Acquisitions Anonymous - #1 for business buying, selling and operating - This $22.9M Air Filter Business Could Be Your Next Big Win

Episode Date: August 13, 2024

We found a deal that we actually liked. It is a $22.9M air filter and purifier business that could be your next big win. With its solid growth potential and strong online presence, we cover why this business could be a smart buy. We also discuss the chances for expansion and the possible challenges.Listing: This deal is on Axial. You'll have to sign up to check it outThanks to this episode's sponsor: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.Get more deals like this every week. ---> Subscribe to our Newsletter. <----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]

I have another red flag on this listing. FBI hates oversized stuff. They hate it and they just cream you with fees. A million users per month on their website and 250,000 email list for 23 million in revenue. How does that actually go? Welcome to Acquisitions Anonymous, the internet's number one podcast about business buying and selling. Today, myself Michael Girdley, Mills and Bill got together to talk about a business that I handpicked because I thought it was going to make for a really interesting commentary by Bill, and I was not wrong.

So the other good thing about this episode that I think you'll like, this is one of those times we disagreed on it. I did not like this deal, and the other two guys thought it was the bees' knees. So you can hear what I hated and what they loved. So stick around through the episode. Here it is, and I hope you like it as much as we enjoyed making it. All right, taking a quick pause here, I have something to tell you. This is Michael. I hate bookkeeping.

I hate bookkeeping. I hate doing HR. I hate doing all that kind of stuff. But for bookkeeping, I have found a solution. It is my friend Charlie's business called cloudbookkeeping.com. So that's cloudbookkeeping.com. They are your perfect partner if you want to get bookkeeping out of your hair and focus on making your company your customers happier and more successful.

So please give them a call, call Charlie, cloudbookkeeping.com. Tell them we sent you. They're a great way. If you're a business buyer, if you're a business owner, you're tired of hassling with getting your bookkeeping done. He's got a whole fleet of people that are well trained and work for him. He's located here in St. Antonio, so I can tell you because of that, he's awesome. And they're a great partner for you to potentially call to help with all your bookkeeping needs so you can do the important stuff in your business rather than worry about getting your books right. So give Charlie

a call, cloudbookkeeping.com, and now back to the episode. Bill's lighting is so much better than mine. And he's got a caller on today. Oh, yeah. Let's go. I didn't shave, though. I'm trying to make you feel comfortable. This is why Bill's everybody's favorite host. They're like, you're right, Gurdley. You and Mills, you're okay. Bill's my favorite.

That's what people say. I try to dress up for you guys. You know, I'm on camera for our millions of listeners on YouTube, right? Indeed. Indeed. Well, you joined in and I asked if we could just start clicking record right now because I had found a deal that I was like, I only want to do this deal because it's really interesting,

but I only want to do it if Bill's here. And you like, shut up. So it was perfect. Bill's here. Let's do it. Let's do it. So let me pull it up and I'll read it to you guys. It is an Axial deal.

So it's a little bit bigger than the other ones. And it's, they do a good job with these teasers. So I like kudos to our friends at Axiol. All right. It is a growing air filter and air purifier e-commerce company with multi-channel sales. Is it now clear? Oh, I'm interested already. Let's go.

I was like, I was like, oh, Bill's going to have some smart things to say about that. Okay. This growing e-commerce brand specializing in air filters and air purifiers presents a unique investment opportunity due to its enviable market positioning and multi-channel sales strategy. Launched just a few years ago, the team behind this brand consists of expert marketing professionals who have successfully connected with a strong buying audience as evidenced by their impressive sales and profitability. Key highlights, they have a product portfolio, a manageable range of 10 skews allowing for

for focus management and potential for product line expansion. They have scalable logistics. Utilizes third-party logistics companies, ensuring efficient and scalable order fulfillment. They have operational efficiency. They have dedicated operations team and offshore customer service in place to ensure smooth business operations. High website traffic, they attract over a million users per month,

including strong online presence and customer interest. They have an extensive email list. They maintain a massive email list with over 250,000, and actor profiles providing a valuable direct marketing asset. They have intellectual property. They hold multiple design and utility patents offering a competitive advantage and potential for further product differentiation. There are numerous growth opportunities including product expansion.

You can introduce new products. International expansion. You can explore global markets to extend the brand's reach and diversified sales channels. They could leverage additional sale channels and partnerships, including potential entry into big box retail stores. There are financials in millions of dollars. Revenue in 2022 was $22.9 million. EBDA was $3.4 million and a 15% EBTA margin.

They are interested in selling or doing a change of control, and they are located in the west-south central of the United States. And this is our e-commerce brand in the air filter and air purifier market. What do we think? Oh, I think I really like it. This is a unicorn. It's e-commerce with, hardware and recurring purchases, because once you buy their hardware, you got to buy their

filters. And it's truly a unicorn because they don't say anything about Amazon or Walmart. Yes. Well, that's what surprised me. I kept waiting for the Amazon, Walmart, or like, here's where it's distributed. They haven't mentioned it. Just because they haven't mentioned it does not mean it does not exist. True. I mean, if you're an e-commerce company and you're not on Amazon, let me put it this way. If they're not, it is a massive opportunity. Massive. There's a really interesting. I know several people who do air filter businesses on the internet. So just at a high level, let's talk about what we think this is. This says an air filter and air purifier e-commerce company. So there's kind of two things this could be. Thing one, it could be is they make filters,

like the rectangular filters for your home HVAC intakes. And those are consumable, replace them every so often, et cetera. Or it could be, we sell you a standard. alone air purifier unit, right, that plugs into the wall and consumes filters, which are, of course, proprietary. And then we sell you those filters. Or it could be both. The really interesting thing about this business is the logistics side of it. Because the machines are, you know, you can ship those as kind of like a normal package

because it's expensive. They're kind of heavy, but they're small enough. The filters themselves are super interesting. I know a guy who owns an air filter business, and he has 10 different nodes just to cover the United States. Because an air filter is really big and really cheap. And light. Which means that light, which helps you. But the problem is the bigness outweighs the lightness.

And it's a problematic package. Basically, the carriers don't like these. Because if they're light and small, great. If they're light and big, we still have a problem. So they're light and big, but they're not that expensive. So the freight is a really material part of the cough structure, right? And whether you pass that on to the consumer or you eat it yourself, you need to be super aware of the freight. So the guy I know, basically, he goes around and is always trying to find 3PLs with a little bit of extra space that he can shove some filters into a corner of all over the country.

So he's one day everywhere and also it's as cheap as it can possibly be because it's close. So I'd be really interested to learn about how this company does their logistics and if they're super optimized or not. I just bought a four pack on Amazon of 20 inch by 20 inch by one inch thick. And it is it's one of those like I feel like it's a first world luxury. But if you go to lows and you buy one of them, it might be $25. But you can buy a four pack that is white labeled that may not have the brand name, but it has the same Merv rating, you know, like energy efficient and filtration level.

You can buy a four pack for like $40. Yeah. And I feel so responsible and like a mature adult when I buy my house air filters in bulk. Like I'm doing that adult thing that I'm supposed to do and changing my air filters on time. Changing your airflow is on time rather than letting them just get super caked in dust for two years like you do in your 20s is a very adult thing to do. Would you like an aside on those HVAC filters? This is something I learned during COVID when I was learning about air quality. So everybody buys like the standalone air filter, like stick it in your home office, stick in your bedroom, like whatever.

The case we made from a white noise basis, like they work, they purify the air, et cetera. But in my view, I learned that they're basically completely redundant if you put the right filters in your home HVAC system. Because your home HVAC system is handling the air in your house several times an hour. Right. So it's, and there's filters on that. Most filters you buy at Lowe's Home Depot or on Amazon are absolute garbage, like the cheap ones. Most people just buy the cheapest filter and they go, like, I guess this prevents spiders from being sucked into my pageback or whatever. right and okay done i'm good but there's a huge difference and mills you mentioned the murv rating so air filters

are rated on the system called murv and higher mirv basically is tighter weave it's like a better filter so tighter weave filters more stuff out but also requires more pressure to suck air through right so what you basically want to do is use the highest mirv filter that your HVAC system can support without burning out the motor functionally. And it turns out there is a Goldilocks Merv number that gets you exactly what you want. And that Goldilocks Merv number is Merv 13. Dang it. You bought 12, didn't you?

I bought the Rove 13. So Merv 13 is the Goldilocks number because it is the maximum density, maximum Merv you can put in a home HVX system without burning it out. and it is tight enough weave to filter out. It's like 80% of viruses per pass. So, you know, you get a couple passes an hour. So 80, 80, 80, right? So you're getting pretty clean.

So Merv 13 has been scientifically proven. It's one step below, one or two steps below HEPA, which is like Merv 15, but it's like too dense. You can't put it in in home age fact. having Merv 13 has been proven to reduce intra-family attack rate. So, like, if you have the flu, it reduces the chances your kids get the flu of any, like, any type of virus because it's changing the air. My allergies are way better since I've done this. And I never have to dust anything.

It's wild. Like all the, like I have these lamps in my kitchen, their glass, and they accumulate all these dust. we just have to dust them like every couple weeks, never anymore. And it is the same, functionally the same price. Like the Merv 13s are like three or four dollars more per filter than the cheapo ones. So thus concludes my commercial, buy MIRF 13 filters and you don't need to buy standalone air filters for your house. It's amazing how much you knew about that subject, Bill. I just want to give you like a big thumbs up and applause because that was way more in depth than I anticipated.

I thought we were going to be talking about e-commerce. Well, you're saying that, but in the pre-show, I spent 10 minutes giving you a lecture on the nuances of air service to San Antonio just because I felt like it. There's a common thread here. We got some air nerds on this podcast. For sure. Well, I learned from you, Michael, when Michael introduced me to a personality profile called Culture Index, which we both use religiously now. My type is called philosopher, and I am what they call research persistent, which I think is the best. Best adjective that has ever distract me ever.

Yeah, that personality type when you really get interested in something, you will just go incredibly deep. And it's pretty common to be incredibly deep in it for like two years. And then at one point, you just wake up one day, you're like, oh, this is kind of boring. You go to the next thing anymore. I know all there is to know, I'm moving on the next thing. Okay, fine. I'll go to the next thing.

All right. So do we, it seems like, first of all, why are a lot of listings recently only public 2022 numbers. Like this one is one of those ones where I'm like, like, why it's 20, middle of 2024 and like we're only publishing numbers that are from peak ecom. Like, like, anyway, that's a red flag. I'd like to see some 23 numbers for sure. But I mean, this is sizable, right?

So it's 23 million and three and a half of EBITDA, 15% EBITDA margins. I think that's got to be pretty good, just given the amount of you, So, like, if you look at the PNL of this business, the cogs are going to be functionally nothing. I mean, it's like wire, cardboard, and cotton fibers, right? The freight is going to be a serious chunk. And the advertising is going to be a serious chunk. That's kind of the two big chunks are freight and ads, really, because this business is really competitive on the Internet. And it is really competitive because the LTVs are great, right?

These things are consumable, and you replace them if you're an adult, like Mills and I, every three months, right? Gurley, I don't know. I didn't mean to leave you out of being or not. How often you replace your air filters. So people are willing to really bid up to acquire a customer and break even or lose money on the first air filter purchase. So the huge key to winning in this business is going to be retribute.

tension, which is why they mentioned their extensive email list. What do you make of the 10 skews? That is a real interesting facet of this to me. So that makes me think it's probably more like standalone units and filters that go in them. Yes. Because otherwise, the size variety you would need to match everybody. Like, I have two or three sizes just in my house. You know, I think you would need 30 plus. skews to kind of cover the fat part of the bell curve for home HVAC filter. I like it more if it's hardware and proprietary filters for a few different reasons. I mean, they say they have, you know, intellectual property here.

They have design and utility patents, which, I mean, maybe you could have that for some kind of special standard filter and you just try and make yourself more special. But I think it probably leans towards hardware. And there, if Bill's, you know, explanation is any. indication, there are people who nerd out on this and air quality, like water quality. Have you ever met people who like buy special water? I mean, it's a big thing, right? And they're going to spend, we have, we have something that I think is probably similar to this and akin to this. And it's got a pleaded filter, but it also has like a charcoal, I think, filter for odors. Yeah. Yes. And so,

you know, those filters, we got the we got the hardware. We got the hardware. We got like on a deal, but I think they're like 300 something dollars apiece. And it looks like, you know, a box that you plug into the wall. It's not nothing like that fancy. And it's just circulating air. But the filters, we've now spent many multiple times more because you pull the filter out and you're like, oh my gosh, this is terrible. I can't wait to put a new one in it. Yes. Like the hardware is 300 bucks. I think the filters are like 75. Oh yeah. They get you. They should, They should give away the hardware. Yeah.

So I think, all right, here's my negative take on this business and why I love that you guys love it at first glance. I think there's going to be an oasis in the desert or a mirage because I think when somebody's going to dig into this, I think you're going to see two things that happen. And you're going to see, number one, that during COVID, which this business was a huge beneficiary, for sure. Because like, I don't know if you guys remember, but we all spent like every second we could trying to make our nest better because we were trapped.

in our house all the time. So people are buying things like air filters. Today, like, you know what my air filter is? It's called go outside. Like, I just like, don't spend as much time in my house. So I bet you when you take a look at this, this is a good business, but I don't think it's as great as you guys are saying when somebody looks under the hood. I bet the 20, 23 numbers are a huge disappointment, which is why we don't see them.

Oh, and bah humbug. Sounds like Girdley is not in the target market. I will say, Michael, you, by the way, you think your tongue for a long time. You held your tongue for a long time during this episode. You made it 15 minutes before you pooped on it. Well, we had a planning meeting. So, dear listeners, we had a planning meeting early this week and we're like, how do we make these episodes more interesting?

And we discovered that like if we start pooping on the deal in the first three minutes, people stop listening to the podcast. So we're trying to get you guys to not tune out. Yes, I did. It's because we're paying attention to what our listeners want. Thank you, Mills. But I mean, if you, like, let's say, so that's, that's the bear case. The bull case on this is you sign the NDA and you find out that maybe they do have persistent demand.

And it has not fallen off of a cliff because they're really good at taking people's credit card and putting it on a recurring, you know, charge. And they're not churning in some way, shape, or form. Then I think they sold in a bunch of units during COVID. And now they have an installed base and everybody's consuming filter. Yeah, yeah. I think I think that's the best case scenario. And then the question becomes, okay, what I think people would pay through the nose for this business. It checks so many boxes for people who have capital to deploy that I think you end up probably not wanting to pay what someone else will pay. But if you look at this and they're not, they're not utilizing or fully optimizing other online channels, like I think the one that we bought from, They didn't sell on Amazon. And you had to go to their website, which I'm sure was just a calculated, you know, equation on their part to say, what are the pros and the cons? Are we happy with our current volume and, you know, like being in charge of our own destiny when it comes to customer relationship?

And they just were like, right? It's like in the two hard pile. I just don't want to do it. So let me shed a little light. It is in the two hard bile because you will lose your ass in this category on Amazon. So the reason this category, so as you read this listing, they say utilizes third-party logistics companies, plural, right? And you don't hear anything about FBI.

It's because FBI hates oversized stuff. They hate it and they just cream you with fees. So there is basically for a category like this, it is very, very hard to be prime FBI and be cost competitive. So this is a category that thrives off of Amazon. If you want to do it on Amazon, you need to find a way to do it what's called seller-fulfilled prime, which means that instead of Amazon FBA fulfilling it and thus living up to the prime promise and you get the prime badge, you as a seller can opt in and say, I am willing to meet

the service level that you call prime, which is two-day everywhere. and eat the cost for free, et cetera. Like, I'm willing to do all of that. I'm willing to try to live up to the Amazon Logistics Juggernaut promise if you will let me mail the packages and you still put the prime badge on it. Now, that is no small feat to sign up for as a seller, right? But that is what you have to do to win in this category in other large oversized categories like mattresses, mattress toppers, et cetera, in Amazon.

you have to have multiple, multiple nodes because you can do it actually cheaper than Amazon can do it. Not in actuality, but you can do it cheaper than they will bill you to do it because they don't want to do it. So in order to really win here, you gather yourself up to do 10 points of distribution and same day shipment out of all those 10 points of distribution and get it anywhere in two days. and then you can be on Amazon and Prime, and that is the bar to sell this category on Amazon. Otherwise, you will lose money at the market clearing price. So in order to even play, it's a big jump to this seller-filled prime service level. And if they haven't done that yet, that's probably why. So I should not go any further with this kayak business.

It's all FBA. Unless you have, unless you want to live up, you know, figure out a way to do seller fulfilled from multi-point. Inflatable kayaks mills. That's what you think about. Yeah. Inflatable. That's what I should do.

Yeah. There you go. Okay. What I've heard from the people is like it's sortable versus non-sortable facilities right at Amazon. That's part of it. Yeah. I mean, if you're non-sortable like it is borderline on criminal what they charge you.

But even if it's sortable and oversized, they still cream you. Still. I mean, I can't imagine what FBI would charge for a kayak. I'm shocked they would even do it. But like even an air filter, like a 25 by 14 by one, like Amazon's going to call that oversized. It's still sortable. It can be shipped by FedEx, but they're going to crush you on it. All right.

Oversized and cheap is kiss of death on Amazon. I have another red flag on this listing since I'm bringing hate or girl. Okay, Grudge, what you got? So either this is the best written teaser in the history to make it look like it's really well run or. and that's not the case. Or the reality is probably this is an incredibly well-run business. Like there is not a lot of levers where I look at this and I'm like, oh, I'm going to be able to do things better than what these folks are doing,

which to me sets us up for buying something that potentially has some headwinds. Like we can debate, debate what the headwinds are about this. But there's a lot of them that I don't like around just kind of post-COVID, you know, stuff happening. And then you have a situation where it's going to get priced to, perfection and it's being run incredibly well, right? And there's not going to be a ton of margin of safety for somebody coming in as a buyer to be able to make sure, right, they don't totally lose their butt because you're not going to run it as well as these guys do. Like just reading this teaser, I can tell this is a really well run business. And it's just, it's going to be really

risky and you're going to have to pay up for it. So anyway, that's, that's my hating on this, which is like, oh, man, I wish, I wish they weren't doing such an amazing job. Yeah, or you wish you, or you wish you already owned it, right? Like, that's the best case scenario. I don't want to pay for this, but I wish I already owned it as is. Well, yeah, it's like, why the hell are they selling this? Like, they seem really smart and it seems pretty easy and it's going great. Like, why are you getting now? Doesn't make sense. Don't you love to that the growth opportunity is go sell to Big Box? Like, you're selling direct to consumer. You have the best margins possible, right, in the category. And now, yeah, you should go sell wholesale and deal with all.

the hassle of slotting fees and buyback dollars and, you know, just all the headache from that. They're like, why don't you try that? That could work. Let me tell you, I'm going to take the other side of that, Mills. I think you will get even better margins in wholesale. I think that the delivery and the customer acquisition are going to be such big chunks in this business that it will be more profitable selling truckloads of it to Costco. Okay. Then it would be one z-to-sie through the mail. Is that true of large, like we've talked about, and also heavy? Like you and I've talked about a business that you used to own that was not a very high average order value, but was heavy and it's just like an uphill battle constantly. Brutal to do D to C.

Yeah. But like when you can get a truckload into a retailer, the margins can be really good. I mean, it's like it's like suddenly you go from a $30,000 a.OV to a 30,000 dollar a. Right? Like the margin percentage goes down, can go down. But you take out all the logistics and that, frankly, the ads and the customer acquisition as well in this category, which I mentioned earlier are brutal. So if you could get this into retail, I think you would do pretty well. The other reason I think you do pretty well in retail is every single unit you sell is a little Trojan horse that leads to drip, drip, drip, LTV.

So you don't actually have to make money, in my view, on the units. So you can sell the units into retail at like break even, right? And that just has a little postcard in it. Here's a coupon for 20% off on our website for replacement filters. So that's what I would do if I were, if I were to buy this business, I would just think of how can I get more Trojan horses in the world at break even, right? To smuggle my filters into people's houses over time. One thing on this that I'm curious about, Bill, is everybody will like blast these. numbers about website traffic and email list. And like we've talked about brands in the past that have

like massive social media following and they're completely under monetizing it. Is a million, I don't know what, you know, a million websites. So it is website specific. A million users per month on their website and 250,000 email list for 23 million in revenue. How does that actually rank? I mean, that's a fairly high traffic website. I mean, I don't, I'm just not impressed by these top level numbers because I have seen companies that like run a blog on like, you know, how to do air filtration tips. And it gets a ton of traffic and doesn't sell anything. Yeah. Right.

So like I'll give you another example. Our laundry detergent business, we had some content on the website. And the number one ranking page on the whole website was how to get gasoline out of class. lows. And it ranked number one for that turn on Google, and we got so much traffic and no one ever bought anything. Because the how to get gasoline out of clothes was like, I forget what it was, like apple cider vinegar or something, you know, that you would have. It didn't have. It didn't have to be our detergent. So it was like a tip. It was like a life hack thing, which those things rank really well, but they don't always necessarily move product volume. So I care less about total

traffic and more about total orders, you know, in revenue and revenue per visitor. So revenue per visitor, by the way, is like the gold standard metric. That's what you want to drive up. It's total visitors over the period divided by total revenue over the period, basically. And it, you know, you might see a number like, you know, $1 or, you know, 30 cents or like $2. Like those are RPV numbers that you would expect to see. So that's what I want to track and how's their RPV doing over time. Well, so let's, we're coming up on time. So let's talk about do we like this deal or not. I think I was clearly the like the business, but extremely dubious. There's so many red flags. So to me, if somebody goes and checks this one out, like we're definitely curious what you hear.

What do you guys think? Where's your, where's your thumbs up, thumbs down? What do you think, Mills? I'm thumbs up. I mean, I want to know. I want to sign the NDA. I want to know what this business is actually doing. And probably most importantly, what was 21 and what was 23? You know, what did the business do then? And year to date. That's worth the NDA right there. I agree with Mills.

And I agree with you, Michael, too. I mean, if you have this crazy surfboard situation and it's crashing after COVID, like, of course, that's very scary. But if you don't find that, I like this business. The things that I would really want to diligence are, how are they doing logistics? And do I feel as though I could improve it and improve margins? by doing logistics if I really made logistics a competency. I would be curious about Amazon.

I'd want to talk to the seller about the true pros and cons, why they haven't done it to date? Because they're going to say, oh, you should do Amazon. It'd be great. The next question is, well, why haven't you done it? What are the difficulties? What would actually be required to do Amazon? And I want to understand that.

I want to really, really understand their cactail TV. I really want to understand for every unit we sell, how many times does this person come back and buy a filter before the unit breaks or they throw it away or they forget about it or whatever. Because then you can run a model on what can you sell the unit for? And let's say there's on average four filter reorders before the person disappears. And you look at that as the atomic unit. And that's what drives your KAC as a basically an unit plus four filters.

That's cool. So a couple of things I would look at. But I like this business because the LTV component. I like it because it's got to be. bit of an operational moat. The logistics do make it hard to get into this business. And I've even seen some folks because of the logistics trying to do distributed manufacturing, not just distributed logistics, because it's basically just folding paper and chicken wire and cardboard. Like you can do it without a lot of CAPEX. So I've seen people trying to do like 10 warehouses of

their own, all of which manufacture. And similarly with all the different sizes, like trying to do manufacture on demand close to the customer to get their margins up, which is super interesting. So a couple of things I want to learn about. And that is why I only wanted to do this deal with Bill was going to be here. All right, everybody, thanks for listening to today. We had a ton of fun. Even though Heather wasn't here, she'll be back soon. She's in Hawaii of being amazing, which is, I wish I could get the Feather's life.

Anyway, if you would, please go and sign up for our newsletter. We have changed it recently. If you want to get a feed on new deals that are out there, we send two or three deals out every week via the newsletter and go sign up for it at at QAnah.com. Our new revised website, A-C-Q-U-A-N-O-N-com, and we are not associated with Q-A-N-O-N. So just to you guys know. All right, everybody, see you next week. Thanks.