New Deals: A private security contractor, metal distribution business, and 3 other finds

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NEW DEALS

1/ Private Security Contractor

📍 Location: N/A
💰 Asking Price: N/A
💼 EBITDA: $2,300,000
📊 Revenue: $9,600,000
📅 Established: N/A

💭 My 2 Cents: This company provides round-the-clock security, executive protection, and perimeter monitoring for an impressive list of government and private sector clients. I really like private security companies as they offer an essential service that is always in demand. It’s especially nice when you find a company like this set up to serve government clients, as obtaining the necessary certifications can be very time-intensive and costly, but once you’re accepted as a contractor, these jobs can be very sticky. As private security can take different forms, I’d have a range of questions. I’d want to know whether they are armed or unarmed, who their current key customers are, if their contracts tend to be more for specific engagements as opposed to ongoing, how their ongoing contracts are renewed, how they acquire new business, and who their main competitors are. Staffing is key in this industry, so I’d need to understand how many employees they have, what their roles are, and if they use their own security personnel or hire external contractors. I’d likewise need to check on licensing and certification requirements, what assets are transferring with the business, and if they are geographically constrained or can operate in multiple states. Quality security companies don’t come to market that often, so for anyone interested in the space, this definitely could be worth a closer look.

2/ Electrical Contractor

📍 Location: Johnson County, Kansas
💰 Asking Price: $3,900,000
💼 EBITDA: $1,397,646
📊 Revenue: $4,944,523
📅 Established: 2000

💭 My 2 Cents: This nearly 25-year-old electrical company handles mostly construction work while also taking service calls. This is nice because new construction are larger projects, but I’d want to confirm that the demographic and economic trends in their Kansas City metro area can support new business. If so, then they seem to be well-positioned to capitalize on their area’s growth. Otherwise, I also like their strong 25%+ margins and 95% repeat business rate, which tells me they've developed an excellent reputation in the community. They do zero external marketing (and don’t even have a website), so there should be a lot of potential to expand the business right off the bat. I’m actually quite curious as to how they receive service calls as well as how they gain new work in general given they aren’t online. The current owner runs the business from home, suggesting he’s not directly involved in day-to-day operations, but I’d want to understand his role and responsibilities. How important is he to customer relations and sales and is there a risk of losing business when he leaves? I’d also want to know more about the staff and their capabilities, what their average job size and length are, how far they line up work in the future, what the current backlog is, and what equipment is included in the sale.

3/ Metal Distribution Business

📍 Location: New Jersey
💰 Asking Price: $8,500,000
💼 EBITDA: $2,045,963
📊 Revenue: $7,685,762
📅 Established: 1983

💭 My 2 Cents: This metal distribution company has built a reputation for being able to source hard-to-find specialty metals for custom projects in the industrial, microwave, and electronics manufacturing industries. To start, I like how they’ve been able to perform with only 5 employees, as every year is better than the last. Because they are a distributor and not a manufacturer, there is a clear ability to continue to scale this business for an aggressive new owner who wants to invest in marketing. The business is also relocatable and is set up in a way that an increase in revenue and earnings does not require either a large investment in facilities or additional staff. Given their specialized niche, I’d want to get a handle on what their client base looks like, how many distinct clients they serve, and if there are any client concentration issues. I’d also want to know how their ordering process works, what relationships they have with suppliers, if they have any exclusive distribution rights for any products, what their average order size is, how often they have repeat business, if there is any meaningful recurring revenue, whether they have a lot of competition, and what distinguishes them from the competition. While this company has a lot going for it, what makes this deal really stand out is that the seller is willing to finance up to $3.5M of the purchase price and subordinate his position to a primary lender. This, combined with an SBA loan, would allow a buyer to come in with a minimal amount of personal equity.

4/ HVAC Company

📍 Location: Idaho
💰 Asking Price: $5,500,000
💼 EBITDA: $1,883,197
📊 Revenue: $5,821,494
📅 Established: 2005

💭 My 2 Cents: This is your classic full-suite HVAC company, providing services from fabrication and installation to maintenance and repair. I like not only that they do pretty much everything, but also that their clients are found in a wide array of fields and industries, as this suggests they should be able to rely on other parts of their business if there is a downturn with either a given service or type of client. I also like that they have 20 employees, bring in very solid revenue/earnings numbers, and have ongoing contracts that represent steady income. An additional positive is that there is a substantial amount of equipment and inventory, valued at over $800K, included in the sale. That’s all great, but I’d want to understand the breakdown of managerial and technical staff,  how they go about winning new business, whether the owner is directly involved in customer relations or if there are sales personnel on staff, what the current utilization rate is for their staff, equipment, and facilities, the quality and condition of their equipment and inventory, and if anything might be needed to support expansion. In thinking about growth, I’d want to dig into the revenue and earnings splits for their different types of projects and see if there are any particular areas that merit pushing. I’d finally want to check online reviews to verify the quality of their work, but ultimately, regular readers know I think it’s hard to go wrong with an HVAC company.

5/ Auto-Rental Recovery Business

📍 Location: Denton County, Texas
💰 Asking Price: $18,000,000
💼 EBITDA: $6,000,000
📊 Revenue: $19,000,000
📅 Established: 2008

💭 My 2 Cents: It’s not often that you see a company that specializes in finding and recovering vehicles that have not been returned to rental car agencies. I like their business model as they do not need to carry a large number of assets and real estate (they don’t own trucks or maintain storage lots), while their use of sub-contracted agents for their fieldwork lets them effectively scale without incurring any major capital expenditures. And, because they only have a single type of client, they’ve also developed expertise that should make them the go-to option for clients and help provide a moat. However, the flip side to being this specialized is that it can limit your potential pool of customers. And a glaring concern with this company is that their largest client accounts for over 95% of sales. They have addressed this concern by structuring themselves so that they are perfectly designed to be the main vendor for this client, as they now have a 3-year auto-renewing master contract with them. Still, I’d need to dive in and understand the nature of their relationship with this client, including how far they are into the current 3-year commitment, if the client uses any other vendors, and how solid the client business is thought to be not only now but in the future. I’d also want to know if there are other potential customers they could attract and who the competitors for these customers might be. Finally, while their numbers are really impressive, I’d want to know why their growth was so strong in 2023 compared to the preceding years and what their performance was like prior to and during Covid.