Acquisitions Anonymous - #1 for business buying, selling and operating - Two MRO Businesses for Sale - Josh Schultz (ENCORE episode) - e59

Episode Date: January 6, 2022

This week's episode is one of our favorites for the year.Josh Schultz (twitter: @joshuamschultz) who helps us through two deals in the MRO (maintenance, repair, operations) equipment space.Fascinating one. Check it out on your podcast app!-----* 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 #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- 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 podcast where all the deals are anonymous, and we try to pretend we know what we're talking about. I am here with my co-host. Michael Gurley, Mills Snell. I am Bill Dallessandro, and we have a great guest today. Josh Schultz is with us. Thanks for being here, Josh. Hey, thanks for having me on. I appreciate it.

Josh, you win the award. We're now on video for Acquisitions Anonymous, so if you want to watch along with us and not just listen along, you can find us on YouTube. Josh wins the award for best hair so far of the guest, so you'll have to go to YouTube to check that out. And the coolest office. Oh, yeah. Mills is in like a converted industrial warehouse. Gertley's in his bedroom.

I'm at the beach. And Josh is that like in like a really nice like, you know, there's art on the wall with like a bookshelf and everything. It looks very professional. That's what I imagine all of Austin to be like. Is that? Until I moved too fast and you realize it's a fake background. Yeah, it's all great screen.

All right. So we're excited to get started today. Have Josh with us. Before we get in our first deal, Michael is going to read a word from our sponsor. Thank you very much to our sponsors. If you would like the sponsor Acquisitions Anonymous, please get in touch. Cool. Yeah, thanks. So our sponsor this week is Tinyacquisitions.com. So on behalf of them, they have told us that every day, some developer you've never heard of creates a business that has high earning potential, but it gets abandoned because they don't have the marketing abilities that you have. The tech is all there. All you have to do is sell it. And the platform for that is tinyacquisitions.com. They're home to thousands of online businesses that sell for usually under $5,000. With a one-click buy option, you can have

this business ready to generate cash less than 24 hours. Go to tinyacquisitions.com and acquire your small, tiny business today and start cash flowing. So thanks to Tiny Acquisitions for sponsoring this episode. All right. Thank you, Tiny Acquisitions. We appreciate you. So Josh, welcome to Acquisitions anonymous. We're glad to have you. Yeah, glad to be here. Thanks for having me on. Sure thing. I love to just give you a couple minutes. Tell our listeners about who you are, your background, what you're working on these days, and what you're interested in. Yeah, sure. So I'm an ops nerd. I love business ops, mostly small business. I got active on Twitter about a year ago, but been in small ops for about probably 12

years now. I keep saying 10 years, but I've been saying that for a few years. You just get like that pitch in your head. You just keep saying it. But I got in because of my father. I was a finance guy and my dad invited me into his small business and really taught me a lot. He's a great tactical business operator. So I'm more strategic, but he kind of ground that tactical side into me and also did a lot of sales. So kind of have that powerhouse of sales, ops, tactics strategy and have been mildly successful. Basically, I can pay my bills and I'm pretty happy doing it. So nowadays, I do consulting.

I do some data stuff. I'm working with an aerospace company. most of the time now. Yeah, that's a little bit about me. Cool. And you've brought two deals that are right in your wheelhouse for today, right? Industrial distributors. These are, to me, extremely interesting. All right. Awesome. Well, this is great. The best episodes are always when we have a domain expert to give us their take on these deals. So we don't have to bring all the knowledge. So you're going to be the knowledge bomb today. So Mills, why don't you lead us into our first one? Yeah, our first deal. and if you're listening to this via audio and you decide to go look at the YouTube,

you'll be able to see screen share of the listing that we're looking at. But this is a biz that's for sale on biz by sale. It's a wholesale industrial supply business in Tennessee. Asking price of $4.5 million, annual cash flow of $1.3 million, on revenue of $11.8 million. They list about $200,000 of FF&E, which is furniture, fixed, and equipment. That's the kind of the hard stuff with the business, right? That could be

computers, chairs, shelving, you know, maybe a vehicle or a delivery truck in a business like this, whatever it may be. They list $725,000 of inventory, and it's not included in the asking price. Their rent is $9,100

a month, and they've been around since 1996. So this is a southeast distributor of a wide variety of industrial products. Their customers include national and regional manufacturers, metal fabricators, injection molders, and many more. So they sell things like welding supplies, safety and security materials, pumps, power tools, pneumatic tools, plumbing equipment, oil field equipment, office supplies, material handling,

marking tools, HVAC, some furniture, food service supplies. Basically, you get the gist. Oh, anything you can imagine. What are they not? What are they not? Yeah. They probably, you can probably buy a toilet from this place. I mean, you name it, right? They have it. Beanie babies. Do they have beanie babies? So they, inventory is not included in the asking price. They lease the real estate. They're in a 43,000 square foot warehouse, which is, you know, a lot bigger than than a lot of the businesses that we typically see. But remember, this is a distribution business. So they're holding a bunch of stuff in inventory about, you know, $750,000 worth of it probably. It's filling up this warehouse. They've got 18 employees, maybe a mix of sales and, you know, shop-related folks

or warehouse folks. And that's all the information we have. But Josh has some more. So I guess, well, pause here. What's everybody think of this one? The one thing that jumped out of me is just found in 1996. I love businesses that have been around for a long time. It gives it a certain level of stability. Yeah. What I really like about this, so this is what's known as an MRO business. So as you can see, they have the gamut of products, right? And so what they're doing is they're basically going to production shops that are producing, and they're using stuff like gloves and drill bits. So it's not directly involved in the production of whatever the thing they're making is, but it's being consumed. And so what you've got are two things that I love.

You've got a business as a customer. So businesses tend to make decisions once, and as long as you don't screw it up, they stick with it. And then the second thing is you're involved in something that's ongoing. So it's not like it's project base where you sell them once and you hope that they make a cabinet again, something else again where they're going to need it. They're using all of these things every month as they continue to produce or make or repair, whatever they do. So it's a little bit of a recurring and it's one-time sell and it's to high-paying business customers. So that's why. Josh, sorry to interrupt, what does what does the MRO stand for? You had to ask me that.

I think it's something repair and ops, but it's basically you ever go into a supply, I know I should know that. We've been selling it for years. If you ever go into like a production facility and you look over and there's like a fast and all vending machine that you can get all these random looks almost like a home depot inside of a vending machine that's miro stuff and so small companies will just buy you know at your local lace hardware or home depot but what these companies do as you get a little bigger is you don't want to constantly be running out for drill bits or gloves or screwdrivers but they're getting used up because you're using them so much so now you've got companies that basically come in deliver and say i'll just keep your supply closet totally stocked for you

all the time. And so you've got somebody stopping by every week. There's usually some kind of mini inventory system. Oh, you're running out of these. I'll refill them tomorrow. And so now you'd never have to worry. Every time you go to that closet, boom, it's filled up, ready to go. So it's on site. You use this with aquasheel. So, you know, you got to think there's things like gloves, saws all blades. I mean, we can buy hand tools from them, but we buy like, you know, rolls of plastic that we use to cover stuff up. You know, some of them get more specialty, right? Like, there's ones that are roofing specific. And we only, they're the only ones we can buy this stuff from. But others, it's just, you know,

anything and everything. Screws, fasteners, like some of them get more specific or some of them are broader, which I want to talk about that, Josh, as we get a little bit further into it. But, yeah, I mean, we use them. And what's nice about it, right, is that, like, today, I had to go on a job because our guys had forgotten to get some saws-all blades. And I'd already left the shop and I was passing by a Lowe's, while I go spend $20 on some Sazaw Blades, and I know that we could get a much better Sazaw Blade at a substantial discount

from our industrial supply company because it's not sitting on the shelf at Lowe somewhere and paying retail. Yeah. These companies basically make money on the arbitrage of buying in bulk and then distributing ones and twos. And the reason that they'll distribute ones and twos for a discount is they know they got you for a range of products.

It's not like you're Uber delivering, you know, one product one time. So, hey, I'm willing to deliver one at a little bit of a discount price for you. I'm going to buy a million of them and just stock them in my warehouse. Plus, specifically with MRO, you probably have 30 customers that are using the same product. So you basically are buying gloves for 20 companies, and it's as if Mills and everybody decided to almost co-op and pool the resources. Well, this company's done it. And they've built a whole infrastructure of delivery drivers, inventory, procurement, they've got exclusive deals with suppliers.

So, yeah, there's quite a bit of arbitrage that you can get there by basically, like everything else, buying it 10 cents and selling it 90 cents. And meanwhile, it's a buck 50 at Home Depot. The most important thing to me about this business is how quickly can they get us something if and when we're out, right? Or if and when we need something new, because if we have, you know, 100 guys in the field and all of a sudden we're out of gloves or we're out of, you know, a special type of plastic. that we need to cover something up, right? Like, whatever it is, drill bit, saws, all blades. If we're out of that, it grinds a lot of things to a halt, or it just adds a unnecessary amount of friction.

And so to me, I'd be very curious about how does this company, how do they position themselves as a distributor? Is it we're all things to all people and we have the best inventory selection? Or is it we kind of have niched down in some way, but we really focus on, you know, a 12-hour, you know, within 12-hour delivery. or something like that. Yeah. And that comes down to,

I'd be interested in that too. I don't have the answer, but I know that your delivery setup is huge. And also one thing that you're seeing more people do, and I think they're doing it poorly, is the vending machine option. What that does besides look cool is, if it's done right,

give data back to the supplier so that Mills, I know you're going to be out. I know your usage rate. I know roughly how much, if I'm using my data right, how fast you're using these, I should be able to predict one, when you're going to run out and set my delivery to that.

And two, when there's a spike either way, either dropped way down or way up, trigger a call and say, hey, notice you don't use these anymore. You're using a different one or you not get those projects anymore. And that's like proactive inventory management. But yeah, that definitely requires a system to be able to handle the delivery, right? Inventory, you just buy a ton. But the specifics of trying to manage that distribution method is, in my opinion, solved with data with a little bit of a SaaS platform. And then I don't like vending machines, but something

that gives you data. I will say the nice thing about vending machines as I've looked into it is it can give you employee specific data. Right. So if right now trash bags, for example, we buy tons and tons of construction grade trash bags and we buy them by the palette. And we usually buy three or four pallets at a time. And then they get gone. And we're like, where in the world did all the trash bags go. And we literally keep them in locked cages. And we bring them out one or two boxes at a time. But what it would allow you to do in trash bags is maybe not a good example for a vending machine. But Fastenol does have locker systems too, is you can tell, right, hey, this guy, he keeps losing his box code. And like, I know Amazon does this at a certain point, they're going to charge you as the employee,

but there's employee-specific code. So it's a vending machine. You don't actually, it doesn't, you don't take any money. You're just typing in your code. And if you really, realize like, hey, this guy actually gets a new, you know, box cutter every single day. He's gotten 30 this month. Then it gives you the analytics to go back and say to him, hey, what's happening? You just keep taking these things home. Are you selling them? Like, what's happening? But I would guess on a business this size, right? $12 million in revenue, they are probably not that sophisticated. They're probably the type of supply house that we use, which is they actually don't even have visibility into our inventory. We just call them. We have a guy who,

manages our shop inventory as one of his functions. And he calls them and is like, hey, by the way, Bill, I'm out of, you know, Polly. Send me another, you know, two pallets. Hey, Josh, so one thing I noticed about this business is it's got 12 million in sales. It's got 1.3 in cash flow. So it's a little north of 10% net margin, which strikes me as pretty good for a distributor. You know, I mean, we see distributors that are 3% margin all the time. So is this, is this a good MRO distributor business? Or are, are you? are they all like this? Yeah, so this is probably about average.

I've seen them go up to even 15% for MRO. You've got two different pricing dynamics that you can take advantage of to really max this out. And it comes with scale. One of them is global sourcing. So a lot of these guys, sub, you know, sub 20 mil maybe are still just buying from a local master distributor who's then going global. So if you can bypass the master and you start to develop your own vendor base, you can get a lot of generics you know, Mexico, Latin America, China, Taiwan, Vietnam, all over the place.

So that basically lowers your costs. The other side is, and Mills alluded to this, is convenience. People are paying up for convenience. So your business model is making spread on buying low-selling high, but you can push it higher because of convenience. So if you can book yourself as more convenient, more on top of things and other people, you can get another 5% there. And then you can also shave 3% to 5% on the downside by doing some global sourcing.

Okay. Hey, Josh, one number that stuck out here is how quickly they're turning over their inventory. They're not included in the purchase prices, $725,000 in inventory. I assume that's at cost. And then they're turning that over. It looks like about 14 or 15 times a year. Is that low, high, normal, or does that tell you anything about the business? That struck me as very high, high turnover, very low inventory.

I would be nervous about availability. Something, I mean, because you've got products that you might really. these a couple times a year, but you kind of have to have on hand. You also have minimum buys. So the fact that that's so high almost makes me think they're one-off buying a lot of stuff to a day or two before. Another thing that led me to that is they have a lot of employees for this size business. Part of that is because they have deliveries. So you've got a deliver guy who can only hit so many. But I'm also wondering if the employee size is, and I don't think you guys have that, it's 18 employees for this business. Yeah, there it is.

So I think that's a lot of procurement. I'm almost thinking that they got so many guys buying last minute doing what's called a turnover PO that, yeah, because that inventory is way too low to be able to support an MRO business where your whole pitch is availability. Yeah. How should I think about threats to this business after I own it, right? So you talked about economies of scale that somebody gets if they own multiple of these and they're sourcing overseas and getting stuff at. at a lower price and that sort of thing. Do I have to worry about a big national competitor backed by PE, you know, showing up in my backyard and basically selling stuff at lower margin

or supplying things just faster than I am? Like, how should I think about what I should worry about if I were to go after this business? And I got to pile on on that one, Josh, as the e-commerce guy on of Acquisitions Anonymous, like this is, like, is e-com coming for this business? You know, I know Amazon launched a specific distribution vertical. they're trying to get into things like this, maybe not this specifically. But is there a version of the future where, you know, this is all kind of automated and it just comes via FedEx every day? I think there is.

I don't think as of right now Amazon's close. So we use the Amazon business, our business for some things. But the one block that Amazon hasn't crossed yet and just anonymously, I've been pulled into some Amazon conversations up in Seattle for their small parts.com acquisition. So I kind of know where they're going with this kind of supply. They are not integrating with actual customer usage, which is, I think, really essential here because it's not, you don't just have four delivered every month. Some months it's eight, some months it's one.

And the last thing you want is oversupply of your supply closet. You run out of space, and it's a huge waste because it's not even production parts. It's MRO stuff. I think your big threat is fascinal. That's the one that everybody's scared of. They have a ton of money. they will drop 30 grand up front on a customer that's going to net them $1,000 a month, and they've got the money to do it.

It burned them a little bit over COVID. I don't know if you've seen they've shut some facilities down, but that's the big threat. These beautiful blue vending machines with the employee punch cards. And so, yeah, I mean, you've got to come up with a way to differentiate yourself and almost make them look like that's not the answer that you want. And it's doable. I mean, we came up against that historically as well. The other thing I'm mindful of that I've heard you talk about, Bill, is just, you know, the way that freight and shipping weights play into the e-commerce model.

I mean, we had a box that was basically about the size of, like, the laptop I'm looking at, right? It's not a huge box dimensionally. It's maybe four inches thick. And it weighed 75 pounds. So that's like there's no e-commerce world, right, where that makes sense. And so a lot of the stuff we're getting is palletized. And we may be getting three pallets of one product, right? And then another pallet that's shrink wrap with a handful of other things on it.

Now, I can imagine, right, an e-commerce like pick and pack facility that's doing something still in that vein. But I think you're going to need, you know, substantially larger amounts of space. And you would have to get so specific, right? You couldn't continue to be all things to all people doing that. Yeah, absolutely. And just so you know, they're afraid that they're spending is $250. 50k a year. That's what I've got on their most recent financial. So they're doing 250K, and I'm guessing that that's pretty well packed and that they're getting some scale on that.

So I would estimate you're talking if you were to do this, if you were to aggregate all the customers freight together between five and a mill, probably of freight. So they're kicking out three quarters of it. So Josh, do you know, or they're running, I think you mentioned this, they're running their own delivery truck or trucks like a flatbed? Yes, yeah, they are. So they have drivers that have roots and they're basically going and dropping off. So one of the reasons I like this is there's a different method. It's something that I'm sure other people do.

I've never seen it at scale, though. And that is instead of a lot of these places have two deliveries. They have one, you stop by, you see what they need, and then you have a picking. So you go back, pick everything for all your customers and then do another delivery. It's a huge waste, right? You're basically using the same resource twice and get. one revenue stream from it. So one thing that you can do, and vending machines are really expensive for most people, most of these companies cannot put vending machines everywhere, and vending machines

can't handle about, you know, half or more of the products that you're MROing. So what you can do is a simple tablet, you know, a Samsung tablet, a scanner, and a keypad. And so to duplicate everything that you said, Mills, basically you still have it locked. Employee has to enter their number to get into the facility. And so you line up the time code of the employee entry and then anything they take, they scan. And you've got that spitting back. So now you've got real time scans, real time inventory. And so all of your picking is done from a pick calculation spit out in the morning. And now you've got one route going. And then on the back end, you can match the employee keypad of the closet entry with what they took and line it up to who's taken what. And it's a far

less expensive way to kind of duplicate the same thing. Does that mean that Josh, like in that scenario, I basically build a room, right, that's, that has controlled access. And in this case, like this wholesale industrial supply company, they put their own inventory in my building. And I don't actually take like ownership of it. It's just I'm taking, you know, possession of it on the premises, but I'm not being charged for it until it's checked out of that room in essence. Yeah. So straight up consignment. Just in that does two things. Because of the way that these are used, I got to store these no matter what, right? I've, got 100,000 of these boxes of clubs, I have to store. It allows me to do that with a smaller

warehouse footprint by basically distributing 25% of my warehouse across the board. So in production, consignment's bad for the supplier, right? I don't want to have to hold all this inventory. The customers are large. They push it on you. And I'm a row. I think it's actually an advantage because you can't just in time this. Your whole thing is availability. You've got to buy minimum orders of buckets and mops and all this stuff. So if I can distribute my warehouse across 50 customers and grab closets here and cages there, that's fantastic. Now I've reduced the footprint I need to manage a bigger business. Yeah. Because you have some kind of backup, you know, or inside baseball on this, Josh, why do these folks want to sell? And then what,

if you grow this business, right? Because I think that would be most people's premise with it is not just to maintain the status quo. If you grow it, who's the buyer for this type of business as it gets to, let's just say, best case in here, right, gets to $4 or $5 million in EBITDA. Yeah, so this is just a retirement, right? Going on right here. That's basically why they're selling. I think this is the one that's two partners.

Yeah, two partners. And I think one sales, one ops. And pretty standard. There's nobody there to really want to take it over. It's some delivery drivers and, you know, some office staff, not really family. So the play is geographic expansion. I think it would be hard to do adjacent markets with the business of this size. Once you get pegged as MRO, even though you're in all these big businesses that are buying all

other stuff, they are not going to be talking to you. You've too much established yourself as an MRO player. And so it's going to be hard to scale that way. So I think this is a geographic play. Basically, you start expanding your roots and you get to a point where you can get another small warehouse, you know, the next state over. And if your roots can cross, you know what I mean? So you have got 50 miles one way, 50 miles the other way.

You start to kind of hop into the next area. That's how a lot of these grows. Basically, okay, the drive has become too far. Let's go that distance again, find a warehouse, and then we'll drive back this way, and we'll just keep bunny hopping. The seller, so these are being rolled up slowly right now, but I know of a couple P.E firms that are basically buying one that's doing 50, maybe, 50 million, and then just bolting on one to three millions.

and so this would be, this would currently be a perfect PE acquisition right now for some of the PE roll-ups I know going on. But I think, I think this is just a purely geographic play. How cyclical is a business like this over kind of long macro cycles? Depends on your customers. This is your right away, you're right lined up with their production cycles. So it's good to diversify if you have a choice, which is why you don't want to be in a geography that's all producing one thing, like, you know, a lot of machine shops in Michigan and, you know, there's these pockets that we have in America. So you want to kind of stay away from those if you can. You've got stuff like firearms that has major booms and bust based on politics. You've got,

what is it, automotive that's really cyclical. They all move at different times, though. Aerospace is another one that's kind of just been ramping up lately, but that's fairly cyclical depending on what kind of projects or missions are going on. When I say aerospace, I mean, everything from airplanes all the way up to SpaceX, because it flows down to all these suppliers. It's a massive supply chain. So it's really dependent on who your customer is, what their cyclality is, and then diversifying by finding all these different customers that are moving at all different rates to give you something kind of smooth.

You don't need that many customers to achieve that. You're probably talking 10, and you've got a pretty good spread. This is a cool one. Yeah, this is a good one. Thanks, Josh. All right. Well, we got a second one, though. So let's, it's in the same vein.

So let's throw it over to Gurdley to introduce deal number two. All right. Let me pull it up here. Sticking to the southeast, this is a fastener and industrial supply distributor located in Georgia. So they're going all out. They didn't put a photo on the front. So pretty straightforward. Buy Bizsell, another listing from here.

So asking prices, $1.2 million. The business cash flows. $144,000 a year, gross revenue of $2.2 million. So about a fifth the size of the one we just looked at. EBIDA is not applicable. So that's very interesting. Furniture and equipment, they have $67,000 worth of that, quarter million dollars in inventory.

So this is different than the last one. The other one had about 15 times turnover of their stuff. And these guys are, it looks like nine, if my math is right. And Bill for you, they've been around since 1999. So they've got some Lindy going on there in terms of 22 years in business. For those of you don't know, Lindy is this idea of things typically tend to last as long as they've been around. So if you're something's 20 years old, on average, it's going to last 20 years more. So that's the Lindy idea.

Cool. Business description, great individual investment or strategic acquisition in a well-established distributor of fasteners and industrial supplies. So fastner's right in your wheelhouse, Joshua. One location, top customers have been with us for 10 to 20, years, the buyer will benefit from increasing sales due to the continuing recovery of COVID. You will have a robust and professional e-commerce website. Your fleet of trucks included in the sale can make deliveries and pickups. A vast vendor network is already established and the infrastructure is in place is current and is scalable. They're in a 16,000 square foot building, plus there's

16 acres available for purchase. So it sounds like an ex-urban or a suburban kind of scenario for these guys. These guys, unlike the last one, are including the inventory and the asking price. So that's interesting. So this one is cash flowed nearly, well, looks like eight times cash flow and infinity times EBDA. So price is a little bit different, but they're throwing in the

inventory for you. With it, 16,000 square foot building. Eight employees, so not as good as a sales to employees ratios. The last one. A bunch of facility stuff. Competition. This is a great sentence, so I want to read this. There's

always competition in a commodity market, but our service rains. If I spelled that correctly, top customers have been with us for 10 to 20 years. When I see this kind of top customers thing, I'm instantly interested in customer concentration. That is customer

concentration signal, like, go see if one customer is 60% of their business. Endless growth opportunity, and we are only a fraction of the local market. They will do training and sale support, and the owner is semi retiring. I should semi-retire someday. I should semi-retire someday.

What does that mean? Does that mean you just get a bigger boat than the one you already have? I own another business. I own another business and I like that one better. So I'm just going to retire from this one. You buy it for me. This one's not making me any money. So I'm going to sell this one. It doesn't appear so. Either that or it's like it's the best tax dodge ever. So maybe they're depreciating the hell out of everything. So cool. So what do we think about this one? So yeah, this one's similar. If it was me, I know this one's much smaller and the price is much higher. higher relative to cash flow. I did some quick pro forma on this. I put EBIDA around 220 to 250 somewhere in there, probably towards the lower end of that range. So this I see could almost be a platform play. There's some really interesting things going on here. When I first sent in the NDA, I didn't think much of it because it was smaller. But first of all, I know this area. This is down in the Georgia area. And there is a lot

of manufacturing in nearby in Alabama, Georgia, Huntsville is a place I've spent a lot of time in and there's a lot of large manufacturers. So I like its area and it's got, it's actually got roots going to a lot of the states around there. So it's already crossing borders. My take on this is a great platform play to grow about three to four different adjacent businesses all to the same customer. And there's a lot of opportunity already in it, I believe, to increase sales. They're not using their resources, I don't think, very well.

So I think that there's an efficiency play that helps pay for itself, and then there's a platform play. So you said it's like it's on the Alabama end of Georgia? Yeah. Yeah, I have PTSD from doing business there.

Like, that is the least professional part of the country. I mean, like, it was just the worst. And everybody talks so slow. It was just the worst. I couldn't take it anymore. We don't do business there anymore.

And it's, sorry. It's close enough. All those people should just move to San Antonio anyway. It's close enough. Yeah, we talk normal speed here. I lucked out. It was a lot of Massachusetts, Connecticut, and New Yorkers down there. Basically, these Huntsville laid out, like all these tax benefits and all these companies

moved down. So they basically just moved all their old, you know, 100-year-old northeast facilities to these brand massive, you know, facilities down in Huntsville. And it was aerospace. Now it's everything. It's pretty crazy down there. So, Josh, what's the? What's the delineation between fast? Like, fastener to me is really interesting. Industrial supplies,

maybe more commoditized. What's the delineation between those two? And is it a specialty fastener or is it just generic? Here it's generic. What the difference is fastener is actually in the production. So you're directly tied to whatever they're producing. You're not really an indirect consumable. This person has actually acquired a fastener business. So I think that there's two acquisitions that they've done. And when I say, He's had to be extremely small, given the size that it is all rolled up here. But basically, they got this really small nut and fastener business down in Georgia that looks really neat.

Also came with three C&C machines. So I don't think they're really utilizing them based on their sales breakdown. Their breakdown is mostly MRO with a touch of standard fasteners, which means they had hopes for something. I mean, these are fairly new machines, but never realized it. There's a lot of underutilized assets here. They've got employees that I don't think are, like they got too many employees. but the other way to think about it is you could grow a lot without adding labor.

And that's kind of how I'm looking at it. So underutilized employees, there's a lot here. But I'll keep asking questions and we'll dive into some of it. How do I think about the differentiation of the MRO? So I did Google MRO. By the way, it's maintenance repairs and operation stuff. Thank you. Yeah, I looked it up right after.

I can never remember the M. I don't know why. Google saved us. So how do I think about in my mind the niche that this group is in in terms of the products that they have versus the All You Can Eat, Caesar Palace buffet that we saw in the previous one. How does that affect the way I should think about the business? So most businesses, there's a couple different styles of supply here.

There's the MRO, which we just talked about. There's also companies that do direct production selling. So fasteners, gaskets, O rings, whatever you're using in your day to day. And then they kind of throw in the MRO on the side. MRO tends to be higher margin, lower volume. If that's not your core business, you don't want to focus on it. And so that's what I like about these guys is the fasteners, you're selling usually a lot more of. You don't have to stock as much because they're pretty generally available across the nation and across the globe.

They're made out of one or two materials. They're easier to produce. They're, you know, they've got millions in store everywhere. So you've got an easier supply, more direct to production. There tends to be a little bit of barrier to entry there and not much, with fasteners, but you've got quality requirements where with a bucket, nobody's testing to see if it leaks, but with a fastener, it does need to work. And so you need to have sampling and quality. And so you tend to start to build up these buffers, more of a direct relationship with the customer.

You're not just dropping, you know, maintenance stuff off. Does it matter where my relationship with the customer is hitting in the organization? I mean, it feels like the more specialized you get, the more of a higher level and strategic advantage you offered to that CEO or to the plant manager who's going to care about it, whereas the low-end commodity MRO stuff, it's probably a pretty low-in person focused on your business. Do I care about that or is that not a benefit of being more specialized as well? With MRO, you're right. It tends to not be the same level of buyers. Once you get to fasteners and you're in direct production, it's lower spend, but they're generally on the same level as all the commodity. So whether you're buying castings or fasteners or, you know, your chipboards,

you're all commodity buyers focused on your suppliers. Now, you might interact like the guy buying the chipboards is probably going to visit a supplier a lot more often than a guy buying the fasteners. So you have a little bit of a different day structure, but you don't necessarily get higher up with more custom. You get more visibility to the upside, but you don't actually deal with anybody higher up in this type of business. Yeah, cool. That kind of reminds me of, you know, anybody that's making clothes buys YKK zippers, right? Because it's like, you know, you spend 25 cents on the zipper or 10 cents. Yeah, you can say 15 cents, but if the zipper breaks, your whole garment is worthless. I wonder if kind of the same thing is at play here, where what

matters is not necessarily the price of the fastener. What matters is the quality of the fastener and that it's there on time so you don't have to shut down production because you don't have a washer, you know, or some other sort of fastener. Generally, that means higher margins. you can establish yourself as kind of the quality and service leader because price doesn't matter as much. Well, and does it also matter what industries my customer is in? You know, we've talked about this before, like in the metal fab stuff, metal fabrication stuff, if you're selling to aerospace, that's a license to print money, you know, if you're selling to the guy doing concrete forms, right, like good luck getting high margin for that. So does that also affect this, Josh, or is it,

in terms of who I'm supplying? Absolutely. So that was actually. So that was actually. Actually, you guys both just hit the nail in the head with one of my things I'm most excited about with this is take this and turn it into an ISO 9,000, AS90, 100, which is just aerospace's version of ISO 9,000, and start to get into those. Because, yes, the more requirements you have to have to sell to that company and that that part needs, the higher the price. And so let's take your example, Michael. If you're selling, I can buy the same bolt, and I can buy it for, you know, two tenths of a cent, and I can sell it. for five-tenths of a cent. However, if I'm selling to aerospace, I need to not only buy that with defar material, meaning that it has to come from one of 13 countries, I need to be able to prove it. I need everybody that touched it, including the threader and the plater and the heat

treater to prove that it's the same bolt that carried through. You've got this paperwork trail. Everybody's going to charge flat fees for that. So they're going to say, okay, I can do that for $200 bucks. Now you've got $1,000 stacked up of flat fees on a very small order of a very cheap part. So now you're literally selling the same bolt for $2, $250, a bolt. And you're not necessarily making more because everybody is literally adding all this work in. Where you can start to make more, where your actual margins increase, is when you get to more custom parts. The more custom your part is, you have up and a down. One, you make more money.

You can't sell to anybody else. If they decide not to use it, there is no one else that's going to buy that where when you have a standard washer, you can find, you can even dump it on a supply warehouse or an ACE hardware if you absolutely need to. So you lose the ability to dump elsewhere, but you are much more tied to your customer. They rely on you. You're tied in with them. I like anything that boosts the customer relationship. If I own that customer relationship, that's a better than, that's a better strategy play than most small margin and pricing plays in my book. That's great. Great. All right. Anything have further on this one? So yeah, I want to get into the platform play here because what they have is a number of

capabilities. But like I said, I don't think they're really using them. Something in this in this geographic area with this amount of employees with this much land should be doing four to five million without really trying. This company is doing some stuff with NASCAR. They've got a website, which is actually a full econ platform that you can buy and have delivered. They've got CNC machines. They've got all this stuff. My take is shiny object syndrome and inability to zero in and grow any of these, just this, like this really high-level think, thinker as an owner. And so I think basically he acquired a lot of cool things isn't really great on taking those things and growing them. And that's like the opposite of me, right? I'm not great

at acquiring all those things. But once you give them to me, I'm really good at utilizing them, creating the systems and processes and scaling. So for me, somebody did the hard work here for me. They've got all these assets. I know the supply chain. I know the potential. customers. I could scale this to four to five without even changing it. Utilize these employees better. Optimize their routes, change procurement, start doing some custom parts for some high

quality industries like firearms firearms and aerospace, up my margins and use those CNC machines. That's easily $2 million right there in margin. I can also implement ISO 9,000, start to go into those customers. And then I've got this eP platform

that I can use maybe in a year or two once I start to get the stuff rolling where I don't really want to sell onesies, twosies, but I can change the infrastructure, I think, to start to plug into basically customers and say, okay, listen, we're going to set you on auto order for this. We're going to automatically adjust your auto order quantities based on what we think you're going to need. We're only going to allow you to have one month. And basically anything you want to add or subtract, just go into this platform.

And then we've got the MRO on the side, which we don't focus on growing, but we add as a quick 10% boost to further entrench our customer relationships. So this one gets me excited. Okay. I'm in. When are you moving to Georgia? Yeah. Yeah.

We're backing you to buy this, Josh, and you're moving to Georgia. Where's my checkbook? Where's my checkbook? You know, so, I mean, that brings up a good question, Josh. Why not do this? What's, like, why aren't you going to do that what you just talked about? Because I'm not moving to Georgia. Let me tell you about doing business in this part of Georgia.

Let me tell you about living there. You know what? I am looking at this. My one thing right now is they don't have a leader. So this cash flow, the reason that they leave eBay. It's basically SDE. So there's nobody there to run it. I'm not moving there to run it.

If I can find a decent manager for 60, 65K with some incentive to the upside, this might be a valid play. As you guys know, I've signed the NDA and I'm looking at this. Just a matter of, am I taking on too much for where I'm at? Is there more upside and other opportunities I'm involved in? But this one definitely gets me excited when I saw this. Basically, when I saw all the assets and capabilities that they had that they were not using, it's obvious in the revenue that they're not using it and obvious in the cogs that they're not using it.

So I think this episode, particularly kind of that final rant Josh went on about, you know, why this is there's so much opportunity here is, I think it illustrates the returns to going deep in an industry as a small business buyer. I mean, Josh saw so much about these two deals that we wouldn't have ever thought about. I mean, I looked at both of these and I was like, oh, this looks like 10 others that my eyes rolled over on Biz Buy Sell just today. Right. But Josh picked these two out and was immediately able to drill down on what made the first one higher margin with the MRO and the potential in this one. Like I would have looked at this one on Biz Buy Sell and gone 144K cash flow. they want nine times even da. It's in rural nowhere. Like this is a small business. I'll ignore it.

But then, and Josh, you know, you look at like the deck and the confidential materials and you go, whoa, like there's a lot here. But Josh, you know, you've got to be Josh to see it. So if you're a business buyer, I think this thing you should take away from this episode is pick your spot and then look at every single deal in that industry and talk to operators and get up to Josh's level. Well, and notice the nuance, right? Because we kind of poke fun at every sim or every teaser's growth opportunities, which is like, this business could very easily say, like, get these higher certifications, sell to aerospace. And I usually look at those and I'm like, you know, yeah, right, right? Like, there's a reason they haven't done that. But because of your domain expertise, Josh, you're saying, look, I've done that before, right? I've gone from not having it to having it. I know how much time and capital and energy and employee time to budget towards something like this. And I know what the return on that's going to give me. I mean, every single growth opportunities talks about some of the things you're saying. It's just the ability to decipher which of those is reasonable and what's

the cost, the total true cost associated with that growth. Yeah. I think it's hard, especially in Twitter world where everybody's crushing it every day and doing it in 20 different ways, but to say no, to say, you know, hey, like, that's great that Bill's doing great and e-com. It's not my space. There's risks there that he's very comfortable taking that I don't even know about. And I talk to Rich Jordan a lot and he's like, you know, you could do this with sewer. And I go, I get it. There's a lot of money. But I don't, I'm not comfortable with tech risk. So other people, needing other people to be able to do the service, I can't jump in and fix it. I'm not comfortable with that risk. The risk I am comfortable with that many are not is inventory

risk. That doesn't scare me. I'm totally fine holding inventory, managing it. If I got to scrap it, I mean, I'm good with that. So, yeah, I think it's really interesting when you pick something specific, in my case, production, OEM, businesses as customers, and helping them on the back end supply chain. That's my niche. I'm very happy to stay there for the rest of my life because you just learn more and more. And the more you stay there, the more you meet people in the industry, it gets easier and easier to sell. So selling when I was 25 was hard. Nobody trusted me. I didn't know anybody. I know a lot of individuals that I've come across that have just built relationships with. And as they move companies, I can easily go and say, hey, I'm making this now. Do you want to buy it?

I know five major, multi-billion dollar companies where if I told them I was selling fasteners, they would immediately start buying from me. And that's just, that's by going deep and staying singular. Hey, Bill, we're running up on our hard stop. So it's a, this has been awesome. This has been awesome. I wish we could keep going. This has been great. So, Josh, let's wrap it up with you. Thank you for bringing these deals. I'm sure our listeners really enjoy getting known you a little bit.

How can they find you on the internet? What are you working on? Is anything you want to promote for a minute or two here at the end? Yeah, nothing to promote. I'm basically on Twitter quite a bit. I try to get there early in the morning and late at night. Joshua M. Schultz, so just my name. And happy to help.

If anybody wants to buy this deal, let me know. I'm glad to help you figure it out. But yeah, in my newsletter, I'm trying to write more and more about how I think about operations. So if you're interested in how I think about once a month, I send out a newsletter. That link is right in my Twitter bio. Awesome. That's great, Josh. And, Bill, thanks again to our sponsor, Tiny Acquisitions.com.

So helped get all this stuff going for us and the stuff we're paying for, like editing and that kind of stuff. So very appreciative. So give them a try if you're interested in buying a tiny business. All right. Great. Thanks, guys. Thanks, Josh. Great happy, Josh.

Absolutely. See y'all later.