Acquisitions Anonymous - #1 for business buying, selling and operating - Should we buy this airplane ad business? - Acquisitions Anonymous episode 165

Episode Date: February 8, 2023

Michael Girdley (@Girdley) and Mills Snell (@thegeneralmills) talk about a company that offers services related to aerial advertising. We discuss the deal structure, margins, and the significant pricing power enjoyed by businesses that operate billboards. Is there a moat around this business? Do we think it’s better to rent a billboard?Company:   Aerial Advertising Service ProviderLocation:   21 States - USStated Financials:   2022 TTM $ 3.5M    |   2022 Adjusted EBITDA   $ 610,000Asking Price:   Unlisted-----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-----Show Notes:(00:00) - Introduction(00:54) - Our Sponsor is Acquira.com(02:26) - We are looking to do more larger deals!(03:46) - Deal & financials: Aerial Advertising Service Provider(07:34) - What's happening to the margins?(08:38) - How do billboard businesses earn a lot of pricing power?(10:24) - What is this company's buy vs. build thesis? (13:34) - The low Total Addressable Market Moat(14:12) - How would we build a moat around this business?(17:54) - What’s the case for medieval times?(20:42) - Is it better to rent a normal billboard?(23:03) - Will drones be a good idea?(24:26) - What may have affected this business to grow in revenue?Additional episodes you might enjoy:#164 - Annual Report Filing Software#163 - Make $2.3M/yr owning a Flight School#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. Today's episode of Acquisition Anonymous is a ton of fun. We went through and did a case study on a business located on the East Coast that does the advertising that you do at the beach, you know, when somebody flies a plane along and drags a banner behind it. This company does that. And the numbers were pretty cool. They did $3 million a year of that kind of aerial advertising and Blimp advertising. When Mills and I went through it, had a great time. By the way, Mills's beard looked amazing today. So you'll enjoy this if you're watching on YouTube. Otherwise, you can, just use your imagination. But we had a fun time digging into this, talking about this business being compared to, say, other advertising businesses like billboards or something like that, and which one would be better. And then I believe this is the episode where we also went into talking about everybody's favorite restaurant, second favorite restaurant that is behind Chili's medieval times. So a really fun one. And I hope you enjoy this as much as Mills and I did making it. Today's sponsor is aquira.com. And Acquira is your acquisition and a

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. It's whether you're just beginning your business search, actively pursuing a specific deal, or looking to grow your existing company, acquireist 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 allow 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 of businesses and eventually get liquidity from that portfolio by selling it. to a financial buyer or selling it 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-U-I-R-A dot com slash pod-hyphen lander, and tell them that the acquisitions anonymous folks sent you. All right, Mills, welcome to the episode. By the way, your camera looks amazing. This is still, I haven't upgraded yet, but thank you. I think it's just the natural light. Your scruff, you're like five-day shadows looking pretty sharp. I went skiing.

By the way, when I went skiing, I listened to our previous episode, and I have to ask you a question about it. You and Bill led the episode by saying you could do whatever you want because I wasn't there. And I'm very curious, what made you guys think I'm in charge around here? Because that's just totally false. It was just like, you know, hey, Michael's not here. We can do whatever we want. And then it's like we did the same thing we do every week.

Yeah. I mean, how dare you? How dare you? There's definitely no way I'm in charge. All right. So I put out a call. And by the way, if you're a listener, which I assume you are because you're hearing this, we are looking to do more larger deals, like more than $2 million in earning.

So I put out a call for people to submit some and I got a grand total of two submittals. One, by the way, Mills, who was somebody who submitted one to me already a week ago, but I forgot to respond to them. So I felt terrible. And then this guy, Chris, who sent us this deal. And he says, Michael, here's a fun one for you to consider for your podcast. I'll go through my email and look for some larger ones. I heard you were asking for larger deals to review.

This is not a fit for us. I'm not pursuing it, but I think you might like it. And the deal is from Nick Montilione, from U.S. transactions at BMI transactions, us. com. And do you want to read this one? I'll pull it up here and we can go from there, Mills. All right, cool.

So this is an aerial advertising service provider. Seeking new ownership, the company is owned by one shareholder. They want to retire and spend more time with family and on other business endeavors. Uh-oh. The owner is willing to remain with the company for a transitionary period, not specified. Here's a summary of the opportunity. It's Northeast U.S. based. The company is an aerial advertising service provider offering custom.

aerial billboards, letter banners, and blimp advertising with a focus on commercial clients. They are the, they primarily serve the eastern U.S. with full continental U.S. service capabilities available. They perform maintenance in-house and utilize a proprietary application and app to monitor and manage flights. They own and operate assets in seven states, and they employ vetted vendors in 12 additional states with a focus on the eastern U.S. servicing a variety of commercial clients across multiple industries.

There's some typos in here, but industries, advertising agencies, and individual clients. All right. I'm going to try and zoom in on this because I have it up on my screen. All right. So revenue in 2019 was $1.9 million and gross profit of $1.4. Is that, am I reading that right, Michael? This is so blurry even when I zoom. Let me read it.

Okay. Yeah. Yeah. So 2019, they did $1.9 million in revenue and $1.1 million in gross profit, $2,000, $237,000 in adjusted EBDA. So, and then 2020 was $1.5 million revenue, $800,000 gross profit, $34,000 in adjusted EBTA. 2021 was $3.2 million. So it went from $1.5 million to $3.2 million in 2021, $1.5 million, $1.5 million, $6,000,

$685,000 profit and the trailing 12 months as of last May, so May 31, 2021, 2022 is 3.5 million in revenue, 1.5 million gross profit, 610,000 adjusted EBDA. So it looks like they've been running about 20% net profit if you use EBITA as a good approximation here for net profit. So three, looks like they're growing, 3.3 million-ish, 3.4 million in the last 12 months, with $610,000 in profit. Have you ever looked at deals from benchmark before? No.

So this is benchmark international out of Florida, it looks like. Yeah, they have very good teasers in Sims. They look really, really sharp. They are very good marketers in my experience. The deals, I think a lot of them, they have a lot of volume. Like, if you go on their website, I think, I think they list them all. A lot of volume, but not necessarily a lot of closed transactions. But this is kind of interesting.

So whenever we go to the beach in South Carolina, there's like the airplanes that fly by and are like, come see, you know, like, you know, Dollywood or like come see, like come all you can eat crab, crab leg buffet and stuff like that. Is that, is that, am I imagining this right? These are the people who fly around and advertise stuff in the air. That's what it's got to be. So you've got like, you'll see the guys with the old biplanes and they're towing like a big, a big banner behind it along the beach, for example, banners. And then I guess it says they do blimps also and primarily for. One time I heard that there's like, like the number of blamps that actually exist in the

U.S. is incredibly small. It's like less than a dozen actual blumps that exists in the U.S. somebody will fact check us on that. But I don't think these guys own a blimp. And I doubt that they own a bunch of airplanes. Don't you think? I mean, I think these guys, they might be like a middleman. Their margins reflect like a middleman.

Yeah, I mean, it sounds like the business is a sign production business where they produce the signs and manage them. And then they contract out with the people who own the blimps or the airplanes to go fly those on a given day, right? Okay, there's this going on around, you know, the NCAA Final Four, when we have that here in San Antonio, you see these guys all the time. And then they, they farm that out, right? So they kind of act as a middleman for doing all that with the, you know, individual advertiser themselves. I think what's really interesting is like how little money they make. Like, I don't know what kind of market share they have, but I'm like, really? This is all? Like,

it seems like you would be doing much better than that because, you know, this is not far off, say what somebody who owns, you know, 15 billboards or 20 billboards does in annual revenue, right? Some of those billboards, have you ever priced out or used to billboard in a real business as an advertiser? I've tried to put billboards on property that I own, but I've never tried to advertise on one. Yeah. So, I mean, but even in like a rural billboard, like it's $5,000, $7,000 a month to the to the person renting the billboard. And then, you know, know, 25 to 30 percent of that often or less can go to the landowner as a percentage. And then the rest is just revenue for the billboard operator.

And, you know, I think that's one of the interesting things also about this, you know, since I'm mid-rant, I'll keep ranting, is like with billboards, it's actually a really good business because in most markets, the supply is limited, right? So you said you tried to get a billboard on your property? Like, tell us what happens. Well, in the city of Columbia, in our municipality, they have a cap and refurb. place ordinance. So if you want to put up a new billboard, you have to go take one down somewhere. And I don't, not everywhere is like that. Like, I don't think it's like that on the interstate

and stuff, but it is, it's semi regulated depending on the municipality and, you know, the county that you're in. They can be really, really lucrative, though, because, you know, you spend, depending on if it's like digital or analog, like, you know, you spend a lump sum up front, which you could finance if you wanted to. And then, you know, pretty much in perpetuity. You know, you collect. You, you pay the vendor. Like you said, there's like Lamar and these like major national ones that they do everything for you. And they're not in the asset business.

They're just in the sales and service business. Yeah. Well, it's really interesting. So there, you look at it and you say, okay, the billboard business, there are these huge national chains with enormous amounts of pricing power. And then you look at a business like this, that in theory, like this should be just as good. Maybe it should be better, right, if I'm flying around an airplane. like that's going to get much more attention than a stupid billboard.

Obviously, the cost structure is different when you have to fly the thing up, but it also highlights kind of the problem with this business is, let's say, Mills, you decide to open an airplane advertising firm, right, and compete with these guys. Well, then somebody else can do it very easily. The barriers to entry are super low, but you go look at the billboard business, and it turns out the billboard business is a really good business to be a billboard owner because those guys have gone over the past 50 years and basically created a situation in which it's almost impossible to compete with them.

So, you know, Clear Channel, Lamar, all these guys, it's virtually impossible like you just described in Columbia, South Carolina, to go get a new billboard permit unless you go take one out. Well, if Lamar owns that one, they sure as heck aren't going to let you take one of their billboards down. So basically what they've done is created an enormous pricing power for them that even as the population grows,

oftentimes it's outgrowing the number of billboard permits that are out there, and it's a situation in which they can charge basically monopoly prices, like really super duper high and why that's a great business and to some extent this aerial advertising one is going to be really tough yeah and especially if they don't have the asset base you know like if they had it there's some other cons to that but they at least would be able to you know kind of box people out of their market i think they have this approach of like look anything on the east coast we can help you with and maybe maybe the app i don't know if the app is like so that they can manage the flights or if like you're the guy who paid three thousand dollars to have

have like, you know, your, your concert advertised or like your restaurant advertised around a big crowd of people. Like, are you wanting to, like, are you pulling up the app and seeing like when the airplane is coming by so you can like monitor it? Probably not. That would be a little bit much. But I don't, I don't think there's really that much other than maybe they have like super unique, you know, distribution in the sense that their phone rings. Right. And from a revenue standpoint and a demand standpoint, like they're known as the people. But to your point, at this size, it doesn't seem like they're the 800-pound gorilla. There's no way. I would be willing, I know nothing about this, which is, which just like every other episode we've done, I know nothing.

Actually, I'm just kidding. I know a little about a lot, which is one of those things where it's like, okay, like, put this guy on a podcast. He can give us 30 seconds on any topic and then you double click on it. You're like, no, no clue. But like, you know, that, that, that, that, that, ultimately you look at what types of businesses you want to be in and what types of businesses you want to own. And, you know, one of the lenses you can use is you say, okay, how hard would it be for me to compete with me, right, if I own this business? Like, could I go just replicate this business and create it from scratch? And so you can start to ask yourself, okay, well, like, I run into these guys and I want to, I want to do exactly what they're doing. What exclusive type resources or what kind of

moats do they have around their business? And ultimately, I think this business is probably pretty small because there aren't that many moats. Probably the biggest moat you have is the relationship that the owner has made with the people that, you know, are the advertisers. And beyond that, like, there's not much here, right? They're not owning and flying the planes. They don't have any, you know, cornered resources in terms of permits. So they can just come in and pick up their own plane, put a banner behind it. And next thing you know, it's a competitor. And you're competing on price rather than anything else. And it's just a mess. So ultimately, that's, I think, Occam's razor here of why this isn't that great of a business to own. But anyway, Mirko told us,

we're supposed to love the business first. Wouldn't it be fun to fly around in an airplane or a blimp mills so much fun? All right. One positive thing I will say about this, and this is indicative of some of the deals that we look at, I think there is a moat that is like low tam, low total addressable market ends up being a moat. And like if this business is making, let's just say like real numbers, you know, on a true basis, it's not $600,000, it's half a million dollars. Like a lot of people don't want to buy a business like that.

I think there's probably a way that this business can function. It would be a grind. You would have to get a lot of things migrated and transitioned over. But something tells me this isn't, you know, like an 80 hour, a week business to own and manage. And a low tam keeps all your competitors from coming in and saying, oh, we've got to get in on that because they're like, man, we're going to do all that work and we're only going to make half a million dollars a year. That keeps a lot of people away. And there's, I know that sounds like terrible, right? That sounds like the most privileged first, first world problem kind of thing to say.

But low tam keeps a lot of people at bay. Yeah. Well, I do you think there's a room here with that low tam that makes it attractive? And I think there's room here for the right type of person that wants to do this, right? Who are your clients typically in a situation with a business like this? It's going to be, you know, at the beach, it's so and so bar and grill advertising happy hour down on Hilton Head Island in South Carolina. That's what makes. In medieval times in Myrtle Beach is the big one.

That's the one that advertises. Have you ever seen this? Have you ever seen medieval times? Yeah, it's a little, it's headquartered in Dallas. You're kidding. It's like the original one is in Dallas. Oh, man, that's amazing. I always thought, you know, South Carolina is the center of the world. So I assumed it was like only in Myrtle Beach. Those things are amazing, man. They're hilarious. The center of the world. I hate to break it to you. Yeah. No. Yeah, no. Yeah. that. So, I mean, for our listeners that don't know what this is, medieval times is this giant theme restaurant entertainment venue. And correct me if I'm wrong, Mills. But basically,

you go in there, they serve you basically like a semi, quote unquote, like medieval style food. They basically. Turkey leg that it's like, you know, as big as your femur and you just gnaw, you know, gnaw to your heart's content. Yeah, which is fine. Oh, yeah. Which is fine. which is fine, but then they give you, they give you like a turkey leg, like a three pound turkey leg, and the beverage is like a 32 ounce Pepsi. Like, this is what? This is not making this makes no sense.

So anyway, and then while you eat, you sit there and they do a medieval show around jousting and all that kind of stuff. And they like, they like act it out. Yes. I know this not because I've ever been there, but because it was in Dumb and Dumber or like one of the movies, they went there. I was like, oh, this is medieval times is. Yes. I went once like in middle school. It was the greatest thing in the world.

It was very, very cool. But I think it's like, it's probably somewhere between like $75 and $100 a person. So like the margins on that business, I want to find a teaser for medieval times. Okay, so let me ask you this. You can own one medieval times, which probably does $4 million in revenue,

or you can own this blimp adventure business where you have to go travel up and down the East Coast, you know, getting people to advertise their happy hour. in Hilton Head, which one do you want to own? I mean, medieval times has a big wow factor, you know, because you would be the man in, like, your town, but that's the extent of it. Nobody else thinks it's cool except, you know, when you can like flash your, you know,

your ownership around with the audience. But medieval, okay, so here's the case for medieval times. Got a brand. You and I know, you and I know about this brand. It's got pricing power because where the hell else are you going to go see two dudes in fake armor joust and then pretend to hurt each other and then have a fake sword fight. You can get sponsorships from Pepsi. Like there's just, you know, the turkey vendors are going to give you kickback. There's so many things that are in real estate, right?

So like just so many things that are like much more interesting rather than this tiny tam thing. So anyway, that's my case for owning medieval times. You're right. You're right. It's headquartered in Irving, Texas. I just looked this up. Oh, man, there's an article. I can't wait to read this.

The untold truth of medieval times. This is going to be awesome. There's, it looks like there's maybe like 10 or 12 locations. Yeah, yeah. It's pretty famous. Okay. So let's say you were, let's game theory a little bit here. Let's say you wanted to maybe create a diamond in the rough out of this particular

advertising service provider that flies blimps and air, you know, air kind of advertisement around. Is there a way you could try? transform this business into something that would be more moody, right? That would be kind of what I'm talking about. More medieval times, less red ocean. And I'm curious if you have any ideas, because I have some ideas. I think you had mentioned like NCAA like Final Four coming to San Antonio. I looked at this business once that rented equipment to like big broadcasting equipment for like,

you know, golf tournaments and like, you know, NCAA championships and like NBA finals and stuff like that. And it was an awesome, really, really interesting business because they just followed around an audience. And it wasn't the same place geographically, but they just bounced. And part of their, you know, part of their real X factor was that you can't possibly, you know, in Charlotte, like there's not enough equipment to rent in Charlotte. So these guys were just mobile equipment rental, you know, and they just followed a really, really big customer. I feel like you could probably do something like that. I mean, that would be really difficult to get in because I think everybody wants those types of customers, but following something where this is really appealing.

And then you would say, hey, look, I have the relationship with, you know, with this one big customer or you're going out and, you know, selling a lot of ad space, you know, in, in that market on a market by market basis. You have a better idea. I like it. Okay, hear my two ideas. Yeah. Do you want to hear my two ideas?

One, one, number one. So one of the things that's inspired me, have you seen how the billboard guys have figured out how to sell the same billboard more than once at the same time? Yeah, with digital or like the ones that like twist. Yep. Twist, yeah. But here's the digital billboard scam that all the billboard guys do. So if you want to go rent like a normal billboard, let's say it's $10,000 a month. You pay for the vinyl.

It goes up and you're up the whole time. So what the billboard guys have figured out is, oh, you know what I need to do? I can go sell this billboard four times if I replace that vinyl, so the old kind of non-digital thing, I replace that with a big giant TV screen. And what I can do is I can go sell it four times, but instead of charging $10,000 a month each of those people, I charge them $7,000 a month to have their stuff up 15 seconds every minute. So I'm suddenly, instead of charging $10,000 a month for my billboard, I'm charging $28,000 a month for my billboard.

And by the way, as a customer of this, I was like, this is the dumbest thing ever. like, why would anybody do this? And then everybody else does it. So I'm like, I've refused the digital ones for years. I'm like, we're not doing digital billboards. Those are for idiots. And then everybody else does them. So anyway, so I think that is that is an idea that you could do with this, which is, you know, these kind of static billboards are very much a, that are flying around these planes are very much something that is from forever ago, right? So I wouldn't try to put a giant 14,000 pound TV screen behind the plane, but I would put QR codes behind the plane. and that would enable you to go to a webpage that might show somebody three ads at once,

or give them three or four different offers, or giving somebody something kind of interactive, right, and which they could say, well, what are you interested in? Well, let me show you this ad for you know, happy hour or whatever. But like, I think that's the interesting thing here is I would go for putting QR codes behind these planes and then get people's eyeballs when I want them on the on the thing. And I think you could become huge that way. So that's, that's idea number one. idea number two, and you've seen it with some of the advertisers, is the classic advertising model is you pay me dollars and I give you eyeballs, right? That's it. But I think the more interesting one, especially in some of these things is like, okay, like if somebody's going to be advertising happy hour or medieval times, you go to those folks and say, hey, like, I want to be a lead gen partner for you. And I want you to cut me in based on the leads that I send you. And for each one of those, like medieval times, you give me 50 bucks. But if I don't, if I don't bring any leads for you, you don't pay me anything. So that's the thinking thing I would look at. doing here is make this model much more of a partnership rather than a vendor model and see if you can actually start to create more kind of total addressful market than what they have right now.

So those are my two ideas for you. I love it. Which do you hate the most? No, I like it. On the first one, you know, you see people starting to do stuff like this with like drones, you know, where it's like these big coordinated drone shows and stuff. And I mean, there's like that is, that is really interesting. I have no idea like what all that involves from a technology.

an hardware standpoint. But I can only imagine at Myrtle Beach if there was like a drone show, you know, out over the water. I mean, people would be losing their minds. Oh, or do drone advertising, like put, that's what I'm saying. Yeah. You do like a little drone show and then all of a sudden it's like come eat at the crabby shack, you know, or whatever. And I mean, people would pay for that. Yeah. Well, I think that's a core about this business. The way they describe it, this is very much a business that appears to be running the way it was running in 1985, right? print out a banner, drag it behind an old biplane, hope the guy doesn't crash. Advertiser shows up and pays you.

But I think this is one where technology is starting to innovate well enough, that a younger person who's comfortable with that kind of tech, it sounds like they might have been a little bit the way they've done this that they actually have an app that you can monitor your flights and stuff like that. But by and large, like, I think this is one where we're at an inflection point where technology is starting to shift this business and it would be kind of fun to go see what you could do and innovate around it. Either that or you just lose all your money.

the two options to buy this business. There's no in between. That's for sure. No, no. I think it would do fine. I mean, like, you know, it is interesting, and I would really want to understand what changed to cause this business to go from basically two million in revenue to three point three million over the past kind of

24 months. And yeah, COVID sucked. But like what has shifted to cause the business to grow is that some sort of change in the way they're running it? Is that the attitude of advertisers? Is that a COVID bump? You know, I think that's a, another thing really looking on this one as well.

But not a bad idea for the right hustler. Yeah. Yeah, I agree. We don't hate it. We don't hate it. See, people, we don't hate it. All right. Hey, if you enjoyed this episode, first of all, thank you for listening.

I do have more and more friends saying like, hey, listen to your podcast and I think it's really good. So I don't know. Maybe that's because I serve, I'm serving good food at my house or something, but it is nice to them. If you do enjoy this, please consider doing some favor. open up your Apple podcast app and leave us a review. That would be super helpful. And secondarily, please consider taking your podcast app and texting a link to one of these episodes,

maybe this one or one of your favorite ones, to a friend and say, hey, check this out. I think you might be interested in and learn something about it. That would be super helpful for us. We're trying to grow the podcast even faster than it's growing now because we are growing and it's pretty fun to watch. We had that guy text us or DM us, right? Or no, he was on Twitter where he was like, I just binge, listened to 10 episodes and he is a guy in the lower middle market. So it's always cool when we hear

stuff like that. It's super fun. And I, you know, I think I look back of what changed for us and it was last August where we changed our mindset to say, number one, we need to be entertaining and then the educational stuff will come along. And that's made number one, the episode so much more fun to record. And number two, it's really helped with people wanting to come listen because they know it's going to be a good time. We're going to have fun. I'm going to give you some crazy idea about how to make a digital billboard on a blimp. Like, let's go. It should be.

I'm coming back for the deep dive on medieval times. That's what I'm saying. Oh, hell yeah. All right, everybody. We'll catch you later.