❇️ New Deals - 9 May 2024

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Hello SMB Deal Hunters!

Thanks for all the great feedback from the deals I shared on Tuesday!

🔥 Community Top Picks from the Last Issue:

#1: Fire equipment and service company that provides a legally-mandated service
#2: Managed IT service provider with fully virtual operations
#3: Asset recovery business with $1M in real estate

I’m excited to share 5 new deals worth checking out.

Today’s sponsor is Relay, an online business banking and money management platform that helps small businesses take control of their cash flow and get crystal clear on what they’re earning, spending and saving.

1/ Well Drilling And Pump Service Company

📍 Location: California
💰 Asking Price: $2,250,000
💼 EBITDA: $633,475
📊 Revenue: $2,004,536
📅 Established: 2015

💭 My 2 Cents: This company provides well drilling, new installation, and pump repair services to residential, commercial, and agricultural industries. They currently run 2 drilling rigs 5 days a week and have a strong backlog of contracted upcoming work. I like that they have a range of clients, but I’d be curious as to how much of their work is new projects versus repeat services, what the breakdown in revenue is between these, and whether they have any meaningful recurring revenue. I also like that they have over $1M in FF&E included in the asking price, as this provides a bit of a moat against prospective competitors, gives some protection against a downturn as you could liquidate the assets and cover nearly half of your purchase price, and can be very beneficial in securing debt financing. There could be an opportunity to expand the business by adding new machinery or working more days, but given their agricultural area, I’m not sure they’re in a dense enough market to really expand. There is a team of 9 in place and while the new owner will need a C-57 license to operate the business, the seller is willing to assist in the transition. Overall, this deal offers a nice combination of proven revenue, valuable assets, and some growth potential.

2/ Security Company

📍 Location: Hillsborough County, Florida
💰 Asking Price: $3,000,000
💼 EBITDA: $882,722
📊 Revenue: $14,855,413
📅 Established: N/A

💭 My 2 Cents: Regular readers know how much I like security guard companies. Security guards serve an essential role in deterring crime, and it’ll be quite some time before technology replaces the on-the-spot decision-making of a human security guard, especially in an unpredictable or nuanced situation. In business for over 30 years and operating in 4 states, this company has more than 325 uniformed guards, a fleet of 18 vehicles, and over $14M in annual revenue with long-term clients that are locked in with automatically renewing ongoing contracts. It’s great when you start looking at businesses with some scale like this because there are likely senior levels of management built in that can transfer with the business, ensuring that a new owner is buying a business instead of a job. However, I’d still need to understand their uniformed guard staffing process, how they pay their employees, and if there are any issues with retention or turnover. I’d also need to know what types of contracts they have, how long they are, what renewals look like, and if there are built-in price escalations or other limits on what they can charge or do. Finally, I’d need to know what the local competition looks like and if there are any customer concentration issues. Importantly, I need to note that their SDE is calculated assuming the buyer is already in the same industry, so they removed costs that would potentially become redundant for office staff and space. It’s still an attractive deal even if you’re in a different industry, but your adjusted earnings profile will probably be different.

3/ Fence And Gate Company

📍 Location: Albuquerque, New Mexico
💰 Asking Price: $3,700,000
💼 EBITDA: $895,839
📊 Revenue: $3,713,277
📅 Established: 1985

💭 My 2 Cents: This is a fence and gate installation and rental company, a not flashy but necessary service that will always be in demand. Given that the business has two different sides, I’d want to better understand the workflow for installation versus rental, the revenues and CapEx requirements for each, and the breakdown of employees between the two. I’d also want to know how much rental equipment they have and its value, condition, and age. I really like that this business is old and large enough to probably have tenured and experienced managers who could help make the transition easier. I’d want to confirm this at the same time I check into license requirements and who needs to hold them (owner, employees, or the business itself). Overall, this looks like a great boring business, and, as they’ve done no external advertising and just run on word of mouth, there are clear opportunities for a motivated new owner to expand.

4/ Solar Company

📍 Location: Southern California
💰 Asking Price: $4,500,000
💼 EBITDA: $1,147,022
📊 Revenue: $8,088,534
📅 Established: 2009

💭 My 2 Cents: This company offers comprehensive solar panel and battery installation services for residential, commercial, and non-profit customers. If you’re going to be in the solar business, you want to be doing it like this company in California. Apart from having the climate to support panels on residences and structures, they have extremely high electricity costs which makes solar power especially attractive. Unfortunately, California has a ton of competition, so I’d want to better understand what this company’s value add is. Have they carved out a niche for themselves, or are they just competing on price (which is never ideal)? Are they full suite from finding customers, quoting them on benefits, calculating savings, and providing installation and ongoing servicing, or do they outsource any of these activities? I’d also be curious whether they are a distributor for a specific solar technology company that makes the equipment they use and if they have or need any fabrication expertise. Finally, I’d want to make sure there aren’t any harmful regulatory changes on the horizon. With solid numbers and a nice backlog of work projects, this could be a high-powered deal once you have a feel for the niche and operations.

5/ CPA Firm

📍 Location: Denton County, Texas
💰 Asking Price: $1,200,000
💼 EBITDA: $593,557
📊 Revenue: $1,055,000
📅 Established: N/A

💭 My 2 Cents: This CPA practice has going for it several different solid revenue streams. A lot of CPA firms make their money almost exclusively from tax work. This gives great revenue but is very seasonal, which can be a challenge to manage when you’re using debt to acquire a company. It also means you need to pay a lot of attention to your working capital to make sure you have enough money in reserve to get through the slower periods. In contrast, only 48% of this CPA’s revenue is from tax work. The other 52% is split between accounting (36%) and payroll services (16%), translating into a steady stream of work and income all year long. These other business lines also mean the firm is equipped to provide ongoing services that can potentially be a great area of expansion. A CPA practice is defined by the quality of their staff, so I’d need to know how many employees they have, their roles, and in particular how many are CPAs. I’d especially want to understand the role of the current seller, how much revenue comes from work they are doing personally, and if this is really only an opportunity for a CPA looking to take over an established practice. Finally, in thinking about potential growth, I’d be curious if the business has any extra capacity and if they’ve tried marketing in the past. Overall, given their awesome 50% EBITDA margins, this could be a really attractive opportunity for someone looking to scale.

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See you next Tuesday!

-Helen Guo
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Disclaimer

This publication is a newsletter only and the information provided herein is the opinion of our editors and writers only. Any transaction or opportunity of any kind is provided for information only; SMB Deal Hunter does not verify nor confirm information. SMB Deal Hunter is not making any offer to readers to participate in any transaction or opportunity described herein.

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