$19M for a Custom Art Biz – Smart Move or Overpay?

0:00Welcome back, everybody, to another episode of Acquisitions Anonymous. I'm Mills Snell, one of your co-hosts. Me and Michael have an incredible time today. It's just us, so we go wherever the wind takes us. We found a deal that Michael brought that is a painting on demand business that does almost$15 million in sales. I'd never looked at something like this. I'm immediately going to become a customer. It's an e-commerce business on their own.com. It has everything you would want, really high margins. Michael knows more about this business than the listing even describes. We have a great conversation.

0:35I think it's a really fun one. And we might have a little surprise, a little Easter egg, so to speak, that appears in a later episode because of this one. So stick around after a quick word from our sponsors. Cool set. Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100 % beers anymore. And thumbs downing on just the plus inventory link. Hey everyone, it's Bill. And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called Capital Pad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses.

1:14So Capital Pad is a marketplace for acquisition entrepreneurs. That is people who want to buy a business and need capital to list their deals and solicit capital from other people who want to invest in acquisition deals. So if you want to back somebody buying a small business, CapitalPad is the place to do it. And if you want to buy a business and need capital, you can go on CapitalPad to be introduced to investors. So the really great thing too from the investor side is that CapitalPad takes care of all of the details that can get hairy with small business acquisitions. They handle standardized terms, standardized governance, standardized distributions, all up front in black and white.

1:58Basically, Capital Pad professionalizes investing in small businesses. And the returns can be really, really good. I'm so stoked they exist. It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out capitalpad.com and tell them that Acquisitions Anonymous sent you. All right. What's up, Mills? Yo. Since it's just us, we could be like total bro today. Full male energy. It's the thing I love about having Heather on the podcast.

2:36It keeps me in my center of the road energy. Yeah, I just, I picture her, you know, closing her eyes off camera and just rolling her eyes. Like these guys. Cause we're like, who cares if the SBA won't underwrite it? She's like, no, I live in reality. Well, it reminds me of the, um, there's that sex in the city episode from like the early nineties or maybe in the late nineties where the ladies are all around the table. And like, they talk about what happened on some date that one of the ladies was in. And, uh, they're like figuring out, Oh, what's all this stuff going on in the guy's head and all this confusing, complex stuff going on.

3:18And then one of the ladies' boyfriends says, no, I know what's going on. He's just not that into you. That's just it. There's no complexity. There's no mixed messages. It's just simple. And that was one of the things Heather and I talked about, I think, on a time you weren't here, which was just like, I love working with men. You guys are just super simple. That's awesome. I'm not going to be insulted by that. but probably I should be and there's you don't have to have an algorithm to figure out what we're actually thinking it's pretty straightforward is football on this weekend no what yeah all right so you guys did a deal we started that was really good but you had technical difficulties so we're gonna try to do it again because it's that cool of a deal yeah I am I keep I've been thinking about this deal in the meantime which I think this is a perfect like buy versus build kind of situation.

4:14Oh, this is the one I shared. Yes. Yeah. You sent it to us. So this is a, I've got it pulled up on the screen. If you're on YouTube, it's a paintings on demand pod, which I guess is, I can't imagine there's hundreds of companies doing this, but maybe there are enough that there's an acronym. It's a pod painting on demand production company, large artists, support staff, all made to order designs, zero inventory or working capital, which there is actually working capital. It's just that they get paid up front, but I like where they're going. The asking price is$19 million for a painting on demand, zero inventory.

4:53The sales are just shy of$15 million,$14 ,963 ,000. And the earnings, which we don't know if it's EBITDA or SDE, but the earnings are$3 ,670 ,000. And this is an acclaimed paintings-on-demand production company. They specialize in handmade, made-to-order paintings, been around since 2020, and they've transformed the art-buying experience by offering made-to-order model that combines exclusivity, craftsmanship, digital accessibility, with more than 30 ,000 paintings sold and over 10 ,000 satisfied clients worldwide. The brand has become a trusted destination for discerning collectors, boasting stellar online ratings, 4.8 stars from 3 ,600 reviews and 4.6 star rating on Trustpilot.

5:45They continue to post year-over-year growth driven by an impressive$1 ,500 average order value, 20 % repeat customer, 30 % net margins. So what they say is their model is highly automated, low overhead, designed for efficiency and scalability. The owners dedicate limited weekly hours to strategic initiatives such as financial oversight, supplier negotiations, digital growth planning. A skilled team of contractors manages daily operations, including customer service, marketing execution, and creative production. From the company's website, you can select from over 1 ,300 paintings. Each painting is then personally sized and crafted per the customer's request by professional artists.

6:34Once painted, the pieces are framed by a reputable partner, which maintains high quality standards without the burden of inventory and all the costs associated with storing, picking, packing, and managing warehouse operations. I think that means they're using a 3PL that maybe is also integrated with their framer.

6:59Yeah.

7:19hosted, and they have a mix of high-performing paid media campaigns with profitable email automation, delivering strong ROI and consistent engagement. The company already enjoys steady organic traffic. Further growth opportunities exist with influencer collaborations, affiliate partnerships, and expanded social media storytelling. It looks like they say they're well positioned to capture additional market share across North America and Europe. So I'm assuming those are the two markets they sell into. I'm going to try and skip ahead on some of this.

7:58They just talk about their operations is basically all third party growth opportunities. We kind of hit on business broker takeaways. Interesting that the broker did this rapid expansion. The A recent edition of a company-owned frame shop is working to significantly cut logistics costs and improve delivery speed, unlocking broader market. So is this something they've already, yeah, a recent edition. So they own their own frame shop now. They talk about creative upsells and cross-selling potential, streamlined scalable model. That's pretty much it. They don't list how many employees there are. They don't list the reason for selling.

8:39We know the business has been around since 2020. What do you think about this, Michael? Well, let's start. I have thoughts. And also, I have an insight that I think will prove interesting with this, because I know something about this market, because I watched a YouTube video on it once. So, let's talk about what they do first. So, this is, if I have a picture of me and my dog, or if you remember the Sopranos, remember when Tony got a custom painting done of him with the horse? Remember this? Yep. Oh, yeah. this is if you want to get a custom painting done and i think it is almost always these days done from a photograph or a series of photographs and then the artist represents that yeah in a painting an oil painting or a watercolor painting however you want to get it at your size custom to what you want to do and this is produced and then it gets shipped to you and then you get to hang it on your wall and say well we had a painting done of our family right yeah custom piece what do you make of this though?

9:37The company from the company's website, clients can select from over 1300 paintings. Is that like the background? And then you say, Hey, I want like, it's a landscape scene and I want my family painted into it, or it's a beach scene and I want my dog on the beach. Or is it the way I read it was, these are just basically stock, you know, of renderings stock things. and you can say, I want that in, you know, a 24 by 36 with a wood frame. So I think there's three things you can order here. I think number one, you can get obviously like a hand-painted replica of Starry Night by Van Gogh. So I think you can get that.

10:19Then I think there are Etsy style designs that they probably have where it's like, okay, you can get this at whatever size you want and it shows up hand-painted. I've done that. Like I don't have it in this office, but if you go to my, when I'm at my other office, it has, uh, I have those kinds of paintings. And then I think there's a third one, which is, Hey, here's me and my dog and Tony Soprano. And I want to picture painted that way. And I think you could do any of those things via these guys, which is fascinating because it kind of gives you the allure of, you know, I I'm into art and I, and I want to kind of collect and they are original in the sense that they're not like you could go on and you could order a print of starry night for probably like 50 bucks, you know, without a frame in whatever size, but it's not, it's not really painted.

11:07It's just printed. So this is a level up from that where you can say, I'm kind of getting into art and I want some of these pieces with a higher price point,$1 ,500 average order value. Yeah. That's amazing. I mean, can I tell you the thing they're not talking about? yes please hinted but they're not talking about it do you know where the world capital of mass produced hand-done oil and watercolor paintings are if you say san antonio i'm gonna shut my laptop no okay uh it's shenzhen right outside of right outside of hong kong okay yeah they they got in so if you go look there are just factory after factory of these incredibly talented artists people who are Chinese and they're sitting there in a factory and you order a Starry Night clone or whatever this is, there's factories after factory that does this stuff.

12:05And they can probably do it to almost absolute perfection. Yeah, it's all they do all day. You guys just do it. It may have moved since I studied this industry a few years ago to other countries, but it's a fascinating corner of labor arbitrage and how besides phones and some of the other stuff the Chinese have decided to own, they're in the oil painting market big time. This is, I mean, that makes sense given how crowded this search is. So I just searched painting on demand company on Google and there are three, four. Yeah, yeah. So painting on demand company, first sponsored post, design pickle, sponsored post, insta painting, sponsored post canvas on demand, sponsored post paint your life.

12:55Then in the organic search, this is actually an outlier because this is like painting your house, uh, painters on demand, but then print seekers, art prints on demand canvas on demand was in the paper click, but it's also high on the organic search. Luma prints, art pal, finer works. I mean, And like this is Printful. All these seem like they're doing the exact same thing, right? Design and sell custom products online. We currently offer Canvas prints on demand for more than 30 different formats. Like it seems like a very crowded space. A million percent. So, I mean, that is the question for this business and these guys.

13:38like what what is their you know go-to-market motion besides i'm in a really competitive bidding situation where if somebody googles this i have a problem yeah um so i mean it clearly looks like google is a huge red ocean i bet these people some of these folks are paying 30 40 50 dollars a click like it wouldn't surprise me i mean i wouldn't be surprised if it's more even yeah so there's a way i don't i this is way outside of my wheelhouse but there is a way you can you can there's some websites that kind of aggregate that and tell you where the average cost you know per click is but i that's not my that's not my world my cup of tea but um i would be curious about it yeah it's fascinating um so is this a good business my guess is google is doesn't work for them my guess is this is a meta ads play totally so i think that's where the whole dig in on the whole thing is because you're not getting a lot of repeat buyers for stuff like this like how many times are you getting the tony soprano you with your horse painting yeah once and then maybe they said 20 but it's like okay so then i would say maybe the the lifetime value of the customer is maybe a painting and a half you know at the most just because you'd have so many people who are buying one average order value of 1500 makes me think i mean some of these could get probably quite large.

15:01I wonder if they're coming from overseas and it's on a canvas, I mean, surely it has to stay on a frame. It's not like you could break down the frame, roll this thing up to reduce freight cost, and then re-put it on a canvas, frame it in the U.S., and then drop ship it in the U.S. This would be a big bulky package is what I'm thinking. yeah my suspicion is they are probably you know the painting gets done it's rolled up it gets overnighted to the US probably on an airplane and though it may find its way over because you want to have the stuff temperature controlled and then it shows up at a framing shop somewhere in LA or the west coast somewhere and then it moves on from there and the framing gets done here you know save for the bulky stuff.

15:53That's my suspicion on what's going on here and why they're talking about having their own framing shop. I bet they've been outsourcing that. On the other side of the spectrum, I have never seen a busy framing shop in my city. Like every single one, there's always parking spaces. So, you know, you have to wonder like, should you have your own framing shop? A lot of these people have tons of excess capacity. So. Well, and you know, that there's like this interesting kind of secular decline, I think on high end custom framing, high end wallpaper, like these things ebb and flow, but like the majority of homes now are not getting wallpapered.

16:28There are plenty of, you know, the best, the best wallpaper provider, the best wallpaper installer, those guys and gals probably stay busy all the time, but the market has just declined because of stylistic preferences. I would think that the number of homes that are getting custom framed art has got to be lower demand now than it was 30 years ago how dare you insult mrs girdley that way do you have like you have pictures with like six inches of like you know mahogany ornate gold gold inlay we've gone to home depot basically we've bought all the furniture they have there and then we've taken spray cans of Craylon gold and spray painted everything for extra.

17:14Yeah, we're an all gold family. No, I'm just kidding. No, we live in a weird house that was built in the 70s. So back then, people didn't care what they spent on air conditioning and they were just like, sure, we'll put a 30-foot ceiling in your living room. So we're the fourth or fifth owner of this house that was built in the 70s. So there's some big walls and storage like crazy. Evidently people in the seventies expected they were going to have a lot of crap. Cause there's just like incredible. So, so yes, we do have some of that going on in our house, but I'm also 50. Like we're, this is what 50 year olds do.

17:51Like we, we nest. Yeah. Cause you're emptying, you're about to empty nest. So you have to re nest. Yeah. 19 and 16. So nobody seems really interested to leave in the house so far. We'll see if that changes. But don't you think like if you're buying a business, like this, you know, you've got to, you've got to obviously just completely pivot to what is like the most kind of hip segment of this market. Like I doubt that, I doubt that there's as much demand for the kind of replica of Starry Night or the Mona Lisa as there is for, we're a family, we want like a high-end portrait. We had photos done and we want, we want a custom painting of that.

18:31I would be really curious of like the revenue by segment. Yeah. Well, and just like you're talking about, what are the trends here? Is this growing or shrinking? There seems to be a lot of entrants, especially if I think it's just a sandwich layer where everybody's going to the same factories in Shenzhen and getting these things done. What is the moat of this business? And look, could you pull it up again? These guys started in 2020. 2020 and it's a 16 million dollar business five years in like yeah i know it's e-commerce and stuff like this can grow shrink just as quickly as it grew but kudos to these guys like five years in and it's a 15 million dollar a year business throwing off 3.6 million dollars like god bless america i just the hard thing i i totally agree this is phenomenal and amazing and i bet the business is actually making close to this amount of money i think a lot of it does fall to the Their cost on the production of the paintings is probably minimal compared to their customer acquisition cost and then the freight and logistics and all that.

19:37But this is just a really, really great business to own and a really difficult business to buy. At$19 million, so many things have to go right for so many years. And the market, to me, seems like it could change just as fast as it was created, which was probably in the last five to 10 years. Hey, Michael here. This episode is brought to you by Toninson Accounting Services, the leading provider of quality of earnings reports for small and mid-sized business deals. Every year, their team reviews over$500 million in transactions, and the reports are trusted by buyers, bankers, sellers, and brokers nationwide.

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20:41What if I told you it's growing 30 % year over year? How would you feel then? The business or the market? The business. I would just say, how in the world have you differentiated from this really, really crowded, you know, organic and paid search? And if they had some X factor, great. But I would think that based on how crowded it is, everybody's coming for your 30 % margins because that's, it seems like it would be higher than higher than average in this. Well, I mean, if you're, is there any way people are getting customers for this besides Meta and Google? Is there any way? I mean, they talk about, you know, we want to do more online.

21:16We want to do more affiliates. But like, you know, I don't know if you're on Instagram, but like if I look at one thing on Instagram, right, just one video, then I'm inundated with just dozens and dozens of ads for that thing. Like I looked at a special backpack for a gun. I have probably seen 10 ads a day of different companies of different backpacks and like fanny packs for guns. it's just, it's gotta be so crowded. And I'm thinking, yeah, it's a, it's an expensive backpack, but what's, what are they paying for all these impressions? The biggest mistake I made personally was about six months ago.

21:56I looked at two of the like business buying, get rich quick gurus websites and oh my God, it's just like, yeah, I've just been retargeted to death. I could tell you their conferences, their offerings, what kind of nasal strip you should buy to maximize the airflow. I've got them all. I've got to figure it out. What kind of tank tops to buy? They've got it totally tuned in. So I actually got to a point where I was like, I've got to fix this. So I actually just in my mind was like, okay, what do I need to buy? Let me just make up something to buy. To clear the cash. Anyway, turns out new ski poles for downhill skiing are a hell of a palate cleanser.

22:39I highly recommend it. And it turns out also a lot of people are trying to sell ski poles. You have a very generic feed now. I get ski poles and get rich quick schemes. So, I mean, I think that this is a viable business. I just would be really concerned with, you know, this person has done an exceptional job in five years and they want to get out without holding the bag, I just would be worried. I mean, obviously this is way above, we don't have Heather here, but this is way, way above, you know, SBA category. My thought is that if you own one of these already and you're, you know, you're PE backed and, and it's a PE firm that has a specialty in the e-commerce space, those have like completely, you know, been separated wheat from the chaff.

23:30And if you're like a really good consolidator with a long enough term, long enough time horizon, I don't think you end up buying these. I think you end up competing. Like, let's say you had one of these already and you're trying to grow your market share. This would be a really expensive way to do it. I think that you just go sacrifice margin and grow the top line and compete with these folks instead of buying. there's certainly room for somebody just to outbid you on meta and google ads i mean and they didn't say anything there's no other way they're going to customers is it's all digital marketing yeah and i don't think a business like this you know really obviously they don't say anything about amazon but you know amazon there's no room for this because the customization options and yeah i think like if you end up on a website like this you're not only picking the print you're picking the size, you're picking like the sheen, you're picking the frame, you're picking, you know, multiple like wood types, colors, like everything, you know?

24:34So there's no way that you could get all this in Amazon like you would just, you know, something that's more commoditized, like a set of sheets where it's just what size bed do you have and what color? This is so many more flavors. Have you seen Amazon's like print on demand service and stuff like that they've rolled out i've seen a little bit of it on the publishing side you know like where you can oh you know oh so you should go check this out yeah i think no no it's uh like if you want to get a banner you know you have to get like banners for your job sites and stuff like that yeah like go do amazon's banner printing stuff they have disintermediated all the print shops and amazon merch on demand is what it's called so there's merch on demand but try to get do like a yeah do like a banner like a four foot by 32 foot banner and like you can customize them you can upload your own art you can do all this specific stuff like it is it is a reality that something to worry about here is amazon may want to own this space in the future amazon custom paintings and they may have already looked at it but it's just a matter of time but like banners there versus going to a local print shop i don't know where they're sourcing them from or if they're getting shipped straight from china or whatever and they're full of cancer chemicals but but it's like a tenth to twenty percent the cost is buying them domestically.

25:51And you could totally customize them. They're doing exactly what you're saying, but for banners and signs already. Audience, if you're not on video, you can see I'm doing a good job because I've officially blowed Mills' brain. He's furiously texting. He's furiously typing stuff into... But I can't find it. So, let me... Oh, well, maybe I've blowed your brain that way. Just do buy a custom vinyl banners and signs customized outdoor yeah i don't think any of these are actually like look these are all third parties yeah but that's what this company is though no yeah i agree i agree i see what you're saying so yeah i thought you were saying amazon was doing it themselves because like look at this look at amazon merch on yeah i'm just saying it's just it's not a big step forward totally amazon to do this painting stuff that's what i'm saying like look at this this is an amazon landing page you know yeah um this is this is like highly curated by amazon um yeah is this a matter of time until they get into painting yeah yeah this looks like an incredibly crowded space on amazon you know and the price variance on this i mean like these are these are incredibly cheap eight bucks for a custom banner yeah i mean so cheap we've Yeah.

27:11We bought these multiple. So anyway, I don't know, you know, they're not going to last forever, but man, they are cheap. So back to this business, like what would make it interesting is if they had some kind of moat, like they had partnered with a bunch of local people, photographers or whatever, they had an affiliate program where they were like signed up with exclusives or frame shops or something like that. But all I'm seeing is a business that's grown really quickly because they've gotten early into the trend, got their operations optimized pretty good, and they've gotten in while meta and Google advertising is not saturated and super expensive and eating all the margin.

27:46That's what I'm seeing. I wish they had a better moat than what they do for the price they're asking. It just seems so risky. I mean, even if you were paying two times, which they're asking six times or five and a half, whatever the math is, but even if you were paying two times for this business, it just seems like it could change so fast and you could just get your lunch completely eaten yeah well it's whatever the uh it's the the anti-lindy idea like this business has only been around for five years it's grown like crazy i will tell you what when it grows that fast that quickly it can shrink that quickly i've seen it happen it sucks but the nice thing about this is they don't have like a lot of fixed costs yeah right which is you know worst case is this business just shrinks in half and the profits go down to half uh you know, and the owners are just doing instead of private jet well, they're doing fractional private jet well, right?

28:41And like, like it's, it's still a really good business. Yeah, I think, but then that makes me, that begs the question, why doesn't the current owner just keep it and hold it for that long tail? You know, why don't they just let it play out? Even if you're in a declining total addressable market, even if you have declining sales, this is probably a completely distributed business. There's no office, right? It's just a, it's a, it's a kind of decentralized system. Worst case scenario, just keep it and run it and, you know, watch it shrink slowly over time to, you know, still a million dollars of earnings.

29:16Yeah. My guess is like many website closer deals, this is priced at a make me move price and kudos to them. I hope they get it. They deserve it. Like, you know, and you see stuff like this over and over again. I know I'm going against the book of, hey, buying business is a great path to entrepreneurship. But look, there's a lot of counterfactuals to that idea of strategy. And maybe you should just start a freaking business. Don't close the door on that because the world is short on assets. There's too much money chasing them. And this is a great example of if you're just smart and you just have a little patience and you self-fund a bit, you can create something really magical in a handful of years.

30:01And anyway, don't close the door on entrepreneurship. That's what I'm saying. Yeah, with a lot less risk, right? I mean, it's the whole, you know, we have Chelsea on all the time, but Walker wrote the book on, you know, buy then build. But it's almost like we talk about a lot, you know, is it buy versus build? And for a certain business like this, where you could say, let me, instead of shelling out$19 million, let me budget a million dollars to go try and see if I can, you know, out-compete this person or underpriced this person with 30 % net margins, you can. Yeah, totally. Or just pick an idea that is this in 2020, right?