Daycare Center for Sale Analysis | $200K EBITDA Business

0:00Hello, everyone, and welcome back to this episode of 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 I'm here today with Michael Girdley and Mills Snell. And I got to say, I really want you to listen to this episode. On the surface of it, this episode is about a daycare in Oklahoma that does about$200 ,000 of SDE. however we went for about 30 minutes talking about so many nuances of real estate included with deals zoning demographics around a local business there's so much that we were able to tease out of this listing and it really just kind of highlights for me why i love this podcast you know a business is never just a business there's so much else going on under the surface so stick around for this one i think you'll really enjoy it it's kind of a classic Acquisitions Anonymous episode.

0:53So without further ado, I'll let you get into it. Enjoy this episode of Acquisitions Anonymous. We'll start Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100 % beers anymore. I'm thumbs downing on just the plus inventory. 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.

1:26That'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. That's v-i-s-o-c-a-p.net and click zoom sign up all right we are now 20 minutes into our supposed recording block and we've just been shooting the shit for 20 minutes and michael goes hey we got to record an episode so now we're recording but we actually enjoy each other company the problem was every time i normally click start on recording you guys started to talk about something we couldn't talk about because what if he was under nda for it and i was like all right come on so if we could talk about it publicly.

2:12It's like, wait, we're not recording, right? Okay, good. We're not recording. Yeah. Okay. But this deal, we are not under NDA for and is a publicly marketed deal. So we can talk about it. So Michael found - We might need official disclosures at some point. This is not an offer to invest in securities. We are not - This is not investment advice. Past performance is no guarantee of future results, et cetera. All right, Michael, what do you got for us? This was actually found by our producer Dalton. So that's kind of a good sign because Dalton is like kind of our prototypical, you know, community member team, you know, listener here.

2:46Like he's relatively early in his career and, you know, looks at stuff and he's like, cool. Like that seems interesting. But I'm, I'm trying to figure out why he thought this was interesting. So we'll get there. uh we'll find out hopefully don't don't listen it's a profitable daycare center near oklahoma city in oklahoma city oklahoma and i guess if you're going to be in oklahoma city you either want to be in tulsa or oklahoma city and like cool like it's at least it's in oklahoma city um asking price is 1.875 million they appear to have a picture of it and bill like it looks like they that's gonna be astroturf right yeah yeah yeah there's a barren wasteland and then bright green grass uh like much of texas oklahoma is surprisingly brown except for the east part which kind of looks like arkansas um but basically if you're if you're not on video this is aerials of the daycare center which kind of appears to be a big house type structure out in a big field and then there's you're right it looks like it's in other people's backyards like it's in a neighborhood yeah it backs up to like a neighborhood yeah um and then they've actually for some reason somebody went through a lot of trouble to take these aerial shots of the daycare center itself and like fuzz out or blur out all the neighbors houses i don't know why i don't know yeah i mean it for a daycare center built on a flat brown plane it actually looks pretty nice.

4:22Like it looks like, you know, you said it's a, it's like an overgrown house, but it's like a big, it's a commercial facility clearly. And it's parking in the front. It has like a backyard in the back with a little, very nice playground equipment. Yeah. Very nice playground equipment. I mean, I think for a daycare in a desert, this is pretty nice. What's not to lie. Keep going, Michael. All right. Uh, so asking price is 1.875 million. Uh, EBITDA is 200 ,000 and they do 600 ,000. in revenue. So they offer it at nearly 30 % EBITDA margins or 33 % EBITDA margins and has been around since 2013. Check out this well-established child daycare center with a great reputation near Oklahoma City.

5:03It's in an upscale area that has 165 feet of frontage road and sits on almost an acre. And it recently had 160 ,000, 160K renovation, I guess, as$160 ,000 renovation on the playground and fencing. The center has multiple playgrounds complete with age-appropriate play structure, soft surfaces, and shade canopies that provide children with safe and engaging outdoor experiences. The center currently has seven full-time employees and two part-time employees. It also has three school buses and offers after-school and summer programs. It's been a profitable turnkey center for the last 13 years. The center is licensed for 82 students and currently has 66 enrolled.

5:41The seller loves the center and the children, but is ready to retire. Its current STE cash flow is about$200K a year and has room to grow. Other things you'll enjoy about the center is the brand new roof that they did this year and a new range and refrigerator from 2025. Did you have a comment about the roof, Mills? I just noticed that the shingles look very crisp. Architectural shingles. We don't do those, but they look good. That's a roofing guy right there. Gerd and I are looking at the playground, and Mills is like, those are some nice shingles, I can tell. I like those shingles. Those are crisp.

6:11Those are crisp shingles. Very typical. No granule loss. What? All right, so Mills, how much did they spend on that roof from looking at it? We don't know how big the building is, but I would say they probably spent like$15 ,000 to$20 ,000 on the roof. Okay. You were right. The playground is the eye catcher,$160 ,000 on the playground. Yeah, wow. I love that they call out there's a new refrigerator. Like bonus points. Those are$400. Yep. they have a state-of-the-art point-of-sale system and the secure keypad of the front door for controlled access for employees and parents the sale includes everything already mentioned the real estate three school buses and all the furniture fixtures and equipment and it's sba lender approved so there is there is real estate included it would have to at that price yeah i mean you would also i think you kind of have to in this business model you're better or have a long-term lease.

7:08They're basically asking three times revenue or, you know, nine times EBITDA. Yeah. Yeah, so realistically, you're buying the real estate and then secondarily, there's the business on top of it. So, we'll come back to all that. Three facility, or they have nine employees, seven full-time, two part-time. They have these three buses and then all the stuff I talked about from the real estate. Their competition is that they're in a prime location and they believe they have room to grow on this site they are willing to help with support and training and the owner wants to retire and i think that's it for the uh for the deal here the fun thing i think maybe don't don't liked about it was the real estates included but and maybe somewhat relevant the broker is a commercial realtor it says he is from kw commercial oklahoma which i assume is commercial realty you know what the tell was on that listing that there's 165 feet of road frontage.

8:09That's, that's, that's not business talk. That's not business acquisition talk. Right. I don't hate this, but I feel like the ideal buyer is the person who lives like five doors down who is maybe like a stay-at-home mom or dad who is looking for, you know, another revenue stream, another income stream for their family. Yeah, and you gotta love kids too. I'm out. because it's oklahoma or because you you hate children uh first of all i kind of like oklahoma just being a flyover america kind of person it's kind of like texas but texas light um i also think of it as like really far north texas that's kind of it's like dallas but you just keep going um but no i'm just not a person who would find joy in dealing with little kids and their parents and boogers and tears all day long.

9:03Like there's people that love that stuff. It's the opposite of whatever I am. Well, I think it's funny, Michael, because it says, uh, a, this has been a turnkey daycare center for 20 years or whatever. And I, you know, what small business in the world is turnkey mills? Would you describe your business as a turnkey commercial roofing operation? I mean, that is the greatest euphemism ever. Would you say it was turnkey when you were like at the hospital with one of your employees or someone brought a gun to the job site or like all this stuff that's happened. I mean, you can paint. Yeah. It's very, you know, non-definitive term.

9:39Like it could mean anything you want it to mean. In this case, I think since it's a real estate agent listing it, he means they have the keys to turn to open up the front door. That's what that means. The power is still on. The water is still on its turnkey. so i think an important detail here is the seller it said the seller loves running the business and loves being in there like the owner of this business is clearly somebody who's running the school and their headmaster ceo head salesperson everything is that what's going on here it sort of smells like that a little bit because of the statement the owner loves the kids and i mean it's been around long enough that like everybody in the community is like oh yeah like miss wendy like we love sending our kids down there which is possible to you know migrate to a new owner and personality but also like if you get on this neighborhood's shit list and 60 people which is probably like you know i don't know it's it's 30 families probably on average like you could lose clients so fast.

10:50And then where are you going to go to get them? You can't go to the neighborhood two miles away. Your only client base, like the TAM is just the houses that are in like a one mile radius. But that's true of any daycare, right? I mean, that's your TAM. It's got to be convenient. Yes. But I think in this case, like it's in the middle of a suburban sprawl, you know, and like it almost looks like it could be a gay community, although I don't think it is. at least like the daycares I'm thinking of are on like main thoroughfares. This just looks like it's smack dab in the middle of a residential development.

11:23Uh, I think that's an interesting pro for the deal. And the guy hinted about it in the listing. It's a private location because, you know, when you're, when you're looking at these kind of suburban developments, it's not like there's a lot of different tracks available and all that kind of stuff. And they start to get built out. and then a daycare like this could just like be the only daycare within five miles in any direction if they're the only one there because all the other stuff is has better you know higher and better uses whether it's mini storage or the local barber or the local gas station like things get allocated and if you're the only one there like pretty much these parents have no choice they either drive five miles the other direction or they work with you at the mills daycare of fun location here in Oklahoma City.

12:08It's haunting. The other thing is like, what are you going to do? You're going to buy five houses and bulldoze them to build another daycare to compete with this? Like, you're completely locked in. You probably can't because of the way zoning works in Flyover America. Like, you probably cannot and it might even just be a deed restriction. In those subdivisions, you can't take bulldoze down a house and put a daycare center in. Like, it's impossible. Well, and they also mention And it's licensed for 82 students. Next to our shop, we had this like kind of flex industrial building that I had to go before the zoning board to protest because somebody wanted to put a daycare in this industrial area that my business is located in.

12:54And it was not under the table of permitted uses. And so I went to squash the variance and say, like, look, I don't want 200 kids getting dropped off while my roofers are like filing out of the parking lot in, you know, pickup trucks or trailers. And in the process of their zoning appeal, the new incoming tenant was, you know, they were kind of asking, like, what's your capacity? What do you think you're going to do? And they quoted the state statute that said, you know, you're required to have like four and a half square feet per child. So based on the size of the building, like we can have 280 kids just, and you have to go actually like apply for that.

13:34It is, it is licensed based on the size of your space to the amount of kids that can be there. Um, there's some like regulatory hoops that you actually have to jump through and, and the, the facility has to be inspected. You can't just like decide to start a daycare for 50 kids in your, in your backyard. Um, have you ever looked into how zoning works in Japan? Never. comparatively no no so it's fascinating so it's the inverse like almost everything in japan people the reason people like to go there is almost everything is the inverse of the united states right so in the united states like we celebrate like who are the biggest heroes in our country like it's elon musk jeff bezos the like the marlboro man the cowboy like we love that individualism and you see that in the way we do stuff like everything's about like this soul leader.

14:22The Japanese, like it's more about like community and harmony. That's the priority, like be part of the broader. They're very collectivist and we are very individualistic. Thank you for, yes, you should start a podcast, Bill. I think you should do it. But, um, so zoning, so our zoning in the U S basically it says, okay, this is single family residential and that's what it's very restrictive. That's exactly the way it's supposed to be. Right. Or it's multifamily, whatever, or it's light industrial. And that's what happens there. Okay, this is zoned and it's heavy industrial. What the Japanese do is they invert it and say, okay, we're going to zone it and say, this is the worst use case as you work your way up to toxic waste dump.

15:06This is the worst use case that you can put here. And so what that enables you to do is if you think about it, you mark something as light industrial. Well, legally without any zoning changes, you could do light industrial, you could do multifamily housing, you could do single family housing, you could put a park there or a golf course. So it's basically like it inverts everything. And what it does is it makes the fluidity of your real estate market there so much more open to where you could just like, okay, I want to build a house here, I'll build a house here. Or I want to build a daycare center, I'll build a daycare center because that's the way it is.

15:39whereas your reaction to the okay you're gonna take away this light industrial thing and make it to a daycare well like i'm gonna fight that because of the way we look at it and they just do it the totally opposite way and they actually have affordable housing for most people in japan so you can see where this works because you just build stuff so you can build stuff but they they have like a master list of like the offensiveness of every single use and that you're ordered by offensiveness this is like negative 98 points you know yeah there's like a list it goes from you know best to worst and then and then they'll restrict certain other stuff like i mean they're so organized like um like most americans go to japan and we're really loud like but in japan like you're there's so much about the collective that you're supposed to it's considered rude to have a public phone call in front of somebody else or to subject somebody else to your speech so like Like they're actually, it's super quiet, like almost everywhere you go.

16:37But then they'll like have a whole district where it's like, this is going to be the noisy district. And you'll like cross the street and it's like, like just like 150 decibels everywhere you go. So they will actually take certain uses and say, okay, this is going to be here. And you go to this place and that's where it happens. Japan is a fascinating culture. It's because it's just in so many ways the opposite of ours. Yeah. Which I think is why Americans love to go there because it feels so different. It is crazy. Yeah. And the other tough thing is, and I could nerd out about this because that's where we went for spring break, but their language is very heavily context dependent, whereas ours is very descriptive.

17:16So it makes it one of the most difficult things for Americans or Westerners to get into the culture because we don't understand the context of stuff. So nuance will totally miss it. Whereas in Americans, we're like, no, we're just going to tell you what we think. And it's just crazy. Our sentence will include all the context you need to understand it, but theirs won't. Oh, 100%. Yeah, 100%. Interesting. So this business is stable as heck, probably, right? It's probably beloved in the neighborhood. You know, to Mills, Miss Nancy has probably been there for however long and everybody really loves her.

17:54I do think you could buy it, you know, as long as you show up and are the new Miss Nancy and everybody likes you too. And, you know, and you are part of the community. This would be tough, I think, to buy remotely. Oh, yeah. I mean, I don't know that you could. I also, because I think Miss Nancy works in the business, like from how we're reading it. She might even, she might even drive one of the buses, you know? Yeah. So do you guys think this will sell or do you think this just ends up getting shut down when Miss Nancy retires? I bet it sells, but it sells for a lot closer to like just the value of the real estate and not necessarily the value of the cash flow.

18:35I mean an opportunistic buyer would you know create some value from that I mean you got to ask yourself is this the highest and best use of that land right I mean they've got it priced at I mean I guess it's like a 10 cap right it's like 10x cash flow and I don't know if you couldn't do better putting condos up on it yeah you know there I mean I think there is something to say about service-based businesses that are care providers, whether it's childcare or senior care or anything kind of in between like assisted living spaces, hospice, like those businesses are not going away. They don't mention anything here about the payer.

19:24And I don't think that, obviously there's not an insurance component to this. It's just like private childcare. But I don't get the impression that there's like a subsidized element to this either. There are a lot of daycare centers that heavily rely on, at least in our area, government subsidy because there's this big push of like work doesn't work without child care and trying to subsidize the high cost of child care. But I mean, one of my employees, a female in the office is about to have a kid. She's been interviewing daycare centers. She hasn't even had the baby yet. She's been interviewing daycare centers for like four months.

20:03And the wait list, a lot of these places when there's a limited, like when the supply demand is out of balance and there's limited capacity in these centers, you have to get on the wait list before you have the baby and start paying like rent. in essence. You have to start paying your fees before the baby is even born just to hold your spot. They mention excess capacity here because I think they do have a small TAM, but sometimes these things can be incredibly lucrative. Big emphasis on sometimes, at least in my, every state is different. These are state regulated, which is important to know. So, you know, this is in Oklahoma.

20:41You need to diligence the specific ways this works in Oklahoma if you're going to buy this business. Hopefully you should already live in Oklahoma, if you're buying this business or be moving there. But like in North Carolina, for example, there is a cap on the ratio of basically care providers to students at daycares. And it's like four to one. It's like, yeah, it's like super low. And so when you think, and so there's this law on the books, right? And people go, we need to cap it. And like, if we relax this cap, all these kids will die and it'll be horrible. And then like the headline on the next page of the newspaper is how child care costs in North Carolina are skyrocketing.

21:19Yeah. Or skyrocketing. And it's like, well, you know, clearly you need to pay one fourth. Each child needs to pay one fourth of a caregiver's salary plus benefits, plus overhead, plus rent, plus whatever. Right. So like there's a structural kind of the cost of child care is implied. Like the whole margin structure of your business is implied. Yeah. The ratio is the most dependent thing. Right. And so, and then of course there's like, you can only have so many children per square foot. Like as we said, this listing, it's only licensed for 82 students. So a lot of these structural, a lot of the shortage of childcare spots that you're alluding to Mills is structural.

21:59And then there's also of course zoning because, you know, roofing business owners say, we don't want a new daycare in my neighborhood, right? So you can't build new ones. And so there's just only so many spots and the existing ones can't hire more staff. And so it's just funny that the way people complain about this is this unsolvable problem, but it's driven by regulation directly. They have legislated the shortage into effect and hold it there. One of the biggest risks in entrepreneurship through acquisition is buying a business with fragile systems, unclear demand, or a single owner who holds all the knowledge.

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23:02If you are exploring ETA and want to understand whether franchising fits your acquisition strategy, visit fransi.com. That's F-R-A-N-Z-Y.com. And thanks to them for sponsoring today's episode. You know who has massive structural advantages on this? Who? Churches. Because they have empty buildings six days a week. And they say, oh, we can use all our classrooms. And yeah, we can hire the staff, but we have the overhead fixed regardless in terms of the physical plan and the premise. And a lot of times they own their real estate free and clear forever. Exactly. And there's no rent. and they have tax abatement also because it's religious so they're not paying taxes.

23:41So that is why churches play such a big role in childcare in this country. I need to start a religion. TBD, working on it. Tax break. Get your clawed coat on that. Yeah. It'll happen tomorrow. Hold on, I got to tell OpenClaw to start a religion for me. Be right back. I'll be a cult leader soon. So I want to talk about something that is a nuance to this deal that I think is really important. So this is a local business. You're working in a suburb. It looks like this is a suburb that was built 20, 25 years ago. And what happens with suburbs is young families move in, they bring in their kids, and then people get married to their interest rate, they get settled, and the neighborhood starts to age and it's fewer and fewer kids.

24:26And I've seen the same thing happen on my street. I'm in a neighborhood that was developed in the 70s. My house was built in the 70s. And when we moved in, my kids were the only kids in the entire neighborhood because everybody else had bought their house 50 years ago when they were 25. And now they were still living in it. Now, the cycle has started again that kids have started to age out or the people start to age out or die and stuff like that. And so we're seeing more and more kids. But I think that's a big question mark with a deal like this. Are you going to have massive headwinds because you're in an aging suburb and there just aren't that many kids anymore.

25:03And one little red flag here is they're, you know, they're licensed for 82 students, but they only have 66. They probably only have 66 because that's all the kids they could sign up. And that may be because there's just not kids in the neighborhood like there used to be in this, in this area. Yeah. You would almost want to like, look at the, where you are in that demographic swing because eventually like the older folks, you know, are moving out and downsizing and the neighborhood gets backfilled, but where are you in that cycle is really, really important. And would be relatively available data.

25:36That's a great point, Michael, because this is a local business intrinsically. And your TAM is the kids that live within a 10-minute drive. And I did ask Claude, Oklahoma City is not immune to the decline in childbirth. They actually, like many places in Flyover America, have totally beaten the idea of teen pregnancy, um which if you guys look at a big part of why our birth rate is down in the country it's because we beat teen pregnancy we quietly beat smoking teen pregnancy like all these things but nobody celebrates these wins for for america but anyway um but yeah oklahoma city's it doesn't have as many kids as it used to interesting i i guess we did we we beat teen pregnancy you're right but those were a lot of births yeah anyway sorry to be a doubter okay so what do we think about this I don't hate it.

26:26I think for the right person, if this is your dream job, like it's great. There's real estate backing it. There's a lot to like. I mean, if you lived anywhere close by, you just got to think, is this deal on Zillow? Does this guy have this thing listed on LoopNet? Because if you're the right, let's just say there's, I don't know, a thousand people that live in this vicinity. Somebody's got to look at this and be like, you know what? I'm enterprising enough that there's something to this. It's in my backyard. I look at a lot of stuff very generously when it's close by. I'm like, oh, maybe, maybe, you know, but absolutely.

27:01I think there's got to be somebody nearby who could like scoop this thing up and it will not run on autopilot. There is no turnkey operation, especially when you're caring for, you know, 60 plus kids, but it's doable. Yeah, here, I think this deal is really tough and here's why. The The ideal buyer for this is Miss Nancy 2.0, Miss Nancy 25 years younger, someone who has experience as a childcare provider, wants to go out on their own, wants to own their own center, et cetera. Generally, the income and wealth profile of those people are not such that they're about to buy$1.8 million of real estate and an operating business.

27:47Now, you may be able to get a mortgage and we haven't talked about how you finance this deal yet. Maybe we should. But you have a buyer pool here and the fact that it's being sold with real estate makes the purchase price that much higher and that much harder to structure. I think if this were somehow without the real estate and already had a long-term lease and someone could step into buying this with some seller financing over a couple of years and gradually step into being the new Miss Nancy, I think that would be a more transferable business. It's usually I think about who your buyer profile is.

28:22I think it's kind of a, it's a narrow Venn diagram. The person who is a good owner for this business wants to work in this business has capital to buy this business and structure the deal. And by the way, I should say, this is where a good broker would really create a lot of value. And the challenge is they have a commercial realtor as a broker. Totally agree, man. So how would you, how could you finance this? in theory there's real estate a real real estate lenders real estate lenders main street lenders love owner occupied real estate you know i'd be really curious where does it appraise but i think you could finance a ton of it by you know through the the rental flows and then talking to bank and lending you money on that aspect of it and then maybe the seller seller finances almost all the business premium on top of that and you're not in a bad place Stephen, the broker here, is going to hate this and he's probably going to send us a cease and desist.