Acquisitions Anonymous - #1 for business buying, selling and operating - Who should buy this $4.4m EBITDA, cashflow machine? - Acquisitions Anonymous Episode 128

Episode Date: September 30, 2022

Want to receive this listing in your inbox? Signup for our weekly newsletter:https://landing-newsletter.acquanon.com/-----Michael Girdley (@Girdley) is joined by special Co-Host Dave Housley (@housleyd) to talk about a 33-Year Old Tank Manufacturer in Texas. We’ll discover the common opportunities in this kind of business and evaluate how well connected a Company Listing is to the business as it provides useful information to consumers that tell them about the service choices, as well as comparing features, benefits, and prices. Together we will find out who would be the right buyer and most importantly, how reliable this Tank Manufacturer is.-----Thanks to our sponsor: NearHere's the deal. Remote hiring is expensive and hard. Near makes remote hiring simple and affordable.-> smart, English-speaking talent in your time zone-> save 30-70% on salary per hire-> no money up front, low-cost hiring, zero-risk-> dedicated recruiters & ~16k pre-vetted candidates-> Accounting/Finance, Sales/Marketing, Ops/VAs, Software Eng"Near is a cheat-code for any US company looking to stay competitive in the hiring market." - Sumner Vanderhoof, CEO of PropensityJoin 250+ happy customers (including @Girdley)Schedule a quick call today to get started-----Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.Do you enjoy our content? Rate our show!Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.-----Show Notes: (00:00) - Introduction(00:50) - Our Sponsor is Near(01:57) - Deal & financials: 33-Year-Old Tank Manufacturer in Texas (02:54) - What’s the background of this deal?(07:27) - What are the competition and demand for new ones?(08:21) - What is so interesting about this deal?(11:13) - How did the Business grow during the Pandemic?(14:08) - Why should you have a great copy in your listing?(17:29) - What else should we investigate if we wanted to buy this?(18:35) - What are the common opportunities in this kind of business? Who’d be the right buyer?(25:22) - How could you finance this deal? What would be a winner structure? -----Additional episodes you might enjoy:#125 Should we buy a CBD shop?#124 How much would wSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey, Michael here. Welcome back to another episode of Acquisitions Anonymous, episode 128 today. Me and my buddy Dave, Housley, is an awesome guy that I've gotten to know recently from here in San Antonio. He is actually searching for a business to buy. He joined me with Mills and Bill out today due to different stuff going on in their lives. But we talked about a deal today that was super cool. It's up in Dallas here in Texas. And I'm not going to tell you too much more about it, but it's a big boy. over four million in profits a year. So dig in here and see what you think. Dave and I might have liked this one. Our sponsor today is NIR. Here's the deal. Remote hiring is expensive and hard. And NIR is a company that makes remote hiring simple and affordable. It's the easiest way for U.S. companies to hire remote talent in Latin America. You can expect smart, very motivated English-speaking talent in your time zone, saving 30 to 70% per hire,

compared to similar U.S. talent. NIR offers a deal with no money up front, low-cost hiring, and zero-risk to you, and you'll have a dedicated recruiter with a database of over 16,000 pre-vetted candidates available to go through. You can use NIR to hire for all types of roles, accounting, finance, sales and marketing, ops, virtual assistance, software engineering, and more.

And NIR will handle all of the payroll, compliance, and onboarding, making it super easy for you. You can learn more at HirewithNIR.com, or email CEO Franco at hirewithnear.com to hire some folks today. That is hire withnear.com or Franco at hire withnear.com. Thanks. Okay. So, dude, the standard co-host could not make it today.

So coming in out of the bullpen, we have a, actually, our listeners don't know, but we have a bullpen of incredibly interesting co-hosts that sometimes we call in. And today is my buddy, Dave Housley, straight from the north side of St. Antonio. So I'm so glad that you're here. Thank you. Thanks for having me. Man, it was great. We were texting this morning.

I was like, okay, what kind of mic do you have? How's it going to go? They just showed up like the hero you are. So you're the man. You're totally the man. I'll do my best. So I have a deal that showed up in my inbox yesterday. And it was in the category of the rare deal for sale that I just took it and immediately emailed

it to the other guys and now emailed it to you. So I'm going to read it and then I'd love to get your take on it. We'll talk about it. So the good news is I have no exposure to this type of industry. So I know I'm going to have a lot of smart stuff. I'm talking about it. So it's off of BIS Buy Sell. So I'll share it here for everybody that's on YouTube. But we'll read it for those of you that are just on your regular podcast app. And it is a 33-year-old tank manufacturer for sale in Texas. So it has $4.4 million in EBITA. So it's located in Dallas, Texas, Dallas County, and it says it's relocatable, which is interesting to be, Dave, because manufacturers, they say relocatable, they're not that relocatable. It has a picture of a

tank, like on the back of a semi-truck. They're asking $15 million for this business, and it does $4 million in annual cash flow. Gross revenue is $17,600,000. EBIDA is $4.1 million. Furnisters, fixture, and equipment is 4.5 million, and inventory is 3 million, and the business has been around since 1989. The business description says, a 33-year-old COVID-proof business would GM to run operations staying. 33-year-old tank manufacturer thrives through COVID-19, poised for serious growth, fast-growing tank business has thrived during COVID-19. Oh, my God. Like, why do people keep, like, they're bearing themselves here by just repeating the same three things over and over again at the beginning of their at their listing.

This Texas-based company was founded in 1989, and the business started hand-welding small tanks for local farms and businesses, but a dedication to hard work and a quality product allowed the company to grow over the years. Operating a state-of-the-art facility, the companies above-ground tanks are high quality with strict specifications serving the agricultural, chemical, petroleum, and manufacturing industries. So these are like the big water tanks that you see, but not that are portable, right? So they're like on, on, so it's not.

not like the giant like water like tanks that you see or the oil tanks that you see that hold millions of gallons these are like I would say five to fifty thousand dollar tank five to 50,000 gallon tanks is what I'm when I'm reading here. As a manufacturer for all petroleum types of tanks, the company offers services and products to every market that uses fuel or oil products. Examples includes airports, bulk fuel storage, facilities, auto dealers, contraction. What is contraction? This is the worst written thing I've ever read. No idea. For those of you on YouTube, you can see Dave's face every time I read the broken English here. It's pretty great. The company manufacturer is single and double-walled storage tanks as well as fire guard and

flame shield tanks. General manager will stay for the right buyer or buyer group. Real estate in both buildings are included in the $15 million price. We believe any new owner will want the customized equipment. Parts room alone has an estimated $1 million in parts. And to ensure both shops are at full capacity of a machine goes down. Real estate and land will be leased for fair market value, reappraised at approximately 6 million. Last buyer was not a fit in this listing will not last long on the market. Please contact founder, CEO Michael D. Rubin at 469,995, 66, or Michael at Sell My Company Now, once NDA is completed for more information.

They operated out of a $95,000 building, 33 employees, FFE is included in the asking price, and facilities include two manufacturing facilities. Shop one is 40,000 square feet, and Shop 5 is 55. 5,000 square feet. And, man, they just keep repeating the same stuff over and over again. Seller will finance a little bit, and general manager who runs every and all aspects of both shops is staying long term for the right buyer. Owner will be available to ensure smooth transition to new buyer and buyer group and act as a consultant post-closing. And the owner is selling because they are retiring. So what do we think about this? And good news is real fast, Dave,

one of our things on the show is, do the brokers have a hat on? Are they touching their face in their picture? We know they're not trustworthy if they do that. And this guy just appears to be staying in front of his door. So Michael Rubin. They have a hat on. Dude, like, do not, yeah. Literally, I've had so much bad luck with people that show up to high-level business

meetings in trucker hats or people whose profile photos have them wearing like a chapeau, like, or cowboy hat. Like, it's just bad. Like, don't wear a hat in your personal profile photo because it scares the crap out of me. So anyway, 33-year-old tank manufacturer for sale in Texas, 4.4 million in earnings. They're asking a little over three times earnings for it, so 15 million. What do you think about this? Are you ready to write a check?

Well, there's a lot to like about it. One thing I'm confused is it says, I think it says the real estate and the billions are included at one point. And then it says, and then it also says, well, we're going to lease that back to you. I'm unclear right now if the real estate is included, but outside of that, I don't know much about this tank business. I'm wondering what kind of competition is out there for the tank business and what kind of market exists for new tanks. I mean, are there a lot of old tanks out there sitting around? And is there a huge demand for these new tanks? So that's the kind of thing I'd like to see first before writing a check on this.

Yeah. Let's talk about the real estate a little bit. It's very confusing because you're exactly right. At one point in the listing, it says real estate and in all caps, real estate and both buildings are included in $15 million price. And then later on, it says, okay, well, we'll lease it back to you. We'll lease back the property to you. So anyway, it's just, it's just bizarre in terms of how these things are written. Like, this is the thing that drives me nuts.

Like, who's doing the copywriting on these listings? I mean, I do like the longevity of it. I mean, 33 years. Certainly, I'd like to see as far back as we could go, I'd like to see the financials, you know, and see, okay, they're making these claims. You know, through COVID, this thing was doing well. You know, is this thing really growing, you know, over the 30-year period or, you know, what kind of ebbs and flows have we seen. You know, and I also like that the general manager is going to stay too.

You know, especially for for someone like me, I don't know about this tank business. You know, the more intellectual, you know, horsepower that stays on the better here. Yeah. Well, I do like also, like, this is not a general purpose tank construction group. Like, these guys very specifically work on petroleum. tanks, which you know, you're also specializing a bit more there to where, you know, because you're selling a very flammable tank, my suspicion is that you're in a situation that you can specialize a bit around that stuff. So I think that's, I think that's really super good.

But I think you ask a great question, like, what are the barriers of entry? What are the things that keep somebody from competing with me if I buy a business like this? And I think it's really interesting that probably the competitive modes have shifted over the years for this stuff to where I bet you what is this, the competitive modes at this point for this business are relationships with existing customers who come back every time they need another fuel tank. The second thing that's a huge moat is, you know, the institutional knowledge, right, where these guys have been building tanks for 33 years. There's probably people that have been in there building tanks in his manufacturing facility for that long because these are all custom, right?

They're not like, they're not mass producing these. That's what I can tell from this. It's like, you send us an order. We produce you a tank. and it shows up. And then I think the third mode, which is something that they should just totally talk about, is you have 33 people working in this company who understand how to build petroleum tanks. Do you know how hard it is to hire 33 people now that know how to do this stuff? Like, it's impossible. Like, every manufacturer that I know can't find people that, A, know this stuff and B, want to do the work in the hot Texas summer. Like, I think that's really good. Well, that's a good. I love that aspect of it. If you've got a lot of people that have been working in this company for that long and the owner wants to hang it up, I'm thinking, how many other people in here are going to want to hang it up soon? And then can you replace them? Is there, is there that kind of talent and knowledge out there that can step in and keep this thing going? Yeah. Well, I mean, fortunately, the best way to probably train them is you have the ability to bring them in and get mentored by your existing people.

I mean, you do have to like the 33-year-old thing, right? And it comes back to what you're talking about. Like, they survived COVID. Now, I think it's interesting that they're positioning this as something that did well in COVID when actually COVID was precisely the time when businesses like this did incredibly well, right? It's like the shipping business, the e-commerce business. Like, I bet these guys were a huge COVID beneficiary. I would actually just like you're talking about want to see the trajectory of revenue. prior to COVID.

Like, what did it look like before then? Because this went through a period where supply chain was so screwed up, they could basically quote whatever they wanted for manufacturing tanks like this. Like, and I've bought from small-scale manufacturers like this, and they were just suddenly during COVID, it was like, okay, well, we can only produce 10 of these a month. And whoever's paying me the most is going to be getting their order first. So what would you like to bid for your thing?

And you pay 30% more than you do. did pre-COVID or just didn't show up. And it was just a huge mess. So I would really want to know what did COVID actually do to this business? Because this almost smells like one of those companies that really benefited from COVID. Yeah, I agree. From COVID. I mean, some of the numbers really look great on this.

I mean, revenue, $17 million, cash flow, $4 million. And I do like the fact that, you know, they spell out a lot of different markets that they sell into, you know, a whole list, a whole list here. Yeah, it really, it's a total testament to having real pricing power, and they appear to have it. So super interesting. Yeah, so definitely want to look at that. Definitely want to understand, you know, how when you dig into this, what sort of pricing

power they had during COVID and how that was consistent with stuff. But, you know, I come back to this 33-year-old thing. There's this, you know, if we talked about this idea of Lindy before, are you familiar with that? Yeah, so Lindy is this idea that basically, if you want to predict how long something's going to perform for in the future, your best guess is assume that we're halfway through the life cycle of it, right? So if something's lasted 20 years, you can probably assume it's going to last another 20 years. If something's lasted two years, you know, your best guess, your mean guess of how long it's going to, your average guess of how long it's going to, your average guess of how long it should last should be another two years. And when you're 33 years old, like a business, like, that's a pretty good sign. But I think the second thing that has me worried is a business

this size is out on the market and being marketed on biz by sell. And I got the email and I'm not a standard buyer in this space. It scares me when I look at a business like this. And I'm like, oh, like this tank manufacturer, like, why am I the lucky buyer here? Like, because there are people rolling up things like this and why hasn't it been rolled up by them um which would put me on alarm when i go look at this this this big this size uh falling all the way through to the biz by cell um it doesn't give you the the war of fuzzy feelings i guess so down now it to put the story together you i've talked about how horribly written this listing is um maybe the broker is just a a doofus.

I mean, and then the nice way possible, maybe he's just running a terrible process. But why is he calling us and not people, you know, like, I mean, no offense to the guy,

but there is no excuse if you're trying to get paid 6% or whatever. He's charging as a percentage of sale for selling this business to have a, you know, have a description that repeats the same thing four times in the first paragraph. Like basically, it's like sentence, sentence two, sentence three, and then like, there's no, there's no reason the first three sentences all say the same thing in all caps. Like, it's just embarrassing. Like, don't do this. Like,

hire, hire somebody and clean up your copywriting. So that's another way this could be going. Maybe, maybe this is just a guy who's got a broker that, you know, doesn't know what they're doing. Which could be a red flag. I mean, if you've got, if you've got a $17 million business, who are you going to go to to help you sell it? You know, I don't know, I don't know these brokers. I don't know if this is the, you know, if this is the, the route I would go personally. But it seems like, you know, it's, it's a well-established business. It's a profitable business.

You know, I want somebody that's going to represent me, I guess, the best I can. Yeah. Well, I just clicked on the broker's listing, MDR and associates. And if you guys, sorry. Yeah, if you are associates, I will totally talk about how amazing you are if you sponsor our podcast. But, yeah, so, I mean, the website's actually actually not terrible. They do have it listed on their website here amongst that and a skate shop located. I think I've seen this skate shop.

I saw this skate shop that he has listed on here. I think it's in Houston, this skate shop. This thing's been on here for a long time. So, you know, given this is on the website and given it's blasted out through Bizby Sell, there is something going on here. There's something going on here. So this feels like one of those ones that you look at from a listing standpoint, and you're like, this looks pretty darn good.

But the reality is, like, I would go in looking straight away for why has everybody else passed on this already because it just doesn't make sense. And you hear, I think you see here that the last buyer was not a fit and this listing will not last long on the market. So that means somebody has come in already and look at this and hated it. So anyway, I'm not opposed to like a business like this, you know, understanding the context of it. And I'm like, okay, well, should I go in and take a look at it? Yes. Should I also do everything possible to try to identify what is, potentially wrong with this deal, so I don't waste my time on it. This is like case and point of exactly one of those type deals. Yeah. Yeah, very interesting. I mean, the thing is, I mean,

like with any deal, you just don't know how much hair is on this thing. So it smells like this is like the hairiest of porcupine deals. That's what I'm looking at. Another thing here, like they're, they're throwing in the inventory. You know, I'm curious, they say they have $3 million of inventory. We need to look and see exactly what that is. Need to understand all. also something we haven't talked about, how much customer concentration potentially do they have. A lot of times you go look at a business like this and they'll do, you know, 17 million of revenue. And it turns out 14 of it goes to one like tank supply company out in Midland. And they're going over and over again to the same people.

And you're totally dependent upon those guys for your for your business. So something to look at there as well. You know, I do like that it has already been run seemingly hands off, right? So, you know, the existing owner seems to be retired and coming in and doing the baby boomer thing where they work when they feel like it. And the GM is running stuff. You know, I think that would be something else to size up. Like, how good is this GM really? Could you have them be a CEO?

You don't know. You don't know. But if you, if this did come with a CEO, man, that's much more attractive than if you're buying yourself a job. Yeah. And if this guy, you know, it says he's the founder, CEO, the Michael Rubin guy. I mean, if this guy has been there. Oh, no, no. Sorry.

I think Michael Rubin is founder and CEO of the brokerage. Oh, okay. Okay. So I wonder. So please contact founder, CEO of the brokerage in all caps once the NDA is completed. That's the way I read that. You know, I wonder the history of the ownership here, the history of how it's been managed. I mean, it could be one of those situations where you've got somebody that's owned it from the beginning.

You know, they've run it a certain way. And maybe they haven't really maximized, you know, a lot of the efficiencies there. So somebody could come in and really streamline things that, you know, somebody knows what they're doing. So who do we think could potentially be the right buyer for something like this? I mean, at this price, it's pretty good. You know, the downside is I don't think it's at the wrong size to be SBA. eligible, but also if the thing really does have a history of spinning off four million of cash, let's see you could go borrow two to two and a half times EBDA against this.

So you do $8 million to $10 million in debt on this business. It has hard assets, right? There's land coming with it, so a bank theoretically should like that. And then you come up with somewhere around $5 million in equity, or you do a couple million in seller financing as well, right? So you come up with a few million in equity. you know, those numbers may be aggressive on the debt to equity side, but like, potentially you got something here in terms of being able to finance this thing. This is the type of thing

that banks like to finance. It turns out they don't really like to finance software companies and stuff without hard assets because it's still to track that stuff down. But you've got hard assets here, cash flow, you know, ideally the books here are something that looks reasonable, you know, and if they've kept decent books at this size, but you never know. So anyway, I just kind of, asked you a question, then I went off on a tangent about how to finance the structure of the thing, but what do you think? Yeah, I wonder if you're a, you know, let's say you're in the fuel or the oil business and you're one of their customers, do you bring something like this in-house? You know, if you need tanks, yeah, if you need tanks like this, why don't you just bring this in-house

and, you know, and manage it that way? Yeah. So potentially somebody is a vertical integration. obviously I think another tank manufacturer, which I kind of wonder why I'm sure there's tank manufacturers like this in Houston. I'm sure there's PE-backed roll-ups who've been putting together little manufacturers like this. Why haven't those guys gone after it? I do have a buddy that is in a similar space to this. They do almost the same kind of welding and type stuff, but it's not tanks. So that's as far as I'll go on talking about what that guy does.

It's about the same size. And it's located here in Texas as well. but they also have a manufacturing plant in Mexico where they've gone and they've created a facility in Monterey. And I think like two thirds, three quarters of their work actually gets done down in Mexico now. That's wild. That's wild. You know, when you sent this over to me, the header of this email and it says tank building business, I thought it was going to be tanks as like, you know, artillery tanks.

And I'm like, this will be cool. Potentially, that is a much better business than this. I bet it. Because when you're selling tanks to the U.S. government, like, that could be a really good business if you are the sole supplier for the M1 Abrams. Yeah, I was going to say, yeah, if you've got, if you got that contract, that's a business I want to be in. Yeah. I mean, occasionally I have people pitch me on government contracting businesses, and I know people in it. And the world is the world of selling to the government and those type things is so weird and so

political and it's changing all the time. You know, my friend, she, he has a business that does government contracting. And what happens to those government contractors, have you ever looked into kind of the trajectory that will happen with them, like when they're startups? It's nuts. So they'll start out and it's just like two schmows who know how to do like government contracting and they'll like start out with okay like let's get one contract and it could be like a generic like staff 700 people at this call center in Alabama right and suddenly you go from zero million in top line

revenue to like nine million because you take on some contract that nobody wants and then the next thing you know like that contract ends and you like have to fire 600 contractors and then you're moving on to the next thing and in you you know it's feast or famine and you've got somebody running around in D.C. doing the sales for you who knows everybody in the town and can call them and knows how to identify when there's opportunities in the government procuring process. It's just this whole game that is just a totally different world from the real business world that you and I are in. And I guess that's real business, but you're only one customer and they're kind of fickle and kind of political. But it's just bizarre. And then the second thing that'll happen is these things,

there's advantages when you're a government contractor and you are sub-scale, which means like you're under a certain amount of revenue or your minority owned or you're female owned or disadvantaged person owned. But once you get past that small business qualification, the clock starts on you to where you're in no man's land from a contractor standpoint. You don't have that small business label anymore after several years. And then you either have to sell out to one of the bigger contractors who has all the four-star generals on their board. so they get lots of contracts all the time, or you have to shrink back down to where you go back to small business again. Like, it's this really precarious growth thing.

So there are people that start these government contractors, grow them to a certain size. And then the moment the clock stops to where they're going to lose their small, they're going to lose their small business certification to have those advantages and contracts, they flip to a bigger contractor, and then they go back and they start it again. And there's people who have done it like three or four times. This is just a bizarre world.

Wow. Wow, that's incredible. So, yeah. So anyway, back to this deal. What about a search funder? Do you think a search funder should go do this deal? Boy, it might be worth digging into. I mean, there's definitely some things that would make me nervous right now just based on the limited view of this from this listing.

But, you know, it might be worth looking into. I mean, the numbers are so good. I mean, I'd love to be the owner of it, right? Yeah. But it's just a matter to me of, you know, how much, you know, what's the runway here? How much life does this have left? You know, if I'm going to, if I'm going to pay, you know, a hefty amount for something like this, you know, I'm hoping to get my money back pretty quick. Yeah, I hear you.

I hear you. Well, look, okay, so here, imagine a structure for this that looks like this. Let's say you negotiate the guy down to $14 million. So we buy it for $14 million. And you get him to seller finance $2 million of it. So then we're left with $12 million. You go put together $3 million in equity and you borrow $9 million in terms of debt to buy the thing. In theory, in theory, let's say that a million of that $4 million earnings gets eaten up by interest and all that kind of

stuff. And so you could potentially be generating $3 million in cash flow on $3 million in investment. I mean, I like that. That's hard to walk away from, right? So that's how you would structure something like this, and that is the genius of other people's money. So here's all the problems. Here's all the problems with that. Number one, you got a seller and you got to pay him off over time. So it's going to take you a number of years to do that. But you're only paying three times earnings here, right? Three and a half times earnings. The second thing that potentially is going on here is, you know, when you borrow that money, there's a good chance to the bank or banks are going to want you to personally guarantee that money. So it's not like they're giving it to you for free. So it's very, you know, there's some downside to all this.

But like other people's money is how if you look at almost everybody, they got rich. Everybody from Bezos to Warren Buffett started with other people's money. And that's the way to create leverage and a lot of this stuff. So anyway, people do ask, like, how would you structure this? Like, that's the structure I would start with. And the more I talk about it, the more I'm like, why the hell am I not doing this? That seems like a good deal. I love that cash flow, no doubt about it, right?

I mean, for me personally, like, I've got business interest in Dallas already. And it's like, like, I know this. I know the world of the people that work in this. Like, I mean, everything about this is there. Maybe I should sign the NDA. This is much better than that sign shop I looked at. Okay. on that note, I think we beat this one all the heck.

Hey, it's relocatable too, right? It's the dumbest thing. You don't relocate this from Dallas? What are you doing? Like, come on. This is dumb? No. You can, like, you're going to move all 33 of those employees down to San Antonio or whatever?

Like, no. It's just not a good suggestion. So, Dave, thanks for being here, man. Super fun. I appreciate you jumping in. And I hope you'll come back. And have a feeling you're going to come back the next. episode too. Thank you. Thank you so much. It's been fun.