$37M for Jet Skis?! Inside a Lake Powell Rental Empire

16:17Jim Sharpe:Sign up for a free live Q &A session on SBA loans at visocap.net, then click Zoom Sign Up in the top right corner. That's V-I-S-O-C-A-P.net and click Zoom Sign Up. I think just the accounting complexity of this business to try and maintain an efficient asset base, you're trying to buy the equipment right.

16:40Jason Yelowitz:You're trying to not overbuy because every piece of equipment that you have sitting that is not rented is just a total suck on your asset efficiency. You're trying to lease them efficiently, price them efficiently, and then also read the market and go, you know what, last year seven boats wasn't enough. We want to buy three more. Well, what if next season is uncharacteristically low and now you've got all this extra stuff? And then also they're constantly selling these things, you know, into just kind of the private market anyways and just getting rid of them.

17:12Jim Sharpe:So the other thing that I would be really interested to financial engineer here is kind of like the sale leaseback on the entire fleet. I mean, there is a potential, again, we don't know if 36 million or almost 37 million is a lot or little for the asset value of this fleet. but you could potentially finance this entire deal on some sort of sale leaseback transaction.

17:36Jason Yelowitz:Don't you love that they open the door too to flexible structure? Oh yeah.

17:43Jim Sharpe:That kind of confirms to me that it's a carve out and they're probably retaining the marina. They're not punching their ticket and retiring. They're still going to be on Lake Powell. They're going to be around and given that this thing is highly dependent on the marinas I am joint venturing with these guys. There is no way that I'm going to buy, you know, 90 % of it and have all my eggs in that basket. And they go, eh, some other boat rental company gave us a better deal to access the docks. You know, I still need them to see me as their captive boat rental at their Marine. Something else that's weird too, is it says there's the commercial warehouse and office buildings, but then it lists 350 slot RV trailer storage rental spaces.

18:23Jim Sharpe:I would assume there's some other land they're getting, right?

18:26Jason Yelowitz:you would hope so because the the land is i mean even if their main facility isn't like on the water which it seems like if it's not on the water it's got to be dang close maybe it's easily relocatable but the the value of the real estate in close proximity to their centers of revenue is just so critical and i was just using that rough math you gave me before

18:53Jim Sharpe:two mils on like if they're if the seven boats are at 150k and you figure what the uh the jet skis maybe 3500 each or something and then you have the atvs for 750 um i'm calculating 1.2 ish million in uh in assets so it seems like a pretty low or pretty high price i should say for the assets unless there's something else i'm missing which could be the real estate and things like that too. So yeah, the untangling this asset ball wax is going to be the primary diligence item. What are you getting? What are you not getting? And then what assets do you not own that you're dependent on? Right. Marina's, et cetera.

19:34Jim Sharpe:This is also, so when you think of this business, right, it's a, you have the assets, but then you also need people who are going to rent the assets. You need leads. So this is basically an asset yield business plus a lead gen business. now the best lead gen for something like this is captive leads where people walk up to these marinas and you're the only game in town and they go hey i want a jet ski and the staff of the marina goes right over there that's the jet ski guy right and all your leads kind of walk up and you're they're exclusive and no one else is there uh that's easy money until the end of time but i'd be willing to bet just based on the sophistication of their website there's also probably a online component of jet ski rental lake powell keyword advertising but they're booking these things online so i would be really interested to diligence where are my leads actually coming from you know walk up they so like the category like walk up there's probably also somebody calls the marina and the marina refers us and then there's probably organic google there's probably paid google and i don't know if there's meta here or not unlikely uh because there is just be hard to target it.

20:39Jim Sharpe:But I would really want to know where my leads come from because that would tell me it's kind of your, uh, which devil you want to dance with. You're, if you're tied to the marina for leads, you know, that's kind of scary. I need to lock that in. But at the same time, if I'm tied to Google paid for leads, that's also scary because that's going to get more and more expensive. But I'd like to know which devil I'm dancing with.

20:59Jason Yelowitz:One thing that's interesting in googling about this guys is that the marinas which at least two of them it was um or no they they bought four of them a company called dell web corp sold these marinas um which is like bullfrog um and some of these other names that were on the website they sold them in 1988 for 77 million to a division of Aramark, the like vending and concessions people. And so they bought the Wahweep and Bullfrog marinas in 1989. And the Park Service has a contract, the National Park Service has a contract with them that hasn't been rebid since 1989. They just keep extending it.

21:55Jason Yelowitz:and they like upkeep the, uh, they upkeep the marinas and like sell concessions and stuff at them. But it seems like it's very contentious because there's news articles about local people complaining, like these haven't been rebid and they're not taking care of the marinas the way that they're supposed to.

22:13Jim Sharpe:Interesting. But they're, you know what? I kind of love that because that is the proof these marinas are monopolies. Yeah. Yeah. Right. They can run them poorly and it doesn't matter. These are the only marinas there are.

22:23Jason Yelowitz:Well, and I think marinas are, you know, there's, you can't just be like, hey, I'm going to buy a piece of dirt on the, like on the waterfront and open a new marina. Like there's permitting that is required specifically to like even build a dock in a place like this, much less open a commercial venture that is going to, you know, affect the body of water. So yeah, I think it's, it's probably even a more protected monopoly because you can't just add another one down the street if you want to.

22:54Jim Sharpe:And I think environmental is a huge pain with those two. So yes.

22:57Jason Yelowitz:Yeah. Okay. So we think that we don't have any revenue or free cashflow data, but we think that this seems expensive. Is there a scenario where you, I mean, there's, they reference an NDA, but we obviously haven't signed it. We don't, they don't even tell you where to go to get the NDA. Is there a scenario where you sign the NDA and you realize that this might actually be a fair price?

23:23Jim Sharpe:I think you'd need a lot of data on kind of market multiples here. It seems to me like the best buyer for this is a roll-up of rental. Well, I mean, the best owner for it is the marina. I mean, I would think, right? Assuming our leads are coming from there. So like, I don't know, maybe the comps are at 10X EBITDA for a boat rental business because of what's going on here because it's captive and, you know, it's a lot of walk-up leads, et cetera. And so you get, you don't have to work that hard and you get 15 % yield on your assets and people think that's a good deal. I don't know. I think market, there's a market price for this business and you're going to pay it.

24:01Jim Sharpe:And going into this, not knowing what market price is for that business is almost an impossible situation. You've got to get some intel.

24:08Jason Yelowitz:So Josh, would these assets be fully depreciated? I mean, let's say they're buying, they're replacing boats no less than every three years. They're probably not fully depreciated unless they are accelerating the depreciation at the purchase, right?

24:25Jim Sharpe:So for tax reasons, I don't know. They could do whatever. But if you're going to actually say, like, what should they be doing for, like, core accounting principles, it's judgmental. But the main, the best way to do it is to be accurate in it. So what you would do, right, is you'd say, well, what did I purchase it? And what am I estimating to sell it for? So I would assume there's a decent amount that you could sell, you know, the boats that might be three or three years old, right? So even though they probably have a lot of wear and tear, but ideally they're probably maintained somewhat. So I would say it's unlikely they're depreciated fully, but they're probably significantly depreciated.

25:02Jim Sharpe:I'm not sure on what their actual useful life is or salvage value or anything, but that's where I would say, you know, Now, especially whoever's buying this business, you definitely want to do diligence the quality of the assets you're buying, where you don't want them to give you a bunch of three-year-old boats or a whole bunch of stuff. They're just going to have to replace your one, two.

25:22Jason Yelowitz:Yeah, they did a bunch of capex three years ago, and they knew they were getting ready for a sale, so they haven't bought anything since. But they used to buy boats every year.

25:30Jim Sharpe:And that's something you can tell, too, by looking at the financials. Just look if they have a lot of repairs and maintenance recently, right? They just deferred their capex. but it kind of works contrary in a way too because if you do value it off of their bottom line, well, you're valuing it off of an inflated repairs and maintenance number. So sometimes people will try to cheat either way and it kind of neutralizes out if you know what you're looking for, but still. The asset quality diligence is key here and also EBITDA is also probably meaningless for this business, right? I mean, if you're buying and selling all of these boats, I mean, the tax return, the gain on sale or loss on sale for all, I mean, if you're accelerated depreciation, you're depreciating all these things, and then you've got recapture next year on the sale of your jet ski, partial recapture.

26:14Jim Sharpe:I mean, I hope you have a good tax accountant if you own this business and probably a good tax diligence accountant if you're buying this business. Because this is an asset-heavy balance sheet that requires a certain type of diligence. You can't just walk in and think EBITDA is the metric here. No. Yeah, I mean, a lot of times people look at EBITDA, but you also have to know that doesn't include CapEx or other things that you'll have to replace it. Um, I'd imagine people would still want to do an asset sale on this, even though it's a larger deal, but you never know if you do an asset sale, you kind of reduce a lot of your risk with the taxes.

26:45Jim Sharpe:Um, but I mean, if there's some long-term relationships, like I'm sure if someone sold those marinas, they'd want to keep that those, uh, whatever they have for those bid arrangements, right? Intact, which you'd have to do via stock sale. So. Good point on that, Josh, the contracts would be very important, but the tax is so complicated. You do a stock purchase, you're stepping into all of their potential tax liability from the past, which is scary. I also think for this deal and other asset-heavy deals, you really need to model after-tax returns. Because of all of the tax depreciation and sheltering, the tax could materially impact your cash flows on this deal.

27:27Jim Sharpe:And it could be very positive, right? There could be a lot of, much like our friends in the real estate game, after-tax cash flows suddenly look a lot more attractive necessarily than the pre-tax cash flows. So I would want to understand a forecast of how the taxes kind of rolled forward, the tax implications of my everyday business, my trading operations on boats, depreciating them, reselling them, maintaining them with CapEx, et cetera.

27:53Jason Yelowitz:So Josh, just hypothetically, like asking for a friend, if I wanted a QAB on a business like this, when you're pricing it, do, are you pricing the, the engagement around the complexity of the Q of E? Like if you look at something like this, where there's a lot of moving parts, there's a lot of assets, like versus if I just said, Hey, I'm buying like a, you know, I don't know. I don't know what an easy Q of E would be. I know you like the diligence is the diligence, but, um, does the price reflect that? Yeah.

28:25Jim Sharpe:So for us, we charge$7 ,500 for all SBAs. size deals. There's two potential upcharges which come into place sometimes where sometimes people buy five different companies, like five accounting firms at once kind of thing. Well, that's five times the amount of work. We need to do five QE's basically. The second upcharge is if they don't have good books and we need to redo their bookkeeping from scratch just to close that data gap. Larger deals, it depends on a lot. There's more complexity, right? Sometimes people want us to dive more into various subjects, so you kind of price them out depending on scope.

28:57Jim Sharpe:but smaller deals we just do more of a flat fee arrangement because everybody always tells me the deal is easy and that's not always the case

29:05Jason Yelowitz:hey I got a real easy one for you can you help me out exactly

29:10Jim Sharpe:easy deal discount Josh

29:14Jason Yelowitz:famous last words that deal is definitely not going to close that's what's easy about it it gets killed before closing

29:21Jim Sharpe:alright anything else on this one for me one other quick thing I'd say too I don't know if marinas are the best people to buy this because I think I don't kind of maybe beating a dead horse with some of that where I'm like if you're the marina and you're the big you know lead gen just get your own jet skis right why would I pay for somebody else's you know you can hire a mechanic or whatever but it's like I'll just I have the market I'll just take it and run with it you know um the the people that might make sense to buy it like I think too I mean there's not enough boat sales I would think to matter but if you are in some kind of like you know distributor manufacturer or something too you have all these guys test driving your boats you know what i mean and like getting in front of their face so like for strategic partners or something like i would think that might make sense but i would think if i'm the marina i'm just gonna rent my own jet skis

30:07Jason Yelowitz:you know that's fair i'm wondering like if maybe there's i think this area is so remote though um And I'm just wondering if there's an Airbnb mogul in this area who has 1 ,000 vacation rentals and they could just absolutely funnel people directly to this that are already doing it organically. Maybe there's somebody like that who has a little corner on the market. I don't know how big the TAM is for this, but obviously, this seems like a lot of assets to me for an equipment rental business. And Googling around looking for other boat rental businesses, they're usually like$2 million in revenue. And they're super seasonal, whereas this may not be quite as seasonal, and much, much smaller equipment base.

31:00Jason Yelowitz:This seems like a big one, obviously not just purchase price, but also asset list.

31:05Jim Sharpe:and I mean if if anything seems weird like their downtime I know I've said that it's just like if they can have it that's super impressive you know where it's like they have a great you know lead gen or whatever it is that's funneling them in there so alright well let's wrap this one up probably not for me because I'm not moving to Lake Powell and there's a lot of assets here I think I'd maybe just rather buy the S &P Mills how about you?

31:26Jason Yelowitz:I agree but I'm super curious I really want to know more about this and I bet the seller is a character so I'm curious that's for sure

31:33Jim Sharpe:Josh how about you? Yeah, it's interesting. I always love learning more about businesses, but yeah, I'm not looking to be in the boat rental business. Fair enough. All right. If you guys like this one, we have 450 more episodes, not just like it, but similar. We've never done a boat rental business before, but we have done all kinds of asset rental, heavy equipment rental, et cetera, all kinds of things like that. If you go to acquanon.com, you can download all 450 episodes. You can also get them on Spotify, Apple Podcasts, or wherever your podcasts are downloaded. Finally, if you go to the website, you can get on our email list.

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32:37Thank you.