New Deals: A CNC machine shop, physical, occupational, and speech therapy practice, and 3 other finds

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NEW DEALS

1/ CNC Machine Shop

📍 Location: Hillsborough County, Florida
💰 Asking Price: $1,600,000
💼 EBITDA: $541,214
📊 Revenue: $1,477,300
📅 Established: 2013

💭 My 2 Cents: This CNC machine shop manufactures small parts for several industries. I like that they specifically focus on producing parts that are niche in nature and where there is no serious competition. I also like their strong e-commerce platform that lets them sell both retail and wholesale and that 20% of their sales are from repeat clients. However, what makes this deal really stand out is the nearly $1M in specialized equipment and $700K in inventory included in the sale, which more than covers the entire asking price. While you probably won’t get full book value for items like this in an expedited sale, they provide an amazing backstop if things don’t turn out as planned and, as tangible assets, could help you land financing. Given their importance, I’d want to check on the condition and remaining useful life of the equipment and the quality and usefulness of the inventory. I’d also want to know the different parts they manufacture, the breakdown in revenues and costs for each, if there are any items that account for an outsize part of their revenues, what their wholesale and retail margins are, if there are any customer concentration issues, who their competitors are, and how hard it would be for someone to start competing directly. Finally, on the growth side of things, I’d want to know what their current utilization rate is and what would be involved in increasing it. With the owner working full-time in the business, this looks like a nice opportunity for someone with experience in the industry.

2/ Physical, Occupational, and Speech Therapy Practice

📍 Location: Pinellas County, Florida
💰 Asking Price: $2,200,000
💼 EBITDA: $564,867
📊 Revenue: $2,082,738
📅 Established: 2011

💭 My 2 Cents: I really like this business. With these types of therapies, it’s relatively easy to predict how frequently clients will be returning, the length of their engagement, and their total dollar value, meaning you have a clear line of sight into expected revenues going out many months and, by extension, the ability to plan ahead. A second real positive is their dedicated patient base of approximately 150 clients, averaging about 550 therapy visits per week. Because the customer base is so sticky, this is the closest thing to the coveted SaaS monthly recurring revenue you’ll find without actually being a SaaS. I also like their almost 15 years in business, their impressive staff size of 31, and that most of their payments are through insurance. It all adds up to the owners only working 15 hours a week, with a ton of confidence that the current employees could be trained to take over their responsibilities. As patient flow is everything, I’d want to know how they currently attract new clients, how many of their clients have been patients in the past, who their main competitors are, and what distinguishes them from their competition. I’d also need to know their licensing requirements, what software they use for internal management functions, and whether their current space, equipment, and staffing could support more clients. Ultimately, because this practice currently does zero outward advertising and does not even have a website, it shouldn’t be too difficult for a new owner to boost growth.

3/ Auto Salvage Yard

📍 Location: Lady Lake, Florida
💰 Asking Price: $2,490,000
💼 EBITDA: $800,000
📊 Revenue: N/A
📅 Established: 2008

💭 My 2 Cents: Auto salvage is not a particularly sexy business, but it’s consistent and profitable. This yard purchases junked cars that they then strip to provide parts for their customers. They currently do not sell to the general public but instead provide requested items to longstanding buyers who purchase in bulk, so all their inventory is pre-sold. I really like that by only selling to steady wholesale customers, they are able to buy the exact number of cars needed to fulfill customer orders, eliminating any risk of excess or unsold inventory. I also like that the yard comes with $800K in equipment (I’d need to check on its condition), $150K in inventory, and that you can lock in a long-term lease with the seller for the land the yard is on (or purchase it for $3.5M). While their cash flow looks good, I’d want to dig into the details of their business model, including who their customers are, how these customers place their orders, and how prices for the used parts are set. I’d also want to know how consistent the demand for their used parts is, if there is any risk of a downturn in the industries purchasing these, who their major competitors are, and how much impact this competition could have. On the supply side, I'd look to ask where they source the junked cars and if there are any potential issues with their availability. Overall, though, with an established team in place, this looks like your classic cash cow boring business.

4/ Technical Recruiting and Staffing Firm

📍 Location: N/A
💰 Asking Price: N/A
💼 EBITDA: $1,200,000
📊 Revenue: $8,800,000
📅 Established: N/A

💭 My 2 Cents: Regular readers know that I generally like staffing businesses, as those that are well-managed can easily scale while producing consistent revenues and very high margins. This company focuses on matching mid to senior-level talent with businesses in a wide range of technical fields, offering 3 different staffing models to best suit client needs: Contract (staff augmentation), Contract-to-hire, and Direct Hire. I’m particularly interested in how the mass tech layoffs have affected this company. The layoffs could be terrible news for a staffing agency like this, but the gaps and shortages created could actually be generating more need for a tech-focused agency to help fill in recently vacated seats, and this is especially true with the growing popularity of short-term hires and outsourced contractors. I’d also need to get a handle on their 2021-2024 financials, including: why did revenue stay flat from 2022 to 2023 and profitability go down?; why was there such a jump in revenue from 2021 to 2022?; and how are earnings staying level from 2023 to 2024 with a decrease in revenue? Looking ahead, I’d need to know what realistic assumptions you can make about earnings going forward, which means I’d need to better understand their different staffing models fee structures, revenues, recurring revenue rate, and what the specific features of their Master Service Agreements are. I’d finally want to look into how they handle either too many or too few job seekers, how they go about winning new clients, if there is any risk of losing existing clients when ownership changes, and who their direct competition is.

5/ Niche Subcontractor

📍 Location: Maricopa County, Arizona
💰 Asking Price: $3,750,000
💼 EBITDA: $1,402,913
📊 Revenue: $4,970,342
📅 Established: 2013

💭 My 2 Cents: This business operates in the highly fragmented niche subcontractor space. It is managed completely remotely by its founder from their home office, with employees showing up directly to scheduled jobs. I like that this business has very minimal fixed costs and that their employees are cross-trained, so there is ample coverage for whatever type of job is required. I also like that there is a scheduled backlog that exceeds 2023 revenue, with some contracts extending into 2025. This is a great buffer for a new owner, as they won't need to look for new business off the bat to maintain the level of success of prior years. It’s also nice that they could always expand into other construction areas and seek to capture more revenue from both new and current clients. In thinking about this company’s potential, I’d need a lot more detail on why they decided to focus on this one specific niche and how readily they could expand into related subcontractor jobs. Next, I’d want to know who their competitors are and what, if anything, stops other subcontractors from entering the space. It’s always important to look for what can set a business apart in a potentially crowded, highly fragmented space. Lastly, in looking at possible transition issues, I’d want to understand what the owner’s role is and what would be involved in replacing them, what the licensing requirements are, and how much of the staff will remain post-sale.