Acquisitions Anonymous - #1 for business buying, selling and operating - Selling vinyl to sign companies for $500k/yr - Acquisitions Anonymous 250

Episode Date: December 1, 2023

In this episode of Acquisitions Anonymous, Bill and Heather discuss a potential business opportunity: a vinyl fabrication business that wholesales to distributors. The business is priced at $1.9 million with $2.3 million in sales and $577,000 in cash flow. They mention potential risks and opportunities, express skepticism about the claim of being "100% SBA approved," and discuss incorporating AI into the business. They conclude that the business has growth potential but requires thorough due diligence.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.-----Double Jump Media is your one-stop shop for creating engaging, high-quality videos.Double Jump is a boutique video production company with over a decade of experience creating professional, memorable videos for clients from around the globe and in various industries. All while helping those clients generate millions in sales through video content.So, whether you’re rebranding a business you recently purchased, launching a new product or service, or want to look awesome, Double Jump is down to clown.Visit www.doublejump.media to check out their portfolio and schedule your free consultation today.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]

Hello, boys and girls, and welcome back to another episode of Acquisitions Anonymous. This is Bill Dallisandro, and this week I'm just back from Main Street Summit in Columbia, Missouri, where I met a ton of our listeners. So it was awesome to meet all of you guys. This week, I'm here with Heather, and we have a vinyl products distribution company, which is really interesting because it's not consumer-facing. It kind of lets all the consumer-facing businesses churn and fight amongst themselves, and they kind of sell the picks to the minor. So it's a cool B2B business, about half a million in earnings. I hope you enjoyed this episode of Acquisitions Anonymous. Hey, Michael here.

Want to talk to you about today's sponsor for the episode, which is cloudbookkeeping.com. So cloud bookkeeping is actually run by my neighbor, Charlie. So I've met him in person and 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 all in the cloud 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 payroll 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 a bunch and cloudbookingeming.com as the sponsor for today's episode. Hello, Heather. Welcome to AA this week. Hey, Bill. How's it going? I'm doing great. I've been back and forth to like three conferences in the last eight weeks and I'm

finally done for the year. So it feels very good to be back at my desk. Yeah, this is kind of the end of conference season for a lot of industries. It's really interesting. the search fund world had like seven conferences back to back. I only went to one of them as I honestly was a little too busy this year to take that much time out to go. But hopefully I'll make it to more of them next year. Yep.

I actually just came back from Main Street Summit, which is put on by the permanent equity guys in Columbia, Missouri, and met a ton of acquisitions anonymous listeners, which was super cool. It was like people kept coming up saying they love the shows, you know, inspirational during their search. So if you are a searcher or an AA listener that I ran into in Columbia, shout out to y'all. Super glad you liked the pot. That's cool. That's really fun. It was cool. All right. So we've got a cool deal today. It's from the firm, and Mills is not here because Mills has strong opinions about the firm. But we will leave those for Mills next time he's here. But let me share it, and we can talk about it. It is a vinyl fabrication business that is 100% wholesale to distributors.

Vinyl fabrication with 100% wholesale to distributors. Owner is 100% absentee. The list price is 1.9 million. They have 2.3 million of TTM sales and $57,000 of TTM cash flow, which is up from $566,000 in 2022. That means it is a 3.45x multiple of 2022 cash flow, a little lower of TTM. So, you know, kind of right in the ballpark. It says this vinyl fabrication company distributes raw vinyl products to wholesalers and

large advertising firms. Their customer is not the end user. The production facility is a spacious 8,000 square. feet uniquely modified for their fabrication. The owner has lived out of state for three years, and what allows him to do this is a president who operates the company and has been there for nearly 20 years. Also included on their staff is an art director, sales manager, production manager, several finishers, along with a customer service associates. The product mix is one-third vinyl banners, one-third trade show displays, and one-third specialty graphics. The distribution

network they have built is nationwide with a hyper focus in the southwest United States. The business is 100% SBA approved for a qualified buyer who has 10% cash down. Every time. A buyer, this is a classic, if you see enough from the firm, they always really want to talk about the deal structure and your cash flow. So they see here, a buyer who puts down 10% of the purchase price will receive a return of $288,000 after their low. payment in the first year, or I guess not in the first year, every year. This is an incredible

rate of return. The cash flow for the last 12 months is $57,000, a 27% profit margin. There's little to know advertising, marketing, or business development, and this company is successfully operating growing year every year by simply servicing their existing client base. It says the company is primed and ready for a new owner who is looking to expand into the design space, and the seller is willing to seller finance 10% of it and stay on for six months to one year. I think that's pretty much everything. It says it's in Albuquerque, New Mexico. You got $283,000 of furniture, fixtures, and equipment.

The owner is retired and already moved out of state. And he says it's responsible for two to three hours a week from out of state for financial planning and strategic oversight. And I'll just end with this. So it's been around since 2010. Growth opportunities are, one, social media manager, and two, incorporating AI. Just drop it right in. That's easy, sure. Incorporate AI, of course.

That's good for an extra turn right there on the multiple. Right there. Amazing. With vinyl, I'm sure there's a lot you can do. The first thing I had thought about in this business is the absentee management and there's a president that's been running it for three years, which sounds really good at first. Okay, that's great. You don't have to be as hands on here, but you better meet that president as kind of my thought. Maybe they wanted to buy the business and couldn't or weren't asked or

whatever. I've certainly seen that happen. And so if they're pretty critical and it sounds like they are, you'd want to meet that person prior to close and make sure there's a good vibe. I'm still a little confused about what this business does. You know, it sounds like they do some printing on the vinyl, not just, you know, just raw vinyl, although the initial teaser sort of made it sound like it was raw vinyl. But there is an art director. So I'm thinking, you know, there's there is some design work that's done, these trade show booths, that kind of thing. Very marketing, you know, serving the marketing industry as far as I can tell. And not a whole lot else.

Is that what you think, too? Yeah, I think my best guess is, and I know this a little bit from the way the signs industry works. So the way that, like if you want a sign for your building, very often many of the people who you think you're buying your sign from are not making your sign. You know, they are basically selling you a sign and then there's a sign actual manufacturer or wholesaler that makes the sign and then, you know, maybe just the guy that sold it to you just installs it. Right? So I wonder if this is kind of similar for like vinyl banners. You know, you could have maybe you got a print shop, maybe you make banners and signs, but you don't want to stock all these different types of vinyl, you know, the substrate that you might print on.

So you want to basically call it on demand from your distributor whenever a customer orders something. Then you print it and give it to your customer. Or maybe you install it and that could be the same for a trade show booth or whatever, right? I think there's basically what this is is the people who sell the vinyl stuff, basically outsourcing the balance sheet of the vinyl and warehousing all the vinyl to this company. So they can call it on demand. That makes sense. And then therefore, you probably have some inventory to manage here. And inventory that could be obsolete.

I always worry about that in small companies with a kind of unique kind of inventory. maybe it's a color, maybe it's a size that hasn't sold in a while. You sort of have to look really closely at the inventory management system and see what you can learn about how old some of that inventory is. A lot of times, a lot of times, you have to write some of it off, and it hasn't been written off. So that's something I'd be cautious of. But I think you're right.

I think this is sort of the back end that actually produces the signs and cuts the vinyl so that it can actually become a sign. I wonder if the trade show business side of it, I mean, obviously that would have been decimated during COVID. So I also then wonder, because of that, if we have a little bit of a bounce back, you know, since then, with the return to trade shows. And like you just said, you just came back from three trade shows.

I talked about how many trade shows the ETA world has had, the entrepreneurship through acquisition world has had. I feel like we're on overdrive of trade shows and things like that right now. I wonder if it'll kind of settle down to fewer in the coming years. Yeah, I would definitely want to understand how leverage this was to new trade shows. So like a lot of times, if you have a booth, you'll need to like every two or three years redo your booth. You know, and it'll be like a big, like we just spent $30,000 or $40,000 on our trade show booth

for a natural dog. you got to refresh it every once in a while when you have new products or you know sometimes we just have certain panels that we replace with new vinyl when we have new products. So that's probably what that is. Vinyl banners and then specialty graphics. I think vinyl specialty graphics would be like pressed on windows, you know, like cut at like probably that laser cut on the window of a shop or on the window of a workplace or whatever, somebody's office, things like that.

I bet they've got, you know, since they got $283,000 of assets and equitutes. that cannot include inventory. To your point, Heather, I think there's got to be more inventory here. So what they probably got is like laser die cutters, probably some printers, you know, different ways to slice and dice this stuff

and maybe print on it. Although if I had to guess, I bet the art director is probably doing like dye lines for the laser cutting, the dye cutting. And then the, you know, the printers and stuff,

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I know what it means, but it sounds awesome. So to get in touch with them, visit DoubleJump.Media, fill out their form, tell them that we sent you, have an introductory call at no cost to you, and figure out what's best for your business. They're great folks and can help you on your journey in producing amazing video content to help meet your business needs and goals. And thanks to them for sponsoring today's episode. So this is probably a pretty competitive industry, and it sounds like pretty geographically focused. They made a point of saying they're very focused on the southwest. So their clients are all

kind of around them in New Mexico, I imagine. You know, I guess low barriers to entry. Is that is that, would you assume that here? Yeah. So the vinyl signs, kind of these guys and consumer is so competitive. Like, so competitive. And there's in fact a number of franchises in the space, too, that do this. I think fast signs is one of them. There's probably quite a few more. And they'll do signs and vinyl banners. I mean, if you need a vinyl banner, there's like 20 vendors, stones throw from you. So I do like that this is a little bit up the value chain from that. You know, you don't let those guys can duke it out with each other.

And hopefully you're distributing vinyl to all of them. I would think, though, that, you know, some of the franchises or some of the bigger guys would start to vertically integrate you out pretty quickly, you know, as they start to have some scale. But there's always going to be small guys. So I like that this is further up. the value chain. What I don't like, though, is it still seems to be a little bit of a distributor. They're not like making the vinyl either. So there's a risk here for disintermediation if any of the, you know, the retail side wants to buy a die cutter or, you know, a laser cutter or

something like that and dispermediate you out. But I don't see like any huge technology risks to this, which is good. Now we'll come to the AI part in a moment. minute. Although I would say maybe one of the biggest risk to this would be as more of this goes online, you know, rather than like your local sign shop, as more of this goes online, it will tend to aggregate. And so you'll have fewer bigger players who will be more incentivized to cut you out. The good point. Very good point. Because yeah, at some point, you can just order, you can design your sign online and order it up and it shows up and you don't know even, it doesn't need to be local either. Maybe the whole local focus isn't so great a moat to your point on that.

I want to talk about the 100% SBA approved. It said literally, I love the emphasis, 100% SBA approved, which I would actually say is zero percent. SBA enthraled. SBA never saw this deal. No one in a credit department at a bank ever saw this deal, is these are my guesses. A salesperson that knows the broker said, sure, it looks like, you know, if this, if that, if the other maybe it could get an SBA loan and it probably could. I mean, it's a, it's the right size for an SBA loan. If someone comes along that has the right personal resume and financial statement and they pay the right price. And I think it's priced well if we knew better what the historical financials look like. So I think it could get an SBA loan.

And I just hate those words 100% SBA approved because it really isn't. Yeah. I mean, it's nice. It's been around for 14 years, 13, 14 years, right? Since 2010? Yeah, right. It has. I wonder if it's got customer concentrations too, though.

That's the other thing I started thinking about with this, just the type of business model. They could have one or two big customers, especially with that geographic focus. And that's a pretty tough thing to finance anyway. I mean, whether you want to buy it or not is one question, but do you want to put debt on something where losing one customer or two customers could make the difference between default and not? That's the challenge there. Yeah. You really want to understand that in this business. Any B2B business, right, is a little bit more prone to customer concentration than B2C businesses.

That's right. Yeah. Almost any B2B service, in fact, the first thing I ask is, you know, do we have a big customer? because it really, it's a fair percentage of the businesses do. Yeah. So growth opportunities include hire a social media manager and incorporate AI. What do you make of this, Heather? AI, okay, what is, I don't know, everyone says AI for everything.

All I could see it do is help me start writing something that I don't want to start on a blank sheet of paper with. I guess they, you know, AI does design. I actually played around with it this week before my Zoom session trying to find an SMB related Thanksgiving graphic, and it did a terrible job. I swam to know it was so laughable. I actually included it on my slide just to make everybody laugh because it was so bad. But I think, I guess you could use AI for the design work.

Is that what they're trying to hint at? Yeah, I think if you've ever played with Mid Journey or the new Dolly 3, they're getting better and better. So I think this would be something to the effect of using AI to come up with a bunch of designs. I mean, I'm grasping here, but maybe to come up with a bunch of designs that they could sell, thus letting them integrate down maybe to compete with their customers. But that's always a dangerous proposition to go compete with customers. Maybe there are, you know, there's kind of some, I would call it more mechanical art direction or artwork being done,

like turning, you know, plotting something from one format to another format to get it cut out. You know, those are the types of things that AI could potentially really accelerate. I would be looking, though, at it looks like there's 12 staff. So how many people can you really take out, you know, with it? Maybe one or two, because everybody else seems to be cutting vinyl and packaging vinyl, right? The robots aren't here yet for that. And then is it really just? Or is this just, we'll put AI on anything.

You know, like, we'll submit a, they used to do this where, like, such and such, you know, puts out a press release that, you know, Kentucky Fried Chicken is going to start accepting Bitcoin or something, right? And then the stock jumps. Yeah. And they were just stuffing Bitcoin. Yeah, definitely. Yeah.

And they were stuffing crypto and, like, everything. And I'm starting to feel that with AI. When a vinyl fabrication distributor says that their major growth opportunity is AI, I just get pretty skeptical. Yeah. This is, I feel like you're slogging it out to get your customers to make orders a lot in this business. And probably the sales side has to work pretty hard to make sure their customers are happy. Customer service is good.

The product is, you know, what was ordered. I'm sure there's a lot of that because it is somewhat of a vulnerable business to the competition. So, yeah, I don't see how AI is going to help that. Yeah, I think this is a pretty classic, just like execute well and make your customer. happy business, right? When they call you and want some vinyl, have it their same day, you know, and then have a sales team that goes out and closes other sign shops and say, hey, I know your current guy gets it to you in four days.

We get two in one day, you know, and our prices are good. And you just kind of mitigate your churn. I imagine people are pretty sticky if you become preferred supplier. So I think growing this thing is kind of purely B2B sales and, you know, maybe opening new territories also adjacent territories. I agree. It's a nice business here, somebody. Yeah, I mean, it's only, it's only 2.3 million in sales.

It's grown significantly since 2020. In 2020, it was 1.4 million in sales. Then it went to 1.6 million in sales. Then it went to 2 million in sales. And now it's TTM 2.3 million in sales. So it's growing nicely. You know, I would be curious as to what's driving that. And then I would just try to do more of that.

right hopefully we just do more of that maybe they're opening new states maybe they've got some new sales guys in just do more of that yeah and i've got a long history i want to look like show me what the sales have been the whole the whole way in a pre-covid and before that and just to give you a sense of what kind of lumpiness there might be or cyclicality and yeah and absolutely execute what they're doing well yeah it's a nice business i like it i also like these ones that are regional where you can look at either adjacent regional boltons or just organic greenfield expansion. Just hire a sales guy in the next state over and here we go. Absolutely.

Yeah. I like it. Cool. Anything else on this one, Heather? No, I did want to give somebody credit now. I forgot the name, but we sourced this on Twitter today. Or X, excuse me, on X. Yes.

Thank you for whoever tweeted or Xed this at Heather today. See, you too. you send us deals, you too can see us talk about your deals on the show. There you go. How exciting. Yep. All right. Well, that wraps up this episode of Acquisitions Anonymous. We will see y'all on the next episode.