Best of Acquisitions Anonymous - A Pet Cremation Business?!

0:28Welcome back to Acquisitions Anonymous. need national marketing if you're still just doing the route business to the local veterinary offices. I wouldn't want to be paying a franchise fee at all at this point, because what are you getting for it? Very, very little. $36 ,000 for a business this size is a huge commitment. And you're outsourcing your marketing to them? Like, have they proved that they can really do it?

1:00Welcome back, everybody, to another episode of Acquisitions Anonymous. I'm Mill Snell, one of your co-hosts. Me and Bill and Heather have a fascinating conversation today. I go way down the rabbit hole on this FDD. This is a business that I don't think we've ever looked at before, but I've definitely heard in SMB circles, people love this type of business. It is a pet crematorium and it's a franchise. It actually seems like the owner of the franchisor is selling their only corporate location and divesting it to focus more on the franchisor side. It's really interesting. We get a ton of detail in the FDD certification about revenue by month, revenue by category, how many new stores they're planning on opening.

1:37It talks a lot about walk-in versus vet, you know, referrals. It's a really deep dive, way more information than we normally get. And this is, we didn't sign an NDA. This is all publicly available information because of their franchise status. We talk about the industry as a whole, bills coming on, coming to the episode off the heels of a pet trade show. And so we had a ton of discussion about the different dynamics and the growing kind of macro trends, but also just the complexity of, is this a deal that's really viable? Who could do something like this? Why would you buy this versus building it de novo?

2:06So it's a really fun, fascinating conversation. Hope you enjoy and stick around after a quick word from our sponsor. Big thanks to High Level for sponsoring this video and helping us pay for our editors. High Level is the all-in-one CRM that handles your emails, texts, funnels, and more all in one place. Think of it like the Swiss Army knife for small businesses, and you can try it for free for 30 days at gohighlevel.com slash michaelgirdley. Hey, everybody. Hello. We hit record right after we started making fun of your home state, whoever you are, listener. We won't disclose it, but how's everybody doing?

2:40Doing well. I am back from a week on the road. I was traveling internationally to see a supplier, and then we flew to Vegas for our biggest trade show of the year, Super Zoo, uh last week and i didn't get home till like midnight on friday night so i am so buried in email right now what what happens at super zoo super zoo is the largest pet trade show of the year so it is the entire mandalay bay convention center wow um if you've ever been there you know it is a large convention center um and it's just pet pet everything there is a grooming competition. So I saw a poodle made to look like a tiger.

3:19Um, I saw a poodle made to look like a unicorn. There's a lot of poodles cause the way their hair grows, it's easy to groom them. Um, but there's like, it's, this thing is huge. I mean, it is the super zoo. And there's also, um, some, one of my friends who sells frog stuff online is there and live frogs. So he's there with like all the aquariums. So it's not just companion animal, dog and cat. It's all this reptile there's whole there's equine it's like oh my gosh dude that is amazing it's fine so i didn't even think about the categories of animals that you guys would like segregate into but companion animal companion animal is dog and cat yeah biggest category but i mean could a like a lizard isn't a companion animal not technically i guess i'm sorry to the lizard We just made a few thousand people really angry, but that's right.

4:10That's right. Especially if you say a horse is not a companion animal, Heather might come through the screen at me. My emotional support horse would say otherwise. Horses are their own category. They're their own thing. Equines are their own thing. So yeah, companion animals, dog and cat. And then there's like reptile and small lizard and there's birds. And then there's like a whole other grooming section, which is technically separate. And then, yeah, so there's all kinds of stuff. And then there's the equine and like farm animal stuff. Did you come away with a million or a billion dollar idea that you can talk about on air?

4:46No and no. Maybe and no. I don't know. I would think that there was like you would just come away with like burst of creativity. And also, I can't believe somebody is probably making money with something that stupid. All of those things from very insane things. And also, though, like you find people who stumbled into gold mines all the time and you I can't believe like, for example, the pet hair, the grooming vacuum thing we did on the show. Like I didn't see them, but I bet they had a huge booth in the grooming section. I don't spend a ton of time in the grooming section, but they had a huge booth.

5:22So there's I mean, and every business industry is there. So like we look at acquisition targets, you know, like everybody's there. And anybody who's anybody who wants to invest in pet is there. So you get a ton of private equity reaching out. We have a big booth. So this is our biggest booth yet. We had a 20 by 20, which is like an island booth. So we have paths all around on all sides. So we were very busy this year. Do you try to catch like wholesale buyers? Is that that is ostensibly the main reason everybody is there. but you know we'll meet with like all of our big retailers there a ton of small retailers will just walk up to the booth to place an order some that we already know some that are being introduced to us for the first time but also all of our suppliers are there so we see all of our suppliers which is great it's just the whole industry gets together and so you don't have to get on airplanes it's really really useful that's great well i have the perfect segue in the history of the entire Acquisitions Anonymous podcast, I might have the perfect segue.

6:21Let's hear it. Bill, would you say that people spend a lot of money on their pets when it comes to pets? I would say people spend a ton of money on their pets. What about when their pets pass away? I would think they would be primed to spend a lot of money. Because I have got a deal that I'm going to pull up. I'm going to share the screen. But it says no competition, huge territory, pet cremation franchise in Opelaka, Florida. Does that not sound like it hits every key word you want? Well, if there's no competition at all, I'm very intrigued. Might be too good to be true, but surely not. All right.

7:00This is an Opelika. I'm going to read it. Miami-Dade County. It's a franchise. Mills, you left off that it's a franchise. That's even more interesting. Maybe not. Okay. I'll listen back to the recording and stand corrected. Asking price is$1.5 million. The cash flow is$50 ,000. So gross revenues, and I'm guessing this is a new franchise territory, so these might be representative, but we'll get into it and see. Gross revenue,$980 ,000. Inventory of$20 ,000. EBITDA of$127 ,000. They say the rent is$3 ,200 a month. Oh, no, maybe this isn't DeNovo. This is existing. It's been established since 2018.

7:40FF &E of$290 ,000. They say this is the only pet cremation facility in Miami-Dade County guaranteed 20 years. I'm not sure how that works. Very profitable pet cremation, pet crematory in business for the past eight years, which that math does. I think the territory is guaranteed exclusive for 20 years. Probably so. We've got a couple YouTube videos here. It's called Resting Rainbow Pet Memorials and Cremation. There's a YouTube video of a lady. I can't tell. This is from the Franchise Life. I'm not going to play this video because it gets kind of weird if we do like video and video. But episode 51 of the Franchise Life, there's a link to the FDD certification, which I'll pull up in a minute, which is how franchises work.

8:28And we've talked about those some in the past. Then there's also another YouTube video from Be Wildly Wealthy about Franchise Minute, Resting Rainbow Pet Services Franchise. So they say, we are in a light industrial warehouse that services the public and veterinarian's offices. We own all the equipment and furniture in the office, including a large walking cooler and incinerator and a huge inventory. There's no local competition in the market. it. This office is very capable of reaching$3 million in one year. I'm guessing that's revenue. Support and training. We thoroughly train everyone and support is vital for life.

9:10Reason for selling, we need to focus on the franchise. This is our corporate location and we are maybe too spread thin or something like that. There's also a website here, Peaceful Paws Memorial. I'll pull that up in a second, but they show us where they are. And the broker looks like it's listed by Joseph Castronova. So not a ton of info. I'll pull up some of this and I'll scan it while you guys give me your thoughts and then we'll dive in from there. okay so what i think is going on here is this was or is a pet crematorium and they decided to franchise that has ostensibly been going well enough that they no longer want to actually be in the business of cremating pets themselves they would rather be in the interest of or the business of selling franchises to other people who cremate pets and they want you to buy their founding location their corporate store the one that they basically cut their teeth on and to basically sell it out of being a corporate store and turn it into a franchise, I would assume.

10:18So that's what's going on, right? Is that how you guys read it? Yep. Yes. Yeah. But it's been around six years, the original location. And the first thing that I question is it's not making a lot of money for something that's been around six years without much competition around it. I would have thought the cash flow would be higher than this, especially if they've gone out and franchised it from here. And it's also especially because the period from 2018 to 2023 has been just the most gangbusters period in PET. You know, the best five years in the history of PET, pretty much. And the business is still doing$50 ,000 in cash flow, which are$127 ,000 of EBITDA.

11:01I wonder what's between EBITDA and cash flow here. Yeah. This seems a little weird to me. yeah and now of course it requires pets to die and this is a weird question bill but that boom in pets has it been people mostly buying young pets that you know so they haven't quite they haven't quite become customers of this business yet hopefully still alive yes that's true so in 15 years or 10 or 15 years you know that should that wave would help this kind of business, I guess. Yes, yes, that is true. So the thing that is tough for me here, and we just get this out of the way, the asking price, right?

11:41So I actually, I like this industry. I don't know that I want to pay one and a half million dollars for this, for this location, because it's doing$50 ,000 of cash flow. And it says it has FF &E of$290 ,000, which, you know, you can imagine the fixed assets you would need to run a crematorium, right? It sounds like it's a walk-in cooler and incinerator. And that you probably add those up and it's about$290 ,000. So the return on the assets themselves is not terrible, right? You got$300 ,000 of FF &E and it's yielding 50 grand a year. You know, that's 18 % or something, you know, not terrible, but that's a lot of work.

12:23But I don't know where they get 1.5 million. It just is not worth that. Okay. Well, this is publicly available information. So I'm going to share a different screen based on their FDD, which is going to give us a little bit of a snippet into this. And this is the way that FDD certification works is if you're going to solicit franchisees and become a franchisor, you have to go through some regulatory hurdles to do that. And in essence, whether or not it's valid, the goal is to provide a level playing field in terms of access to information on the entry of the investment. So to make sure that nobody has an uphand advantage or anything like that in making the investment.

13:08So we've got, on this table that is on the screen, we've got 2022 and 2023 income, expense, and franchise adjustment line items that get us to EBITDA for, it says, gross revenue and certain expenses of the affiliate-owned outlet for each year. So that would be this one, right? I think so. I mean, it's affiliate-owned. It's one of their kind of corporate locations. And the numbers are a good bit lower than what is on BizBuySell, which there could be a lot of reasons for that. In some ways, the revenue is lower, but the EBITDA is higher. Yes. It's interesting. I'm just looking. So, I mean, the business basically has like less than 10 % cogs, which kind of makes sense, right?

13:56I mean, there's not a lot of cogs related to. Now, one of the components of sales, this isn't just a service-based business. They also sell products, urns and, you know, things, memorial items and things like that. So, there would be cogs associated with those product sales, but not the services themselves. Yeah. And you can see their payroll jumps significantly from$54 ,000 in 2022 to$127 ,000 in 2023. Their EBITDA remains roughly the same. So on its face, this business, if you're not watching on YouTube, it goes from$531 ,000 of sales in 2022 to$715 ,000 of sales in 2023. And EBITDA goes from$202 ,000 to$221 ,000.

14:42Yeah. Whereas payroll more than doubles from 54 to 127. So on the face of it, this has the look of something that does not have economics of scale at all. I mean, this thing got 50 percent bigger and all of the additional revenue spent on payroll and almost none of it dropped to the bottom line. Yeah. Which now the margin percentage is great. I mean, it's in the mid 30s. But at the same time, there's something else going on here. Like this is probably not representative. Like it shouldn't be that way. You know, your same staff should be able to cremate more and more pets. Like there should be a fixed cost component to this.

15:19There is some data here that's kind of interesting. So like they say in here, this is table two is 2022 revenue and cases by month. I'm guessing a case is a cremation because they're showing kind of average revenue per transaction. Um, but you know, it looks like it's barely smooth revenue, like the low monthly revenue. February was 23 ,000. It gets as high as 66 ,000 in December. I don't think there would be seasonality, but, um, looks like it's that now this is interesting. The vet versus walk-in vet almost tripled between 22 and 23. So the total cases, you know, almost doubled while walk-ins stayed the same.

16:11I would think that vets is obviously your, you know, high volume, but probably lower margin customer segment versus walk-ins that are kind of more retail. And probably requires a salesperson to go out to those vet offices. And that's to me is where the payroll increase might have been. You know, someone that's incentivized to bring on those additional cases from the veterinary clinics. I've actually visited a crematorium for animals before. It was actually kind of a combination. A veterinarian actually owned it. So it was a little bit of both. They were veterinarian on one side and had the cremation on the other.

16:49And what I understood of that business is they drove, you know, they had salespeople who got different vet clinics to sign on. And basically you brought the vet clinic a freezer. And when the dog or cat is put down or passed away, they put them in the freezer. and then these vans go out and pick them up on a schedule and bring them to the crematorium and do the rest from there. So I think there's, it's kind of a route business in a weird way, and there is some sales involved. Interesting. Because there, I mean, unfortunately, crudely, right? Some people want to give their dog a funeral and sometimes it's a disposal business, right?

17:29And you can imagine, so the low figure, they have like the high figure and the low figure for how much they charge for cremation. The low figure in almost every month is$15, which strikes me as sort of the disposal fee, the no frills. But it can be as high as$800 or$900 or over$1 ,000 in some cases. And I would imagine the vets are more of the route-based business, low margin stuff, but they've grown significantly in that. And the walk-ins grew from like$1 ,100 a year to$1 ,200 a year, but the vet business grew more than double. So I imagine that's how they're growing and that's why their payroll is going up along with their revenue, but the margin is not going up.

18:12Right. What we're finding is this is indicative of looking at a franchise and looking at an FDD disclosure is a franchise disclosure document FDD. There's so much data here. We can spend like three hours looking at the details of this. Now they have pulled up on the screen income revenue percentage per service category. So they're showing us revenue per kind of service line. Cremation fees make up 74 % of it. And then they show us memorial items, same day cremations, pickup and delivery fees, home euthanasia. I mean, you guys hit the nail on the head. There's so many different ways that your personal preferences can come into the mix here.

18:53It's not just a one size fits all. Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size fits all. There's the best rate, fastest to close, the specific loan structure that you need, or a little of all of those things. That's why my company, Viso Business Capital, works with over 30 different lenders to find you the best funding in less time and with less friction so you can focus on the deal. 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.

19:28That's V-I-S-O-C-A-P.net and click Zoom sign up. So, and this FDD is 179 pages. Yeah, we can't process that all here. But I also wonder, anytime you're buying a business from somebody to go do a different business, you kind of wonder, oh, well, is the new business they're doing the business I really want to be in. And these guys are going from running the crematorium to franchising the crematorium. And it makes me go, anytime I see this in, you know, with a franchise that's kind of not proven out, I go, is this a hustle? Like, does this really need to be franchised? There's so many of like these low end franchises, like franchised drain cleaning, franchised dryer vent cleaning dryer yeah and you're like does this need to be franchised or is this like you know just a local business you know what what is the franchising actually bringing to it um and the the answer to the question needs to be national scale marketing right and maybe access to like if you can't buy the furnaces and the coolers you know on your own so maybe like access to a supply chain of some kind, or SOPs if it's like a very SOP heavy type of business.

20:48I don't know that I see this here. No. You know, national marketing, access to a supply chain, or SOP heavy type business. And it makes me go, why does this need to be a franchise? Yeah. So this is the website that it links to. And it looks like there's maybe a couple of things going on. there's resting rainbow up in the top right. And then there's also a peaceful pause over in the left. So I'm confused as a perspective, you know, franchisee looking at this information and makes me think, okay, is there, is there something going on here that is, if I'm confused, right? Are customers confused by this?

21:33Is there just, this is their website. So there's two customer facing elements here. How is the water getting muddy? As far as I can tell Mills, Peaceful Paws is the corporate location. That was like the one of one location. And you can see in the Peaceful Paws logo, there is the rainbow. And I am willing to bet that then Resting Rainbow became the name of the franchisor. And if you go to restingrainbow.com, you will see that they have franchise opportunity on there and they have apparently eight locations, all of which are in Florida, except one is in Philly. So I think Resting Rainbow is the franchise brand.

22:11It is weird that they changed the brand so much, though. I do find that even confusing. So I have seen that happen. I'm actually invested in a laundromat franchise, and they were called 2U Laundry at first, and they had to change their trademark for the franchise to Laundro Lab for trademark reasons as they went to scale nationally. So it's possible, I don't know, it could possibly be a trademark thing. I think you're right. So and this will be the last thing. This is just like catnip right now. I can't stop this FDD. So what they show in their disclosure document is status of franchised outlets.

22:52So they basically show one outlet, one location at the start of the year in 21, 22 and 23, which is the one in question. And then they say in Florida, they have projected new franchise outlets at the end of last year. They're anticipating that I guess they've signed two franchise agreements in Florida, but they haven't opened. They project tend to be sold in Florida, five in Georgia and five in North Carolina. So they're anticipating opening 20 new locations in 2024. So at least kind of tells us, right, I think I think you hit the nail on the head. billy and heather i think they started with one location they realized hey maybe we're on to something or we feel very bullish about this let's franchise it and just wear the franchisor hat and quit operating and just collect the seven percent royalty shared marketing fees all the you know all the different things that go along with being a franchisor but let's get out of the day-to-day operations but they did it with one you know hard to blame them right i mean it would be nice to just sit back and clip franchise fees.

24:02But it seems like you're getting in here at the very beginning of a franchise. So, right there, it seems like they've contracted to open several, but they're not open yet. If you're going to jump into this franchise, you are kind of on the cutting edge to some degree. Now, I would be really nervous if you were, say, buying a Greenfield franchise in Philadelphia, right? Yeah. Because there's no national marketing footprint or anything and you're going to pay a franchise fee that kind of assumes you're getting all that and you're not. You are, in this case, buying an existing business, right, that has contracts and veterinarians in place and some market awareness.

24:39So I think that de-risks it a little bit. Again, price aside, you know, paying$1.5 million for this is crazy. So, but still though, you're, I wouldn't want to be paying a franchise fee at all at this point because what are you getting for it. Very, very little. Right. And I think just the mix of their customers tells me something that is kind of less desirable. The wholesale customers, if you will, are the veterinarians, and that is the vast majority of their business. And you'd think the value of a franchisee getting marketing, you know, they'd have to show that their marketing is effective in reaching the pet owner directly, not just the veterinarian.

25:18And it doesn't look like it's been all that effective. Like, you know, it's, this is still seems like a business where most of it's going to come from the veterinary offices and it's going to be hard to get people to bring their dead pets. I mean, I wouldn't want to, I think I would, I would prefer the, whatever that go through the veterinarian office and whatever they say. So I think that's a challenge right there that I see is you don't really need national marketing if you're still just doing the route business to the local veterinary offices. Yeah. Is there anything that invites competition more than saying, look, we have no competition?

25:54So I, what I don't know, Mills, is if this is licensed or not, because it does say on the website, the only licensed pet crematorium in Miami-Dade County. So, and now the bar for that could be very low. It could be fill out a form and you're good to go. they're also very big on, oh, there's no competition. And oh, maybe there's not going to be another resting rainbow in Miami-Dade County. But as we've already established, the capex to start one of these is under 300 grand. So like if you are crushing it, here comes the competition. Yeah. Right. This is really tough. It's not really protectable.

26:30And that brings me back to the criticality of branding at the franchisor level and national marketing. And I just don't see it because that's your only moat, right? That people got to know resting rainbows where you take your pet and the experience is fantastic, you know, et cetera, et cetera. And I don't want to take it some hole in the wall pet crematorium. But I don't know that they've established that yet, especially not outside of Florida, all their, all their locations they've sold are in Florida. And there is this interesting thing in multi-unit that people who are really good at franchising, they kind of know the segment of the market that they are good at.

27:03There are certain folks who are really good at going from zero units, kind of like this one unit up to maybe 10 to 15. Then there's folks who are really good at that kind of growth catalyst and saying, hey, you're at 15 units and I want to grow from 15 to 50, which is kind of the prime, you know, steep part of the learning curve for the franchisor. But then there's folks like Rourke and multi-unit, just like masters and PE-backed folks who they come in and they blow these things out. And it's like, you know, Orange Theory Fitness and all the big franchise names that they go from, hey, I've never really heard of that.

27:39Or maybe I saw it one time when I was on vacation to now they feel like they're everywhere. That's all PE driven. Those folks know how to roll out units. They know how to do franchise territory development and they have mature systems at the franchise or what you hear is most franchisees and folks who are good at multi-unit. They have to know where in that life cycle they play best. And you have to kind of set your expectations accordingly. You know, if if it's a big national name, you expect big national benefits. If it's a very new, very green, you kind of have to like you said, Bill, it's like, what am I paying for?

28:14Or one of these things was a$3 ,000 monthly marketing fee. $36 ,000 for a business this size is a huge commitment. And you're outsourcing your marketing to them? Like, have they proved that they can really do it? Yeah, this is also an interesting market for marketing. It is almost pure demand capture. So, you know, the two types of marketing are demand creation and demand capture, right? You can't convince me that I need to cremate my pet if he's still walking around. Right. So so you it's pure demand capture like you have to be there moment. Yeah. The moment that they want you. I mean, it's a lot like disaster recovery.