❇️ New Deals - 7 May 2024

A heavy line commercial utility contractor, managed IT service provider, and 3 other interesting finds.

Today's Sponsor

Hello SMB Deal Hunters!

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

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

Today’s issue is sponsored by SMB Diligence, my preferred provider of legal and financial due diligence services exclusively for small business buyers.

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1/ Heavy Line Commercial Utility Contractor

📍 Location: Utah
💰 Asking Price: $4,950,000
💼 EBITDA: $1,125,826
📊 Revenue: $4,663,674
📅 Established: 1984

💭 My 2 Cents: This is a utility contractor with over 40 years of experience in high-voltage electrical installations for residential, commercial, and industrial projects. Their financials are great and are on track in 2024 to exceed prior year revenue goals. They also have a nicely diversified revenue stream as they undertake not only private projects but also have the licenses to work with local municipalities and government entities. Becoming certified as an electric vehicle station installer, which they are close to doing, is just icing on the cake. I also like that it comes with over $1M in FF&E, as this tells me that they have a highly specialized facility, which is a nice barrier to entry. I am curious as to how long it generally takes them to complete a project, how long it then takes to get paid, what their current backlog is like, how long it generally takes to win a bid, why they win (and lose) the bids they do, and how crucial the current owners are to winning bids. If that all checks out, then this is a business with a lot of room to grow, as they currently only bid on 10% of possible projects due to supply limitations.

2/ Managed IT Service Provider

📍 Location: Virginia
💰 Asking Price: $3,950,000
💼 EBITDA: $1,024,788
📊 Revenue: $4,278,909
📅 Established: 2003

💭 My 2 Cents: Outsourcing IT services makes a ton of sense for most businesses—it’s more economical than managing tech in-house, they can rely on more specialized experts, and they’ll be covered around the clock. This business has basically everything I like about managed IT service providers: long-standing customers, multiyear contracts, high client retention rates, significant recurring revenue, good margins, fully virtual operations, and a staff of 21 that includes an experienced management team. While everything looks really good on paper, I’d want to check a couple of things. First, I’d want to understand their specific niche (and what industries their clients are in), the exact services they provide, and if there is room to capture more revenue from current customers. I’d also be curious as to their current sales and marketing efforts and customer acquisition costs, the usual length of their customer relationships, the standard lifetime value of their customers, and if there are any client concentration concerns. Assuming, this comes back clean, this deal is an opportunity to acquire a business that not only represents a very secure source of recurring revenue, but one that is also readily scalable for hyper-growth.

3/ Fire Equipment And Service Company

📍 Location: Connecticut
💰 Asking Price: N/A
💼 EBITDA: $553,701
📊 Revenue: $1,875,878
📅 Established: 1985

💭 My 2 Cents: There’s nothing I love more than a legally-mandated essential service, and today I’ve found you guys one. This company offers a full suite of fire protection products and services. As you’d expect, fire safety systems testing and servicing are highly regulated and, as a rule, required for most businesses and facilities. I really like that in addition to the maintenance and servicing, this company sells and installs the equipment as well, as this means you can count on two distinct revenue streams. I also see an advantage here in that the two sides of the business should be able to support and send sales leads and customers to each other. Given this synergy, I’d want to know how much one side of the business currently bolsters the other and what the split between product sales and service revenue is. I’d also want to check on what the competition looks like for each side of the business and if there are any risks or untapped opportunities in either revenue stream. I would look for this business to have a lot of recurring revenue with its maintenance and testing services, but I’d want to confirm this as well as establish if they routinely have long-term service contracts or if they tend to provide their services on a more ad hoc basis. Ultimately, though, it’s hard to go wrong with an essential business like this that generates such dependable cash flow.

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4/ Fuel Service Cleaning Company

📍 Location: Hillsborough County, Florida
💰 Asking Price: $3,500,000
💼 EBITDA: $880,450
📊 Revenue: $1,387,464
📅 Established: 2009

💭 My 2 Cents: This company specializes in the boring business of maintaining fuel storage containers. I like that they are in such a specialized niche, as the differentiated skill set and potential licensing requirements provide higher barriers to entry than found with your standard industrial services company. Typically, businesses like this will have either contracts that commit the client to a certain schedule of maintenance work or commitments in place where they have agreed with a client to do specific maintenance work on an as-needed basis. As this is their business model, I’d need to understand how this process works and how much of their revenue comes from contracted work versus one-time projects. I’d also want to learn who their clients mainly are and what types of contracts they have with them (I’m hoping they are long-term service agreements). Given the barriers to entry, I assume they don’t face a lot of competition, but I’d want to confirm this as well as get a sense of how large their market is. I’d finally need to know what the retiring owner does and, while this is pitched as a turnkey opportunity, if there is any management transferring with the business. If that all looks good, then this deal seems tailor-made for someone looking to get into the industrial services industry.

5/ Asset Recovery Business

📍 Location: Florida
💰 Asking Price: $2,700,000
💼 EBITDA: $778,627
📊 Revenue: $1,552,299
📅 Established: 2013

💭 My 2 Cents: The repo industry has been around forever and isn’t going anywhere, as they provide a very necessary service for their clients. This particular repo company helps banks and finance companies recover basically anything that moves, from motorcycles to planes. The company owns all the trucks used in the business and utilizes independent contractors with commercial driver’s licenses who work on commission. I like that they use this contractor-based model as you are able to keep a lean corporate structure while being able to scale without significant expense if you can find a way to boost revenue. A key question that comes up with this type of business is licenses. I’d need to dive into their licensing requirements, to include how this varies state by state, who needs to hold the licenses, whether the owner has to hold one even if not directly involved in recovery operations, and if any current licenses are transferable upon a sale. I’d also want to understand how their standard contracts work, whether they have a base of steady clients, and how they go about gaining new business. Given the current and projected growth in Florida (especially with the large amount of retirees), I’d think that there should be a lot of room to expand going forward. Plus, $1M of the purchase price is attributable to real estate that is included with the sale, making this a great opportunity to use SBA financing, as when there is a clear real estate component you can generally use this to get a lower rate or longer loan term.

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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.