Buying an Excavation Business: $4.2M Revenue Deal Reviewed

0:00Hello, everyone, and welcome back to another episode of Acquisitions anonymous. This is Bill graded dirt lot. It is in Eastern North Carolina. It's got$4 million of revenue. It's a really interesting business. Mills has some really great inside baseball coming from the industrial construction side of the world for how we would diligence this one. But we really liked it. So without any further ado, I hope you enjoy this episode of Acquisitions Anonymous.

0:52Are you ready to take the 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. With 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.

1:22They'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. Welcome to Acquisitions Anonymous. Me, Bill, Mills, and Heather. How are you guys doing? What's up? I'm sorry. I have to brag. I'm enjoying the winter summer that we're having here in Southern California. It's 70 degrees and beautiful. Everybody's freezing and it's hot here. Yeah. We got a foot of snow here in Charlotte, North Carolina, which is a generational amount of snow.

1:59I mean, once every 20 years, the fourth most we've ever had in the history of Charlotte, North Carolina. Whoa. So, I mean, it was awesome. The kids were having a blast. Like, we're outside for three days straight. You know, it's finally starting to melt. But I've been, we're all going a little stir crazy over there. Yeah, over here. the videos of the interstate in charlotte were abysmal yes well we don't know for if you guys don't understand north carolina we get snow like almost never so we don't have plows or salt or chains or like nobody knows what to do so when they forecast snow like the grocery stores sell out of bread and milk everything is canceled like everybody nobody knows how to drive everybody's getting in accidents like the smartest move is just not to leave your house because they can't plow the roads.

2:40Like there's not any salt. Nobody can drive. So the smart thing is to buy all the bread and milk and hunker down until it helps. Sounds kind of fun in a way. It's fine because it only happens once a decade or something. Yeah. Okay. So special format today, we are going to choose the deal live on the show. So I have three potentials for us. I'm going to give you guys the headlines, Heather and Mills. Which is basically what we do right before we hit record. And Bill's like, I got three deals. And we're like, all right, just hit record now. This is behind the scenes. This is how the sausage gets made.

3:15In case you ever doubted that this show was live, here's the proof. All right. Deal number one. And these are all in North Carolina, by the way, because I'm North Carolina guy, so I got a bias. So, this is a semi-absentee co-working and executive mailbox business where you can get like, you know, a suite where you can actually go and co-work or you can get mail at it. It has gross revenue of$652 ,000 and cash flow of$135 ,000, and they want about 3x for it. So that's deal number one. Deal number two, a craft distillery for sale near Greensboro, North Carolina. They're asking$375 ,000 for it. It appears to have its own building, handmade bourbon, whiskey, grappa, and single malt.

4:01at$225 ,000 of revenue and$300 ,000 of inventory. That's deal number two. Deal number three, an excavation, grading, and hauling business. It has$4.2 million of revenue spread around since 1993. And it looks like they're hauling tree trunks and dumping them on a burning pile of wood. And they're asking$3.6 million for it. Um, it's 30 years old, this business. And it's in Castle Hain, North Carolina, which I have no idea. Never heard of that. Um, all right. Which one do you guys want to do? I like the last one. I like the last one. There's assets. Heather's like, go for the assets. Yeah. We need some equipment here and some, and some sales.

4:49The other one, revenue was, the other two, they had really tiny revenue. All right. You can't SBA finance a distillery, right? You can. Oh, yeah. Yeah, you can. Live Oak has or had, I don't know, they still do a wine and craft beverage vertical focused on it. But it has been a really tough space of late. Yeah. So. Yeah. Where'd you find this one? These are all Biz Buy Sell, future podcast sponsor one day. You have an alert set up. Is this foreshadowing? You're getting all the North Carolina deals. uh well i am looking at north carolina deals but um it's just you know i like to do stuff this close to home i totally agree all right so here it is i will read it um the i could also imagine like you know like one of those on-screen polls where like all the listeners are live and like we see which one wins and then that's where we go maybe we can get our tech game up to that level at some point so they're literally backing this dump truck up to a pile on fire yes this is they're dumping logs into a giant like brush fire.

5:55This gives whole new meaning to dumpster fire, but go ahead. Yes. This, this is the fire's not in the dumpster, but the constants of the dumpster are feeding the fire. So, uh, I also found out where Castle Hane, North Carolina is. This is just outside of Wilmington, North Carolina. So this is on the beach for, you know, 20 minutes from the beach. It's on the, on the coast of North Carolina, um, and excavation grading and hauling businesses for sale. Uh, gross revenue is 4.2 million. Uh, And they're asking$3.6 million for it. They do not disclose the EBITDA. It's been around since 1993, and they have$480 ,000 of real estate.

6:32So let me tell you more about it. Established in 1993, this profitable, heavy construction company has built a strong reputation over 30 years serving the Castle Hane, North Carolina market. The business specializes in comprehensive site preparation services, including land clearing, structural demolition, grading, material hauling, and property development preparation. As I said,$4.2 million in sales, consistent year-over-year growth and profitability. Strong revenue-to-asking price ratio demonstrates solid market positioning. That is an amazing line. Great sentence. Says nothing, but it sounds really good.

7:12This full-service construction company provides essential infrastructure services, including site prep and land clearing, demolition, professional grading and earthwork, material hauling and logistics, property development prep. Experiencing high current demand with excellent market conditions, 30-year customer base, consistent growth trajectory, and strong market fundamentals in the heavy construction sector. The business presents significant expansion opportunities given consistent profitability and strong market demand. The established operational foundation and proven track record positioned the company for scalable growth under new ownership.

7:45Owner-occupied property valued at$480 ,000, 2 ,400 square feet of building space, so a relatively small building, and a strategic Castlehane location in New Hanover County. The reason for sale is the owner is retiring. He will offer you 90 days of onboarding and training and a smooth transition. It has 13 full-time employees. The lot is one acre with two buildings on it. The first building is the office with two rooms and a bathroom. The other building is a large metal shop with a half bath to work on equipment or store. We have three excavators, four dozers, nine dump trucks, a skid steer, two equipment trailers, as well as two pickup trucks that all convey with the business.

8:29We are experiencing high demand right now and the market is extremely good. Great time to sell your business. With our consistent profitability and with the market demand, we expect this business will last much longer. I am retiring after a rewarding career. That's cool. Business listed by, I assume though, the seller. He said, I am. Yeah. So. Yep. Yep. All right. What do you guys think? So what does this business do? Well, I was going to let Mills answer it because I think, I'm not sure I'm right, but it feels like. Mills has a beard. He's got to know what this business does. Yeah, Mills would know.

9:02So like if you, if you own a piece of land that has trees on it and you want to put like you know three duplexes on it or something you've got to do site prep work which includes you know basic infrastructure utilities like water line sewer line all that kind of stuff but before you do that you've got to get all the trees and like scrub brush and all that stuff out and then you're probably going to just grade the lot very generally like if the topography is they don't say anything about like building, you know, massive retaining walls or anything like that, but just kind of basic lot clearing grading.

9:41Um, they said backhoes, go back to the equipment list really quick, Bill. Uh, so I was Googling the guy's name. Um, yeah, here you go. So yeah, three excavators, four dozers, nine dump trucks, a skid steer, two equipment trailers. So like they're self-fulfilling this, they've got 13 full-time employees. Um, they're probably running, you know, two, maybe three different job sites at a time, depending on how big it is. This is not like, you know, major heavy duty earthwork where they're moving like millions of cubic tons of dirt, like on a massive, massive industrial scale. But this kind of thing, it happens all the time, like steady, as long as, as long as there's like some economic activity in the area, which there is, you know, in Wilmington, um you know there's always going to be demand for this but it but it usually is tied even still to new construction there's some of this is maintenance for like forestry related but i don't get the impression that that's really their you know their bailiwick except for the picture which is them dumping a whole bunch of logged trees onto a fire to be burned well but like the guys who do this from a forestry perspective they only do forestry like they're loggers you know, and they come in and are like cutting trees to send them to a pulp mill.

11:00This just looks more like, hey, we just need to like get this crap out of the way so that we can build a house. Not like we're going to, you know, clear cut and timber 300 acres, you know, to go to the sawmill. Yeah. So Mills, this is a B2B business, right? So your customers are developers, home builders, commercial developers, like that type of thing, right? I mean, you could like, I own a piece of land and like, there have been times where I've gotten quotes of like, Hey, if I, I could go cut down all these trees myself and like rent a backhoe and like do it. Or do I just want to pay somebody who this is all they do.

11:37One, one like little subset of this that is really interesting is people who have, uh, mulch attachments and like cutter heads that are bigger than a bush hog. there's some active people on twitter who talk about this but it's on the front of a skid steer and they just literally like will clear an entire field of trees not huge trees but like small to medium size and they just turn the entire thing to mulch like in a day it's incredible whoa and then do they sell the mulch or is it just an easy way just leave it there yep they don't even pick it up they just molt like literally standing trees that are like this big around and like the cutter head just like mows them down.

12:15Oh, I've seen it's like it squishes them into the ground kind of, right? Like it comes from the top and goes. Yeah. The big ones they use like for right-of-way maintenance, the small ones, like if the trees are small enough, they just kind of push them over with the skid steer and like mulches it in the process. There is a little bit more like recreational and kind of like maintenance case for that. Like people who are just maintaining like hunting land or recreational property. But I think the bulk of this business is more kind of construction, maybe some right-of-way maintenance. But it's probably like, again, somebody's going to build a gas station on a corner and they need the lot cleared.

12:52This is how you start. Okay. So it says site preparation, land clearing, structural demolition, grading, material hauling, and property development preparation. Do you think they're pouring the pad? Probably not. They're just giving you flat dirt, right? But I love structural demolition businesses because every town like columbia has one 800 pound gorilla who does it in like probably a two-hour radius and like every job we go on if there's any demo it's this one company they're always doing it and they own a dumpster business and they do demo they do asbestos abatement like in construction demo i think it's a really cool business in this case it's probably just like hey there's like a couple barns you know on the lot or like a shed that we need knocked over just get rid of all that stuff while you're here i don't think that they're going in and like demoing the inside of a building prior to it being renovated or something like that so at 4.2 million of revenue what would you what's the average what do you think it costs to clear a lot and it seems like they're probably serving more these custom home builders rather than like a big developer that's developing a track or something.

14:07Yeah. Cause like with this size business, like if somebody is like, I mean, Wilmington, like a lot of golf country, you know, I don't think if somebody is buying and developing a golf course that they're calling these guys, you know, it would be too big of a job, my guess, you know, for them, maybe if they're expanding the golf course and they need to do it in, you know, phases, but I think it would be too big for them. I don't know what to tell you Heather, in terms of the average, like cost for something like this, site work is insanely expensive. Like we, we were involved on a roofing project that we invested in.

14:42It was a 200 ,000 square foot building. I think not including the dirt, like buying the actual dirt. It was a$20 million development all in. And the roof was like $900 ,000, which is still, it's a big, that's a big roofing job, but on a price per square foot basis is not that big. I think the site work was$3.6 million out of the$20 million budget. It, it can, it can be a really, really significant cost. Clearing is not, you know, as lucrative or kind of high value as I think more of like the grading and more earth moving and like putting in in-ground retention ponds or things like that. But the biggest thing about this business that there's no mention of here is the CapEx.

15:33This business has a significant amount of maintenance CapEx. Not to mention, if you want to grow it at all, it's very expensive to grow. Having bought a business that has heavy equipment in it, this current owner, Clay, I'd be willing to bet you He is a master at getting life out of this equipment and uptime and not letting the equipment go down over something stupid and then just automatically buying a new expensive piece of equipment. He is probably a master at getting yield out of old equipment. Well, look what it says. It says the other building on site is a large metal shop with a half bath to work on equipment or store.

16:17Yep. There you go. So you've probably got fully depreciated equipment here, which, okay, like it's not terrible, right? I don't think you cross this off your list. You just have to know going in, there's no EBITDA and no SDE number. But I've seen site work businesses, y 'all, that have like$5 million in EBITDA, but have$2 million a year in maintenance capex. Like you cannot value it based off of EBITDA. Well, they're not giving us any EBITDA, so that's the good part of this listing. But like, honestly, you know, Heather, you would want to get, you know, and obviously this is par for the course, but like you can't just get one year worth of financials.

16:59You need to really look at, okay, what are their like shop expenses line item? And are they, they're probably just expensing all the maintenance associated with these. So it's going to be really hard to like suss out, okay, you know, you bought a piece of equipment this year, you've been spending X amount of dollars maintaining these other things. Hopefully they have like an itemized, you know, equipment list on their balance sheet and maybe have kept up with cost, you know, based on those equipment numbers. I agree with you. When they maintain, and they tell you right here that they maintain their own equipment and their own people, their own shop, it gets impossible to actually track how many man hours, what expenses are actually going to the maintenance of the equipment.

17:45You don't know, really, as a buyer. So how do you get your arms around it? So like you're a searcher, you have no experience in this business. This guy probably doesn't have good records of how many man hours he's put in. How do you underwrite this? I mean, what would you do? I think, I mean, you roll up your sleeves and you really spend a lot of time understanding the asset list. Like if you don't know anything about heavy equipment and you don't know like what a carburetor is, like if like if you would be lost in a shop like this, a maintenance shop, I think it's going to be really hard for you to just bridge the delta of the information asymmetry, you know, that this owner is going to have on you.

18:25we ended up implementing a tool because we use in-house maintenance, but we implemented a tool called Fleetio that is a fleet management tool. It's not like a telematics platform or anything, but we enter the VIN number for like a piece of equipment, like a pickup truck, and it automatically imports all the data. I think it costs like$5 per piece of equipment per month. It's not a lot, but it'll automatically pull service records. Like, hey, this is a 2026 Chevy Silverado 2500 HD. You need all these different things done on this schedule. And we track maintenance that way. When I came into the business, we had this amazing file folder system of binders on the wall on a shelf in our mechanic shop.

19:10And I went and they had made all the binders and labeled them and had equipment numbers and everything. None of them had ever been used. It was just all, you know? And so it's got to get adopted. That's a big thing. I would just be more curious, Bill, like how have you been maintaining it? Is Clay the guy who goes in there and decides we're rebuilding the carburetor, we're rebuilding the transmission, or we're buying a new one? Or is there somebody else in this 13 full-time employees who is a master mechanic? But you have to have a master mechanic who can work on diesel, regular gasoline engines, hydraulic equipment, like electrical for this equipment.

19:50I mean, it's a lot to figure out. And the downtime, you know, if you have three excavators on three different jobs and one of them goes down, it's really expensive to get somebody out on site to look at it and fix it. And this stuff is abused and beat to hell and just, it earns its keep. So, okay. So you've got to understand the hard assets here and the maintenance CapEx and then eventually the replacement CapEx because you've got, I mean, this is a material portion of the purchase price, right, is the fixed asset here. If you had to replace all of them, maybe it's the whole purchase price. I don't know.

20:26I mean, it's probably a seven figure number. yeah um that being said assume the equipment is in relatively good shape or you can underwrite it i feel like this is one of those annuity businesses because it's been around for 30 years in a relatively small market i mean you're close to wilmington which yeah as i would call it a small city is but it's not a town i mean it's not like a you know podunk nowhere um and you know if you've got relationships with all of the major builders you got a 30-year reputation the phone rings you got to figure out how to navigate that you got to navigate that but like if you can navigate it so the business's phone rings and not clay's phone rings i mean this is you know moving dirt and scraping pat like it's not rocket surgery as they say and they're going to be building stuff forever and i mean i think this is a business you could buy and it's not you know is you don't need licensed trades people it's not super technical you're not selling to the government you know like there's a lot here where like a searcher i think could get their arms around this totally assuming the the spreadsheet pencils hey michael here this episode is brought to you by tonninson accounting services the leading provider of quality of earnings reports for small and mid-sized business deals every year their team reviews over 500 million dollars in transactions and the reports are trusted by buyers bankers sellers and brokers nationwide wide.

21:53What sets Toninson Accounting Services apart is premium quality work at an unmatched price, a full quality of earnings report for just$6 ,000. You'll get more depth and insight than firms who charge twice as much, which is why so many dealmakers turn to Toninson Accounting Services when accuracy and speed matter the most. There's a link to toninsonaccountingservices.com in the show notes or reach out to Josh Toninson on LinkedIn for a free consultation, where he'll walk you through the process step by step and answer any questions that you have. Tell them that Acquisitions Anonymous sent you. I would be really curious too, like, is Clay going to stay in Castle Hane, North Carolina?

22:30That would be a really big question for me to understand. Like, sitting across the table from him, like, he wants to retire. That's great. Is he, like, moving to Galveston? Because then you're just left there hoping that all the relationships that he's had are going to keep calling you and that he hasn't pissed them off in the last year and you just are only going to find out about it over the next six to 12 months. If he's staying there and his family's there and that's a scenario that I think is much more likely, I think you find some negotiated structure where you're like the son he never had.

23:08You kind of need to be the surrogate here and you need to borrow his institutional knowledge to give this business and him an orderly transition. I agree with that. And there's a problem if you try to get an SBA loan and do exactly what Mills said. Any of these businesses where relationships, where the owner is really the owner of all the customer relationships, it's really, really key. And what Mills said is so right. You need plenty of time kind of under his wing or to be viewed that way by the customers for that trust to sort of convey over to you. and the SBA has a rule that the seller has to exit any role in 12 months.

23:48Now, not to say that you couldn't still have them around in some other way, but what happens to a buyer that's using an SBA loan is they've got to convince the bank that they won't need the seller to do that past 12 months. On paper, they've got to be able to say, I can fully transition all the customer relationships to me, no problem, in 12 months. And that's really, often the bank can kind of see that that's not really true. That can't happen. Really? See, I would have thought that everybody just says that the bank like checks the box. Okay. The seller said that that's, you know, the rule book says they got to be able to, you know, he hasn't said anything that he's keeping the seller around for 36 months.

24:26Okay. Check that box, move on. But you're telling me that banks have questions about your ability to transition in enterprise, or this isn't even enterprise, but like a relationship with a general contractor over 12 months. Yeah, absolutely. They know enough to know that they should be wary in the contracting business of the relationship transfer, that it's a bigger, that it's a harder thing to do in this space. And then they are compliance focused. They're compliance focused because 75 % of the loan that they're making at the bank is dependent on complying with the SBA rules. And so they create this conundrum where they say, well, the guy has to be out in 12 months and you can't prove to me that you can really take this over in 12 months.

25:08So, boom, not going to happen. Now, yes, some of the bankers will do what you said, Bill, and say, well, we know on paper we have to say that, but probably he's going to be there. But most of them will say, no, the rules are he has to be out in 12 months and you haven't convinced me that you can really take over in 12 months. I wonder, too, like, so my bull case on this, and I hear what you're saying, Heather, is I get a customer list from Clay. We systematically work through it. And there may not, I don't think there's hundreds, I don't think the majority of the revenue is spread out across hundreds of customers.

25:42And I co-create. Seems like a few projects a year, like 20 maybe. I co-create with Clay a systematic plan of how we're going to transition every single one of those top 12 client relationships over the next 12 months. And borrow Clay's, you know, knowledge of the market and those past customers. and I don't go meet with them the first day I do a site visit. It's got to be very well thought out and planned, but I think there's a way to transition. People are so, in our business, y 'all, people are so used to it getting screwed up. Really, really great residential roofing contractor. We referred work all the time.

26:22Old school guy, no website, was on every roof, did all his own work, hand nailed shingles, which nobody does anymore. Because if you use a nail gun on an old house and you miss the gap in the wood, you don't know. But if you're hand nailing, you know, like this guy was old school. He's amazing. And the company was called residential roofing services, like no branding, you know what I mean? And, uh, the guy sells the business and comes, introduces us to the new buyer, younger guy. And the business is basically gone. I think it's been like six months or a year. The guy got rid of all the in-house crews, which wasn't big and just was going to sub everything and the phone completely stopped ringing.

27:00Like you just totally missed the mark. That's what people are used to in this space is somebody coming in going, I've got amazing ideas. I'm going to totally revolutionize this thing that's been working for 30 years and has gotten up to a$4 million top line business, probably netting, I would say at the very least, half a million to probably$750 ,000 a year net of CapEx. There's a lot that you could do with this. Every bank out there has a story similar to the one you just told in their portfolio from, you know, the last few years of somebody coming along and trying to run a business like this and not taking the transition seriously.

27:40And that's the reason they push back so hard on, can you really do this? Can you really transition these customers in 12 months? But I would just be peppering, Clay. Like, how did you build your business? What was important? and then let's go preach that, that all your customers have heard you say for three decades, let's just go repeat that back to them and then show them in the first 30 days how we're just going to make sure if we told you we were going to be there, we're going to be there. We're just not, you've entered this sort of like prove it. Yes. And if you prove it two or three times, you're good.

28:12Yeah, everybody's fine. Yeah. Everybody's fine. I like, I mean, I think this is probably transferable. It's probably durable. The CapEx thing is a question mark. But with Clay holding your hand, I think you buy this business. Yeah, I agree with Clay. Yeah. Yeah. Yeah. The interesting thing about this to me is like, I think it is a growing market. I don't think that this is like a super competitive. It's not like you're in, you know, Mecklenburg County, right? And every single one of these jobs is completely picked over. Like it's a small enough total addressable market that people aren't beating the door down, but like it's a very desirable area.