Acquisitions Anonymous - #1 for business buying, selling and operating - Should we buy this Exhibit House? - Acquisitions Anonymous Episode 127

Episode Date: September 28, 2022

Want to receive this listing in your inbox? Signup for our weekly newsletter:https://landing-newsletter.acquanon.com/-----Michael Girdley (@Girdley) Bill D’Alessandro (@BillDA) and Mills Snell (@thegeneralmills), we talk about a profitable exhibit house with recurring revenue in Houston. We’ll talk about how this works and how a business like this differentiates itself from other businesses. In addition, we will also be discussing how this business can face continuous changes in the business world, especially after the pandemic because as we all know, this major event in the world changed everything. Most importantly, you will find out if this deal is worth it.-----Thanks to our sponsor!MoreNow.co: We help you hire exceptional manager and director-level talent that costs 80% less than US-based staff.Tap into one of the world’s most talented labor pools - The PhilippinesGo to morenow.co/aa and fill out the form. Or email [e-mail]. Mention this pod for 15% of your first hire. -----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.-----Show Notes:(00:00) - Introduction(00:40) - Our Sponsor is Morenow.co(01:44) - Deal & financials: A profitable exhibit house with recurring revenue (03:16) - What’s the history of this deal?(06:01) - How does an exhibit house work?(07:20) - How does a business like this differentiate itself?(12:26) - What are the options the business has in dealing with the constant changes in the business world?(13:45) - What are the long-term trends for this business?(16:18) - Michael’s advice in making a Deal.(18:10) - How do you find the right Broker?(19:45) - Do we like this Deal?(23:04) - We’re getting our checkbooks ready!-----Additional episodes you might enjoy:#125 Should we buy a CBD shop?#124 How much would we pay for this Water Safety and Compliance Co?#122 ATMs are a sick business. Cash is King!  #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, welcome to Acquisitions Anonymous. We have a cool deal for you today. It is what is called an exhibit house. And exhibit houses are some interesting businesses that work in the convention and meeting space. And we'll talk a bit about the deal that we found. It is super cheap. They are selling for about 1.4 times the owner's earnings. And we think it's in Houston. So very interesting, very interesting one. We'll get right in the episode. Before we do, also big thanks out to big thanks out to morenow.co. Moore and Greg and his team are our sponsor for today. So with no further ado, here is the exhibit house, and I think you'll like it as much as I did. Hey, today's sponsor is MoreNow, and you can find them at MoreNow.com.

And they are friends of the podcast, Greg and his partners there. They specialize in helping businesses of all size build over. overseas teams made of folks that aren't just your standard VAs, but are above and beyond in terms of experience, seniority, and all that kind of stuff. So look at my notes here. They do all kinds of stuff, accountants, supply chain managers, operations. So everything from specialized individual contributors up to directors and above, all located offshore, and really a good resource for small businesses and businesses of all size trying to build out

their teams, especially in today's super tight labor market. They'll go and help you find talent across the globe. Definitely encourage you to check out morenow.co. Greg and his friends have been great partners to podcast and are really part of helping us grow this. So go check them out. Morenow.com. Tell them that Acquisitions Anonymous sent you. Thanks. All right. So guys, I have something to tell you. I'm going to do really well this episode because I just ate a tuna fish sandwich and I will also tell you I can smell it from here. Dude, I do not know why. Like, I like tuna fish sandwiches like kids like macaroni and cheese.

Like, I do not know why. Like, I go into a gas station, even if I'm not hungry, I'm like, oh, tuna fish sandwich. Like, I like them that much. A gas station tuna fish sandwich? What is wrong with you? Oh, yeah. It's delicious. You guys tell me with you.

I like tuna fish sandwich, but a gas station tuna fish sandwich? I almost bought. So I was in Mexico City. Last weekend taking my son there and we had a great time. I went into a 7-Eleven, which by the way, they call 7-Eleven. It's not called Cietta or Cente or whatever. And they had a very good looking tuna fish sandwich and I almost bought it. Mexican gas station tuna fish sandwich.

Almost bought it. Almost bought it. It was delicious. Michael, do you also like artisanal, like boutique, you know, real bougie tuna fish sandwiches or you only like the bottom of the barrel stuff? Look, Mills, I understand what you're saying here, but I'm a man of the people. And I like the good stuff,

and I like the gas station stuff. That is part of my appeal, my friend. On that note, we have a deal. The tuna fish sandwich business. We have a deal that is as good as a gas station tuna fish sandwich. So Mills is going to meet us today. I got it pulled up on the screen. Let's go.

It's listed as a hot listing on BizQuest, and their seller financing, so it is flying off the shelves. This is a profitable exhibit house with recurring revenue, asking price $1,463,000, gross revenues, $3.5 million, cash flow of $1.1 million, and they say the EBITDA is $100,000 less than that. I'm not totally sure why. Business description is well-established, profitable exhibit house is available for sale due to the owner's planned retirement. This exhibit house is known for its quality of workmanship and excellent reputation. They provide design, fabrication, shipping, installation, rental, and storage of trade show exhibits to the end user

and provide all related trade show graphics, logistics, and services. The employees are well trained and have excellent relationships with their clients, which span a variety of industries. The business survived the temporary shutdown of the trade show industry from the COVID-19 pandemic, a testament to the strength of the business and is now thriving and more profitable. The company's facility occupies approximately 50,000 square feet and they have space to expand the business. The facility can be purchased, leased, or relocated, providing a lot of flexibility to the new owner. We did see this listing a little while back when we were looking at another

deal, and the purchase price I want to say is maybe $6 million more or $7 million more if you want the real estate, but if you poke around on BizQuest, you could find it. It's an excellent opportunity for an existing exhibit house to expand a company in the advertising, marketing, or sign equipment industry to enter a complementary line of business or for an individual to operate and grow the business. The seller financing is available on a case-by-case basis. They want a higher purchase price, $1.6 million. So let's see, $200,000 more. And you can put 50% down in the seller. We'll carry the other 50%. Contact us now. Jason at TrueViewbusiness.com.

It's based in Texas. It's been around since 1990. They have eight employees, and the rent is $32,000 a month. That seems really high. I need to do that math, but that seems very, very high for 50,000 square feet of industrial space. There are competitors, and once you receive the SIM, it discusses competition, and it highlights the strengths and weaknesses of. this business. They're going to train and support you during the transition period. Yep. And I was going to add, in preparation for this, I went and Googled what an exhibit house is.

And it turns out that is a name for a very specific type of business in this exhibition space. And basically what they do is they specialize solely in booths, design, sale, and rental. So sometimes they'll have booths and they rent them and they customize them and all that kind of stuff. So they do bespoke booths for people, like, who want to exhibit at a show. And they go about it that way. Yep. So, yeah, we're a customer. We have bought several of these for our business when we go to trade shows.

So this is anything from like a, like the base unit at a trade show is a 10 by 10, 10 feet by 10. Then you can go in basically 10 by 10 blocks. So like 20 by 10, 30 by 10. But you can go all the way up. Some of these businesses have booths that are like, you know, 80 by 80. And you can walk in. and it's almost like a little store. And they've got 20 people working it.

And those things can run, I mean, hundreds of thousands of dollars. I mean, you're talking like mini cities. I have seen ones that have two stories. Like, they get trucked in and they get built for a week on the trade show floor. And then they get totally disassembled and either trucked to the next trade show or back into storage until the next year. I mean, just the expense to like erect these mini cities in conference halls. and then unerrect them and put them away is mind-boggling.

I remember looking at one of these years ago that was doing about $4 million in EBIT. And if I remember right, and I'm wondering, Bill, what do you think, how do you think a business like this differentiates itself and kind of is able to extract value when they're larger and much larger players? They only have eight employees. So I'm just thinking they'd have to really niche in some way. The Zer-Layshib business, period. Like, we found our guys because a friend of mine used them.

You know, and they're all, I mean, I think you might say, oh, some more, more creative or like can do, but like ultimately this is a job shop. Like, it's like fiberglass and printed and metal. Like it's, you know, you're building trade show booths. So there's really hard to differentiate on capability unless you're just like genius level designer. But a lot of times people don't really need that. You know, there's only so many configurations you can have of a trade show booth. So that you probably have like five to ten base designs, which are adaptable, you know, like the 20 by 10 booth in that different than the 30 by 10 booth, you know, you just stretch it out a little bit.

So once you're kind of there, it's really hard to differentiate on like, I will design you the sickest booth you've ever seen. And it's more about, you know, customer service. You know, one thing that is nice is they will store it for you. So some, that sounds like this place does storage. So you don't have to ship it back to your warehouse. you should have back to their warehouse because a lot of these things are only in use a couple weeks a year. And then they just got to sit. So if you're competent, and they're big often.

Like usually they fit in like a crate. Have you ever seen one of those like practically like an elephant in it? You know? Like it's like a pallet size or it's like three pallets or four pallet size and it goes up like 10 feet. And so they're all designed to kind of compress origami style and fit in a crate. And they so you get shipped to the tray show, the convention center unpacked and then put back in the crate. It's got to go somewhere. So I think it's, I mean, this is one of those businesses that I think it's tough to get really, really big because the industry is really fragmented.

I'd be willing to bet there are a handful of companies, and they may be part of some of the kind of event production. There's like these event production companies that kind of tailored themselves to the global 2000 and then it'll soup to nuts. So I bet those big ones end up getting tied into that. I bet you're in more Red Ocean with a guy like this that appears to be going after most of the, small, you know, stuff. Like not the big, not the big global 2000 type situation. Yeah. I mean, also like, if you will just plug trade show booths into Google, you're also

going to find a ton of guys that it's kind of like semi-custom. Like you upload your artwork essentially and they're going to send you the desk, you know, the backdrop and the flooring, right? And the only thing different is what printed on the backdrop. So there's a ton of these kind of like low end for, and that can be, you know, a thousand bucks for a 10 by 10. So these guys are kind of one step above that. I would expect they don't do many 10 by tens.

I would think the smallest they would do is like a 10 by 20 or 20 by 30. And it's going to be, I mean, we've spent $20,000 or $30,000, you know, on ours to, you know, nice custom-made stuff. And it's an investment. Seems like a lot of work. But you're spending 10 grand a week or more, 20, 30 grand a week just for the space that you're the postage stamp you're going to put it on at the convention. It seems like a lot of work for eight people. Yeah, they might not be doing that many. Maybe.

I mean, if they're... Yeah, because, I mean, they have 62,000 square feet of warehouse. That is big. That's like a grocery store, like size of building. And they're paying 32,000 a month in rental, which I think, you know, that's about whatever, I have 50 cents per square foot per month. Yeah, it's like seven, a little over $7. That's pretty good...

Per square foot annually. Yeah, so pretty consistent with. with stuff. And I think this is in Houston. At least the easiest way to tell is the 713 area code from the business broker. That's one of the Houston area codes. So it looks like it's somewhere in Houston, most likely close to the convention center or somewhere down that way. I'd be willing to bet they have a lot of oil and gas customers as well. That'd be something I'd be really interested in being in Houston. Though the Houston economy is, you know, diversifying more. the only eight employees, maybe they're not doing as much custom stuff. Maybe it's more high volume,

10 by 10, send us your artwork. You know, we print it and create it and send it to you. What do you guys think about a business like this that their revenue probably, it maybe didn't go to zero if they're storing these things, but I mean, it conceivably went down 75% or something like that during, during, you know, a two-year period or an 18-month period. And it seems like that's pretty far in the rearview mirror. We've looked at some businesses where we say, hey, look, we don't like it because all that future demand got pulled into the

present during COVID and now the COVID bump is done, or they make the case that they have sustainably higher margins when we don't think they do. In this case, I think, you know, business travel is kind of back and conferences are going to happen.

Do you think that you can bank on that in this case? And do you think that you can now navigate a little bit of a discount for the fact that in their rearview mirror, there's some really rocky turbulent times. I don't know. I mean, it's still pretty recent since all the COVID stuff. I'd be more worried about kind of a long-term trend here because there is, I mean,

we go to a lot of trade shows, and I will tell you they're not as busy as they used to be. They're just not. And it's because all of the, and COVID kind of accelerated this kind of move to more online platforms where people you're kind of connecting with buy. And it's not great yet, but it's getting there. Like the world wants to go there, right? You just think of the insane expense to bring an entire industry to Las Vegas for a week, plus all the booths, plus all the hotel. Like, there's just a ton of value here if you could somehow make this happen a little bit virtually. So I'm not saying conferences and trade shows are going away, but I don't know where the bottom is. Right. And I think

we are still on the way to the bottom. The bottom's above zero, but I don't know where it is. So I think you're kind of fighting a little bit of a shrinking industry plus a red ocean here. That's a recipe for some bloody knuckles. But it's so cheap. It's so cheap. These guys are selling for like 1.3 times earnings. So you potentially get all your money back in a year.

I mean, and do we understand how much of this is, is potentially recurring revenue. And we think the recurring revenue is the storage. That's basically what it's got to be. Yes, probably what it is. But I mean, some companies will need a new booth every couple of years

because they kind of get ruined, you know, with all this pack, unpack travel across the country, but I wouldn't call that recurring revenue. I would be super interested to look at their P&L. And I bet you the design fab shipping installation and business, I bet that is all just,

just like customer acquisition costs for a very profitable rental and storage business. I bet this is actually a storage business and your lead funnel is just all that other crap that you have to do. That would be a better business, actually. Right? Yeah, let's, okay, I got my checkbook. Let's go. Who's ready to go to Houston?

Which airport are we flying to? I mean, if that's what it is, right? Because, I mean, think about the sunk costs in these things. I got $20,000 or more. I got $50,000 that I paid to make this trade show. right and i'm paying oh what another three thousand dollars a year or what i throw it away you know i'm gonna i'm gonna i'm gonna pay that three thousand dollars a year for 10 years or more yeah it's just like a storage arbitrage play i i mean i think the value of this deal right where you're

looking at it at this kind of ebit level which it's i like that it's in that no man's land right there's a lot of buyers kind of want to be in that that like 400 to 500 000 but a area and there's buyers that want to be two million plus. And this is kind of in that no man's land where you're like, hmm, like there's potentially fewer buyers here willing to come up with a type of capital to do an SBA loan for this thing. And you can also SBA it,

which is another thing. That plus the seller financing, maybe you don't even have to put any money down at all. I think you would have to put, you would have put something down. To put a finer point on, on your comment, Michael,

there's people who look for 400 to 500,000, thousand dollar evadde deals and then there's people who have learned not to look at 400 to 500,000 to even though deals. Those are the two categories. That's it. What do you call the person who only wants to look at five million eva deal bigger? What do you call those guys? Other people's money. That's what you call them. Other people's money, opium. For those of you listening at home, there is an inverse relationship between the size of the deal and how much of a pain in the asset is to make the deal happen. The bigger the deal gets. The bigger the deal gets. that's typically the easier it is to make it happen.

You get better lawyers, you get better CPAs, you get better service providers. The bookkeeping on the seller side is better. All of that is great. Whereas if you go look at some deal with like 100K to 500K in EBAA, you're going to have to go pay somebody to go through their books. And you're going to be trying to put it together for them to truly understand how much cash they've been making by looking at their bank statements. So that is the rationale for you want to go bigger.

because bigger is actually easier than smaller. It is different than almost everything else in terms of real estate, all the good stuff. Your order of difficulty gets harder, the smaller the business gets. And that is my soapbox for that. It's much more idiosyncratic, you know, the seller's brother-in-law is the CPA and the attorney. You know, like, it's just a mess. Well, here look at this example.

So we have Jason, who is the business broker. And for those of you on YouTube, you can see that with True Boob, true view business advisors. And guess what he is? He's a CPA. He's some accountant that is also brokering his client's deals. And if you want to deal with brokers that are the, there's kind of the two parts, right? You have the brokers that are the, like our buddy Clint Flore, who's a business broker. And he is, I would say, and I love him for it, he is a very typical business broker. Like if you talk to him, like that's, if I look at a business broker in a dictionary, you get that. Or the other personality is you get the CPA turned business broker and it looks like this guy, Jason. And like he is,

you're going to get what you're going to get. Very different. Very different than somebody like a Clint who's making deals happen. Well, so, you know, that being said, though, sometimes there's value in that, right? Because oftentimes, like if you have like a really professional intermediary, like an invest, like take the other end of spectrum and investment bank, they're going to price that thing to perfection. They are going to run, they're going to pro forma everything. They're going to run a really competitive process, right? But sometimes with the less sophisticated broker, you might actually be able to find some alpha there, right? You might figure out that it's worth more than they realize it's worth, or it hasn't been as wide-out shopped. So I don't necessarily know that

you're going to have way more brain damage, but yeah, maybe there's- I agree with you, Bill. And we might have talked about this on that episode, you and I did about broker quality when we looked at that interesting, I can't remember what it was. It was like a flow control business or something like that from those guys in Charlotte. But I, I think everybody is, everybody believes that thesis or they latch on to that thesis at some point. And then they go and they do the legwork and they get the brain damage and they're like, it's not worth it. You know, yes, I can maintain relationships with, you know, literally a thousand to two thousand small time brokers.

And I'm never going to get the whale. You know, the biggest listing of that broker's life that is actually at $3 million in EBITDA, like it's just never going to work. because that guy's so out of his coverage that he can't actually guide the seller and the seller tells him how the whole thing's going to go. It's just I've been down that path and I spent a lot of time down that path and it just never actually panned out. It just, it's so hard to get a deal done that way.

So I would like to go on the record to say, I like this deal. Yeah. For the right person. Which that's our most critical feedback. Sorry to interrupt you, Michael that we get on a consistent basis from listeners is let me know when you like a deal and I'll listen to that episode. This is one that, yeah. I, okay.

Okay, I don't, if, if there's a scale of like zero to tuna fish sandwich, this is like maybe like a seven out of 10, right? And a 10 would be a tuna fish sandwich from a gas station in Mexico. Okay, you guys are good with that. That's where I think this deal lands for me. And look, I think we realized, you know, Googling a little bit, the way deals in this space, you know, companies in the space work is you have an owner in there that's making sure the clients are very happy.

You'd have to be the right hands-on person to go do this business. And if you want to be that person and you want to live in Houston and you want to spend a lot of time near the convention center there, this is a great way to make a million dollars a year. So there's a lot of ifs there. First of all, I know where the convention center is in Houston. It's not as great as it sounds. And it's Houston.

So, yeah, that's also not as great as it sounds as well. But, like, this is pretty darn good. and like you get all your money back in a year, you know, you could, you could go in and do this deal. The guy turns it over to you and you make five or six hundred grand in the first year. That sounds pretty good to me. What are I missing? Price determines so many things.

You know, if they were asking three times EBIT off for this, we would, we would hate it. But there's a reason. Yeah. I, I, Gurdley, I think you should get, I think you should get the SIM and we'll do a follow-up. There's a reason why the price is solo. There always is. the deal never looks better than the first time you look at it. All right.

I'll get the simple. I mean, I agree. I like it at face value right now. But there's going to be a reason when we get into there. And I bet you it has something to do with, you know, maybe not customer concentration, but like they only service the oil and gas industry in Houston. And if that one conference decides to like go virtual, you know, like for two out of their four annual meetings or something, then I don't know, whatever. I'm just speculating. Yeah. One, it's, I mean, the funny thing is it's not like you're going to be getting Exxon or, you know, any of the big names as your client in this deal. You're going to be getting Joe's wildcatting services. All oil field services.

Yeah. Thing who have a bad habit of going out of business all the time. Like, I don't know if you've ever done this, but like, there's some sites where you can go and pay to get the bankruptcy listings for your state. Have you guys ever done this? It's really fascinating. Okay. So you get the bankruptly listings for your state, and they correlate, obviously, with how the economy is doing. So invariably, the economy has been booming for the past few years, and I would get all the Texas listings, and they would all be in Harris County, which is the Houston County. And guess where, like, 90% of the bankruptcies were during the last couple years of boom? Oil companies in Houston. Like, it was just a normal course of business.

They were, like, either making $50 million a year or losing $20. Those are the two options. There's no middle ground. Yeah, of course. Boom and bust, baby. Totally. All right. Well, this is a cool one.

So this one's on BizQuest. I'll make some time to get the SIM. It's an exhibit house for sale. What else do we think? Any other insights here? Bill, you got your checkbook? I think this is a case for Get the Book. Because if this turns out to be an awesome storage arbitrage business, right?

And Jason Ward, CPA did not present it that way. You might have found a gem. Yeah. So I don't think it's the case for spending a lot of time on it. But sometimes if you think there could be a jam, just get the book. It's not that hard to sign an NDA. Yeah. The other part of it is, as Mill said, like, this potentially could be a value trap, right?

Like the value trap people get into is because something's cheap, you think it's there for, like, a good opportunity. And cheap is not necessarily correlated with good opportunities. Sometimes you pay up for quality. And this may be just a total. Let's look at it. Which, okay. We'll look at it. All right.

Anything more today? Otherwise, we can wrap this one up, and we will catch everybody next week.