Acquisitions Anonymous - #1 for business buying, selling and operating - Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group - e48

Episode Date: October 21, 2021

This week we're joined by the badass Mike Botkin of the Benchmark Group out of Florida. We analyze two landscaping businesses for sale.Enjoy!-----* 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.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe 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]

All right, welcome back to another episode of Acquisitions Anonymous, the Internet's number one podcast about small businesses for sale. I am one of your hosts, Bill Dallessandro. I am here with my co-hosts Michael Girdley and Mills Snell, where every week we break down two small businesses that are for sale, anonymously, usually. Although in this case today, we have one anonymous and one that we can reveal the name of. And we are joined today by our esteemed guest, Mike Botkin. Mike is with Benchmark. Yes? Benchmark? Yep.

All right. Great. Maybe I'll let you do the rest, Mike. Welcome to the show. Glad you're here. Absolutely, man. Thanks for the kind of words for sure. Yeah.

Tell our guests a little bit about who you are, where you came from, what you do, et cetera. Yeah, we'll go backwards. We just recently closed on two deals technically, one with the whole company of acquiring the original landscaping investment business that we bought. And what we just closed on Friday was a new deal. into the whole company. The new one is all residential. So I'm pulling my hair out every day.

And the previous one that we acquired in December 2020 is all commercial. And prior to that, I was with a real estate private equity company. And we also had a whole company for operating businesses, such as resorts, hotels, restaurants, property management businesses, landscaping businesses. So I kind of had some good operational mix with that, as well as the investment and buyside. And now I am a landscaper. And not just a landscaper. You are the, what, the largest landscaping provider in Orlando? For residential, we are. Yep, for residential we are. And on the commercial side, what type of properties do you do? Yeah, we do anything from a hospital, hotels, schools, banks. We are, there's a bank called South State Bank where they're the largest

provider as well. So if you think about anything from like an outdoor strip mall, to a bank, to hospital, hotel. We provide that service. Awesome. And you had a great story about how you kind of assembled this landscaping company, which I would love for you to tell us. But first, I'm going to throw it over to Michael to do our first sponsor read. And I'll let you explain to our listeners when we get back. Cool. Well, in our never-ending quest to make this podcast not lose money, we have two sponsors this week. And so one is another podcast, actually. We'll talk about that in a bit. But our first sponsor for today's episode is our friends at financial clarity, finklarity.co.

They're a cloud bookkeeping service. Jason and his team do work on QuickBooks Zero. It's great if you're somebody that wants to get out of the day-to-day of bookkeeping and focus on your business. They have a number of features. It's an all-virtual team. Their clients have really high MPS for them. And we're thankful for financial clarity. And if you're looking to get out of the bookkeeping business,

and focus on your real business. They are a great group to talk to you. So thanks to Financial Clarity for helping underwrite today's episode. Cool. Thank you to finclarity.com. So, Mike, I read with great interest your Twitter thread last week about kind of how you assembled the largest landscaping contractor in Orlando on the residential side. I would love it, you know, for the listeners that probably didn't see that Twitter thread.

Can you just kind of give us the background of how you got started and how, you know, the acquisitions that you did to kind of build this business? Yeah, absolutely. I'll talk more about the most recent one, which is kind of the theme of the Twitter thread. But we found this one off market, and it was literally from just driving around and constantly seeing their vehicles. And I think we all as business owners take note on competition. And I just started diving deeper into them and doing drive-bys.

And I found their warehouse. I drive by at different times of the day. And I was really trying to get a sense to see how big they were because we needed to swing bigger than what we did the first time. and looked up some state records, found the owners who are actually two practicing attorneys, which made it more difficult to find, actually, and contacted the broker that got me my first deal and used him as kind of a go-between to reach out and even see if they were interested. Because when you reach out as a potential competitor in a lot of minds, they're very guarded with what they would say.

And I needed to know how big they were to see if I was just kicking a dead tire. So they were interested and we started the deal negotiation. In about midway point, I knew it could close and we needed to raise funds for this deal. And I'm 100% against the SBA, which is probably a conversation for another time. So we needed an equity partner and another great Twitter guy, Sam Leslie, wanted to test out his email blast to potential investors. And I was the kind of dummy test. and the feedback was overwhelming, quite frankly, and I was looking to kind of syndicate it,

and a partner came about that wanted to not only complete this transaction, but also invest in the entire thesis and commit more capital. And I couldn't have been luckier for the partner. They have a service background, especially logistically. And I look at landscaping as more of a logistical business than landscaping business. and it was a great fit and great partnership. So we were able to kind of combine my original business and this acquisition and combine it two.

And we have the resources and kind of the brainpower to now complete my thesis on landscaping. Which is? Yeah, I mean, I think if you're playing in a market of acquisition, anything between, you know, two, two and a half million at the high end of SDE all the way down or even out, depending on how they trade, you can build a pretty successful business. and by applying a lot of common business practices and blocking and tackling and you're competing on a one-off deal against other guys that have been service guys. I don't think we're blind to the fact that we'll walk into a business and be better at controlling service than what the

previous owners were because that's normally their lifelong passion. But I think we can learn it as we go and implement the strategies that we've had in our past. And when you start combining them and synchronizing them, it can become a pretty successful venture. Yep. So just being better at the day-to-day operations with best business practices. Yeah, absolutely. And I'll give you just one quick example. Both businesses we acquired, and they're both extremely successful in their area. They didn't have route sheets for the guys. Like literally, the guys would just get in their trucks and go and try to remember the route on a daily and weekly basis. And when you think about, especially this past one that we just purchased, it's, I mean,

we are now the largest residential provider in Orlando and the service and the brand's been unbelievable. And the drivers are going off memory. So if you think about that has nothing to do with service, that's, I mean, I think it's common sense, but it's a business practice. Let's have route sheets. Let's have notes. And it's, you know, it doesn't take an Ivy League guy to do that or a searcher.

It just takes some experience of being an operator. Yep. Mike, how many trucks, how many trucks or fleets do you guys have in the, you know, the in the field. How many crews? Combined total now, we have 20. So a lot of inefficiency of guys, you know, crisscrossing and not necessarily getting from point A to point B as fast as Yeah, absolutely. And that's why I look at it, interesting question, those, that's why I look at it as a logistics business, because if you can control your route and your fuel, you're not only being more efficient with getting to the service, but you're also saving miles on a vehicle, which lowers your,

you know, repairs and maintenance, which makes the vehicles last a little longer, which then would allow you to get into fleet management leasing because you're not putting as many miles on. And it just makes a business in a whole a lot more efficiently by doing that. And there's a lot of dead cost in driving, you know, you got four guys driving around or five guys. That's, you know, it adds up. Yep. Yep. Well, I'm very excited today because we have two deals, Mike, that are right over home plate for you, both in the landscaping business. So I'm psych to get into them. Mills is going to do our first read, lead us in, and then we'll get your take. All right. So this is a deal that we are keeping anonymous. So we're going to not screen share any of the information, but hopefully we'll

be able to get into a good level of detail so that we can kind of talk about the good, nitty, gritty details. But this is actually a Florida-based landscaping contractor. They have been around since the 80s and they, I don't, let's see, two owners. We'll just leave it at that, two owners. I find it interesting, this is on page six for you guys as we're looking at this kind of offline. It says that their capacity utilization of their equipment is 100%. I think that's kind of an interesting thing. Maybe Mike, you'll have more context on that. But they're saying, you know, hey, we have a really well-known brand name. We have a great market position in this specific market that we're in, and they provide comprehensive landscaping and irrigation and design

services, but they also do some maintenance contracts. Obviously, they feel like they have a strong customer base, they have industry expertise, great track record, really good workforce, you know, all those kind of boxes that need to be checked. The revenue over the past couple years has gone from about 6.5 million three years ago to 7.3 million to 7.5 million. And the earnings on that, the discretionary earnings, which we may get more detail about how it's calculated, but on 6.5 million of revenue three years ago, they had 1.2 million in discretionary earnings. On 7.3 million two years ago, they had just over a million in discretionary earnings. And then in the most recent year, 7.5 million in revenue and 1.2 million in discretionary earnings. It looks like the balance sheet

is presented on an adjusted basis, which is when the broker, whoever is representing the company, is coming to you and saying, hey, look, our balance sheet, if you just printed it off of our accounting software today, is not the balance sheet that we're going to show you. We're going to adjust out some certain things. So in this case, the adjusted balance sheet shows current assets of just over a million dollars, net fixed assets, so that's probably net of depreciation of about $1.5 million, and no liabilities, no current liabilities, and no long-term liabilities, which means that, right, all of the AP and any debt associated with the business, maybe it was debt from an acquisition or debt related to equipment, all that is being taken out of the

purchase. So you're, in essence, the way they're presenting, it is you're buying this business kind of free and clear, all the debts getting wiped out. They talk about some growth opportunities like creating a dedicated sales force, expanding their capacity where they are in the state of Florida, increase follow-up on estimates. They maybe aren't doing a good job converting estimates to actual contracted business. And then they also mentioned wanting to do a social media campaign. The owners, the two owners, it says they wish to pursue other interests and are looking for an energetic owner who can continue the legacy.

They're willing to stay on for a little while and help with a smooth transition. Any other details that jumped out at you guys that we should highlight as we're just kind of going over this? This is a lot of detail. We try and boil it down as much as we can. Yeah. Well, I had a question for bike. If I go buy a business like this that's a, it looks like a full service, mostly commercial

landscaping business, like what am I actually buying? I'm buying people. what else what else am i wearing here are their recurring contracts that i'm into what do i get yeah so i think there's a i think we need to distinguish the difference between lawn maintenance and landscaping and landscaping is kind of the end-all be-all name of everything but there is a major difference in lawn maintenance and landscaping landscaping by industry definition is improving an existing landscape right or installing it developing it where lawn maintenance is obviously you can tell by the name of it, it's just maintaining your existing lawn. So in essence of this company,

what you are essentially buying when you buy these is you're buying their equipment, you're buying hopefully the right to keep all their employees, and you're really just buying their brand name. And a case like this company here, you are buying maintenance contracts, but, and we can dive into a little bit more, but the bulk of their business comes off of, or the lead of all their business comes off of their development side. And with a business like this, so I don't know if I'm jumping ahead, but what they do and what their play is, is they build relationships with builders and will go be the installer for,

think about track homes. They will go be the installer for the sod, the plants, the trees, on the common areas, as well as in the individual homes. So if you think about a neighborhood, which is currently they're popping up like crazy in Texas, they're popping up like crazy here. They would be the company that installs everything, and then they tag on a maintenance contract

after they do the install, and depending on the relationship and the service, they will either keep that contract or they will bounce out, and normally it's a two to three-year contract. So in this instance, answer your question, you're buying equipment, and you're buying the maintenance contracts, and there's a big risk to what you're not buying.

which if you want to get into the risk, and again, I apologize if I'm jumping on this, but this is great, what you're buying in a risk where the business is more development, and Mills is aware of this from my previous company conversations with him, but the core of my previous business, before I got into landscaping, we were truthfully land developers. We would buy raw land, master plan it, entitle it, and then build a community and sell it off to DR Horton, KB Holmes, Pulte Holmes, etc. and we would hire a company like this to do the installs and to do the clearing and to plan the landscaping and irrigation forest. The risk in that is that's not a recurring contractual basis.

Your business is only as good as a real estate market dictates, which is why you see a lot of their revenue is climbing. They are in central Florida and, you know, it's one of the hottest markets in the country. and they are catching that, which is great for them. And I think they're selling at an opportune time, which is smart. But the risk of this deal is can those relationships sustain as well as does the real estate market hold? Yep. Because, I mean, it's interesting, right? I mean, plenty of people make their construction or contracting or service-related businesses work without recurring revenue.

it's just a matter of how good do you feel, right, about that demand persisting. And so, like in this case, I saw from some of their kind of principal customers that it is larger home developers, right? That scares me a little bit. One, I don't know the market. And, you know, I'm not drinking from the fire hydrant of inbound inquiry that you probably are might, but it would scare me thinking about how, like, if all the sudden two of these home builders stop, they don't, they don't think they,

mention, at least in what we're looking at, the revenue concentration from those top customers. They talk about the split between maintenance and landscaping and irrigation, but they just list some of these large home developer customers, but they don't say if they're 5, 10, 50% of their revenue. That would be concerning. Yeah, they have about eight builders that make up about 90% of their development business. And that's a great thing because it seems like they can continuously hit that well when need to. And it seems like, and also what that describes to me is their service is really good, right? These builders, A, they have to make margin on everything they do, and they cannot have an inferior product. Now, as we all know with track homes, sometimes that product

decreases over time, but that's not the builder's fault or problem, really. So they need the initial install because really their sales business, more than a home builder, they need you to pulling that neighborhood and go, wow. And when they continuously hire a company like this to do it, that tells me the service and the installation and the client support is unbelievable. And that's also difficult to continue on. And the biggest difference between commercial, whether it's landscaping or lawn maintenance and the difference between residential lawn maintenance or enhancements is commercial is strictly, in my opinion, on relationship and biz dev. residential is on, you know,

SEO and just your trucks driving by, that is also a difficult thing because you're not in control of that other than you really hope whoever you have to build these relationships, whether they're an owner, a biz dev guy, a sales guy, is really staying in tune with these builders. And a lot more building companies are coming up

and developing, especially in Central Florida, the relationship you may have at, and I'm just going to say, D.R. Horton, that guy may leave and go do something else or moved to a different shop, and your entire end on that business is now gone. And you have to hope your work speaks for itself, and the new guy wants to continue that relationship. So do you have, I have a buddy who's in a similar business doing, you know, massive supply

to one of the, to all the tract home kind of developers here in Texas. And one thing he told me was there's really, for a supplier like this or a supplier on the plumbing or electrical or the roofing side, a lot of times there's only room. for maybe one big one, you would be the only one of those in a market. Does that apply here in the landscaping part of the angle, or do you have to worry about somebody else deciding to get into this business and try to get to scale and compete with you? Yeah, and this kind of goes back to Bill's question earlier with, in regards to my tweet and my thesis, of Orlando is, central Florida and Orlando specifically is growing rapidly, but what that does is it also

brings in competition, right? And eight of the top 25 largest landscaping businesses in the country either have headquarters or massive operations in Orlando. And you're talking from the top, which is Brightview, they're a public company. And then you go down the list, right? And people trying to emulate them and also duplicate what they do at a smaller scale. So there are probably in Orlando five to six real big time suppliers to these builders. There's always competition trying to rise and, you know, add to that list. And the top ones that you're competing with are trying to crush you. So it's a pretty cutthroat business.

Yes, to answer your question, the supply is, you know, you're not competing with 35 other guys, but you're competing with five other guys and those are five big boys and you better, you know, be good at what you do, right? And that's also why that relationship's so important because they do have equally qualified. And I'm saying this as a landscape business owner, right? you know, we can install a plane with the best of them. I'm sure over time, Mills, you can install a plane with the best of them. It's not, there is skill to it, there is technicality to it, but a lot of the

differentiating factors comes in client support, client relations, bidding, estimating, making their life easier, not so much the actual product. So those five competitors, it's not like you can say, hey, we plant a palm tree better than anyone else. It's tough to say. And it's tough to prove. You're all probably buying from the same suppliers, right? it's not like you have a palm tree that nobody else can get. So at the end of the day,

there's nothing kind of captive or proprietary about the end product. It's not like you have grass that nobody else has. You're 100% right. And these companies tend to normally have, well, Brightview has their own, but some of these other companies tend to have their own nurseries even in house. But again, the outgoing, you know, to save costs, but the outgoing product is the exact same. A roboleini palm is a roboleini palm. I don't care where you get it from. So it looks like going all the way to the end of the SIM, they have actually an SBA pre-qual qualification letter and stuff like that. And they have a recommend, it looks like they've already kind of implicitly given, give you an asking price for this of a bit. It looks like just shy of five times adjusted EBITDA.

How do you think about the value of a business like this? Five times seems pretty high to me. Yeah. So when yes is the short answer. and they actually got more than what they asked for. There was a bidding war on this. And there was a bidding war on this because of how sexy it is, if you could be sexy in landscaping,

which I would please wish everyone tell my wife that you can be sexy in landscaping. What is it that makes it sexy? I mean, why is this one so sexy? Because it is a project-based business with unbelievable inroads to maintenance and installation enhancements, which is where your margins can jump drastically. What worried me was that sounds great from the outskirts and stepping back, that sounds great.

I think my previous history as a lane developer is what cautioned me a ton was, I know how this goes with picking these companies to do the work for you, and it could turn like in the blink of an eye. But if I didn't have that background, you know, listen, you're doing project-based business at extremely high margin,

and then you're getting to tack on recurring revenue. Like, that's, you know, that's a great business model. Yeah. So the risk of the customer concentration is also the benefit here because you're in with the builders, which leads to the maintenance contracts. And they've had that, they've done a phenomenal job and they've built and they have that relationship in with those builders. And they've been their supplier for years. So it's great when it's rolling. And just like anything, if you look at it from a construction standpoint, you need to protect your downside as much as possible. of that relationship not working.

But for them on the outside, oh my gosh, they have this relationship with these eight builders. They've been hitting that well constantly. The real estate market's going up. More and more land is being sold to be developed. It's great on the outside.

And I do think this is a good business. And we put in an extremely competitive offer, we thought. And it was like, you know, not even close good enough to what came in. I mean, the thing looking at this sim that is,

was just like, these guys are killing it and they're not even really trying. That was the impression I had when I left. And that's, I think, what other people maybe saw the same thing. Like, oh, if I just bring a minimal level of competence to unlock this recurring revenue. You know, that's a trick. Sorry, go ahead. No, nope. You're about to say something really smart. This is where I shut up. So that is a fool's illusion, right? If I come in and I had marketing to this, we're going to take off like, you know, no one's business. Marketing helps you zero in this, zero. And depending on how you define marketing,

it is strictly relational in biz dev. It is literally a guy taking all these builders to launch. I mean, doing the good old, you know. It's B to B. This is not B to C, even though it's residential. Exactly. So they put on the SIM, and I think very smartly by the broker, you know, some marketing and web help, you know,

will help this business. BS will have nothing to do with a success or failure of this business. So was the winning bidder for this actually somebody from the industry or was it somebody coming in from outside that was maybe a little bit less sophisticated? I don't know, but they paid seven times. And the former. Adjusted? The market on this. So on normal lawn maintenance, you need to be anywhere between 1.75 to like 2.4, 2.5 times.

And then you can go up and down a little bit based on the business. And once you get into more landscaping, you do venture and to the three and four times, right? The size of this business, I think it's fair, anywhere between three and four. You could talk me into a little bit more than that, but not much. And you could not talk me to seven at all. Someone believes in it. Well, seven, you have to have a gross thesis, right? There's no way to make this underwrite unless you do that. Or how are you thinking about it? Well, I mean, think about you really don't ever need a growth thesis. You need to have the ability to just ride the coattail of the builders because the real estate market going up is all the growth.

If you can catch that tailwind, it's all you need. And this is a business where you could have feasibly, if you were set up properly, a $15 or $18 million rev year, but you also could have a $3 million year revenue business. And that's where the allure of the maintenance contracts comes into play. And if you can keep them and you want to keep them, that is all the risk protection that you have with the drop in the development. So if I bought this business, I would work like crazy to enhance the maintenance contracts, not because that's our core business, but because that's the best risk mitigator that you can possibly have. So Mike, one of the things we talk about a good bit on anything e-commerce related and Bill kind of helps pull back the curtain on is people will think,

hey, I'm just going to buy this Amazon FBA business, and I'm going to transition it to my own.com and Bill's like, that's the hardest thing in the world. I'm wondering, do people look at this type of business and say, hey, I'm just going to buy this thing that does track home development installation and some tag on maintenance work, and I'm going to migrate it to, you know, a robust, you know, B to C lead generation funnel. Like, how hard, if you had this asset base, right, and you wanted to start to control your own destiny and not rely solely, on the track cone builders. How hard is it?

It's a totally different gear, right? It's a totally different mindset. Yeah, and I'll clarify, I guess, my comment of what I would focus on initially with the business when I talked about growing the maintenance. I would grow it towards the HOA, the property manager realm of landscaping and getting the lawn maintenance contract. So that way it's the same type of service. It's just we didn't happen to develop that community.

So I just want to clarify that's what I meant by that. But to answer your question, it's a. extremely hard to switch from B to B to B to C, and it's extremely hard to go from residential service to commercial service. It's completely different. The maintenance in terms of the people aspect of it, the customer relationship aspect of it, how you mow, the types of equipment you have, the type of installation you have, the timeline you're given, and the project side. I mean, it's completely different world. And I have a landscaping, a commercial landscaping business, and I have a residential maintenance business now, and they couldn't operate more differently in what they do. Yeah. So before we move on from this deal, I did just want to point out a funny thing from the SIM. This is probably the most South Florida adjustment ever,

because the other adjustments include the owner's car expenses, the owner's beachfront rental properties that are being paid through the business, and the owner's jet skis, which, Gurdily, I know, is your favorite ad back of all time. All of these things are being run through the business and being added back. You could just look at these adbacks and go, yep, that business is in Florida. Well, I can also tell you, I know all their favorite sports teams because all the season tickets are, you know. Yep.

All right. That's awesome. Well, cool. That was a good one. We're going to move on to our second deal. But first, Michael is going to tell us about our second sponsor. Yeah. So this is our first other podcast to sponsor us and also the first other sponsor to make fun of us in their advertising read.

So I think it's like a perfect, a perfect setup. But this sponsors, Will Smith, who has an aquiry podcast called Acquiring Minds. I pulled it up here on the screen. And he does some cool episodes around going into the stories of people that are acquiring businesses, especially small businesses. So here's a cool one from September about how to buy a medical billing business. In the ad copy, he wants people to know that despite us hating all the deals, seemingly, that we look at, this is a podcast.

that includes some deals that people actually liked and closed on. So thanks for Will for sponsoring today. And if you have a chance, check out the Acquiring Minds podcast on wherever I guess you get your podcast for free. Apple podcasts or any of the other apps out there. So thanks again, Will. Hey, to plug your sponsor, I was a previous guest on his podcast and I will be a guest next week for a second time.

And, you know, awesome podcast. And I've listened to almost all the episodes. and it's really cool. And I hope you guys listen. Yeah, super cool. It was a coffee business here. Some pretty fun ones. A plumbing company, all that kind of stuff going on.

Gertler, are you back checking me that I was on this? No, no, I was just looking. They've got five stars. I mean, there's some good stuff here. So, we've got some good stuff going on. Yeah, sure. All right. Thank you to Will for sponsoring the podcast this week.

So I'm going to be hearing our next deal, which is not under NDA. So Michael's going to be able to screen share it. So we're going to read this one. This is another landscaping business, so right over Mike's home plate. This one is called Zen Outdoors. Some fun things in this one. So another landscaping business, it's an excellent opportunity for an already established

landscape company looking to acquire through acquisition at a discounted price, which is asset value only, it says here. It is an absentee-owned lawn maintenance business, which we'll come back to in a minute, serving Orlando and Tampa Bay areas for over 35 years, with 1.7 million assets. Always concerning when they mentioned the assets before the revenue or the profit. Monthly recurring billing from maintenance services

is over $200 grand per month, from over 100 accounts. The customer base is about 80% commercial and 20% high-end residential. This business is heavy on administrative overhead would benefit from an experienced investment group already in the landscape industry. It is not SBA eligible.

It is doing about $5 million in gross sales, about $460,000 of net profit, and they are asking $1.725 million, which is exactly the asset value. So it seems like they're just basically trying to get out from under all of their trucks and mowers and everything else. They have 55 vehicles, which they value at $1.5 million, eight trailers, $32,000, large equipment, whatever that is at $45,000, and mowers for $92,000 makes up the 1.7. Another thing that's interesting about this business is Zen Outdoors been around for 60 years, and it has their two locations in Tampa and Orlando, as we mentioned. Their commercial division is an industry leader for over 30 years and has always value quality above all else. What's really interesting is in March 2019, Zen Outdoors was acquired by three doctors with vast aspirations of growing the company with the end goal of having a strong management team in place

and being absentee owners. Spoiler. it didn't work out that way. Shortly after acquiring the business, they also purchased another $700,000 landscape business assets in preparation for future growth. The partnership of doctors quickly realized that it's best for them

to focus on their careers being doctors. Hence, they have decided to sell the company for only the value of the assets. This is a great opportunity for an established landscape company to grow by acquiring this business for a discounted price. And of course, this opportunity

will not last long. So they've got, you know, these three doctors have owned it for basically three years, so they decided they hate landscaping, and they make a lot more money cutting people open. So they'd like to go back to that and sell you. They're $1.7 million, which is apparently what they value at, assets.

They're 54 employees, their $5 million of revenue, and their $462,000 of EBITDA for $1.7 million. So what do we think about this one, Zenn Outdoors? Does anyone want to take the floor on this? Go for, Mike. I mean, it looks like their performance has really suffered, right? I mean, so full year revenue in 2020 was over $5 million. And in the first six months of 2021, it looks like they're kind of suck and win.

And they were planning on growing. First six months revenue was only $1.8 million. And they've lost money. Yeah, so they're on track. They're on track to climb from $5 million in sales in 2020 to $3.6 million in sales in 2021. and they actually, even on an adjusted basis, lost $30,000. So they've gone from $475,000 of EBITDA in 2020 to on pace for negative $50,000 of EBDA this year.

So they did mention at the top of the SIM that it was administratively overburdened because their gross profit percentage has not really changed from 87% to 84%. But for some reason, their SG&A as a percent of revenue last year was 77%, which, holy cow, And this year is 85% and that was enough to eat all of their 9.5% EBid down margin from the prior year. Yeah, I mean, I think this is a classic example of, you know, three, I mean, listen, they're smarter than I am, obviously, three smart guys, you know, getting together and saying, hey, who can't do landscaping? Let's go buy one and it's a cash cow. And then I'm sure they found out, oh, this is a little tough than what we thought. You know what we should do?

Let's go buy another one. and just dig the whole deeper. And when you're an absentee owner, and I have no problem with being an absentee owner, like, hey, I think that's, I think we all, two degree work so we don't have to be there. But what they did versus,

or what they did is they just lined the businesses up with administrative overhead. And I can only imagine they took the two acquisitions they had and just left current administration and added on. And they're smart guys. And if you look at the titles, that they have for overhead. I mean, HR manager, office manager, lead ops manager, salesman,

like all these things sound great and look cool on an org chart. You know, I don't know what they do all day. And versus the approach they should have done. And I think this is more successful of, hey, there's three of us, right? We're all practicing doctors. One of us needs to be in this business on a day-to-day basis. And then after six months to a year, hopefully we can jump out and, you know, run it how we assume we bought it.

And it just doesn't work. And if you look at their asking, like, first off, like, and I got to give an effort to the, you know, a shot to the broker for trying. But because you can only paint a turd so nice. And, you know, oh, you know, it's. That's the clip for the episode. Yeah, exactly. That's what we're going to clip from this. They just say, hey, look, here's the little snippet on Twitter.

There's 55 vehicles and a couple trailers and some equipment and they're valuing, you know, essentially if you remove the trailer, trailers and equipment at $30,000 bucks a truck. And I think we can all understand and visualize landscaping trucks. Don't hold that kind of value very well. And it's just nothing of the deal makes sense at all. They're completely in over their skis, obviously. The business in itself isn't terrible. But what you're doing when you buy this with absentee owners and massive overhead like this

is you're walking into a nightmare. There's, I'm sure the guys are bucking the, the manner. I'm sure the equipment's not being taken care of. Because if they had a true general manager in place, which I see their org chart, and it doesn't look like there's any one guy in charge except them, no one's going to care more than the owners or more than a general manager if he has some skin in the game. And it's just passing the buck over and over. So the equipment gets trashed every day.

I'm sure there's bad quality control on the clients. I'm sure the guys run amok. And I'm sure the office people love it because I don't know what the hell they do all day. And I'm sure they're getting fat salaries because the owners are scared that they're going to leave. And so they need these people in absence of them. And that's what's weighing this business down. And I think when you're taking three, listen, I don't, I don't claim to be as much as you guys teased it, a landscaping expert, but I would never buy on my first two acquisitions, a business in Orlando and a business in Tampa. And just for

geographical purposes, they're about edge to edge about an hour and a half to two hours. hours away, and when you're a logistics business and you have little oversight, that spells trouble. And so then when you go to purchase this, you need to have the functionality to manage two locations or else you might as well take one and just remove it off the deal because that's what it is. It's two locations completely separate apart from each other in completely different geographical areas. And it's, I mean, it's just not a good business. I love this business in some ways because it's an example of my favorite seller fallacy, which we usually call the business is worth the mortgage balance on my house.

But in this case, it's the business is worth what we paid for it or the business is worth what we bought all these trucks for. Please, please, just give me my money back out of this thing, which is why it was clearly why they think it's worth $1.7 million because there is no way, by any traditional valuation metric, it's worth anything close to that because it's losing money. So you know, you got to smell that out here. I've left up the organizational chart because I'm still just totally flummox that they have six layers of management for a business this small.

I've never seen that. It's incredible. Like I don't even think it. You think about, right, that really at this point, if you have three full-time physicians who are at the top of this org chart, that means that everybody's answering to no one, right? If the lead ops manager has a question, who is he actually directing it to? is one of these physicians the point person,

or does he email all three of them and wait for a response? You know, it just, you can't operate that way. Yeah, and if you go a little deeper and you, like, look at the org chart and look at the mechanic labors, right? And the mechanic manager, you need two labors and a manager because you're in two separate locations that are so vastly far apart from each other.

If you had one location, if I bought this business, which if I did, I would advise every single one of you to shoot me in the forehead. If I bought this business, I would immediately remove one of the locations, try to bring everyone in house that made sense under one location, try to keep some clients that I could from the other location if it made sense. But you could immediately remove probably half of the manager layer by just putting in a general manager. And as Gurley is talking about, just someone to answer to.

I mean, what's the difference between a lead ops manager and then your ops manager and then another I'm spending your irrigation. It's a constant, it's like the school, and I'm a former teacher, it's like the public school system, just keep passing it up the line. And then it's, then the classic is we'll put it in an email. So that's all these guys do. I'm sure. Pass it up the line and then put it in an email to CYA. It would be a complete overhaul of their office and their locations. All right. So Mike, what under what scenario would you do this deal? Because it seems like there's some value here, right? You have workforce, you have some equipment and you probably have some revenue that can be salvaged.

I mean, what stops you from going to these guys and saying, hey, I mean, they clearly have a massive pain point, right, that you can help alleviate? Under what scenario would you say, hey, I'll take the Orlando operations at this price under these terms? Yeah, I mean, well, the 2020 numbers look okay. And that number is not with the owners pulling anything out. Just to clarify, there are 2021 numbers. They actually lost money.

So you're buying a business that is probably going down and service quality, as you can imagine. You're buying a business that is going up and drama and headaches. And you never want to, from my standpoint, because there is a big difference between a labor on the ground, mowing, edging, weed eating versus a manager, a general manager. I don't think you ever want to walk into the business and start cutting all their managers. I wouldn't. I need those guys to buy in. I need them to believe. I need time to build with them. And with this business, the only thing that works, if I was to buy it, would be cut every single one of those managers or reduce their roles or repurpose their roles. That's truthfully the only scenario. And then not only do you have to get through that, I'm sure they do some work. You have to

repurpose that work, simultaneously rebuilding the client relationships and reestablishing the maintenance quality, because I'm sure over the past couple of years, it's just gone down downhill. So it would have to be a scenario where it's almost a 100, excuse me, a 100% earn out because I don't value their equipment anywhere near what they value it off of. And I'm slashing all your managers. And I'm repurposing your maintenance quality control and how you do things. And I need to rebuild your brand as essentially need to rebuild your customers. So I would only, I would personally only do this deal on an earn-out basis alone.

I would not give them anything up front that is meaningful to, you know, relative to us. Yeah. I mean, generally when you see this, you know, a pick on doctors here because it happens a lot to doctors, happens to lawyers too. But you've got a, you know, somebody who is wealthy who buys a business,

they have no business running, and then runs it into the ground, very often those are fantastic acquisition opportunities, right? Because they have just run it so poorly. And if you know how to run the business well, it's pretty easy to point at what the problem is. And you're removing it by buying the business. Now, of course, the price really matters a lot. Right? In that case, you know, as you're saying, Mike, I mean, if it were me, they think it's worth $1.7 million. My opening bid would be $0. Because if they don't sell it, they're going to lose $50 grand this year. So my opening bid would be even. For six months. First six months. Yeah. But my opening bid would be, I'll take it off your hands. Is, you know, $1, $0.

You know, no earn out. Just give me the business. Go lick your wounds. And that's where I would start negotiations on something like this. Because it's losing money. You're exactly right. And I mean, you're exactly right. You're 100% right.

Obviously, I was being generous with an earn out. But that they're, what they, if I was advising them, I would tell them you have to get rid of one on selling this. You have to get rid of one location. You need to just go hire manager. So whatever money you guys personally have in your bank accounts, go hire general manager for your one location or promote someone. Get rid of that org chart.

Never show someone that org chart ever again. And you need to go essentially just tack this on to an existing landscape business because a new owner cannot operate this business. You will swim in a mess for six months to a year. and when you pick yourself up out of the deep end, I don't know what it's going to look like. This only makes sense for an add-on or a tuck-in acquisition, which at that point, if we were large enough to sue kind of their customer base,

which is pretty large, I don't know if I need any of these people on the org chart outside of just the bottom line laborers. So it would then go back to what Bill's talking about. I'm not paying you for any of this. But that's kind of the opportunity. right, is that you can take out a ton of cost up front. But that is only an opportunity that materializes for you, Mike, because you already have an infrastructure. So this is another thing that really bugs me. You know, a buyer or a seller rather will look at you, Mike, and go, well, look,

you're going to fire all these people and, you know, you're going to then make it profitable, and then please value me off of the pro forma profit number. And I'm like, well, no, I'd like, that's my risk, right? Like, it's only worth that to me because I'm coming in and and slas everything, taking on all the risk of doing that, you know, bringing my assets to bear, all the work that I've done to build my org. You know, so it's not reasonable for you seller to want a multiple on a pro forma EBIT dot number, you know, based on under my ownership. You know, like that's value that should accrue to the buyer, not the seller, but I do end up in this fight a lot with sellers, you know, in our business. What I love about this scenario for Mike

and somebody in your position, Mike, is you could basically go to them and say, okay, let's just assume ballpark, there's $2 million of revenue that you might be able to get in the Orlando market, just rough numbers. You don't need to acquire that revenue from them. You could totally compete it away from them because the business is on the decline. And so I like the position that you're in. It'd be the same if somebody came to me with a mismanaged roofing contractor, commercial roofing contractor in South Carolina. I would say, why would I buy it when I could just out-compete you because you're not performing? That's a great scenario from a negotiation standpoint, Because then you can constructively move the conversation from something that, you know, is naturally

adversarial to like Bill's saying, let me do a favor and stop the bleeding for you. Yeah. And I would I would cherry pick some of their top clients and offer them a multiple on their monthly revenue. And they're going to lose those clients off. I'm buying them. But this is a very cash-strap business. As you can see, they're losing money, which I'm sure they're losing more than what the Sim says.

And it would give them a chance to liquidate something. And landscaping or lawn maintenance, you're generally. buying contracts, depending if it's a one year left on the deal, anywhere from two, I've seen four times a monthly rev. I wouldn't do that. I would be the 1.5 to three months monthly rev. So I would take their top five to 10 clients, whatever I could successfully service, and I would just offer them a multiple on the contracts and so I don't want your equipment. I don't want the guys. I don't want your location. I want nothing. I'm essentially doing what property managers do and I'm just buying these contracts off of you. All right. Anything else on

this one before we wrap it up. All right. Man, really fun, Mike. Some good ones. These are good ones. Yeah, absolutely. Yeah, guys, just let me know where I need to send an invoice for this fancy microphone that I now have because someone is getting this bill.

You're going to send it to the Acquiring Minds podcast. Wait, guys, we want to keep the sponsors. We want to keep the sponsors. Speaking of sponsors, Gurley, will you sell them up for us? Yeah, so we had Acquiring Minds podcast for us. from Will Smith and then Jason and his team for cloud bookkeeping at the Financial Clarity Corporation. So finclarity.com from them. So thanks to both of our sponsors this week. Awesome. Thanks to you guys, sponsors. So Mike, thanks for being on, man. We'll give you kind of 30 seconds

at the end to do karaoke or plug whatever you want to plug. Where can people find you? Yeah, absolutely. You can find me on Twitter. Mike Botkin underscore. You know, in terms of anything else, I think I experienced a call my first day after owning this business of an upset client and speaking very derogatory about some of our employees. And I guess my ask would be, you know, treat your service guys with kindness. They're doing a service you don't want to do and you are paying them for it. So, you know, treat everyone with kindness. That's a great way to wrap it out of it. And a shout out, a compliment for Mike. He bid on one of our coffee developments in Texas from Florida and the level of professionalism that Mike demonstrated was just amazing from

start to finish in a world where other people don't return phone calls. Mike is like top tier. So in your business, man, you've got a bright future. It's pretty impressive. I appreciate that. I do apologize again for not being able to do it, but I appreciate the opportunity more than you can know. And if you ever come to Florida, you don't even have to ask, we're doing it for you. I know who to call. At the very least, they'll catch your grass. Exactly. All right. Well, that does it for another episode of Acquisitions. Thanks for being here. That's Mike Bachin, our guest.

I'm your host, Bill, and Michael Gurdley and Mill Snell. See you guys next week.