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- đ˘ Deal Alert - 4/24/24
đ˘ Deal Alert - 4/24/24
Harry & Carter
April 25, 2024
Welcome to this weekâs edition of Acquisition Alert!
Every Thursday morning you will get 5 of our favorite SMB deals from around the country.
-Harry & Carter
Table of Contents
1. Janitorial & Facilities Maintenance Service
Location: Florida
Asking Price: N/A
EBITDA: $1,645,000
Multiple: N/A
Revenue: $9,700,000
EBITDA Margin: 17%
Employees: 151
List Date: 4/19/24
Reason for selling: Unknown
Harry & Carterâs thoughts:
This janitorial company is a classic âunsexyâ business with a lot of potential. The EBITDA sits at about $1.6m, making this is a strong search target. The business has been around for 23 years and works with a diverse mix of commercial clients including, government agencies, airports, and universities. We find that very appealing because these clients often come with long-term contracts and a steady/predictable flow of revenue, especially when it comes to government contracts.
However, Iâm interested in the terms of these contracts. Are they multi-year agreements, or do they need to be renegotiated frequently? Do they automatically renew, or is there a chance that they might be rebid? I would also like to understand if these contracts would transfer seamlessly with an asset sale or if the buyer runs the risk of losing these contracts during the ownership transfer.
Customer concentration is a key component in this deal - what percentage of revenue is tied to each customer? If a significant portion of the revenue comes from a small number of clients, that poses a big risk and makes the business less likely to qualify for an SBA 7(A) loan. The company's growth is promising, yet something to be cautious about. EBITDA rose from $444,000 in 2021 to over $1.6 million in 2023.
Inquire:
Link to listing here
Broker: Jacob Mangalath (Generational Equity)
Contact: 469-828-2791
2. Steel Fabricator
Location: Kent County, Michigan
Asking Price: $5,700,000
EBITDA: $1,100,000
Multiple: 5.2x
Revenue: $6,500,000
EBITDA Margin: 15%
Employees: 22
List Date: 4/16/24
Reason for selling: Retirement
Harry & Carterâs thoughts:
Metal fabrication companies get mixed reactionsâsome people love them; others wonât look at them. This particular steel fabrication business has been owned by the same people for 20 years and operates out of a 55,000-square-foot facility in West Michigan. It seems like a solid opportunity to explore, with profit margins that are about average for the industry.
Many buyers are wary of metal manufacturing companies because they often require heavy capital expenditures. This business has $2 million worth of equipment and $1 million in inventory. As part of due diligence, a thorough inspection of the machinery is crucial to avoid any surprises after closing. (Make sure you plan your working capital accordingly). Manufacturing companies also have a reputation for inconsistent revenue, as they're often project based, which can make it hard to forecast income even with strong backlog.
The seller is offering a $1 million seller note, indicating they have confidence in the business and are willing to retain some interest. I would like to understand what the ownerâs role in the business is. If the owner is the main âtroubleshooterâ (which these owners often are) and the company does not have a strong management layer built out, this could be a challenging business for someone without industry experience.
Inquire:
Link to listing here
Broker: Dealstream
Contact: N/A
3. FedEx Linehaul Routes
Location: Kansas City, Kansas
Asking Price: $2,400,000
EBITDA: $1,155,771
Multiple: 2x
Revenue: $6,279,430
EBITDA Margin: 18%
Employees: Unknown
List Date: 4/16/24
Reason for selling: Unknown
Harry & Carterâs thoughts:
FedEx linehaul routes can be great acquisitions for those looking to get into ETA. We consider these routes similar to a franchise: while franchises may offer less upside potential, they often provide greater security and potentially a more passive ownership experience. Buying a FedEx linehaul route means you are acquiring a designated "route" for transporting goods on semi-trucks from one FedEx hub to another. To learn more about how these routes work, check out this article.
This business has a full-time manager and claims to be suitable for "semi-absentee ownership." It would be important to clarify what "semi-absentee" meansâspecifically, whether you can manage this business remotely and if the current owner has successfully done so.
The U.S. is facing a truck driver shortage, making it crucial to understand employee turnover and the reliability of the existing drivers. Additionally, the increasing interest in autonomous vehicles could have an impact on this sector.
One common growth strategy for FedEx routes involves acquiring other FedEx contractors. This business has reportedly experienced double-digit growth since its inception, so it's worth investigating how they have achieved this growth.
Inquire:
Link to listing here
Broker: Alex Beringer (FXG Management)
Contact: 415-939-1000
4. Electrical Services
Location: Boston, MA
Asking Price: $6,100,000
EBITDA: $1,702,189
Multiple: 3.58x
Revenue: $8,994,932
EBITDA Margin: 19%
Employees: 25
List Date: 4/17/2024
Reason for selling: Retirement
Harry & Carterâs thoughts:
Maintenance and repair services are key offerings for any business, especially when part of a well-established electrical service company. This industry is very attractive to SMB buyers because it's highly fragmented, with no single entity accounting for more than 5% of the industry's revenue.
This electrical service company stands out for its broad range of services, including generator installation, repair, sales, and maintenance for both residential and commercial clients. However, we need more details on the revenue breakdown, such as the share from maintenance versus generator installations. Similarly, we'd like more information on the customer mix: what portion of revenue comes from residential versus commercial clients.
The term "turnkey" is often used by brokers to suggest a seamless transition, but most businesses are far from turnkey. However, this company has a team of 25 employees, including licensed electricians and experienced staff in sales, marketing, and administration. We'd still want to understand the current owner's role in day-to-day operations and if the company would function without them. Nonetheless, from a high level, the organizational chart seems strong.
Inquire:
Link to listing here
Broker: Coastal Business Brokers
Contact: 843-448-1090
5. Disaster and Damage Restoration Services
Location: Colorado
Asking Price: N/A
EBITDA: $1,170,000
Multiple: N/A
Revenue: $6,500,000
EBITDA Margin: 18%
Employees: Unknown
List Date: 4/18/2024
Reason for selling: Retirement
Harry & Carterâs thoughts:
Remediation businesses typically offer a wide range of services - and some services are more attractive than others. For example, we love companies that are involved in assessments, safety measurements and preventative measures, and less excited about remediation companies heavily involved in new construction (projects-based revenue). However, some level of exposure to project-based, non-recurring revenue is often unavoidable.
This weekâs remediation company is unsurprisingly involved in several different revenue verticals. In 2023 revenue sources were as follows: Damage restoration (47%), water damage mitigation (32%), asbestos/mold/radon/biohazard (5%), and other restoration-related services (16%). The broker also notes that 86% of revenue is from residential clients. While such a high revenue percentage may be worrisome for most companies, itâs important to remember that remediation companies are nearly synonymous with providing âmission-criticalâ services, and thus are less cyclical.
This listing also notes that the current owner is committed to remaining with the company during the transition phase and is open to extending their tenure with new management. We are always comforted when an owner is willing to stay on during the transition. That being said, it is crucial for the new owner to have a plan in place to transition the old owner out of his leadership role. We find that having an agreement with a specific timeline makes this process clear to the outgoing owner, but also to the companyâs employees, who will be closely watching how and when the baton is officially handed off.
Inquire:
Link to listing here
Broker: Generational Equity
Contact: 972-232-1147