$3.2M for a Dog Grooming Business?!

0:00Hey, everybody. Welcome back to another episode of Acquisitions Anonymous, the internet's number one podcast on small business M &A. I'm Mel Snell, one of your co-hosts, joined today by Heather Anderson from Vizo Capital and Connor Gross, who is our go-to franchise expert. We talk about a really interesting business today. It's a mobile dog grooming business in New York area, Long Island, 13 trucks,$3.2 million asking price,$2 million in revenue. The business has a lot to like, relatively asset light. There is an interesting dynamic with franchise or carve out. There's a lot that we discuss, a lot of great expertise that's brought to bear.

0:40Hope you enjoy the episode. Stick around after a quick word from our sponsors.

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1:39Tell them that Acquisitions Anonymous sent you. Welcome back, you guys. The conversation prior to hitting record is always the best, but we were rapid fire sending deals to Connor like, hey, what about this franchise? What about this franchise? And so we have a really good candidate today that I've never looked at, but I would be a consumer for this business. So that always like really, you know, piques my interest. I would too. Cool. Yeah. I have, well, you know, about my consumer experience in this business and I'll tell you why I'm no longer a customer, but, uh, the business that we're talking about, um, is a, the headline is eight years open, uh, operating and profitable franchisors founding location.

2:22And this is a mobile dog grooming business. And so, uh, the asking price is 3.2 million. Um, They disclosed gross revenue of about 2.1 EBITDA of 744K. And then it does say the sale is pending. But the details are this is an open and operating and highly profitable mobile grooming business. The exclusive territory is all of Long Island, New York. That includes Nassau and Suffolk counties. This is the founding location of the fastest growing luxury mobile pet grooming franchise in the country. We started with one van and built a multi-state operation with a model that consistently drives strong revenue in every market.

3:01Demand is off the charts. Clients wait for their pets to be serviced by us because our experience, brand, and quality are a level above anything else on the road. No storefront, no heavy staff. One mobile grooming van can generate serious income with recurring loyal clients. It's simple to run and built for real profitability. We cracked the hardest code in the grooming world, and that's hiring. Franchise owners plug directly into our private groomer network, recruiting tools, training systems, and proven operational blueprint. They are not guessing. They are guided. Acquiring the founding location of our franchise is more than just running an established business.

3:37It's about growing a thriving, scalable enterprise in a booming industry. so they disclose a million dollars of ff and e uh 14 full-time employees no real estate i mean it's uh 13 mobile grooming vans that's a lot that is a lot yeah and we can come back to that because that's uh that is a lot but uh the reason that they sell they say they're selling is the founding location is being sold to focus on building the franchise system which is interesting but yeah 13 vehicles is a lot and that's on 2.1 million in revenue so in roofing just as a counterpoint, like what's a reasonable revenue per vehicle?

4:15It's so tricky because it depends on if it's residential or commercial. And like I run 10 man crews in two trucks. So it's not really the same model as like an HVAC, like two guys in a truck, you know, doing service calls. I know my window cleaning franchise that I used to own, like we could do 250K of revenue per truck, like, or per van rather. The metric for service on the repair side for commercial roofing, and this is a wide gap, but it should be somewhere between$350 ,000 and$450 ,000 for a service per year. So this is relatively low. And we don't know from a capacity standpoint how full they are, but if it's at$13 ,000, my guess is they wouldn't have been adding those incremental vehicles if they didn't have the need for it.

5:05So that is interesting. I've seen numbers with some of the, they, that have been able to get north of 200, uh, in revenue per vehicle. So yeah, operating over capacity, but, um, we don't know that. So it's not uncommon for a franchisor to sell corporate owned locations, but what about like the, what about like the Hallmark location? That seems kind of interesting. Well, and I get the question a lot. Is it a good thing if a franchisor owns locations themselves? And I think there's two angles to this. First of all, I do think that there's something to be said for them having their capital at risk on that side of the table and that clearly they can use that as a guinea pig and they're learning.

5:53And I've also seen situations where there are corporate-owned locations and it just negatively impacts the organization because all of those resources, not all of them, but the resources typically then get diverted towards maximizing the enterprise and their corporate units rather than helping franchisees to build their value. so I can see both angles of it my personal preference is I would like to be a franchisee in a system where they're focused on being a great franchisor so smash my trash the brand that I own as an example like they do own one corporate location it's mainly like a guinea pig scenario but that's not a big picture of how they're creating value so I don't hate this either way is what I'd say I like it in that capacity when it's like a test kitchen almost you know, and they're like, hey, before we tell you this is the way to do something, we have learned that this is the way to do something.

6:48But I feel like there's like this maturity kind of arc that a franchisor goes through where in the beginning, maybe they own more. And as a percentage of total units, if you only have five units and you own two, like, okay, that makes sense. But then it seems like they should kind of focus on franchisor duties, which are very different than franchisee operations. But then what I really think is an interesting signal is when franchisors consolidate, you know, and then they start saying, hey, the economics are actually so good, we want to own a lot of these and we'll get the franchisees out. That's happened before, you know, in a lot of cases.

7:27But yeah, I mean, it was founded in 2017. I think I left that out. So this is a relatively new business. I would be very interested to hear from a timing standpoint, like why now? Can you scroll back to the earnings of this business? Okay, so$744 ,000 of EBITDA and 2.1. So I was more curious, the$2.1 million across 13 vans, what the per van revenue was. Sorry, I'm doing my math here. $161 ,000 a year per van. Which it's interesting to me that the vans are bought and paid for too. Like that's a good signal of maybe strong free cash flow, but a bad signal in terms of asset efficiency. I would think that you could lease these very efficiently, even over, you know, or own them and amortize them over five to seven years.

8:23Right, Heather? Yeah, exactly. So, I mean, leverage would have been smart there. You know, it doesn't so much matter for the buyer to come along because they would have to pay off, you know, the seller would pay off all those liens anyway. But maybe it is tricky for a new buyer to add new vans. You know, that means there's no fleet financing relationship that's already been established. And buyers are going to have to go establish that if they want to keep growing. Plus, I wonder if this is tapped out for growth in this particular territory. This is, you know, maybe that is the reason the franchisor has done all they can with their flagship territory and just wants to hand off something that, you know, can coast along, so to speak, but maybe can't grow.

9:07Could that be the reason that they're offloading this one? Yeah. They've had it long enough. They've got up to 13 vans. I guess I suppose you could have more than that in that market. But, you know, there's other competitors out there as well. Connor, especially because of Smash My Trash, but like I just think about route density in something like this. Like it is either the wind at your back, you know, and really helping you or it kills your business operationally because you're driving two hours away to do a$50 service. Like and you just can't make the economics work. Yeah. Let me share my quick anecdote as a former customer of one of these.

9:50So I have two Great Danes, because it goes to your point, Mills. But like, so I have two huge dogs. They charge like by the pound. Like they don't. Yes. And so for me to have my two dogs mobile groomed, it was almost$600 while we added a tip and everything in. And I spent, I added it up. I was curious. I spent over$20 ,000 on my dogs last year between like, you know, just a number of different things. So I'm not scared to spend money on my dogs. And I was like, what? You really need Bill on this episode to talk about growing consumer demand in the pets face. I'm afraid to talk about my dog with Bill anymore.

10:28Yeah. So, but again, even me, I was like, that is too much. And then the other thing was like, they come to your house, right? And that is what this business does. It's a van and it has a groomer in it and they come to your house and they give your dog a bath, haircuts, whatever. That was the other thing is I was like, great Danes are short hair dogs. They don't need a haircut. So I understand if I'm getting to like, you know, champion grade poodles, like, you know, when they get them all hedged up perfectly and, you know, carve zigzags. And I'm like, okay, that's a specialty, but this didn't make sense.

10:58But anyway, so they come to your house and, um, they were like, they were like an hour late, um, which, which was annoying. I had to block off my whole afternoon, like cancel calls the whole afternoon to do this. So I'm like, I'm not getting the convenience from it. It's crazy expensive. Yeah, for me, I was not an ideal customer. So that's my quick anecdote there. Well, you're making me remember something that makes me ask the question, who owns the customer here? And here's the reason I ask. I have also used mobile grooming services. and what happened is one of their employees clearly broke off from the business got their own van and started texting me and their name of their business was almost the same so I thought it was the same company and I uh then you know said sure yeah come by and take care of the dog and then I realized you know after the second or third time that wait a minute they were stealing me as a customer from the original uh grooming van so I also think that I don't know how much of that goes on in this business, but it's always, it always makes me think who owns the customer?

12:05What are the risks? And this is like, this is a business where you have a lot of affinity for the technician, the actual person doing the grooming and no loyalty to the franchise, you know, the parent company. So that is interesting. Yeah, it is interesting. If you can get a van, you can, you know, and you know who the customers are, I guess there's, there's competition from within sometimes. So it's the same dilemma that you run into with like, you know, hairstylist and stuff, which is why I really like the salon suite model, which we've talked about before. It would be interesting if there's a play here to do kind of a salon suite equivalent for groomers and say, if you're a groomer, you can't afford a van, you don't have the marketing infrastructure in place, like come...

12:49We'll turnkey it for you. Yeah, exactly. That could be an interesting. But I come back to is like, who is the ideal customer that commands that high of a premium over for the convenience that at least for me, I didn't really see? That's what I can't quite put my finger on. I think they're out there. I just, it would make sense if you had a spouse or someone that was home for the entire day and didn't have to block out their calendar for it, you know, and there was the added convenience. I mean, it's the work from home culture, I think, is what drives this a little bit too. Yeah. It is interesting, like, the, like, pay by the pound aspect of this, because I would think it's a huge advantage to you to not have to load up two Great Danes and haul them across town to the groomer.

13:38But you don't really, like, you're being penalized. But it makes sense. They have to price it based on the size of dog, you know, and the amount of time that it would take for a big dog versus a small dog. I just go back to route density on this. Like, like capacity utilization is the name of the game. And if you could have a full day where you go back to back to back and you're not having to spend, you know, inefficient, unbillable time driving. but like can you get that density with 13 trucks on a consistent enough basis i guess the one thing that this business has going for it is there is hypothetically some predictability like in appliance repair if you can't get there within 24 to 48 hours they're moving on to the next person so like you never have leads that are more than you know a week or two out because at that point, like people are just, they've moved on.

14:33At least with this, it's like, okay, Hey, this is my type of dog. We're going to do it every 30, 60, 90 days or something like that. That, that I do like about this. Yeah. But from the route density standpoint, that's why I brought up like my experience when you mentioned that, cause like I do, I feel like it's different for something like this than it would be for like smash my trash or like a pool cleaning company or something. Cause I mean, we go, we, we serve customers at three in the morning and they don't care. These are manufacturing plants. But like, I'm just talking about for myself when they were an hour late, like it derailed my entire afternoon.

15:06And that's just the kind of stuff that, that happens when you're running a route, but it is particular that really is a disruptive to your customer. So I just wonder how much density plays a role if you have to build in more margin for error than you would with something that isn't quite is time sensitive, you know? Absolutely. Are you ready to take a leap into business ownership, but you don't know where to start? Well, look no further than Acquisition Lab, the premier resource for entrepreneurs seeking to buy their dream business. Founded by Harvard MBA and acquisition expert, Walker Deibel, the lab is your fast track to success in the search diligence and acquisition process.

15:43With hands-on support, world-class resources and a community of like-minded entrepreneurs, Acquisition Lab gives you the tools and confidence to navigate every step of the journey. And we're proud to call Walker and Chelsea, the lab's director, longtime friends of the podcast. They're passionate about helping entrepreneurs like you take the next big step. So don't wait to make your business ownership dream a reality. Visit acquisitionlab.com today to learn more and schedule your free consultation. And when you do, be sure to tell them the Acquisitions Anonymous podcast sent you. Any business in the pet space, especially dogs, I think it's going to attract a lot of buyers because they say, I have a dog.

16:17I love pets. I love, you know, I love the idea of this. So I think that, you know, it's already a pending sale. I think, you know, that that's probably part of why everyone can sort of imagine themselves being able to run a business like this, even though it's not ever going to be as easy as they might think, you know, just like we're talking about with the density of the routes and really keeping the trucks efficient. But it does seem like the type of business that would attract a lot of interested buyers. I wonder too, like Connor, we've talked about like vanity metrics. This seems like they're really pumping, like demand is off the charts, like people wait for us.

16:52You know, we're consistently, you know, growing revenue in every market. I don't know. It's, there's a lot of fun. They're a franchisor. There's a franchisor. So that sounds about right. You know, that's all I'm doing. They're in the business of selling franchises, you know. Right. 100%. I think the 744 EBITDA, what I'm curious about is, is that after you begin paying franchise fees? Because I doubt they're paying franchise fees now. They are the franchisor. So I wonder if they've, you know, not made that adjustment and what you're buying is actually going to be a little bit lower than that. yeah i got to um i got very very close on buying a deal that was similar to this a few years ago and it was my fault because i never asked that's a pretty like basic thing to ask but they had only shared high level financials and got to the end and i was like oh does this include like the royalties that i would be paid and uh it had not so um it's a good question to ask now i the franchisors that I see effectively market their corporate divestitures well, like they know that that's like the first question that's going to ask.

17:58So they're smart if they go ahead and include it, but we don't know that here. Like if they go and normalize it, right? But I would agree though on, what is that? That's 35 % margins, something like that. There's no way. There's no way that factors. Are all their franchisees getting 35 % margins? probably not, and you're not going to either once you start paying the fees. I doubt it. I will say this is an industry where I've seen really strong margins, like, you know, 20s, but not mid-30s. So, yeah, I mean, I think something like this makes sense for somebody that is looking for a business. They want to service business, but they don't want to deal with blue-collar labor.

18:43maybe they're not somebody that's super um super sales oriented i mean there's going to be selling involved here but it's it's a much more low touch sales process than selling a roof mills would you agree yeah so i that's kind of the the heuristic that uh for whom i think that this kind of thing could make sense obviously this is pets kids and seniors those are the three areas where if you do delight the customer. You don't want to, you know, buy into this if you hate animals. So if somebody that likes animals is involved in the community and wants to serve as business without blue-collar labor, this can make sense for them.

19:22Yeah, I think you're getting about$500 ,000 of cash flow after you take out the franchise fees and maintenance CapEx. Going back to the fact that they've bought all their, you know, their trucks outright, you're going to have to deduct something for maintenance CapEx for maintaining that fleet and potentially buying replacement vehicles. So I'm thinking you're getting maybe$500 ,000 of cash flow at the end of the day. And then, you know,$500 ,000 somewhat recurring revenue, I guess, with your client base. You know, it's probably a good healthy four multiple on that, maybe more. Which they're asking.

20:02A lot more than that. They're basically asking, what, four and a half times of this EBITDA number. And that would put it up closer to six and a half times. Yeah. On five. I think it's worth somewhere, maybe a little bit north of$2 million, but not$3 ,200 in my mind. Which you got to think, if these vans, you know, 13 vans and, I mean, just the sticker price, these are probably not minivans, right? They're more like a sprinter van. Yeah. So it might be$75 ,000 vans, you know, times 13 of them. That's a million bucks right there. Yeah. And you've got to outfit it with all the equipment. Yeah. It does, I'm sure, break down after, you know, all those.

20:42Which they do list a million dollars of FF &E. So, you know, that kind of makes sense. Yeah. What do you guys think about, so obviously franchisors have veto power over franchise transfers between an existing or, you know, a new franchisee. What do you think about, in this case, they've got to be super picky about the person they pick to take over, like, the flagship. Do y 'all have experience with franchisors stifling sales or, you know, any, like, horror stories with that? I have a good friend that we're, yeah, we're, you know, working together now on a number of things. But it happened to him in a system where he got up to over 10 locations and they basically said, we don't want you to buy anymore, which is crazy.

21:34I mean, like when you think about it from the franchisor standpoint, they're getting paid off of revenue. Like what do they have to lose by someone, you know, they're getting the same amount of revenue, but they have, you know, fewer people that they have to, um, you know, coordinate with. I mean, it, it makes, it makes no sense, but some people are wired that way. And that is the kind of thing that I would say, even if you have no intention to get to 10 locations, you should not get into bed with a franchisor that thinks like that. Because downstream of that are a whole bunch of other things, you know, mindsets that they hold that just do not align with anybody who's wanting to scale.

22:10Yeah. And I mean, usually there's a pretty robust training program for a buyer that they've got to go through and get signed off by the franchisor before they're okayed to actually buy it. And you don't necessarily get to do that training at the beginning of your process after a signed LOI. It's usually pretty deep into it. So you do take some risk getting one of these deals tied up because you've got that extra layer of approval that you've got to get through and it usually doesn't come till late in the deal. At least the ones that I've seen. Yeah. Now, on that note, Mills, it is interesting.

22:44Why is this on Biz by Self? Why did they not pick up the phone and call their high-performing franchisees in the Northeast and say, we're divesting this location? Because if it was the flagship one, it would be the sexiest acquisition to any of these, to any of them. you know i have a theory uh my theory is that in this industry if you know their high growth probably none of their franchisees are mature enough or heavy hitters enough to do an acquisition they were okay to be a startup development territory but they may not be mature enough to take on an acquisition at all much less an acquisition of this size that's my theory I think that's a great theory.

23:25Yeah, because it doesn't mean that it's not out there, but I don't know any franchisees in mobile grooming that are super at scale. I just don't. And you want to be adjacent to this territory if you're going to do it, if you've never done an acquisition before. So they probably only had a few prospects to acquire within the network and felt like it was better to go outside. Yeah. I knew some folks who, you know, Orange Theory fitness concept, you know, that they probably had the maturity to do it and they had gotten up to like maybe somewhere between five and 10 locations and stabilized them. And like, it was going really well and they kind of thought we're going to be the big fish.

24:12And then a bigger fish came along and they were like, well, we have 60 and we want yours because you're in the geographic area that we're moving through and they're like, okay, that sounds like a great number. We'll go away now. You can be the big dog. And they sold? Yeah. Really? I wonder if it was to the, it may have been to the group in the Southeast that went bankrupt after they bought because they were paying people too much money. Oh, interesting. So anyway, they would have been the beneficiaries of that. But anyway, I will say like, there are some things to like about this for the right price.

24:47I think if it was in the low twos and it was appropriately priced, assuming that our assumptions are correct about the adjustments that you would need to make to normalize EBITDA. I mean, look, it's a recurring revenue business that tends to have pretty good margins. It's not crazy capital intensive. I say that as somebody with$300 ,000 trucks. This, to me, seems like a very asset-light model. So, and obviously you'd want to see their metrics, but I could see this being something that has pretty strong customer retention. Heather, to your earlier point, I'm wondering how much of that can be attributed to the business versus the individual.

25:26But, so there are things to like about this as well at the right price rate margins. And I wonder if the buyer is getting an SBA loan just based on the size. Probably so. And I think it's a good candidate. It's a nice candidate for an SBA loan. So SBA banks really want their buyers and business acquisitions to have a good resume and experience in the industry that they're buying into. But they will more easily make that exception when it's a franchise system because they're going to get a lot of support. You know, there's a lot more that comes with being part of a franchise system than if you just bought an independent business off on your own.

26:06So I think that makes it a good candidate for SBA. I mean, I'm assuming that this franchise concept is SBA approved. There is something called an SBA franchise registry. It's available online. You guys can Google it if you want. It has an exhaustive list of every franchise that's ever presented materials to the SBA and whether they are approved or not. What it takes to be approved is pretty simple. It means the buyer owner has to have a lot of control over the business. The ones that don't get approved by SBA are the ones where the franchisor keeps undue in the SBA's eyes control. As long as the owner has full control or enough control, they're eligible.

26:46But you check that, you make sure it's an SBA eligible franchise, and this would be a good fit for an SBA loan, I think. Do you have any specific examples of those? A 7-Eleven was never eligible as an example. People always think that they would be, as a seesaw that you know so well. They always had too much control. And there were like ARCO stations, I think, too. There were gas stations that did the same thing. Franchise or kept too much control. SBA wouldn't approve them. But most figure out that, hey, if we're a franchisor, we want to get our growth. They need to have SBA loans. So they play nice.

27:21Go to the biggest pot of money available. Yeah, exactly. Have you seen situations where franchise systems have been denied not because of control, but just because of merit of the business model and or financial performance? Yeah, they won't be denied SBA eligibility for that reason, but they will get denied on a credit basis. So like first it's SBA eligibility. Next, the bank looks at, is this a good system? Is this, you know, what stage is this franchise concept in in terms of financeability? How solid are they? What's happening with all the other existing franchisees? And, you know, they'll make a credit decision that way.