Buying a $3M Irrigation Business in California

0:00Hello, everyone. Welcome back to Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. I am one of your hosts, Bill D 'Alessandro. And on this episode, I am with Heather Anderson. And we found a very interesting specialized irrigation services company in West Hollywood, California, outside of LA. And what's really interesting about it is it changed hands in 2025. and the new buyer claims to have 6x the business in the past 15 months or so, but now needs to sell it in order to care for their aging parents. So we talk a little bit about how you might structure a deal like that, what might be going on here.

0:43The business has 40 % net margins as well. So really unique for a home services contractor. Please enjoy this episode of Acquisitions Anonymous.

0:56We don't have 100 % beers anymore. Thumbs down on just the plus inventory. Buying a business might be the biggest financial decision of your life, and most people try to make it alone. Cold emailing brokers, reading financials at midnight, and guessing whether the numbers actually hold up. Acquisition Lab exists so you don't have to. It's the leading community, platform, and fund backing, serious vetted acquisitions entrepreneurs with a standing board of advisors who've actually done this. People will talk you out of a bad deal as fast as into a good one. The education and the deal search tools are free and open to everyone before anyone asks you for a dime.

1:33The easiest way to fill that is a roundtable. It's a free live conversation where you talk through what you're actually stuck on with other buyers and advisors who've been exactly there. Nothing recorded, so it always stays in the room. Sit in on the next one for free at acquisitionlab.com slash roundtables and tell them that Acquisitions Anonymous sent you. Hello, Heather. It's just us today. I love these. Hi, Bill. Yeah. What are we going to get up to without the other guys around? Well, not only did you show up to record with me today, you also brought a cool deal. So I appreciate that. I did.

2:09I was just saying to Heather before we started recording that I was out to lunch with another entrepreneur today and they want to sell their business, but they only have five years left on their lease. And I could hear Heather sitting on my shoulder going, an SBA buyer can't buy that unless you have 10 years left on the lease. So I told her to go out and get an option and she's going to do that. So thank you, Heather. You're helping one entrepreneur at a time. You're helping make the world a better place. And she listens to the podcast and I was like, this is like live podcast advice. So this is what Heather would tell you.

2:42That's right. Right. Thank you. That's awesome. Yes, it was great. Okay, so we have a cool deal today because it's home services, but not kind of the typical home services. So this is a high growth specialty irrigation company in L.A. where you have to irrigate a lot of things. I think because it does not rain a lot. um so this business is it says it has gross revenue of 2.95 million but the title also says a 5.5 million dollar run rate so that would be pretty shocking acceleration to be going from basically three million dollars of ttm to a five and a half million dollar run rate unless this is one of those classic like hey it's our busiest month of the year and we multiplied it by 12, you know, like July or whatever the biggest month for irrigation is.

3:40I'm already looking at who the business is listed by and I can't tell for sure, but it looks like this might not be a broker because it doesn't say just a person's name. There's no company. So this could be a for sale by owner. It could be, which I always like the best. The owners always write kind of the most candid or at least entertaining. Yes. So it says it's been around since 2018, it's got almost$3 million of revenue and$1.3 million of SDE. So 40, 45 % net margins, SDE margins? Not too shabby. Not too shabby. So let's learn more about this. It is a leading specialty irrigation business in SoCal.

4:26A highly specialized irrigation services company services residential and commercial properties across four Southern California counties. The company provides comprehensive solutions across the full project lifecycle, diagnostic assessment, system design, installation, drip and water efficiency conversion. I imagine that's big in California, smart controller programming, and ongoing repair and maintenance. My favorite words. Following a 2025, oh man, this is interesting. Following a 2025 recapitalization and operational rebuild, monthly invoice volume has grown more than six-fold. The company currently operates at an annualized revenue run rate materially in excess of the trailing 12-month results, which include the early transition period and understate its current scale.

5:16The rebuild migrated operations onto a modern field service platform and established a measured proprietary customer acquisition system. I assume that just means ads. Every estimate, job, invoice, and technician hour is recorded and auditable from the date of closing. I assume it means closing of the recap. Marketing efficiency is materially above industry norms and field capacity, not demand, is the current constraint on revenue. The company has earned a strong reputation for technical expertise and response time within a highly fragmented market dominated by generalist landscape contractors and subscale independent contractors.

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7:31Demand is underpinned by regional climate, water use regulation, subsidized landscape conversion programs, and aging residential irrigation infrastructure. It says they have 26 employees. 10 of those are full-time. 16 of them are contractors. And summer seasons can get up to 25 contractors. The company is running home-based. Technicians provide their own vehicles, which keeps fleet capital and maintenance off the balance sheet. This seems like a California Department of Labor compliance nightmare, but okay. The principal transferable asset is the operating infrastructure. Operations are administered through a modern cloud-based field service platform, maintaining complete auditable estimate, job invoice, payment, timesheet records, blah, blah, blah.

8:18The whole database transfers with the sale. The company operates in a specialized niche with a highly fragmented market, characterized by a whole bunch of generalists doing irrigation as an ancillary service. No competing dedicated irrigation specialist operating at comparable scale has been identified within the four-county service area. Demand is supported by all the things I read earlier, and it says technical specialization, licensing and insurance capacity, and proprietary customer acquisition engine create barriers to entry. Demand currently exceeds field capacity. The opportunity is scalable.

8:52Growth avenues include adding more people, increased marketing, all the usual things. Ongoing water use regulation and the age of the regional installed base are expected to support long-term demand. Detailed growth modeling, channel economics, and a market analysis are available under confidentiality agreement. Sales and marketing support is available for three to six months and training if needed. The reason for selling is founder needs to take care of aging family members. And that's all we got. Wow. What do you think about this one, Heather? A lot here. A lot here. I think it's really interesting.

9:28I feel like I got a lot of consulting terms thrown into this listing. into this listing, like it almost feels like someone from McKinsey came along and recapitalized or bought into this business somehow in 25, implemented a lot of improvements on systems and how they're measuring things and maybe even marketing. And now, unfortunately, has to sell before they can really let the asset or the business get to realize its full growth potential. Is that how you read it? Like somebody kind of came in here, did all the work, recapped this thing that was an otherwise disaster, and now has to walk away from it before they can kind of enjoy it?

10:11Whether that's true or not, I think that's what they're trying, that's what's coming across in the listing to me. That's what it feels like. Interesting. Wow. I mean, can you, like they are saying they have 6X'd the business? That's what they said, right? Since they came in that bookings are sixfold. Monthly invoice volume has grown more than sixfold. It's got to be the summer, you know, what they're saying is they go up, they double the number of people in the summer. Well, it's September. So it's just the end of summer right now of 26. They bought it in 25. So it feels to me like something, they had a really good summer.

10:48in this business. And they maybe did some really great marketing. And they're trying to kind of pitch that that summer, those numbers are sustainable. Now, as a buyer, are you going to really believe that when you've only got one high season report? Maybe not. But that's what it feels like to me. Like they just, they implemented some things. They had a really good summer season. But for some reason, family member, whatever it may be, they need to sell now. So Heather, what is the landscape irrigation season in California? As a Californian in LA, like what are we dealing with here? Well, reality is you're going to put it in any time of year, but we do actually get rain.

11:30So nobody thinks about it during those times, right? So you're not going to have people outside working and you're not going to be thinking about the irrigation probably from December through March. Those are the rainy months. So you're not going to do it then. The rest of the year pretty much could be their busy season though, because, you know, basically stops raining and that's it. But people really think about it more in the hotter months when, you know, the plants are struggling to stay alive and they realize they need to redo this whole, you know, sprinkler system, maybe go to something more efficient like drip irrigation, you know, get their water bill down.

12:07We get notices from the water company in Southern California that compare you to your neighbors and your usage and whether you're efficient, you know, or, or wasting water or, you know, neighbors will even report people who have water running down the street. So during those times of the year when things are really dry is when I think people probably think about doing this the most, which would be the summer. Okay. So it's, what's interesting is here in, in North Carolina, like you probably just, like it gets hot in March, April. And then these guys are just like slammed until September. And then it probably falls off significantly.

12:48But you guys kind of have the more mild climate where there's the temperate, you know, it's actually longer in California. Maybe that's better. Probably better. It's probably a little less seasonal than other places would be. But they make it clear that they double their staff in the summer. So it's gotta be a pretty busy peak season during the summer. So do you read this as a recapitalization? So this business was probably an operational disaster in some ways, right? Yeah. Because I kind of read backwards from all the things that they say that they did to fix it. Like those were probably all the things that were broken, right?

13:25So they probably came in, they were probably not doing any scalable customer demand generation, aka advertising, before this person got there. But they also probably won't tracking their costs because they've said several times in here that they track their costs down to the technician hour. And so they probably came in, put in functionally like an irrigation ERP, like a field service job costing ERP, and then cranked the ads and booked a bunch of business. And now they've booked so much business that they can't fulfill it. And this person is distracted by caring for their aging family members and they need to offload it.

14:03The thing, though, it almost seems too good to be true. I mean, doesn't it? A little bit. You said something there that made me think a little bit more about what might motivate someone like this to sell. This person who bought this business, I'm going to guess, really excels at and loved all those system implementations, that whole ERP improvement project that they did, but maybe doesn't love the hiring and recruiting and retention of technicians and people. And they did say that's the constraint. They knocked it out of the park on marketing. They knocked it out of the park on, you know, all these great systems for monitoring and measuring everything.

14:44But the constraint is people and, you know, having enough people to keep up with it. And maybe that's what this person is not interested in that part of the business, is building a bigger team. So you think they just, they came in, did this whole acquisition, gutted it, and then kind of they ended up with, oh crap, I don't actually like running this day to day. And also my parents are sick. So I'm out. Sounds like it could be. Yep. Could be. So how in the world do you value something like that? So they're assuming these TTMs are, are correct. It's got 40 % net margins on 3 million of sales and 1.3 of SDE.

15:28But they're saying that it's on a 5.5 million run rate. That would be almost double. But then they're also saying that invoice sales are up sixfold. I almost think you have to throw that out because that's got to be seasonal. Maybe if you have a 6x summer and a flat winner you end up on average two to three x up for the year but like either way there's been an inflection point in this business and it's a seasonal business and the inflection is behind you so you aren't going to really know if it happens again right until next year so like how do you step into this business yeah that i think that's the challenge here is this somebody that's kind of telling you i'm sort of selling this prematurely because of my aging parents or Or maybe I think it's because maybe they don't love the people side of the business and all the hiring they have to do.

16:19This might be an interesting deal for another recap, so to speak, where someone comes along and says, look, I'm great at the part you're not good at. But you roll some equity and I'll buy in a majority or even a 49 % stake. and you stay involved doing all the great things with systems and monitoring those and I'll take care of the people growth side of the business. Maybe something like that. But even then, what's your price? I don't know because the numbers are very much in motion, the sales and the margins. You can't really predict where this is going to kind of normalize just based on the description.

17:03I mean, to me, obviously, to all of your points, this just is begging for some sort of risk sharing burnout thing. What's most surprising to me is that the seller is not also begging for that. Because imagine, right? I mean, imagine if you came in and you did all this work and it's really working and you've decided that, you know, you're on the cusp of realizing it, but you just can't operate it for one more year to realize all this equity value, I would be screaming for upside participation, right? If you're being forced to walk from this to take care of your aging parents. So to me, I think, I would really think both parties want exactly the same thing here.

17:46And you got to structure some sort of, I mean, especially if you're going to put any debt on it, you basically can't pay for anything but the TTM. Right? And I don't think you're going to get any debt on this. If the numbers probably weren't great when this person bought it in 25. They've been very much in flux. And you can look at indicators that show you these very recent improvements in trend, but that's just too short a time horizon for a lender to lend a 10-year or even a five-year loan on something that just isn't seasoned. So I don't think you're going to get third-party debt on this. You're going to have to have equity in seller debt.

18:31Even if kind of the pre-recap, because there's a recap too, right? So there's a new cap table, new cap structure, new owners presumably come in in 2025. Even if that's kind of everything before that has rolled off and is prior ownership, the bank's still going to look at it? There's kind of no way to explain it away? Yeah, probably not. It's just not stable enough yet. It's, you know, a year to two years down the line, yes, a bank might be able to see that, okay, now we've sort of stabilized, we can see what's happening, but this is all very recent change and it's too short a time horizon for a bank to feel like the history gives us something that we can predict the future from.

19:13And that's what banks try to do. They try to look at a history and feel like they can predict what the next three or four years are going to look like. And I don't think you can do that from where this business is currently. So there's going to be no debt available to you, which again, just screams for risk sharing, right? I mean, it's even harder though. I mean, you're going to have to come out with a fair bit of equity. I mean, to buy this thing, like even on the TTM, you know, it's 1.3 of TTM, assuming that's accurate, you know, he's going to want 3 million bucks at close or 4 million bucks or something, right?

19:54But like, you just don't know how dramatic the turnaround was. Maybe, I mean, you as a buyer are thinking the same way the bank is, like how sustainable is any of this? You know, I would really want to do a diligence on why was this recapitalization turnaround necessary? Like, how did we get here? You know, I'm sure there's a very interesting story about, you know, the owner neglecting the business or, you know, somebody was stealing from the business or somebody, I bet there's some very fascinating history. And then who is this person? Is it the guy's son or uncle or something that recapped it?

20:30Or is it a total arm's length third party? I mean, I bet there was a soap opera of what went wrong. How did this guy find the deal? How did the deal get done? How did he structure it? I mean, who knows? Maybe he did it with some sort of weird balloon debt and he's got to get out by a certain day. Yeah, that could be because he doesn't say I acquired the business. You know, we try to read between the lines and pay attention to the words that are used in these teasers to give us a hint. Doesn't say I acquired the business, calls it a 2025 recapitalization and operational rebuild. So it was a turnaround, but it wasn't like a full acquisition.

21:07When I hear recap, I don't think of full acquisition. I feel like some of the original owners are still in the cap table. When you say recapitalization, that's what it means to me. So today's video is actually sponsored by a company I started called Bedrock Quality of Earnings. And Bedrock is a service for business buyers. If you're going out to buy a business, one thing you don't want are surprises. There are tons of stories out there of people who buy businesses. They get into them and three months later, they realize the numbers that the seller told them, well, they weren't true. In a situation where people are often buying businesses and signing personal guarantees, meaning they're really on the hook to return that money to a bank or anybody they borrow it from, that could be a disaster.

21:48So Bedrock is a quality of earnings firm. They're people you hire that go in and look at the seller's books to make sure what you're being told is actually true. And there's lots of quality of earnings firms out there. what makes Bedrock different is it's the only one that has three things. Number one, a CEO, a guy who comes to us from a big four firm and has been doing quality of earnings reports, well, basically for a long time, his whole career, basically. Bedrock is also backed by people you trust and know, including me. You know where to find me if you're unhappy with their service. And number three, Bedrock uses the latest technology, AI and all that different kind of stuff to make sure you get the best results at the best price.

22:23So if you're interested, book a call with the CEO, Will, you can go to bedrockqoe.com or check out the link in the comments below or the one on the screen. Thanks. Is this like some sort of maybe like the lender took over the business and now wants out, like has stabilized it and wants out a year later? Or are you not reading that? I'm not reading that. I mean, those are receiverships, legally speaking, where a lender is able to use the courts and put somebody in to run the business. They don't happen very often with companies of this size. By the time something like this defaults on debt, there's nothing to save in many cases, or the bank can't move fast enough to save it.

23:05So I don't think so. But I do think there was a distressed situation that this person who's doing the listing came along and was a big part of pulling it out of the ditch, whatever the ditch was, and doing a great job with the operational rebuild, as they call it. But it's just really curious why they're selling now. They did do a good job. I mean, if they put in all this new technology, do you know, like in this market, like in California, I just, I think of California and I think all of the most intense environmental stuff that I've ever heard of, that's probably California is the place where it was going on.

23:46You know, has there been recent legislation or is it just that California is perpetually out of water and so irrigation is a big deal? Well, I mean, we did get completely out of the drought. I will say like the last couple of seasons, the rain has been huge. And also this year we're expecting El Nino rain, which will also be huge. So we're not really in a drought, but we periodically go through them. And once they raise the water costs during a drought. They don't bring them back down. And when they implement, you know, conservation efforts, they don't take them away, even when we're not in a drought.

24:21So, yes, I think everyone's always feeling under pressure with their water usage here, period, regardless of if we're having a good rainy year or not. And so, you do, you want drip irrigation. You might want different kinds of plants that use, you know, that don't require as much water as grass, for example. So that's, you know, people are always kind of redoing their watering systems to be more efficient. So, but I think what he pointed out here is it is a very fragmented market. I don't know of a big company near me. They're saying they're the biggest in the area. I don't know of a big company that really markets themselves well and comes along and says, we're going to design this system and give you what you want.

25:04I think there is a huge gap in, service providers. And it sounds like this company found a way to compete much more effectively. So I kind of love all of that. I was very interested, several times they mentioned this licensing and insurance capacity as a moat or barrier to entry. When I think about irrigation, I do not think about licensing. I mean, do you have to be a licensed plumber, maybe? I don't know. I mean, honestly, I will tell you that I've had a lot of work done on my sprinklers and I don't think any of them were plumbers, but that could be the problem. Maybe for certain work you are supposed to be a plumber or maybe you can do something, some unique systems if you do have the licensing where the regular landscape companies that don't have that licensing can't compete and can't do those same systems.

26:02I don't know. That's a new one on me. I'm never going to be surprised if California requires a thing to be licensed I mean you got to be licensed to do people's hair in California and many other places in fact so but I did I just didn't think irrigation was one of those no I didn't either insurance capacity I mean this doesn't strike me as like a thing that would have a ton of risk and be like bonded or or anything intense either, but. No, I mean, it would be workers' comp intensive, I would think. So maybe that's what they're talking about at this scale there. They can, their workers' comp is maybe a little more reasonable to manage.