Acquisitions Anonymous - #1 for business buying, selling and operating - Would You Pay $18M for a Metal Fab Biz That’s Only 5 Years Old?

Starting point is 00:00:00 Hello, everyone. Welcome back to another episode of Acquisitions Anonymous. My name is Bill Dallisandro, and I am one of your hosts, and this is the Internet's number one podcast on buying, selling, and operating small businesses. I'm on this week with Michael and Heather, and we have a big one. It is $4.5 million of EBITDA fabricating metal, we think, for oil field services in Houston, Texas. This business is really cool. It's been around for just five years, so they've scaled from, from zero to almost $5 million of EBITDA in five years. They're asking 4X. So we're digging to this one. Is this a good searcher deal?

Starting point is 00:00:39 What's wrong with it? A couple of things tip us off. So I hope you enjoy this episode of Acquisitions Anonymous. Hello, another episode of Acquisition's Anonymous. We don't have 100% beers anymore. And thumbs downing on just the plus inventory line. Hey, everyone. It's Bill.

Starting point is 00:00:58 And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called CapitalPad, and it is the thing that I wish existed when I started my journey of operating and investing in small businesses. So CapitalPad is a marketplace for acquisition entrepreneurs that is people who want to buy a business and need capital to list their deals and solicit capital from other people who want to invest in acquisition deals. So if you want to back somebody, Buying a small business, CapitalPad is a place to do it. And if you want to buy a business and need capital, you can go on CapitalPad to be introduced to investors.

Starting point is 00:01:40 So the really great thing, too, from the investor side is that CapitalPad takes care of all of the details that can get hairy with small business acquisitions. They handle standardized terms, standardized governance, standardized distributions all up front in black and white. Basically, CapitalPad professionalizes investing in. in small businesses. And the returns can be really, really good. I'm so stoked they exist. It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out Capitalpad.com and tell them that Acquisitions Anonymous sent you. So we're changing the SBA rules again? I wanted to hear from Heather.

Starting point is 00:02:28 So Heather, right before we started recording, Heather was like, I said, Heather, did they change the SBA rules lately? And she goes, they changed them a lot. And so I want to hear Heather how they changed the SBA rules recently. Okay. They changed a few things. One, rollover equity just doesn't really work anymore because they put three really onerous rules on it. So if you want rollover equity, the seller has to personally guarantee your loan for two years. Now, any percentage? Any percentage. So if they're below 20%, and they got some proceeds, so they divested some of their shares, as long as that's the case, they have to PG your loan for two years. So I don't know many sellers that are going to agree to that.

Starting point is 00:03:10 Number two, you also have, this is only in rollover situations. You would have to do it as a stock sale and any investors in your cap table that even if they're below 20% have to personally guarantee the loan for the life of the loan the whole time. Whoa. So it's like who's going to do that? Those are really, I think, just unreasonable terms for a seller or investors or anybody to do. So the problem with not being able to do rollover equity is licensed businesses where you need the seller to stay on or anytime you need the seller to stay on board more than 12 months. Because when you buy the seller out fully, the rule is they can't stay more than 12 months. So we revert back to pretty much everyone's going to have to do that, buy them out fully. And now we can't have any situations where you have any seller dependency license is usually the situation beyond 12 months. So there's all these. There's actually no way for the seller to stay involved past 12 months at all. Because they can't roll because that's not workable anymore.

Starting point is 00:04:11 Exactly. If they don't roll, that means definitionally they're getting bought out entirely. And so they have to depart the business within 12 months? That's right. Can they get rehired a license holder? Yeah. Right. And so even if it's a master plumber's life.

Starting point is 00:04:24 license and it takes you three years to get it. I don't know many master plumbers who are out there, you know, doing M&A. Sorry. You know, right? Only licensed business is now on saleable with an SBA long functionally. Close, pretty close to it. Like there might be some exceptions if there are employees that also have the license and, you know, there, there might be some exceptions, but it's not easy. And yeah, there's a lot of them that are technically, they just can't be SBA finance. The seller will have to carry is maybe the only way. Worst. So the takeaway here, kids, if you're going to do an SBA loan, don't go to loan.

Starting point is 00:05:01 Call Heather. She'll help you because this stuff's confusing. In the meantime... We'll spot stuff. Yeah, for you early. In the meantime, I brought a deal in celebration of Bill being back from his vacation. So welcome back, Bill. I'm glad to be back on Acquisitions Anonymous.

Starting point is 00:05:16 I haven't missed you guys. Because you're back, I brought a big boy of a deal. Big boy. girl, depending on how you look at it. It's both. It's a cash cow, so I think it's a girl. There we go. So at a huge cash cow metal fabrication business with strong client base in Harris County, Texas. Do you guys know where Harris County is? No. It's in Houston. Okay. So Houston, Texas metal fabrication. Yeah. So there are all kinds of metal fab businesses like this. and this I think is probably a picture of the metal fab.

Starting point is 00:05:55 And you can see these appear to be oil field parts. Yeah. Okay. So there are all kinds of- In Houston, right? Yep. One of my friends owns an immensely profitable business where they make for oil refineries,

Starting point is 00:06:15 they make, when you hang pipes in the air, you have those little connectors, little metal connectors that connect the pipes to whatever the supports are, they make those connectors. And they do very well. The past few times I've seen, they had a chauffeur drive them. That's all they make is the, like it's like a band that goes around a pipe and then like crashes. And that's all they do. Correct. That gets you a chauffeur.

Starting point is 00:06:41 Amazing. Yes. The economy is so big. I didn't even, this has been a few years since I've been in their presence, but. They also, you know, you can buy like stretch Maybox and stuff like that. They had like one of those. It's pretty amazing. Yeah.

Starting point is 00:06:55 So like stretch like you have more room in the back like Rolls Roy style. So like, all right, if I own an oral field services company or I'm building or ratio or whatever and the guy who makes my pipe fittings rolls up and stretch Maybach, like I'm going to have a problem with my pricing. Like immediately. I mean, it's just, yeah, well, they're probably doing $250 million. year and those little attachments. Whoa.

Starting point is 00:07:21 Yeah. I mean, there's just so, you know, if you look at it, I think oil field, oil petroleum is like the 11th biggest industry in the United States. There's just so much money floating through. And, yeah. And all the stuff that goes on with fracking and the stuff, you know, it's just so much money. But he does have to live in Houston. Some of Houston's really nice. Some Houston is really nice.

Starting point is 00:07:45 I would say Houston is actually, if I had to pick Texas cities to live in, Houston's number two for me. Oh, really? Really? Yeah. Yeah, West Houston is really, really nice. Memorial and all those types of places. And the thing I like about Houston is the culture is the opposite of pretentious. Like, they're all just like, they're all oil people.

Starting point is 00:08:05 It's like, it's like living with a bunch of gamblers. It's just great. Have you lived with a bunch of gambling, Michael? Yeah, a bunch of degenerates. All right. We just gamble with SBA loans. Don't tell how it. Pretty.

Starting point is 00:08:18 Right. Asking price is $18 million for this metal fabrication business. It does $4.5 million a year in cash flow and $15 million year in gross revenue. I like it. Yeah. EBIT is not disclosed and real estate is not disclosed. It was started in 2020. It's four years old, five years old.

Starting point is 00:08:39 Okay. So it's got 30% EBITDA margins started in 2020, 18,000. million sales. Wow. Yeah. So they want to sell for just under four times cash flow. This well-established privately owned fabrication company has been serving industrial and commercial clients since 2020. Known for its quality craftsmanship and reliable turnaround times, the business has built a strong reputation and brand presence in its niche market. Ownership is preparing for retirement and is offering the business along with the real estate as an option for a bundled sale. This opportunity is best suited for an established industry

Starting point is 00:09:12 operator are manufacturing business seeking to expand through acquisition. Harris County, Texas, which is Houston, real estate is owned, 17 employees, and the operations are housed in a company-owned facility featuring dedicated fabrication bays, a loading dock, and modern equipment capable of handling a range of custom jobs. Property includes administrative offices and ample space for production and storage. The 30-acre property, which the business fully owns, is also listed for sale as a bundle. The business serves a diverse mix of repeat commercial and industrial clients across construction, energy manufacturing and infrastructure sectors. A strong portion of the revenue comes from long-standing relationships with regional contractors

Starting point is 00:09:47 and project managers. There is significant opportunity to scale the business by expanding into new markets, diversifying service offerings, and enhancing marketing and sales efforts. The seller is prepared to provide transitional support to ensure continuity and set the new owner up for continued success. And the reason for selling is retirement. And it's listed by Dr. Amer Hassan from Business Links International in Houston, who's sponsoring broker is Rocco Bell.

Starting point is 00:10:11 So, Heather, you've probably looked at some businesses like this. What do these guys do exactly? I'm not sure exactly what they are making, but obviously it involves metal. It could be pipe and valve. I mean, I see some things that look like pipes here serving the oil industry. Maybe all kinds of specialty metal fabrication. You know, I'm kind of a little surprised that it's five years old.

Starting point is 00:10:36 They talk about longstanding, you know, strong client relationships, but being only five years old, it makes me think that whoever started this business had these relationships in some other business a lot longer than the five years that we're looking at. It's got to be that, right? And they're retiring. So they started this business at what, 60 maybe? You know, someone that's older, that's well established, went out and started this business. They maybe were working for another company, killed it.

Starting point is 00:11:04 And now they want to, you know, get that retirement pop so they can go retire. That's what it looks like to me. That's what it looks exactly like to me, too, that somebody has deep experience here and say, hey, we could do Melfab in addition to what else we were doing. I'm a little nervous about the line also that says, this is the best acquisition for an existing player who wants to do add-on. And that makes me nervous too. Why can't, I mean, this has got $4.5 million of EBITDA.

Starting point is 00:11:31 Like, anybody should, this should be a standalone business. Why is it? Yeah, it's connected to something else already somehow through this. Whoever established this, it's connected. And it could be that that other connection is the sales pipeline somewhat, so to speak, pipeline. Get it? Yeah, exactly. Which is a great business to start.

Starting point is 00:11:52 I mean, it's like a vertical, it's probably a vertical integration attached to some other business, right? Which is awesome and great. And it's thrown off $4.5 million a year for this person. but tough to sell. I would argue if that's the case, they should forward it into the other business. That should be the buyer. Yeah, that's the buyer that you sell to.

Starting point is 00:12:15 Yeah. And maybe there's a reason that that's not the buyer. I have a lot of questions. My friend is starting a industrial's private equity firm. So I just sent this deal to her. Okay, well, you should buy that. We'll see if she text. He's not allowed to home because it's been.

Starting point is 00:12:32 that's for a strategic who needs to do an ad on acquisition. I mean, the finances of business are amazing, right? It's got 15 million sales. It's wrapped with 15 million sales in five years. It has 30% EBIT dot margins. It appears to have a relatively custom, or I should say purpose-built building, which probably is great for it.

Starting point is 00:13:00 It's got the fabrication days, et cetera. I'm got to assume that the price does not include the real estate. You could go buy the real estate somewhere else, which of course raises the question, is the EBITDA fully loaded for market rent? If you don't buy the real estate or not, who I'm, you know, the seller also owns that, obviously. So questions, diligence questions.

Starting point is 00:13:24 Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size fits all. There's the best rate, fastest to close, the specific loan structure that you need, or a little of all of those things. That's why my company, Vizzo Business Capital, works with over 30 different lenders to find you

Starting point is 00:13:46 the best funding in less time and with less friction so you can focus on the deal. Sign up for a free live Q&A session on SBA loans at Vizoccap.net. Then click Zoom sign up in the top right corner. That's V-I-S-O-C-A-P dot net. and click Zoom sign up. This, I've tried to forget, I pulled up to picture. Dollar Shed Donuts, this is their facility. Why it's in black and white, I really don't know.

Starting point is 00:14:13 But I would, yeah, it looks like kind of the old school, like types of facilities you would see in Michigan, like for car parts and car manufacturing, like long, skinny, you know, we're going to move stuff through the facility. but it doesn't look like they're running that type of assembly line here. It looks actually like it's stamped out vertically, so you can see those kind of towers on the right on the floor, and there's like individual bays or units that are probably all prying out the same thing. Yeah, there's like some,

Starting point is 00:14:46 like this thing right here has some gears to it. That's just the extent of my mechanical knowledge. Yeah, I don't know what this is. Look at there's some screws there, Bill. I'm not going to say anything. I have no idea what this is. So what I do know here is there, significant cap-ex in this picture.

Starting point is 00:15:02 I mean, there's the building, which you can buy or not buy, but if you don't buy, you got to rent it. So there's, you know, a cost of capital either way to use the asset that is the building. There's also all of the cap-x that went into, you know, whatever these machines are that we're looking at, which I wonder if that is how they were able to ramp so quickly. You know, it could be that there is latent demand for this thing, but there is a capital mode here. And whoever is the founder here had the capital stood up the facility and bottle machines and boom, you're in business immediately soaking up late in demand.

Starting point is 00:15:41 I would say if that's the case, that is almost better. Right. If they were able to cross a capital mode and get started here, that might indicate that the only cheat code they had was capital and not some sort of pipeline of leads or some attached business. which case maybe that's better and there's a load here. Yeah. It would not surprise me if the guy who started this had done this before and sold the business and then all of his customers came over and started working with him at the new business. It smells precisely like that.

Starting point is 00:16:16 The sell it, the sell it, but it organically goes back to you type situation. Yeah. It's a great situation to be in, man. Well, we talked about that. There's a guy here in San Antonio that has. has sold and bought back twice now, an aviation business that is located out in the west side of San Antonio. He sold it to private equity twice.

Starting point is 00:16:38 They screwed it up twice. He bought it back twice. And each time he sells it back double for the size he sold it for. I'm sorry, doubles it from the size he buys it back for. So pretty cool. Amazing. I love that. All right.

Starting point is 00:16:53 So where are we out on this one? You guys like it or hate it? I want to like it. I don't know a ton about it. I love the financial profile of it. I'm a little nervous it's five years old. If there's capital mode here, you know,

Starting point is 00:17:05 maybe this machinery is pretty new, right? It's not fully depreciated. This is only five years old. So you're not looking at a whole bunch of deferred capax or maintenance capax. I don't think. Actually, I would want to understand the maintenance capax if that's an EBIT or not. I like it.

Starting point is 00:17:21 Cautiously, I worry why they think it's only an add-on, but I like it. I have one more concern about it and it has to do with cyclicality and how much, you know, if this is the kind of, whatever they're producing, if it's the kind of thing that is only in high demand when oil prices are high, you know, and goes back down when oil prices go down. So I'd want to, there's a lot of questions. I have a list of like 15 questions that are like the answers to each of them could be the deal breaker. But, you know, if they all answered those correctly, then yes, I like it. Look, I think they're asking 3.8 times cash flow, cash flow, not EBDA, right? Like, they're asking 3.8 times that for a CAPEX heavy business that has grown to 15 million in gross revenue in five years in a niche in the energy sector, in a reindustrializing America that wants to build more things here. I think this is worth getting the SIM on and seeing what's going on.

Starting point is 00:18:22 But I will tell you, I am thumbs up, but it's like a blue thumbs up because I guarantee what's going to happen is you're going to dig into this and there's going to be just some huge deal killer on the whole thing. And that's why it's on biz by sell and that's why it's so cheap because stuff like this is not trading for if if this is a business with a moat that's generating kind of stable cash flow and has all the characteristics I just talk about, they're not trading for 3.8 times. They're trading for 7 or 8 times. And there's just something screwy about this deal. But I think somebody should go figure it out. and then they should tell us what it is. You've seen the businesses a lot that are too big and too underpriced. And to your point, Michael, it always means there's a deal killer.

Starting point is 00:19:00 There's some reason it's not transactable. Now, it just means you can solve that with maybe risk sharing, you know, maybe earn out. You know, like I immediately reach for those tools in these situations. But it's typically in these situations when it's priced that low, it's because it's really hard to transfer the risk to a buyer. And you usually can't buy these at all with debt because of the risk. Agree. All right. Well, we'll put the link below.

Starting point is 00:19:25 Somebody go check this one out. It's on Biz Buy Sell. And hopefully you find out something interesting because it looks really interesting. Or somebody should buy it. Or this is the deal you've been looking for, searcher. This is the deal. This seems like a perfect super searcher deal. Perfect super searcher deal.

Starting point is 00:19:45 You know, that 15 to 25 million EV, 3 to 5 million EBDA. So we should do it. Heather should do it. No. She's dying to go to Houston in the summer. Too hot, human. They have horses there. Well, okay.

Starting point is 00:20:00 I'll do it. All right, everybody. If you enjoyed this episode, tell a friend and help us grow the pod. We'll see you next week. Bye.

Acquisitions Anonymous - #1 for business buying, selling and operating - Would You Pay $18M for a Metal Fab Biz That’s Only 5 Years Old?

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