Acquisitions Anonymous - #1 for business buying, selling and operating - Would You Pay $6.75 Million for a Magnet Company?

Episode Date: July 28, 2026

In this episode, the hosts analyze a highly profitable industrial magnetics company with $1.3M EBITDA, debating whether its recurring demand, outsourced model, and durable niche justify a premium valuation.Business Listing – https://www.websiteclosers.com/businesses/lender-pre-qualified-industrial-magnetic-equipment-company-50-repeat-order-rate-42-net-margin-zero-ad-spend-semi-absentee/119091/Welcome to Acquisitions Anonymous – the #1 podcast for small business M&A. Every week, we break down businesses for sale and talk about buying, operating, and growing them.Looking to build a professional website in minutes? Try Wix: https://wix.pxf.io/c/6898629/3115214/25616?trafcat=templateHubSpot is the backbone for how businesses scale without chaos. Try them out here: https://go.try-hubspot.com/OeG9VrSubscribe for more episodes: https://www.youtube.com/@AcquisitionsAnonymousPodcast?sub_confirmation=1Subscribe to our Newsletter: https://www.acquanon.com/newsletter💰 Sponsored by:Quiet Light Brokerage specializes in helping entrepreneurs buy and sell businesses with experienced operators as brokers. They offer a free valuation clarity call to help owners understand what their business is worth and how to increase its value before selling. Learn more at https://quietlight.com/FRANZY - Thinking about buying a franchise instead of an independent business? FRANZY is a free platform built for acquisition-minded entrepreneurs who want to explore franchise ownership without broker bias. FRANZY matches you with franchise opportunities based on your capital, goals, and lifestyle—and includes free coaching from experienced franchise operators. If you're exploring ETA but want a structured, system-driven alternative, check out https://franzy.com/ This episode breaks down an industrial magnetics company generating approximately $3.3 million in annual revenue and $1.35 million in EBITDA, listed for roughly $6.75 million. Operating with an asset-light model through outsourced manufacturing and fulfillment, the business has built a strong reputation across industrial markets while maintaining impressive margins, repeat customers, and minimal owner involvement.Key Highlights:- Industrial magnetics company producing $3.3M revenue and $1.35M EBITDA with only 6–8 owner hours per week.- Asset-light business model using outsourced manufacturing and fulfillment with over 1,500 distributors and OEM partners.- Approximately 50% repeat customers replacing industrial magnets every 18–24 months.- Strong debate around whether the business deserves a 5x EBITDA multiple or should trade closer to 4.5x.- Excellent discussion on key employee retention, SBA financing, and post-acquisition management risk.Subscribe to  weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking hereDo 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]

Hello, everyone, and welcome back to Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. I am one of your hosts, Bill D'Alessandro, and we had a great episode today. I was with Travis Jameson from CapitalPad and Mills and Heather, and we talked about an industrial magnetics company. They make those giant magnets that hang from cranes and, like, lift up cars in junkyards or pull out iron out of junk metal scrap piles. So this business has $1.3 million of EBITDA for sale for five times.

So I think you really enjoy this episode of Acquisitions Anonymous. We'll set acquisition Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100% beers anymore. And thumbs downing on just the plus inventory. Hey, everyone, it's Bill. And I want to talk to you about Quiet Light brokerage. I was so psyched when Quiet Light agreed to sponsor the podcast because I am a customer.

I have used Quietlight to sell three businesses, and if I were selling an e-commerce or a SaaS business, I really would not consider anyone else. Like I said, I went back to them three times. I work with three different brokers at Quietlight. Had a great experience all three times. Even on one occasion, they found a buyer for a business that I just didn't know it was even going to be possible to sell. So they have pulled rabbits out of their hats several times for me. They've been in the e-commerce and SaaS business brokering game a very, very long time. They really know what they're doing.

They have great reach with both buyers and sellers. And the other thing I really love about Quietlight is all the brokers there are former operators. So you can't just show up and go, hey, I'm a lifetime business broker. I want to work at Quietlight. You have to be a former operator. So they all know what it's like to be in the operator chair. So if you go to Quietlight.com, they have free business valuation calls, which they'll do with you. No obligation.

Just tell you what they think about your business, what they think it would be worth. And then what you might need to do to kind of get it ready from my business. market. Those guys over there are great, great SOPs, great systems. I just felt like I was in really good hands all three times with QuietLight. So if you're interested in selling your business, especially in e-commerce or SaaS, hop on over to Quietlight.com, fill out their onboarding form for a free valuation call, and you can tell them Bill or Acquisitions Anonymous sent you. All right. This is going to be a great episode of Acquisition Anonymous because I pick the deal and no one else has seen it. So this is off the cuff as live as it gets.

We are here joined this week by Travis Jameson of Capital Pat. Nice to have you, Travis. Good to be here. Thanks, guys. Travis is one of my favorite guests because we are friends, IRL. So I just feel like hanging out. And also,

I mean, Heather, you and Mills as well. You just feel like we're only internet friends. Yeah, we're on the internet friends. Well, no, I mean,

Mills, we're going camping in a couple weeks, which is going to be fun. I don't think I've met you yet in person, Mills. We've got to fix that. Yeah, no.

You want to go camping? I have a three-month-old. I just want to survive. That's fair. You're like, I'm fighting for every, every increment of sleep I can get. I had a 10-minute nap today. It's glorious.

I'm even more impressed that you're here then, like with bags under your eyes hanging on by a thread. All right. You guys want to hear about this deal? Let's do it. Here we go. So this is from much embattled, but always interesting broker websiteclosers.com.

This is a lender pre-qualified. industrial magnetic equipment company. It has a 50% repeat order rate, a 42% net margin, zero ad spend, and is semi-absentee. So pretty interesting. The stats on it are 3.3 million of revenue,

1.35 of cash flow. And they're asking 6.75 million. So quick math tells me they want 5.5. 2.2 times for it, roughly, about five times for it. And this business has been around since 1999. So I like to hear that. Let me tell you guys a little bit more about it. So this says website closers presents a market leading industrial magnetic equipment company serving commercial industrial consumer government and enterprise customers across North America and international markets. This business is pre-qualified for a partial SBA or conventional flex lending.

I want to come back to that with you in a minute. With more than 25 years of operating history under current ownership and roots dating back to the early 1980s, this business has established itself as one of North Americans' leading brand in their niche. That is North Americans' leading brand. I read that verbatim. Case you thought I was having a stroke. Their reputation for quality, reliability, and product performance has helped them build longstanding relationships with distributors, OEMs, Fortune 1,000 companies, and major commercial organizations that depend on their products to improve workplace safety and operational efficiency. Unlike traditional manufacturers, this company operates through a highly efficient outsourced business asset light model that outsources production, fulfillment, and logistics while maintaining complete control over branding, customer relationships, and product development.

The company offers approximately 125 skews across multiple product categories and supports a dealer, distributor, and OEM network exceeding 1,500 partners. So a lot of interesting stuff here. Let me tell you a little more. If you make the stuff, but don't make the stuff. That's right. I mean, this is also like every D to C brand in the world, right? Contract manufacturing, contract logistics, and you're just kind of the brand, the IP, the customer support, the go-to-market. Although, actually, these guys are barely the go-to-market because they have 1,500 distributors.

Yeah. Right. And dealing out. So fascinating. So this says the company specializes in professional grade magnetic sweepers, lifting magnets, separators, retrieval tools, magnetic fork covers, and other industrial magnetic safety products. Their products are used in warehouses, manufacturing facilities, airports distribution centers, recycling operations, construction sites, trucking facilities, food processing plants, and a whole

bunch of other places. Most customers replace products every 18 to 24 months, creating a dependable stream of repeat purchases. Customer retention remains exceptionally strong, with repeat buyers accounting for an estimated about half of annual sales activity. Their products maintain an outstanding reputation in the marketplace, a return rate of less than 2%, and the business requires very low working capital and operates with a highly efficient 20-to-25-day cash conversion cycle. Most orders are paid before suppliers require payment. It's pretty nice. The company has built a dominant online presence over many years and enjoys first-page rankings for virtually all major keywords within their industry.

More than 95% of website traffic comes from organic search, direct visitors, and referral sources, enabling the business to generate consistent demand without significant advertising expense. They have 2,000 monthly sessions on their website, and that's their primary lead generation engine for both buyers and large commercial accounts. They have 3,000 contacts in their email database across aviation, warehousing, transportation,

and a bunch of other markets. The company has been intentionally designed to operate with minimal owner involvement. The current owner spends six to eight hours per week, primarily focused on a financial oversight, strategic planning, and major account management. Day to day is managed by an experienced op manager with 12 years of tenure who has expressed interest remaining with the business after the sale. They have experienced outsourced IT contractors who have worked with the company for over a decade and they manage the website, SEO, security.

Most orders flow through automated systems and are routed directly to fulfillment partners or manufacturing suppliers. There's a whole bunch more here, but it basically says this is a rare opportunity to buy something really cool. It says they've got early traction in overseas markets, but creating a framework for how to go international would be helpful. It says they also own a secondary website asset with strong online visibility that remains underutilized. Expanding this platform into a larger wholesaler industry-focused sales channel provides another avenue for growth. So that's the meat of it. Again, 1.3 million of cash flow asking five times 6.7, 5 million. The code name was magnetic obsession.

I love that. How do you know? Where is that? It's down at the C companies represented by. There it is. Magnetic obsession. I love it. All right.

Someone tell me what the heck this does. So we have, we use something like this. The one in the picture, if you're on YouTube, looks like something that's mounted, like on the end of like a crane rigging. And it looks like it's in a junkyard

and they like, you know, drop it down and get like a bunch of metal shavings and stuff like that. We use much smaller ones, like to nail rake our parking lot or nail rake jobs just because like nails end up everywhere. And we try and cut down on flat tires and people stepping on nails and stuff like. So is it a giant electromagnet or like a ferrite magnet? The one that we use is like a very dumb one. It's like $200. It's like four feet wide.

It has two wheels on the end and like a handle and you just like roll across the parking lot. but we will make like kind of homemade rigs for our forklift and stuff like that to drive the for forklift around in the parking lot and pick up nails. So this one looks like maybe it's somewhere in between an electromagnet and a regular magnet. I find it shocking, though, one, that this business is on website closers and two, that this business generates most of their sales online because this is like, this is a very heavy, expensive thing to ship. Like, their average order value, I'm thinking, has to be in the, you know, $500 to $1,500 range. And the freight could easily match that if this is, I mean, that magnet looks incredibly heavy. It's all LTO. The magnet not try to attach to the freight truck?

I thought the same thing, too. Yes. Unless it's an electric magnet and it's not energized. I don't know. I mean, there are also all kinds of weird restrictions about shipping really powerful magnets for that reason, Travis. But I think that's all great. That's moat, right? Yeah, totally. Everybody's like, that's too hard. The same reason we're coming up with.

So this is a thing that I think, like, mounts to a crane. I mean, there's different sizes. You know, Mills pushes across a parking lot to pick up nails. There's probably the Mac Daddy one that you mount to a crane and, like, you can pick up a car. You know, like a junkyard, like a magnet that picks up a car. Or you can sweep it across recycling to like pull out anything that's magnetic for recycling purposes, like pull out steel or whatever. So these are enterprise magnets for picking stuff up. Fast, not e-commercey, you wouldn't think at all. Yeah. And I mean, so 125 skews is kind of interesting. It looks like they don't actually have any inventory.

It's all made to order. Is that made to order? I'm reading it as it is probably a mix of like drop ship directly from their manufacturer. And they stock some stuff. at a 3PL. Yeah. That's how I read it. What's the mode, though? I mean, like, if, okay, so like big magnets made by other people, maybe they're more sophisticated than just like a big dump magnet. Maybe it is like an electro magnet. Maybe it's in like unique packaging. Like I think one of these things says magnetic fork covers. So like forklift forks, you could put magnetic covers over them so you can like sweep certain areas.

But they don't mention any intellectual property. They don't really mention anything that makes me think there's like brand specific or product specific, you know, moat. To me, it seems like the moat might be the cumbersomeness of the industry. Like, it's relatively super tiny. Anyone who's looking to, like, get into e-com and find some interesting niche, they're not going here, right? This will be the last place you start because it's not tiny and fits in a box and, you know, like all the things that people usually go for e-com, this is, this is not it. I don't know, it seems like a weird enough industry that just not enough people are doing it probably. Like, can you imagine that this, they have competitors making 10 times as much doing the same business model that they are?

I have a hard time seeing that. I don't know, maybe. I mean, if you're selling to Caterpillar, I honestly was kind of surprised at how small they are. So I think that's probably a different thing. Those huge industrial things like the Caterpillar, that's a whole different business. That's straight to Enterprise, I would imagine. They're not going to an e-com site and clicking checkout. Yeah, I guess this is.

is more like Mills's roofing company needs one of these or the local, you know, general contractor or whatever has got to have one and they just buy it. You'll put it on a company credit card for three grand or something. So I think the enterprise value is probably in one sentence that they said here, which is 40 to 60 percent, which is a wide range of repeat orders. And I found that kind of fascinating because when I looked at this picture and thought about a magnet, I would have thought they were more durable than that. But they said 18 to 24 months, and I actually Googled it to try to understand why that is. And I guess heat and vibration kind of wear out magnets. And then they also have just a natural life where they become less effective. And then there's safety issues as they become less

effective. So you do have to replace them a lot faster than I would have thought. So I feel like that's the best thing they've got going here is they've got this customer list that has to keep reordering. Well, and they also have the dealer, distributor, an OEM network, which they say is 1,500 partners

who they're in people's catalogs, et cetera. Yeah. I mean, I like that. Yeah. I like that a lot. They're doing the hard work of putting it all together.

Some of the individual magnet manufacturers overseas or wherever they are. I have no idea where they're at. They just don't have that skill set built up yet? Yeah, I mean, maybe this is like

they source a giant cylindrical magnet it from one place, and then they've got a steel bending or casting or something company that makes the harness and puts them together and dropships at wherever it needs to go. So this is a, this is kind of one of those classic businesses that until you get into business, you don't really understand how these could be a business, but they're like glue businesses. Like this business doesn't actually do anything, but itself. But the value it creates is it glues together all of these parts of the supply chain, right, to make something that's really valuable.

they take a magnet manufacturer and a steel manufacturer, and they know how to do the freight on the magnets, and then they know how to do the e-commerce marketing, and they're not actually maybe even touching it, but they make all the pieces come together in a way that creates value for everybody, and it kind of makes the whole thing flow, and then they extract some of that value.

I like it. Yeah, it's fair. Sounds like a great business. I hope they're rather they have a 20, 25-day cash conversion cycle, so I think what this means is they are probably, charging a credit card and then placing the order with a vendor and then it ships. And they pay the vendor upon ship. So they probably just go, oh, there's a three-week lead time on one of these things.

It's not like you need one of these magnet sweepers tomorrow, I wouldn't think. And they go, just drop ship, right? I get my money right now. I give 60% of it to the drop shipper. When it ships in three weeks, I keep the rest, negative working capital. Amazing. What do you guys think kind of price-wise here? So they want five times EBITDA.

What thoughts? I think it, the problem I have with the price is probably the growth levers that it has. I'm not against paying 5X if something has a lot of room to grow. I wouldn't be convinced that this has that. Probably sounds like it's getting towards the top of Google already. I don't know what other avon. You're not going to hop on TikTok and sell it. of these things, right? It's a very straightforward business. I mean, you're not requiring,

you're not tying up a lot of cash in this business. So that definitely helps the ability to pay a higher multiple. But that's the only thing that that's given me pause. I mean, I think this would be a great business otherwise. I love that it's been around since 1999. I mean, that in and of itself is a really positive sign. You know, I don't think this technology is going anywhere. You know, magnets are magnets. We got to separate magnetic stuff from not magnetism. next stuff. I don't know. There's AI threat here. This seems pretty stable. It almost feels like with their purchase price, you know, expectations, they're like kind of reaching for more of like this is e-commerce and not distribution. I think they are functioning much

more like a distributor, but, you know, they don't have distributor margins. They have more e-commerce margins, maybe not just like direct-to-consumer type margins, but in a good way. Yeah, in a great way, in a great way. I don't think they're overreaching, I guess is what I'm getting at. Like, you've got a beneficial, you know, cash conversion cycle. You've got, it's mostly, it seems like your own, I don't know, is it their own.com or is it more network-centric, dealer network? Well, I'm reading it as dealer network, but they also say they have 2,000 monthly visitors on their own.com, which is not a lot.

But when you go, okay, those people made it to your website, they're probably really high quality leads and you don't have to convert that many. I'm thinking that the average order value has to really help in this case. And if I'm buying something like any industrial part or anything for equipment that we have, the shipping cost is kind of irrelevant. I have a piece of equipment that is down. It's not generating revenue. and I'm probably going to have to rent something in the meantime in order to make up for it. So even if I need a $1,500 part and it's $500 of shipping, like, whatever, just get the thing in because we're renting something for much more than that. So here's an opposite perspective, though.

With our capital pad deals, one of the thing we look out for a lot is we want to buy a business that is a business. And the example that we use, we try to avoid is like something is just like a nice website with some really good SEO. because I feel like that's a lot easier to disrupt than an entire business that has its tentacles into everything. So this business is $6.7 million. How much capital would it take to recreate this and get even halfway there? That's the question. Like a lot of the e-commerce type sites like this from what I've seen tend to be almost in the Stone Age. Maybe this one's not.

But you see that a lot. They've just been writing on, you know, this being an undiscovered industry for a long time. If you were to recreate this e-commerce site, you're not going to get those OEM relationships, but that's only 40 to 60 percent of the business, right? You could maybe overtake them on the organic SEO, which seems like is their only other way of getting customers. That's half the business right there. And you can do that for $100,000, maybe. And that's the part I'd be really focused on in diligence is where does the demand come from?

Because if the demand is 90% from these 1,500 dealers, distributors and OEM partners, I really like that. I mean, assuming there's not one that's 80% of their business, right? Because then you get at customer concentration risk. But if you have this kind of nice, diversified dealer network that understands the specs of your product, knows how to sell it, you know, swapping in another brand with slightly different specs, it's probably not worth it. Like, this probably isn't like one of their main product lines. They're probably also selling all kinds of other more high. ticket items that they really have to like that the meat of their business and this is an accessory. So like you're already in those catalogs.

It doesn't change it out. And if you're getting, you know, 20% of the business from the website, I like that more. If it's 80% of the business for the website, that just feels a little bit less sticky to me. And then also there's the repeats, right? Really, there's like dealers, websites, and repeats, right? Like those are your three buckets. And I want to understand how, how defensible each of those really are. I also want to know how difficult it is to line up these suppliers.

Definitely on these terms, but at least finding the suppliers in general. Maybe it's easy. Maybe it's not. I'm not sure. Well, that's the thing. So I agree, Travis. If, like, if they're providing a lot of glue where, like, the people who make this only make one piece of the thing and there's no one supplier who makes the total kit that you can just go buy it from, that's positive. Right.

Because that's somebody off the street has to do a lot more work. there's more of a moat there. And the more, the worse those manufacturers are in marketing, the better. The less English they speak, the better. You know, like all of that, like it should be really hard, it should be opaque to put this together from a supply chain one of you. And the more we talk about it, the more I'm like, if somebody understands this industry and has relationships, wow, build this. Yeah. And I would think, it's only three million. I would think if you were good at sales into the construction, into whatever end markets these are, construction or recycling or whatever, you could probably really scale this. I think, so in Googling around, I wasn't

trying to find the company, but I was just trying to figure out, like, who are other people who do this? And there's a website that comes up, a business called Industrial Magnetics, who, it does not line up. It's not the same company. But it's interesting because they have kind of similar, it seems like, types of things, like they have big things that go like underneath the hook on a crane. Then they also have like just like little telescopic wands with like magnets on them. But they have grown via acquisition and it seems like a fairly professionalized. Like the website functions well. They have like, you know, e-commerce integrated into their website.

Seems like really good SEO because it's broken down by application and by industry. But they've done acquisitions and they talk about an acquisition they did of a company called Walker. And they acquired it in 2020. and it was a business that was founded in 1896 by the inventor of the electromagnetic truck, it just makes me think about the reality when you get really deep into something nichey like this, like magnets. Okay, it's kind of a weird alternate subsector of manufacturing. And like a lot of people are just like, oh, that's too difficult.

Like maybe it's hard to ship or it's difficult to work with or like put it in the too hard pile. We looked at this business years ago that they specialize. in all stainless steel fittings because stainless steel fittings are like much more expensive. And most people are like, we don't want to hold that much inventory. So like we're going to just stock like regular fittings, galvanized fittings or something. Well, they're like, all we're going to do is stainless steel. So yeah, we are going to have a bunch of inventory, but everybody's going to come to us for it. And they also cost like five times as much.

I wonder if magnets are kind of a subset like that where like you've got to specialize. and then all of a sudden you get inside, you become an insider in the industry and you realize it's not that big of a pool. Like there's only so many of us. One of the biggest risk in entrepreneurship through acquisition is buying a business with fragile systems. Unclear demand are a single owner who holds all the knowledge. Franchising approaches that problem differently. You are buying into an established brand with documented systems, unit level data and repeatable operating playbooks. The heart part is knowing which franchises are actually worth evaluating. That's why Alex Moresniak, former CEO of Two-U Laundry, built Franzy. Franzy is a free play.

platform that helps acquisition-minded entrepreneurs explore franchise ownership without broker bias. You answer a few questions and Franzy shows you franchise opportunities that align with your capital, lifestyle, and long-term goals. You also get free coaching from people who have actually built and scaled franchise businesses. If you are exploring ETA and want to understand whether franchising fits your acquisition strategy, visit franzi.com. That's F-R-A-N-Z-Y.com. And thanks to them for sponsoring today's episode. I saw a business similar to that Mills. they it's like a fastener and like a custom product distributor and it's for ships so like big freight ships military ship et cetera like they come into port and they've got like a manifest of like

all this stuff but it comes from like 20 different suppliers so these guys are like we're just going to have the relationship with all 20 suppliers you just give us your one manifest instead of placing 20 orders and we'll turn around in a day because your ship needs to leave again. So their value that they provide is basically holding a ton of inventory because they don't have time to order it from each of the 20 vendors because that ship's got to turn around. So their whole business is we're just deep on everything. Now, luckily for them, they're like 50 years old or something. So they've been able to plow this working capital in over decades and decades. But it's the type of business that's very hard to sell because the working

capital is substantial. If you kind of look at it like how much capital I have in this, the yield on the inventory capital is not awesome. I mean, it's not bad, but it's like 20% or something. Yeah. And you're like working a full-time job and you got millions of dollars tied up in capital. But the business is also totally unsaleable. Like no one is coming for you. They can't compete. It's not economic for them to invest the working capital. It's not, they're never going to get all the relationships with all the shipping companies and the catalog. It's like totally defensible. And this family just runs it as a cash machine. That's so cool. That's cool. I think that, this is it's not like the perfect example of like the $200,000 piece of equipment that has like a $2

hydraulic hose, you know, they could like make it go down hard. But it does seem like, okay, if you're at a, you know, they mentioned like food processing plants. If you're at a food processing plant, like you're not constantly, you're always like process engineering and doing process improvement. But at the same time, you don't want to go with that like completely untested unique thing that like could shut the whole facility down. So like if you're, I have a friend who I've talked about on a podcast before has a lettuce washing and packaging business that is monster.

I mean, it's huge. 600 employees. Well, they have a metal detector at the end of the line for shredded lettuce. They actually have two metal detectors at the end of the line when the bags are rolling across the conveyor. And I was like, that's weird.

Why do you have that? He was like, well, if a nut or bolt shears off in the equipment, you know, we don't know about it until much later. and we can't send like McDonald's or wherever like shredded lettuce with, you know, a piece of metal in it. But they have two because, you know, like they learned the hard way one time that the metal detector goes out and you don't know about it until it's too late. So there's redundancy.

Oh, wow. My guess is that type of company does not like switch metal detectors, you know, every six months. They're kind of like, we have the one that works. It's tried and true. Like let's not mess around. We're calibrated for it. We know how it works. Yeah. Which actually, we bring up, that's a great expansion for this business. Right? Like, yeah. Like, like, Like they're not going to go. Well, they're not going to pull metal out of the lettuce with a magnet, right? But you can detect it. So that feels like an adjacent application to me. Could be. Yeah. Yeah. I am also fascinated by the fact that this owner is like functionally absentee. You know, I think that people usually pitch that as a pro. Like, hey, you know, they've been like phoning it in. Just think about all the things you could do if you worked on it full time. And I like that. And the optimist in me is like, yeah, that was. would be amazing. Like, this business could totally take off otherwise. But I think it's also lends itself to what's, what has been the overall like mood and culture and like the precedent in the business. Like if the owner's been laissez-faire, is the rest of the business kind of at like stuck in first year? And all of a sudden you're going to come in and you're really going to

want to shift into a different gear and people are like, whoa, whoa, whoa, we don't, we don't do that around here, you know? Yeah. Yeah, there's, I would want to understand the employee base. how long. It sounds like the general manager. We actually haven't talked about the general manager. You know, Travis, I know that you've kind of invested in and run businesses that you don't run, but you've invested in, you've got kind of a key man, a partner, et cetera. What do you kind of think about this guy who's got 12 years of tenure who says he's expressed interest in staying post-transaction? I assume he does not have $6 million, but you don't need $6 million. You need a million in a phone call to Heather to buy business. You know, or what's, what's,

the vibe there? Like, you've got to keep this guy, right? Like, how would you structure that? Absolutely. Have to keep the guy. I mean, you have to give him some upside. 100%. He needs to get some sort of equity-esque thing to be there. Because you lose him, like, you lose everything, unless you already know the industry, which you probably don't. That guy's everything. So do you give him, is it cash comp? Just like bonus based on targets? Is it some sort of more elaborate, like retention-based cash comp? I've seen some really weird and the interesting ways that like you give somebody a bonus, but you lock up 50% of it in like a time release over three years. So it really, and it stacks on itself. So you've always got a ton in. Or do you actually

just go the equity route with this guy? I mean, the middle option that you just said, that's what basically private equity does to everyone, you know, or all of finance. Like if you leave at any time, you know you're leaving a lot of money behind, just why those guys get stuck in there and never leave. There's a million ways to do that. Bill, you probably have more creative ways than I do. With the business of this size, which is, you know, meaningful but not huge, I would want to make him feel like an owner essentially, like not just, it's not just the cash. It's the meaning behind it. If it feels like it's his business, the stuff that he'll put in there will probably go a long way, I would imagine. That's just guessing. That's what I would want to be

personally. Yeah. Does anybody have strong opinions about employee equity in SBA-back deals or or ETA deals? I think what you'll find is lenders want to know you have a retention plan. So kind of to Travis's point, they wouldn't force you to give them equity or even phantom equity. They would just want to know that you've met with this person before you close, that the vibe is good. They're not angry about the sale and that you've got some kind of retention plan that you can articulate to the bank.

But the bank will generally let you be pretty flexible with, you know, what works best for you and them. We see banks sometimes, you know, ask for that and buyers say, you know, this person isn't as essential as you think they are and I don't want to get stuck with an employee I don't want to keep. So that's the other side of the coin. Yeah. You know. Getting out of you soon. Yeah. You really need to get to know this person. So I found like the best question for us to ask is when are you going to meet this person? And the earlier they've met them in the process, you know, after a signed L. why, but before close, the better the green flag.

If the seller is letting you meet them early and you're going to be able to have multiple conversations and the buyer is going to be able to make a good decision about whether to retain them and how to retain them, that's the best case scenario. But of course, that doesn't happen often, you know, a lot of times the seller is not going to let you meet this person until just before close. And that's the challenging part for a buyer. By then you've spent all this time and money. You're in love with the deal.

You got your financing lined up, and now you're meeting this human being that, you know, may or may not be a good fit for you. And you have to figure that out. So you bring up a good point because that is actually a huge leverage point in diligent. You know, once you, the buyer, have met the employees. The seller is really pregnant. Because if this deal falls apart, then the employees don't know how to, don't know what to think about that. Like, the seller is really out on a limb once you're meeting as employees. So sellers will always want you to meet the employee as late as possible, whereas, of course, it's buyer advantageous to meet them as soon as possible so you can do the underwriting that Heather suggested.

Yep. I have a friend who was a serial buyer. It bought many businesses and had this quirky instance where because of some like family dynamics and key employee dynamics, they couldn't meet the key employees prior to close. and then they closed and it ended up being like, they had to wait like two weeks to like announce and meet the team. And I was like, stop right there. I don't want to know anything else. Like I already could tell you how bad the deal went.

And it was a train wreck. And like the seller had like very, you know, specific clear reasons why that was the case. And it was like under no circumstances should you allow that. The business like went away overnight post acquisition within two weeks. Because a person thought that they were entitled to the purchase, which you get like this person could be like, Well, I had always thought they were going to let me buy it and they never even brought it up or something. Or we, you know, we couldn't work it out. And I thought we always would.

And like all of a sudden, the business can just evaporate overnight. And in this case, it really did. And they, once they finally got in two weeks later, it was like there was parts left. Oh, boy. Because someone freaked out and left. Yeah, like a key employee left, took the crews. They didn't have a non-compete, you know, like they were, they couldn't do all those. those things because it was a very cagey kind of deal. And again, this was not a first-time buyer.

This was a serial buyer. It's a guy who took a risk and shouldn't have. Yeah, yeah, yeah. Well, because that's the most leverage you have. If you're about to close, you can say, hey, I need all your employees to sign non-competes. And at that point, sellers have got to figure out a way to get them to do it, you know, give them a bonus, cut them out of a deal, like whatever. But as soon as you close, you have no leverage on these employees unless you're giving them a bonus or you need some way to and sent them to sign your document. You lose, like, there's just so much, this is your maximum amount of leverage and you need to use it or the time has passed you. Yeah.

It's very past fail. I've seen some bad situations where the seller decided to try to sell it to their general manager as their first, you know, you know, way to get the business sold. And the negotiations between the two of them got so ugly that they not only didn't sell it to their key employee, but they lost their key employee who was mad about the way everything went. So I think it's a tough one for sellers to kind of figure out what to do with these key people. Failed management buyouts are so, so detrimental to value because, you know, once that key employee kind of sees behind the curtain and is like, oh, okay, like you've been making this much money and I can be making this much money or me and these other key managers can make this much money, They can't unsee it.

No. And it really can create like some incredible erosion of value. I saw a couple instances firsthand that were shockingly bad. Yep. Which is why it's so hard to let employees in. It's your damn if you, damn you don't, right? If you let them in before, you risk all that if it falls up. What you have to do is let them in before and then hope it closes.

Because if you let them in before and it doesn't close, you're in trouble. and if you let, and as a seller, and if you let them in after, not until after as the buyer, you're taking a ton of risk. And I see deals, you know, fall apart for a lot of reasons. And I would say whenever I see a key manager buyout, I know the odds of that falling apart are extremely high. They're higher than any other buyer. Those deals fall apart much easier for all those reasons we just have talked about. And the fact that the buyer's not a financial person, they're out of their comfort zone, way out of their comfort zone, trying to do a deal. and then when they really absorb the idea of signing a personal guarantee or, you know, on this loan, they often back out. I actually just remember that I had a bad experience with this. Several, God, maybe 10 years ago, eight years ago, I bought a tiny little business, put a couple people on it, and manager who had worked with before. And then a couple years into it, it just, it was a good business, but the growth wasn't strong enough for me to stay interested.

interested in it. And so I was going to sell it and the manager for it actually wanted to buy it. And I let him. Gave him a good deal for it. It was like a good deal for everybody. But the thing that I've seen with a lot of times is somebody might be a good manager, but they're not, they don't have that final X factor that makes them a good owner or entrepreneur and the whole thing just kind of disintegrated. Right. Like they need that one person up there like making those disfactor. decisions or pointing the direction or something. It's, yeah, it wasn't a good outcome for him. It was fine for us, but unfortunately didn't go well for them.

You shouldn't always just take this most senior person and put them in the owner seat. Yeah. It doesn't always work. Right. I think we are running up on time here. So I want to ask you guys, Travis, are you bidding on this thing? You like it? If so, at asking?

It's not for me. I think for certain people, it's definitely worth looking at. especially if you can get that price down. For someone looking for, I don't know, like is it truly in mostly absentee business? That's really interesting. If you're structuring it the right way, like maybe you just come out like really good in a few years.

I don't like it because I don't see a lot of growth opportunities, but again, I haven't even looked at the real business yet. But I think it's interesting. Like, so people should look at it if it's in their wheelhouse. All right. Mills? Yeah, I mean, I'm very, very curious about this. And I like that it's kind of not, I mean, I don't know e-commerce and I could never really buy an e-commerce business. And we joke about that plenty because I think a business is a great idea.

And Bill's like, this is terrible. But I like that this is not like traditional e-commerce and has kind of a different factor to it and is also asset light. Like it, it makes me very intrigued. I want to know more. I would sign the NDA, absolutely. and find out more about this. All right. I do think Travis's comment of buy versus build is very pertinent here.

If it was me personally, I would not sign the NDA and I would start doing some scouting and look what I could build. Yeah. Yeah. Yeah. Heather, I like it. I like it. Yeah, I actually like it. I am agreeing that it's SBA pre-qualified.

I think that you could get a $5 million, up to about a $5 million dollar SBA loan here. if the cash flow historically has been consistent at this million three level, if that's real. I think this is the kind of deal where with an SBA loan, with that kind of leverage, you're only putting in a million and a half, you know, let's say you don't pay the full 6.7, you put another million and a half of equity into it. You could just get a good ROI de-levering, you know, over the first five years of your 10-year SBA loan. This is one of those cases where as long as it's consistent and you have good reason to believe it can be consistent here, that this is a, it doesn't have to be a growth case.

Could be just a de-lever. Do you think the multiple works, Heather, at 5.2 times? I think it's a little high. I think, you know, I probably wouldn't pay more than, you know, 6.2-ish for this. You know, I probably would come down about half a million dollars from what they're asking, but I think it could work around there. Okay. So that would be maybe like four and a half times. times? Yep.

Four and a half works. Seems like you a number, four and a half. Yeah. Well, actually, sorry, did I mess up my math?

Because they are asking, oh, yeah, so you need, you got 1.3-5 of EBITDA. At four and a half times, it's about $6 million. Yeah. And I think it works there.

That's a $5 million dollar S deal loan and a million bucks of equity. Yeah. Have you put a million dollars of equity and you're making a million three? Yeah. So, Heather,

since you might know this, what's the monthly on a $5 million? Oh, I don't know. You don't know? I thought, you know. I didn't go to my models. I use my model.

I mean, I just figured maybe that was the max. I should know, but I don't. You might know, like, I figure like, you know, you'd have like a ticker behind you. It's like per million dollars of a loan amount today. This is the payment. I use my rule of thumb. And it's 1.35 times 3.75. 3.75 turns of EBIDDA is $5 million.

That will generally get us to a debt coverage ratio of about 1.5. So that's kind of how I do my math. Okay. So backing into that then, assuming there's probably a DSCR of 1.5, and this has 1.3 of cash flow, your payment is probably $900, like $900? Yeah.

Right? So your debt payment's $900, and you got $450 of cash flow every year. And it doesn't seem like you need to invest a lot in growth, or at least in my thesis, It's just kind of a de-lever thesis. So, yeah, I think that can work. As long as it stays stable.

As long as it stays stable. If it goes on the way, you've got a $5 million PG. And how is coming out to do with a break kneecap? A lot of diligence on whether it stays stable. But if my hypothesis is correct that it could stay stable, then I think it's a good deal. Yeah. One algorithm change could really scare me here. If it's all D.C.

If it's 80% dealer network, you're in the lot. I also think this is interesting because Girdley's not here to make this point. But, you know, we talk about Heather might, you might want it earmuffs for this. But like if you're going to sign a PG and if it goes bad, your BK anyway, right? If like if you're worth one and a half million dollars, right, and you're going to sign a $2 million PG or a $5 million PG, like you might as well swing for the fences. Like just get a max SBA loan because if this doesn't work. your BK either way. And if it works, it works way better. So there's this kind of weird perverse incentive where if the PG is going to wipe you out anyway, you might as well swing big. And this is

actually a great business, I think, to swing big on because it finances big. It's exactly the right size to finance that $5 million SBA loan. And it's pretty stable. And it, I mean, this is not like a surf the wave meta advertising or Amazon advertising business, right? This is, for what this is relatively stable. This is a good swing if you're just willing to push your chips in the middle of the table. Yeah. Feels like without knowing anymore. All right.

And that's how I feel about it. It's very interesting. This is actually a high quality one from our friends at website closers. All right. If you guys like, well, actually before I tell you about us, if you guys like this deal, there is a way maybe not to invest in this one, but to invest in other deals like it. you know, of this size, and that is CapitalPad. So, Travis, can you tell us just what the heck is a CapitalPad? Yeah, a CapitalPad. Capital Pad is, I think, like a private equity-esque investing group or platform where credit investors can co-invest in acquisitions of companies similar to this.

We don't do e-commerce. We like the more boring kind of blue-collarish businesses, but something like this, right? you know, a historically profitable, stable, durable business that's been around for a couple decades. It's changing hands. It's a group that co-invest in those. And on the opposite side of the platform is a way to help mostly independent sponsors, occasionally searchers, get equity funding for this. So the group writes the equity checks for it. So if you say want to buy this business, again, it doesn't fit your buy box. But if you want to buy a business like this, you want to raise a couple million bucks of equity, Capital Pack kind of puts together the people who want to invest in deals with the people who need to raise capital for this acquisition deals.

Yep. Essentially, you know, if it's post-L-OI, you already have a deal memo put together. You bring it on over for evaluation. Now, complete transparency, we accept like a very, very low percentage, like definitely low single-digit percentage of deals that we see are deals that we actually present to the investor group. It's not just an open platform or anything like that. But that's, that's where the value comes from, curation, structuring it, governance, operating agreement reviews, like all of that stuff. But don't ask, don't get. If you have a cool deal, you ever know?

Bring it to your rabbits. Not for sure. Not for them or yes. We won't tell. We're hungry for them, right? We look at tons of them. It's just hard to find really good ones. And they're always fascinating.

Like, I'll log in and scan it. And I'm like, ooh, that's cool. You know, like, it's a very unique list. It's not just like going down Bizby-Sill, you know, road or something. Yeah, I love it. Yeah, not a lot of deals. Maybe one new deal every one or two months right now, basically. Yeah, awesome.

Well, thanks for being here, Travis, and I'm sure Travis will come back. But if you guys like this episode, if you like Travis, we got me more in the catalog with Travis and all the rest of the three of us. We have 500 plus episodes of Acquisitions Anonymous in the back catalog, not doing magnetics, but we have done construction, e-commerce, agencies, licensing deals for, which song was that? Beatles song, right? And it was like Russian classical music portfolios.

That's right. We did that too. Jerry Garcia song. That was Jerry Garcia ice cream or there was some sort of royalty deal that was very cool. It was Jerry Garcia's a fraction of Jerry Garcia's licensing right on the Cherry Garcia ice cream flage. That was her sale. So we like to do weird stuff on the pod.

So if you're into weird stuff, go look at the back catalog. You can also get on our email list where we will email you the episodes when they come out twice a week in case you're not in a place where you can listen or you just don't like the sound of Mills's voice. You can get it on audio or not on audio. Possibility in text. And so I hope you guys enjoyed this episode. We will see you next time.