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- 📢 Deal Alert - 4/18/24
📢 Deal Alert - 4/18/24
Harry & Carter
April 18, 2024
Welcome to the first edition of Acquisition Alert!
Every Thursday morning you will get 5 of our favorite SMB deals from around the country.
Table of Contents
1. Commercial Flooring Business
Location: Southern CA
Asking Price: $4,750,000
EBITDA: $1,917,263
Multiple: 2.48x
Revenue: $13,096,210
EBITDA Margin: 40%
Employees: 24
Days on market: 15
Reason for selling: Retirement
Harry & Carter’s thoughts:
This Southern California based, commercial flooring business has strong numbers, a healthy EBITDA margin and seems like a great “boring business” for an entrepreneur looking for a company in California. They specialize in large scale tenant improvement projects and have grown to 24 employees. They are bringing in roughly $541k/year in revenue per employee. The listing claims the owner has strong partnerships with contractors and facility managers.
I would be curious to find out if they have contracts in place or if these partners are relationship based. I would also want to understand what type of commercial properties they service and what happens during a downturn. Taking a look at the company’s financials during the pandemic should give clarity to this.
Industry Insights: Flooring Installation
Institutional building construction has seen an uptick, ensuring demand for flooring services. Industry associations like the International Certified Floorcovering Installers Association provide support to floor installers. Cork, rubber, linoleum, carpet, and rug flooring installations remain prominent, with a focus on quality and diversification of services to attract customers in this competitive industry.
While the industry is fragmented, companies like Empire Today and Mannington Mills stand out, leveraging innovation and vertical integration to enhance efficiency and market share. Purchases, including lumber products, adhesives, and flooring materials, constitute the largest cost for floor installers, alongside high labor expenses for skilled work contracts.
Inquire:
Link to listing here
Broker: Mark Flores
Contact: 760-809-1540
2. Fire Protection Service Provider
Location: Connecticut
Asking Price: $1,000,000-5,000,000 (negotiable)
EBITDA: $509,715
Multiple: 2x-10x
Revenue: $1,786,550
EBITDA Margin: 29%
Employees: 8
Days on market: 2
Reason for selling: Retirement
Harry & Carter’s thoughts:
Fire service companies are appealing in many ways: sticky customers, mandates by the government and low cost to the customer. This company offers a full suite of fire protection services, from fire extinguisher service to training services. We like that this company is diversified from a customer perspective with clients in aerospace, retail, government, and manufacturing.
A downside of this industry is that depending on the services provided, these companies can have very low barriers to entry. I would like to understand what licenses the owner is required to have, if the seller has contracts in place with customers and what the average transaction size is.
Often times, the owners of these fire service companies don’t optimize technology when it comes to routing their drivers. You’d be surprised to find out how many owners still use a physical map when it comes to scheduling routes for the week. Implementing modern day technology to a business like this could streamline operations and dramatically increase margins.
Industry Insights: Fire Protection
Stable demand for fire protection installation is driven by laws requiring up-to-date smoke and heat detectors. However, growth in nonresidential markets has been hampered by high interest rates and weak corporate profits, limiting growth opportunities. The reversal of this macroeconomic backdrop provides a tailwind for this industry.
While legislation mandates smoke detectors in new constructions, businesses receive no direct government support despite this indirect governmental backing. Companies must comply with safety regulations, including obtaining licenses for installation, repair, and monitoring of smoke detectors and fire alarms in most states.
Competition varies regionally, with densely populated areas experiencing higher saturation and greater price competition. To succeed, contractors are offering value-added services such as warranties, repairs, and a broader range of interconnected devices. Skilled labor is crucial for installing and monitoring security and fire systems, with many states requiring contractors to obtain licenses, leading to increased wage expenses.
Inquire:
Link to listing here
Broker: Calder Associates, Inc
Contact: 732-212-2999
3. Commercial Siding Company
Location: North Carolina
Asking Price: $1,950,000
EBITDA: $980,380
Multiple: 1.99x
Revenue: $4,000,000
EBITDA Margin: 25%
Employees: Not Specified
Days on market: 5
Reason for selling: Retirement
Harry & Carter’s thoughts: Founded over 65 years ago, this company has established itself as a premier commercial siding provider in the Carolinas. Over 6 decades of business is a beautiful thing and implies a strong brand reputation and loyal customer base. Moreover, this company caters to a diverse clientele including government entities, municipalities, schools, churches, restaurants, medical facilities, retail outlets, grocery stores, and parks & recreation centers. A diverse customer base is a plus - we always look for this characteristic.
This company has a stronghold in the commercial sector, but also serves the local retail residential market, catering to residential home builders and DIY enthusiasts. Located in one of the fastest-growing regions in the U.S., this business is strategically positioned to capitalize on the ongoing explosive growth in the Carolinas. When evaluating a specific company, it is key to analyze not only industry trends, but also geographic trends (which is why we love companies operating in the Southeast).
Industry Insights: Commercial Siding & Roofing
This industry relies heavily on revenue from commercial construction markets, driven by extensive nonresidential construction and higher corporate profits. Like many building-service industries, market share concentration is low. Most contractors operate regionally and vie for local jobs, although larger companies may secure major contracts, leading to some consolidation.
Regulations governing building standards, pollution control, energy compliance, and occupational safety present challenges for contractors, who must also obtain licenses for certain types of roofing. Support from organizations like the National Roofing Contractors Association (NRCA) and the Vinyl Siding Institute (VSI), along with contracts with the Federal Government, bolster the industry. However, as with most regulations and compliance requirements - this provides an additional moat of protection from new entrants to the market.
Inquire:
Link to listing here
Broker: Keenan Moran (Viking M&A)
Contact: 866-592-9185
4. High-Margin Plumbing Service
Location: Colombia, SC
Asking Price: $1,300,000
EBITDA: $412,097
Multiple: 3.15x
Revenue: $1,063,083
EBITDA Margin: 39%
Employees: 6
Days on market: 5
Reason for selling: Retirement
Harry & Carter’s thoughts: You may be wondering why the multiple for a plumbing company with nearly 40% EBITDA margins is so low at just 3.15x. The short answer is that this is a relatively small operation with just over $1M in revenue. Small, but mighty! This residential service plumbing company offers an ideal opportunity for a first-time buyer looking to become a small-business owner. It also could be a nice add-on to an existing plumbing platform.
Notably, this company specializes exclusively in high-margin residential service and not remodels or new construction projects, thus avoiding any ties to the housing and new construction markets and the associated volatility. This is a crucial distinction in the plumbing space: service revenue vs new construction revenue. Always inquire about the source of revenue as not all revenue is created equally!
With a team of six employees in addition to the seller, the business operates efficiently from the seller's home office, utilizing a rented storage unit for supplies and inventory storage. We would be interested in learning how much direct labor the owner provides and how big a hole he would be leaving in his wake.
Industry Insights: Plumbing Services
We tend to look favorably at plumbing companies as the industry is extremely fragmented. While no single company holds a market share exceeding 2.0%, larger operators have an advantage in lucrative commercial contracts. Refurbishment and maintenance continue to be reliable income sources, while mechanical contracting remains stable, primarily within the commercial sector.
The Carolinas provide a great geographic backdrop for this industry: areas with dense populations and extreme climate conditions are unsurprisingly correlated with higher demand for plumbing services. You’ll likely hear us say this a lot, but we love B2B businesses that required licensing, as this provides a barrier to entry for plumbers. Specific licensing requirements vary by state, contributing to the industry's regional structure.
Inquire:
Link to listing here
Broker: Merrell Stout (Viking M&A)
Contact: 866-592-9185
5. Roofing Products & Services
Location: Denver, CO
Asking Price: $6,900,000
EBITDA: $1,900,000
Multiple: 3.63x
Revenue: $11,000,000
EBITDA Margin: 17%
Employees: 14
Days on market: 6
Reason for selling: Retirement
Harry & Carter’s thoughts: This roofing company is our most expensive company of the week at 3.63x EBITDA and operates under a relatively thin EBITDA margin: 17%. However, at $11M topline revenue, this company does a lot of business in the Denver Metro, an area that continues to benefit from favorable demographic tailwinds. Moreover, this company’s revenue is comprised of both services (repairs) as well as project-based (construction) for both residential and commercial clients.
A highlight for us, is this company’s partnerships with local roofing contractors to install eco-friendly shingles -- a fast-growing segment in the roofing industry. With a team of 5 full-time and 1 part-time project managers, they have experienced personnel to help maintain operations during a transition. We especially like this company because growth opportunities exist in expanding into other service-related industries, such as siding, lawn care, gutters, painting, and more.
Industry Insights: Roofing
Roofing contractors have progressively broadened their offerings to include green roofing systems, delivering energy-efficient solutions for both residential and nonresidential projects. It’s common in certain sunny parts of the country to see roofs integrate solar panels in the design of roofing systems, both residential and commercial.
The prices of semiconductors and electronic components continue to fall, (including silicon crucial for solar-panel production), which has stimulated demand for green roofing systems. Despite this cost reduction, solar panels still command a higher price compared to traditional roofing materials and have not yet achieved widespread adoption.
Inquire:
Link to listing here
Broker: Business Sales Group
Contact: 801-688-2554