation or something like that, but it's insurance. Oh yeah, I just looked at that. So I'll read it since I haven't pulled up. It's from Pro Nova Partners and it is a business that is for sale and I guess Pro Nova is probably a business broker of some sort.

And for those of you on YouTube, you can see that they have chosen a very unfortunate kind of background for this business. And it looks like kind of something you'd imagine in a zombie apocalypse. Yeah. And then they have this weird kind of whatever this thing is here that looks like junk. So a website error. And then it says niche insurance consulting firm for sale,

sold by Agent Rick Carlson, the asking price is best possible offer. They do $2.1 million a year in revenue, and adjusted net revenue is $858,000. So $2.1 million in revenue, $8,000 in net. So it's listed as a niche insurance consulting firm with extensive experience, New York, New York, New York County, seller financing available

is if the price in deal structure is right, zip code 100001. Asking price best possible, offer, revenue 2.1 million cash flow, 860,000, no EBIT, no inventory and established in 1990 with 10 employees. A business description, pro-nova partners is pleased to present this exceptional insurance, claims recovery service enterprise that specializes in two very specific enterprise are two very specific insurance-related verticals. The firm has a number of in-house attorneys and a large team of A players that are ready, willing, and able to scale with either

a strategic buyer or well-s what, okay, well-supportive capital. partner that is looking for a platform in the property and casualty world in general or the workers' compensation world specifically capitalize and grow. Historically, the company has a solid sales team, but more recently, the company has essentially obtained all of their clients based on passive inbound leads from their websites and referrals from either current and past staff or former existing clients. The decision not to actively continue to market relates entirely to the age and goals of the owners who chose to keep the business active but to focus on dividend versus is growth. Significant expansion opportunities exist for a buyer with a good marketing engine.

There are a large number of insurance cares that should be using the company, which is preternated over a small fraction of the market. Okay, so I'll pause there. So I just read that, and that appeared to be a lot of words. Do you know what this business does? No, still don't know, but you know what I'm prepared for? Declining revenue. Their revenue has been on a downtrend, and they're just getting it out there. Here's why. Yeah, this is a bizarre listing. So, I mean, at first it sounds kind of like what the guys who are like the personal injury attorneys do here in San Antonio and Texas. Is it that way in South Carolina also? Does the market kind of work the same?

Yeah, yeah. Yeah. So you see these guys with these billboards and it's like, we treat you like family. In reality, what it is is they have a bunch of paralegals who sue insurance companies all day and shake them down for settlements. And then keep half the money and give the other half the money to, you know, to pour unsuspecting people, which is a fascinating business. And I didn't really understand how it worked, by the way, until, like, another one of my buddies has a business next door to one of these, like,

shakedown artists. And I went, I went, like, walked around the office. There was, like, a bunch of glass. And I could see what was going on. There's, like, cubicle after cubicle of paralegals, who all they do is, like, shake down business owners like you and Mills. How do you feel about them? I'm just going to plead the fifth.

There's a segment, right, of business services that basically the model is we want to be so annoying that you pay us to go away. And like a lot of construction litigation is this way where an HOA, I think we've talked about it on past episodes, but an HOA is underfunded. Somebody comes to them and they say, we'll do a full assessment of your building and figure out from the guy who built the building to the guy who installed the windows to the guy who did the stucco, the guy who put the roof on, the guy who did the HVAC. We'll just figure out what everybody did wrong like nine years ago, right before the statute of limitations ends. And let's just see, you know, let's see how much money we can get you. And it's wow, there's a project going on in Columbia. It's like $4 million worth of window replacement on a

big HOA condo. And it was all like the guy who built the building got sued. Those types of businesses, I feel like it's an uphill battle, right? Because nobody really likes you except the people on the receiving end, the HOA, but everybody you do business with is just knows that you're reaching into their pocket. Yeah. This, I can't really tell. So it says they, it's an exceptional insurance claims recovery services enterprise. That is so many words.

But that makes me think that they are collecting money, right? They're in a way, it's a, it's like debt collection, right? They're trying to actually collect money, but it's insurance claims recovery. Anything that's insurance adjacent, it can be very, very interesting. So, like, there's third-party companies that all they do is they go and do, like, workers' comp audits, right? So they mention workers' comp in here, and I don't think this is what this company does, but whenever a company fills out their workers' comp, they say, hey, we have 100 employees,

you know, 20 of them are in the field, and 80 of them sit at desks. and so you should rate our workers' comp based on the risk associated with that. Well, there's people who come by and check and say, do you actually have 80 people who are sitting at desks or do you have 80 people who are up on a roof, you know, who can get hurt and you're not paying the right amount for your workers' comp. I'm not really sure because they mentioned in-house legal. They used to have in-house sales, but they don't anymore. There's only 10 employees.

If you're a claims collection company and if you're like doing debt collection or like, you know, they call it different things now. It's like, you know, recovery or there's like a, I'm missing a word out there that typically I see these things get called. But you're basically a call center. So this doesn't really add up to me as being that. I'm not totally sure what they do. So, yeah, so it sounds like, here's my guess.

Here's my best guest reading this. My best guess is, you know, your typical insurance kind of shake down. legal operation is churning and burning consumers, right? Because you're waiting on Joe to get hit by a company truck. Joe says, oh, I can get $50,000. The easy way, he calls up XYZ law firm. Law firm takes it on contingency. We'll keep 50% of money. You keep 50% of the money of whatever we get from you. Congratulations. By the way, a humorous anecdote. I have a buddy that's a lawyer. and he said one time he called his other friend who is one of these kind of personal injury attorney guys

and the guy's like, okay, well, like, tell me, you potentially have a case on this, tell me what it's about. And he goes, wait, wait, before you start talking, this is the personal injury. He goes, did anybody die? And my friend goes, no, no, nobody died in this case. He's like, okay, not interested. Wow.

That was the response. Like, these guys are scumbags, dude, like total scumbags. And I mean, it's funny, like, they think they're helping people, but it's like, dude, you're keeping 50% of the money from some poor person who got hit by a truck. Like, at what point is that helping people? Anyway. So I think that's the way those guys operate, like these lawyers. I think they operate towards consumers.

I think this actually, because they talk about having retained clients and referrals, I think they're doing this for businesses. I think, like, if a business wants to get a claim from another business, they call these guys. and they pursue it on their behalf, and they take a percentage of the winnings or the earnings or the settlement. Because I think they also hint here that they need a capital partner because somebody has to front all the money

for you to pursue these legal firms, legal things. And that's the thing that the investment that these law firms make is they go run and take all the expenses ahead of time and then they only get paid later. So their cash flow dynamics kind of suck. So I think that's what this is. I think it is that equivalent of the personal injury law,

but I think it's for business. I like, there's something in here that's intriguing to me, and it's that they are not really telling you what they do. And they say, you know, sign the NDA, you get the SIM, it was created by Pro Nova, partners, and we'll cover in greater detail the lines of business that the client is presently involved in. The insurance world is so fascinating

because it can be so sticky. It's highly regulated at the state level, but it can be so sticky. like I dealt with somebody years ago that all they did was medical tourism insurance. So, you know, if you need to have a procedure done, your insurance company sometimes will say, hey, look, we can do this procedure in the United States and it might cost $30,000. Or you can go to Costa Rica. We'll fly you and a friend first class.

You can stay for a week. And instead of it costing $30,000, it only costs the insurance company, $7,000. It was this fascinating line of insurance. And there's not that many carriers who do. it. And, you know, it's not a huge, like, total addressable market, so there's not a lot of people crowding into it. But there's so many unique slivers that I'm really curious what they do. And I think they probably aren't saying it because of how specific and how niche it might actually be. I don't think they're writing insurance policies. They're not a broker or a carrier.

But I'm wondering if it's so specific and so niche that they, like, if they said any more, people would be like, oh, like, you know, we can figure out who it is or something like that. So let me give you a contrarian Occam's Razor view of what you just get. You gave them a ton of credit. I will give, here's the other part of it. I think this is just a badly written teaser. It is. It is terrible.

I'm trying to see if they drop any other hints in this. Like in the facilities, they basically talk about how, you know, the company could save more money by going fully virtual. My guess is that, like, you know, if I'm assuming the worst, the pro forma, you know, is going to have some ad back for, you know, look at what you can do if you take the company virtual. It's like, well, I'm not paying you for that, you know? The other thing I love about this is I guarantee a million percent when you call the broker and have a conversation with them, you will get the most New Jersey person ever on the phone. Like, look at the way they wrote this.

TBA, if the price and deal structure is right, will allow financing. and then this is the next sentence. Best overall bid takes it down. Like, what is this like Fifth Avenue? What is going on here? Like, who writes that way? But look, so that's where I was like, look, I think you're giving them too much credit. Yeah.

Like, I think this is just like a lot of times the brokerage business attracts people who don't write so good. I think that's what this is. I think you're right. Well, and, you know, they, to give them a little bit of credit, you know, they don't have an asking price on here. Because I got to think that on this kind of 850, I mean, those are ridiculously high margins, you know, on, on, you're talking about like 40% that margins here. My guess is, you know, that this business probably sells for like one times, you know, true free cash flow.

Because it seems so maybe it's owner reliant. Maybe it's just like not a very sustainable and durable, you know, revenue stream. and I feel so sure that this business has been in massive revenue decline when you look back at the last three to five years. Yeah, I bet it's that way. But look, I think from a meta-game standpoint, like you think about listings that you might want to dig into more. Like, these guys basically say TBA in terms of financing, if the price and deal structure is right. like this is one where it looks like the owners have been making a lot of cash for a long time. Like the business has been like a metronome.

And they're in a situation where you could go in there and be like, look, here's, you know, I'll give you a small amount down, three quarters of a year earnings or half a year earnings. And then we're going to structure the hell out of this going forward. And I'll cut you in. And then over time, I own the whole business. That is a great sign here. And I think when you look at, when I see a listing come in and it's like really well, written and like the broker has their act together and like it looks like it's like it explains how

good they talk to the sale, all the right stuff to the buyer. It's like, oh, God, this is going to sell for top dollar. But you see something like this. You're like, oh, this is kind of hard to understand. The broker is talking about how it might be hard to transact. Like there's probably an opportunity to pick up like some value here just by doing a little bit of extra work. So I like that aspect of it a lot. The other side of that is that this broker is going to be very difficult to deal with, my guess is. And like, yes, there's some hair on it, and that can be an opportunity,

but the path to close is just going to be total brain damage for you. You may get it cheap, but you're going to pay for it. Yeah. That's the way I like to talk to people. But look, I think at the core, the business they talk about here, this is a good business. This is not going anywhere. Like, it's a growing space.

Like, insurance is not going anywhere. Tort is not going anywhere. people hurting themselves and not going anywhere. You know, this business grows out, this grows with inflation, right? Like people's wages grow, all that stuff grows. Your settlements grow. Insurance payments grow. Like, there's a lot to really like about it.

And then the best thing I like about it, and these are very law firmy kind of margins, right? Like, I'm running a small law firm. We're doing $2 million of revenue and I'm putting half of it in my pocket. Like, hell yeah. Like, sign me up. Sign me up for that. I mean, really, I think there are only, their only cost structure is

just payroll, you know, and rent. It doesn't seem like they're doing, you know, they're not doing anything other than kind of pushing paper for lack of a better, you know, for lack of a better term. You're missing the high depreciation here. They're depreciating three staplers a year,

Mills. It's important as a big number. Sorry, sorry, I'm so curious about what they actually do, you know. I would love to, to just know more about what they're actually doing and the way that the process works because these types of businesses probably don't. They're chalking up like, hey, hire salespeople,

do more than just word of mouth, and we can market and all these kind of things. I don't think this business really probably grows all that much. I think the path towards growth is very, very difficult to see. It's just hard to tell. So I did look up who's sent us this deal. one of our listeners. By the way, send us deals that you think are interesting, because guess how we chose this deal today? We looked up and it was the first, I was like, hey,

a listener sent us a deal and I opened it up and we said, that looks good. Let's do an episode on it. So it totally worked. But actually, it's funny. This was sent to us from a Twitter follower who is, their handle is that they're in New York City and it's, this won't end well. It's their screen name. So kind of foreboding. But dude, like, I, I mean, I agree with the listener. Like, I would double click on this. Like, there's something here. Like, I don't hate it.

And if you're willing to do a little bit of doing a little work. Have you ever dealt with any of these, like, insurance adjacent? Like, we talked about one deal early on that was, I think, home staging. And it was kind of real estate transaction adjacent, you know, and I think the comment, I remember bill making on that is like, anytime you can be like rubbing shoulders with a really big, you know, dollar amount transaction, it's easy. you know, if you're selling a million dollar home and you're going to pay $8,000 to stage the house, you know, it's kind of, you know, it's a blip on the radar because you got to get the house sold.

To me, you know, this kind of is in the same camp where it's, it's a sticky repeat, reoccurring, like everybody has to have workers comp. Let's just say they're doing some workers comp. Everybody has to have workers comp. It's regulated. It's mandated. It's not going anywhere. If anything, it's going to get more complicated and more expensive. And then you, you know, you slot in next to that thing. and you kind of leach off of it is what it, you know, what it maybe seems like, but it's, it's durable, it's not going anywhere unless, right, there's some regulatory risk. Like in the debt collection space, you know, there's so many consumer protection, you know, regulations that have gone into place and probably will continue to go into place, you know,

so that you can't be hounded by debt collectors and, you know, abused and stuff like that. but I like the insurance adjacent piece of this because of how steady it can be. I like the business. I hope somebody goes to look at it. The compliance with these things is always what's really kind of a double-edged sword. It keeps some people out. I was talking to a guy the other day who's an independent salesperson for Medicare and Medicaid, and they just passed down some regulation that he has to, it's like independent, you know, he's making $150,000 a year doing this. and it's like very reoccurring in nature.

But the federal government has now told him that he has to keep a record of all client communication, phone calls, text, emails, everything for 10 years. Audio recordings are the calls. And he's like, I'm not, you know, I'm not set up to do this. This is like going to absolutely kill my business because I don't know how to put a CRM in place to track all these things and the compliance burden associated with it.

Anything like this, you've got to know that you're getting into a highly, regulated, you know, highly compliance-driven segment of the market. It's very different than, like, you know, selling stuff on Amazon or something like that. Not that I'm saying, that's easy. But it's the one thing that would scare me about this. Yeah. I don't know. This brokerage is hilarious, too. I just pulled it up and I was like, why, this, I pulled it up hoping there would be like some guy with, like, his shirt, like, down in a V with, like, chest hair, you know, and some gold chains being the broker. And it turns out it's like most.

say a California brokerage, pro-nova partners, and then they have different offices around the country. So I guess this is coming out of their Connecticut office, 16 Warren Street, Manchester, Canada, or Connecticut. But yeah, so based out of Garden Grove, California, West L.A., San Diego, Connecticut, Massachusetts, Florida, kind of all the hotspots where they have a brokerage. So, yeah, kind of just another business broker.

I guess they're in Orange County here down to San Diego. So kudos to them. Well, this is a good deal from our listener. Definitely, I like it. I mean, I think the lesson for me to learn from this one is, A, I still like low-cap-x businesses much better than high-cap-ex businesses. Speaking to the choir here. And number two, like badly written listings present some opportunity.

And I think that's, you know, if you're trying to find some value or something interesting, that's a good place to kind of, a good lens to kind of look at stuff and consider it. Mm-hmm. Mm-hmm. The, like, parting thought I have on this is that, you know, we talk about this a lot, but the, you know, why am I the lucky one? And this is one where you kind of wonder, why hasn't somebody else that, you know, is already doing this or is already doing something up or down market from it? Why aren't, why aren't they buying this? Why haven't they already bought it? Just because, you know, I mean, you, you, if you're an insider in something, Michael, whether it's like, the fireworks stuff that you do or more of the kind of early stage stuff that you're involved in, as an insider, you just get early looks at so many things. By the time something hits the market, you know, or hits the street, so to speak, like you've already passed on it, you know, and anybody else who, you know, knows what they're doing is already passed on it. And so, like, that's the skeptic in me whenever, you know, whenever I see something like this.

And I mean, you can say that about any potential acquisition, any potential business for sale, got to kind of look at it realistically and not just with rose-colored glasses. Or if you mean, just yolo into it and then figure it out later. Super good. All right, well, this is a great one from a listener. I think we did a great job on it. I give us maybe 11 out of 10 or 12 out of 10 today. We don't have bills, so I'll say only 10 out of 10 without him. Yeah, right on. All right, man, well, I will click stop here. If you have made it this far, Thanks for being here.

We will see you next week. And do us a favor. Open up your app and write us a review. We've only had like 50 reviews in the last week, Mills. So it's kind of disappointed. Actually, I don't think we've had one week or two. But we really need, we really could use some more reviews. If you guys are interested in, we're continuing to do these case studies

and inspections of businesses for sale and talk about them. So good stuff. And thanks for being here. We'll see you next week.