Acquisitions Anonymous - #1 for business buying, selling and operating - Time to buy an Air Ambulance Business? - Acquisitions Anonymous 266

Episode Date: January 26, 2024

In this episode of Acquisitions Anonymous, Michael and Heather discuss a business opportunity involving a private air charter and air ambulance service provider. They explore the complexities of this business, from cyclical costs to financing challenges. They also touch on the competitive landscape, where SEO optimization plays a crucial role in attracting customers. Ultimately, they conclude that while it may seem appealing at first, the business's profitability may be lower than expected due to high capital requirements and expenses. They advise caution when evaluating such opportunities and suggest considering more efficient and scalable business ventures.Today's deal comes from Axial.  Axial is a trusted deal-sourcing platform serving professional acquirers in the American lower middle market.Thanks to our this week's sponsor!Steed!Are you part of the 92% who don't have a tax strategy? You’re missing out on every tax credit and opportunity available to you.Your CPA Probably Sucks: Most CPAs fail to provide expert tax strategies, aren't proactive and leave you guessing about your taxes until the end of the year. This can cost you significantly.At Steed, Our Goal is Simple: Ensure You Pay the Absolute Least in Taxes. Just last month, we helped individuals and businesses save over $275 million in taxes! Plus, you get unlimited access to your tax team: we have no hourly billing or hidden fees.**One-Week Only - free tax strategy session**For the next week, we're offering a free tax strategy session with a Steed expert.Schedule your free session now and stop overpaying in taxes! Learn more at steedstrategy.com. 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]

Michael Gridley here. Welcome to Acquisitions Anonymous. Today's deal is a banger, mostly because it's my birthday. And Heather and I celebrated by looking at an air charter deal that was $1.9 million in EBITA, and we found it on Axial, which, as usual, was delightful with the completeness and sophistication of their listings. So we dug it some interesting stuff around this and tried to figure out does it actually make a million. and 0.9 a year or not. And you'll be interested to see what we figured out.

Here's the episode. Today's sponsor is Steed. Entrepreneurs and business owners can simplify your taxes with transparent fixed prices that give you the peace of mind. Focus on running your business while Steed handles the rest. Steed has already saved clients over $275 million in taxes by using efficient tax solutions for every individual in business. Planning a business acquisition?

Lean on their expertise to make the most of it and stay in the tax know with their mobile app and real-time updates. Steed is offering a complementary tax strategy session for acquisitions anonymous listeners and readers. So simplify your taxes, boost profits, and find peace of mind. Contact Steed Today at steedstrategy.com, that's S-T-E-E-D-Strategy.com, or click on the link in the show notes to access their booking calendar directly. Happy my birthday, Heather. Happy your birthday.

I actually looked out for all my Twitter friends because the big thing to do on Twitter is to go in there and be like, I'm 42 today. Here's all the things I wish I knew I was 22. And I was just like, oh, I think I haven't had made to write that today. No. And what's the point of that list anyway? It's not something you can do anything with. It's interesting to see what's going on with Twitter now because I think there's,

there's a zeitgeist that always happens in social media or in media in general, where people are interested in certain things and then they get tired of them, right? And we had life advice threads, and then we had, here's how two people made a lot of money threads. Those may be coming back. But I think the pendulum is really shifting now

to people want to understand how you did stuff and how you felt when you did it. And so it's a kind of idea, I think, of where this 2024 is really going to be about on social media. How do you do it? How did you feel? How did it make you feel? All right. I'm going to keep that in mind as I scroll. They want to deal with real people ultimately. And your job is to go and be a real person on social media. That's my working thesis. It may turn off a lot of people. But that's my thesis.

No, I think that's a good one. And I think people can tell real from not always, but I think it's talking about how things make you feel is a good way of getting to know a person online. So I think that's great. I end up, unfortunately just seeing a lot of dooms day doomsday kind of stuff you know everyone's going to go broke and everything's terrible and I don't think that's really true but there's a lot of that out there will be struggle and then we'll all be fine

that's what I've convinced of so pretty much yeah I think so I brought a cool deal today that I definitely want to read to you and then we can decide if we want to make a run for this one this is this involves aviation which as you know aviation which as you know is one of my passions and this is one I found on Axiol,

and I'll go ahead and read it if that's okay with you. Yeah. Okay. It is a $1.9 million EBITA private air charter and air ambulance service provider. The company is a unique M&A opportunity with a distinguished private jet charter and air ambulance service,

certified by the FAA, the Federal Aviation Administration, and holding a state emergency medical service air ambulance license. The company finds, oh, stands out for its exclusive membership programs, concierge services, and flexible flight schedules. It has three key attributes,

licenses and reach. The company holds multiple licenses enabling operations through the Americas and the Caribbean. Additionally, it possesses a state EMS air ambulance license, positioning itself as a versatile and expansive service provider.

Strategic marketing with a robust mix of traditional and online marketing, including 50 SEO optimized website domains, the company maximizes its market visibility, the recipient of safety and business awards, it reflects a commitment to excellence. Fleet flexibility, operating six aircraft. The company has the agility.

I was about to pause there because there's a typo, and I just kept my mouth shut, Heather. It's the new me. The company has the agility to swiftly repurpose aircraft for private charters or ambulance services catering to a diverse clientele. Opportunities for growth, private air charters, concierge service expansion, national and international expansion, air ambulance services,

membership programs, global services. Extending into Central and South America, they think is an opportunity for growth. Real estate and ownership. The operational base is run from an 18,000 square foot hangar and office base, offering room for growth in the local geographic areas. The owners are two equal owners who are seeking a requirement to spend more time and family and friends. The ownership is committed to a transitionary period post-sale, ensuring a seamless transfer

of operations. Financially, in 2021, they did 11.3 million in revenue with 1.4 million in EBDA for a 12.4% EBDA margin. In 2022, they did 11.4 million, and in 2023, they're estimating they're going to do 11.7 million each year doing 1.4 to 1.9 million in EBITA, which tends to average, I think, around 14%, is what I see here. And they're barely growing. They are located in the United States, so we don't know specifically which state, and they want to sell the whole business. or the vast majority of it for a change of control. And yeah, that's it. So it looks like a metronomic provider of air ambulance and private jet services.

Heather, are you ready to run a check? Well, six aircraft. This is a lot of maintenance. This is a, you know, you have to have a full flight-based operations, you know, team. And they didn't say anything about the team. I wonder a little bit here if the sellers are part of that team or if they're more, a little more passive. You know,

I am kind of looking at the numbers going well. The numbers, the top line is very flat. And the margin, the EBITDA margin is increasing in each period from 21 to 23, now up to 16.2%. So it's like, I'm a little puzzled there.

It's not like they're raising prices much, if at all, or doing more volume, but they are somehow cutting expenses, which I'm a little bit surprised by, I'm not really sure how that would happen. Well, let's see. So 2021 revenue was 11.3 million for 1.4 million in EBIDA. And in 2023, they estimate 11.7 million in revenue and 1.9 million in EBDA.

So revenue went up by 400 over those two years. And EBITDA went up by 500. Yeah, right. Yeah, that could be issues around that. The other thing that occurs to me, I'm trying to think of what happened to fuel prices during that time. because that's, you know, the, like it went up, right? I mean, fuel prices are super low right now. But in 2022, 2021, they were, weren't they?

They were high. I'd have to go back and look at that for sure to what that impact is. But usually with airlines of any sort, like your biggest ongoing expenses are labor and then fuel, not necessarily in that order, and then maintenance and kind of, you know, investment. in the planes and stuff like that, making payments there. So that's where I would first go. It's like, okay, what happened to fuel prices during that time? That's my first suspicion.

Yeah. So a little puzzled about how the margins are doing. And obviously, they're not growing. They gave a big list of, you know, ways that a buyer could grow this. But for the last three years, the sellers have not done any of those things. So, you know, probably not as easy as it sounds to expand, you know, to other geographies. you know, what little I know of aviation, the pilots sort of have to have sort of a home base. And for you to kind of go to a different part of the world, you have to have a different set of pilots or people who are willing to kind of, you know, be there a lot.

Right. And maybe a hanger over there. So that it's really not the easiest thing. Even though airplanes fly, it's not that easy to sort of shift your geography of operations that easily. It's expensive, I think. For sure. Well, I don't know if I told you, but last year, 2023, a friend invited me to go on his private jet. I had never been on a private jet in my whole life. I'm sorry to burst anyone's bubble who thinks I'm like a total baller. I drive a super. It was the first time I'd ever been on a private jet.

I'd just been always too cheap to get on one. And I started talking to the pilot, and the pilot was a hired contractor, and he would actually fly from his house outside of Austin to the executive airport nearby where he would then fly the planes on behalf of the clients. So he would actually commute like 15 miles in his plane to get to work every day. So it's interesting. And then I don't know if you've ever looked into the world of airline pilots and flight attendants and how much those

people like commute. Have you ever looked into that? Yeah, they fly to their, a lot of times they fly to where their home city is and then take all their flights in and out of their And there's some super interesting social media creators, like on YouTube and stuff like that, who detail what they're doing, flight attendants talking about, flying around on Southwest Airlines, then pilots who are some of the people that are like on call. It's like really, it's really interesting stuff. And some of them will like be based out of Newark and live in Minneapolis, just like all kinds of crazy stuff. It seems like a terrible life. Like I know people like it, but it's like, wow, I'd rather just like sit at my desk and record YouTube videos.

I've been on a few private planes before, and one of the organizations that I have worked for had some planes. And yeah, it's rough with the pilots. We get to know them a little bit when I was working with them. And, yeah, they choose an assignment where they can be home more. You know, that's really what it boils down to. And I kind of have a funny story where I was flying in one of these private planes from my employer. and they had a mechanical problem. They had a part that needed to be replaced

and we couldn't fly back. And apparently the insurance on this airplane covered me to get a chartered flight to fly me home. And that's what we ended up doing. And in the middle of the night, strangers, you know, pilots that I'd never met before in a chartered plane came and got me and got me back home.

And what happened is when we came to, we were so late landing in California in the airport that we came to. They called ahead and said, we were going to be late, but we're coming. The FBO, the hangar that accepts the private planes, closed down before we got there. And we literally had to, like, crawl through the doors of the hangar. And it was the most bizarre night of my life. Wow. We kind of got home, though.

It was crazy. Wow, that's amazing. Yeah. Yeah, someday I want to be a baller and fly around on a private plane. I got a lot of work to do first. So back to this deal. So maybe this is a good place to check in on the EBITA versus actual take home. And, you know, EBDA gives you credit for, you know, before taxes, before interest, all this kind of stuff.

So, you know, the things I start to think about with this one is how much of this, you know, you know, EBITA number is truly money that they're putting in their pocket. And, you know, it's $1.6 million a year. That sounds great. But that's before depreciation, which is, you know, a non-cash charge that you get for depreciating these planes and equipment and capital expenditures. There's, you know, we haven't talked about tax yet. So, you know, if it's a pass-through entity, you're having to pay tax after this before

you put any money in your pocket. Interests that you're having to pay to own these planes. We haven't talked about that yet. I mean, these planes, they probably have several million dollars for the planes, if not more, that they're paying interest on. So it makes me really wonder, like, okay, this even a number is fine, but this is a really heavy Cappex business. There's a lot of capital deployed here. Like, how much am I actually taken home owning a business like this and having that much capital at risk? And that's kind of the first thing I would dig into this business.

And I bet we would discover they're not making that much money. I agree with you. Anytime something is what we would consider a CAP-X heavy business, EBITDA is really not a good proxy for cash flow. Because, yes, you're adding back depreciation, but you should also be deducting what we call maintenance CAP-X, which for something like this might be equal to the depreciation. You know, there's really, you know,

depending on how accelerated the depreciation is, et cetera, but there's definitely a lot of maintenance CAP-X in a business like this and certainly interest costs, because you don't tend to buy six planes or hold six planes in a company like this without some kind of debt. You know, yeah, it's an expensive business to be in and what is the free cash flow. It feels like the people that run these kinds of businesses were pilots, maybe that wanted to be back on the ground like we talked earlier.

You know, maybe they spend a good portion of their career flying around and not being home enough and wanted to stay in their industry but find a way to be home and make money that way. So you tend to find folks like that, but the free cash flow that the business is actually really throwing off is probably not a real big number. You're right, Michael. Yeah. So that scares me. It's probably the first place I would go because I bet when this gets down to it, I bet this is a business that's probably pretty hard to transact because somebody, there's the value of all the equipment and then there's value of the cash flow. and I bet you this is one of those ones

where the value of the equipment is radically higher than the value of the cash flow. It wouldn't surprise me if the two owners are each taken home, let's say for all of the capital they have deployed,

let's say they're taking home a half million a year between the two of them out of the 1.3 million because the rest is getting eaten up and CAPEX and all this stuff and interest. And then you look up

and you have like $4 million or $5 million worth of airplanes that have to transact in order for this business to sell and that's what this smells like. If I double-clicked on this, that's what I would expect to find. Right. Right.

And you've got a business that's got one cost that's highly cyclical, the gas, the fuel, right? So it's very hard to control your margins. And it is, you know, yes, they've got the air ambulance side of it, but they've also got, you know, the private flights. And that's obviously discretionary. People are going to spend more when economic times are good and they're going to spend less when they're not. So it's not, although these cash flows do look stable since 21 and they look great. But, you know, over a longer span of time and certainly if we look back at COVID, you know, there's many events that can interfere with, you know, the stability of their cash flow. For sure.

So how much of this, I guess the other question is, how much of this is air charter, which is a very red ocean-y kind of business as far as I'm concerned? Yeah. And I know that because I've Googled like private air charter and there's like 500,000. options that all look exactly the same. And then how much of this is air ambulance, which to me air ambulance seems like a much better business to be in, just looking up from the outside.

And the reason I say that is like air charter, they're going to like shop around and get different quotes and all that kind of stuff that happens. So you have somewhat of an elastic demand there around what people are willing to pay for that kind of stuff. When you need an air ambulance, like you're going to pay whatever it takes.

It's like, hey, I need, to be at the hospital, I'm going to die, and you know, you're not quibbling about price at that point. So I would be curious how much of this is air ambulance stuff and how much of this is air charter. And the way I understand air charter stuff is like individuals will sign up for that, and that's pretty normal. Air ambulance is often done in partnership with a medical facility calling you and that sort of thing. So I'm curious, you know, how much of this is that versus, you know, the Red Ocean type stuff. Right. They probably have some contracts with just like a regular ambulance on the ground.

They probably got some contracts with some hospital groups. The problem with ambulance services can be, though, how you get paid. Are you taking insurance? You know, so then, and I don't know what they do with air ambulances, but if insurance is involved, that can be, and you're like in a health care business, and that can be very tricky because the rates of reimbursement are all over the place. And you've got to be careful because if you're not being paid by insurance, are you getting prepaid before you fly people around?

Because you could get stuck not getting paid. So I think there's probably a payer risk side of the ambulance business. And to your point earlier, how you said we Google it and you find so many different choices, this one, this teaser says this one company alone has 50 SEO optimized web, site domains. So this one company could have been 50 times in your in your Google search. So that does show you it's pretty darn competitive out there and they've got to do everything they can to be the one that you that you choose when you're looking for a flight. Yeah. And I understand why Uber for private jets has never happened. There's, you know, it just doesn't meet the dynamics of building a marketplace like

that. But man, that would just be so great if there was actually a thriving Uber for for private jets. The other side of it is though, I mean, as I think about it more, I really don't want Uber for private jets. Because I've gotten into some Ubers and lifts, and I've been very thankful when I've recognized the quality of the vehicle that we could always just pull over

to the side of the road. If something good, if the engine stops working, we just pull over here, which is the other thing about a private charter like this. Yeah, that night that I told you about where I got picked up by another plane. That occurred to me after we were already in the air. I'm like, I don't know anything about this plane or how old it is or who maintains it.

It's kind of scary. But, you know, there's JSX. I guess that's the closest thing to your Uber for private jets. It's not really Uber, but I don't know if you, have you blown JSX? I totally would. I'm totally their target market. For those of you don't know, it's a point-to-point charter service that basically acts like an airline, but they're not.

So there's, you know, if you don't know much about commercial aviation, there's the commercial airlines that operate under one section of FAA rules, and they're the ones that fly to your big airports. And then there's charter services which can operate, I think under Part 149 or something like that. There's different numbers for it. They don't have to do the same things in terms of security, but they have limitations on being able to advertise fares and all that kind of stuff.

So JSX lives in that charter universe and runs the charter thing where you show up and you're on a charter plane with other people. And in practice, it feels like an airline. That's what I would say. But they're under a different charter service. And I think, I don't know if you saw it, but I think Southwest and a couple other ones are suing JSX to be like, no, no, you guys are an airline.

Like, you need to have all the costs. We do. I did see that. So their model is being threatened. I've flown JSX once because I just really wanted to try it. So I took a flight from Orange County to Las Vegas. And it costs a lot more. That's usually a really cheap flight.

Yeah. It was a lot more, you know, I probably shouldn't have done it, but I just wanted to try it. The only real advantage was that you went to the FBO side of the airport. You didn't have to go through TSA. You could get there a lot later, but they don't even have parking, you know, because of the side of the airport that they're on. They literally recommend that you get dropped off or take an Uber because they don't have sufficient parking. So, yeah, it's not, it's, I think I'd be next time I'll just go southwest. Yeah, I totally agree with you.

Well, I have not been on JSX because I live, I don't know if you're aware, I live in the hinterlands, and they do not service my city. There's just not enough money here to justify it. They don't go that many places for, in all fairness. They really have a pretty limited schedule at this time. Their network has really grown. They do tows. They've bought a couple other airlines.

So, yeah. Okay. Yeah. I'll get to you, richly. I hope so. That would be so delightful so I could be a baby baller. So back to this thing, like, look, I think this is one of those ones at first blush are like, oh, $1.9 million EBDA.

That sounds good. But then it's really like $500,000 in cash flow, $300,000 in cash flow. You have cyclical cost structure, kind of a red ocean of the stuff you're in. You know, that side of it is just not appealing. I mean, the stuff I like for sure or, you know, it's been around for a while. they haven't seemingly had any problems. They have a lot of SEO that they've put in there. The demand for this stuff is not going anywhere.

It's not a fad or something that's going to hit a headwind and fail at some point. We need air ambulance or we need charters. They're not going anywhere. I like that aspect of it, for sure. Yeah. I feel like I looked at a charter air provider that did work for Homeland Security deporting people. That was an interesting one. I do remember that one.

So there's lots of different possibilities for business like this as far as, you know, who you serve. But I agree. It's a lot of work and a lot of risk and capital at risk for not probably very much actual free cash flow. I mean, the other awesome thing about doing this is kind of like owning a fireworks business. Like if I want fireworks, I could get fireworks super cheap. Turns out I know a guy. But like this is cool because like, well, owning a business like this like this. Well, worst case, you just fly around for costs, you know?

That's pretty cool. So you become a private jet traveler from everything I can tell, which I think is super cool. But yeah, I think this is a fish. If I had this on the hook, I think I'd throw this one back. It's just not maybe it's the right business for somebody else, but like, you know, just feels like there's easier businesses to be in than this one. And we haven't even really talked about how some of the stuff around this will be easy to finance and some of it will be hard.

It wouldn't surprise me if this business might. mostly sells for the value of the planes. Yeah, I think you have to go to a specialty finance provider that focuses on the value of the planes. That's probably the best way to go. A cash flow lender or an SBA lender, God forbid, would have a really tough time with these kinds of aircraft. And the fact that you've got to swap them out, it's not like you just get the loan and walk away. If you have to sell a plane and buy another plane, there's a lot that has to go on with your lender. it's not easy to finance aircraft.

I did do an aircraft SBA loan once, but it was Cessna. It was a fleet of little Cessmus. They were little ones. Adorable. I don't have the proper technical terms, so I just call them little ones. Little ones?

Yeah. That totally works. Yeah, the whole business of airplanes and because of the dynamic of, you know, their standardization around what planes pilots have learned to fly and then what the mechanics can work on and how that creates situations

in which there's very few types of planes that are actually viable and use that often and they have to get to a certain scale. All the regulatory framework around it as well has created just a fascinating dynamic for how this all works. And also why it's so expensive, right, when you think about it.

Why can I fly for $200 or $99 from San Diego or Orange County to Las Vegas, but if I want to charter a plane, it's $15,000. Like, there's just a sign there that one of those is really efficient, and the other one is not at all efficient. And a lot of that, I think,

is the byproduct of, you know, physics, but then also, like, the regulatory environment and the dynamics around it. And even just the logistics of filling up seats, you know, I think, you know, the commercial airlines,

as we've all probably experienced, have gotten pretty good at how they schedule and how they, how they put out their fare so that the planes are almost always full. Yeah. If you've ever, and I have been in a few private flights, they're almost never full. And so that's another kind of level of inefficiency.

A lot of times they're flying around with one or two people. That's pretty expensive one or two person trip. A million percent. Well, if you have a moment, my buddy, I'd like to put out a commercial for myself. I am in the market to be someone's friend. If you are like a really rich guy who lives in Texas somewhere and need somebody to go skiing with you on the regular basis with a very flexible schedule and you just want to go up to all these places and need somebody to ride and you're playing with you. I am available as a low cost and very

entertaining friends. So reach out DMs are open. Space is limited. I think that's going to work. It's a good job. No, if you have a private jet and you want a friend to go skiing with you, holler at your boy. We're good. Just need ride from Texas. Ideally, San Antonio area. That's getting picky. They have to come to San Antonio. Come on. This is a joke, actually. My buddy and I have, but he and I will be flying up on Southwest or whatever to go skiing.

He'll just look over me. He'll go, PJ. That's code for private jet. He's like, we need one. I was like, you get to work on that, bro. We have a friend that has one of his good friends is one of those rich people with a private jet. and he goes on lots of great trips with that friend. I mean, how lucky he has a great time.

Million percent. All right. Well, look, I think this was a great exercise, and we were very kind to this one. Good job by you. Is it a new year, new Heather? Is that what's going on? It is. Yeah, I think, I'm trying to be nicer and kinder to these deals.

I'm not going to keep shitting on them. It won't last for me. This is going to be January-40 resolution. My February. These guys are crazy. All right. Well, happy New Year,

everybody. Happy birthday to me. Thanks for joining us for my birthday episode. And we'll catch you next time. Happy birthday. Yay.