Inside a $26M Industrial Inspection Device Company

0:00Hello, everyone, and welcome back to another 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 today I'm with Mills Snell, Heather Anderson, and Chelsea Wood from Acquisition Lab. And we have a cool deal. It is$3.8 million of EBITDA. It is an industrial inspection device company. And this one, we all four like this deal. Lot to like about it. It's got a big installed base, probably a durable business, probably going to trade for a high price. So without any further ado, I hope you enjoy this episode of Acquisitions Anonymous.

0:55Hey, everyone. It's Bill. And I want to tell you about an event that's honestly become one of the highlights of my year, and that's Main Street Summit in Columbia, Missouri. I've been a speaker and an attendee at Main Street Summit for a couple of years now, and I'm going to tell you firsthand, it's really not your typical conference at all. It's more like a thousand business owners, operators, and entrepreneurs all gathering in Columbia, Missouri for three days of practical and actionable business content. It totally takes over downtown Columbia, and they have probably 20 different venues. It's very cool.

1:26One of the things that really sets Main Street Summit apart for me is the relationships. I wrote on X after last year's event that it was great talking about business and life with people who really have become a much more than just conference buddies. You know, business really can be a great vehicle towards deep friendship if you're willing to go there with people. And that's exactly what happens at Main Street Summit. You're really not sitting in massive auditoriums. You're in intimate settings, art galleries, small classrooms, et cetera, with world-class business owners and operators who have lived the challenges that are keeping you up at night.

1:56So really, no matter what industry you're in, from plumbing to e-commerce, there are specialized tracks designed for real practitioners like you. Main Street Summit is coming up. It is November 4th through 6th, 2025. It is in Columbia, Missouri. Do not miss this chance to connect with people who really get what you're building. You can visit MainStreetSummit.com to grab a ticket and I will see you there. I'm speaking again this year. So if you find me, come up and say hi see you at main street summit all right friday acquisitions anonymous i always feel weird because it's friday for us but it's probably like wednesday for the listener people are like uh it's got that good friday struggling to be awake you know and present i've that's right it's friday but it's 7 30 on the west coast yes yeah i'm thinking about lunch right now and heather still having her coffee.

2:47I'm still trying to get my coffee. Yeah. Yep. And we've got Chelsea from Acquisition Lab here today. Hey, Chelsea. Hello. Thanks for being here. So Mills, I joined and Mills wasn't on yet. And there was all this hype because Mills has this deal that he wants to do. And I'm very excited for it. It's been like multiple recordings. I'm like, oh, let's do it. And then we find something else to do. So yeah, this is all you Mills. You have the floor. And I I mean, my goodness, I really hope this doesn't disappoint. But all right, this is a company. It's for sale with Calder Capital. We've talked about their deals from time to time.

3:25Calder, you're welcome to sponsor the podcast if you want to. And we'll get more deals from you. But this is it's called Project Lucid. It's a branded inspection device company. And if you're on YouTube, there is a man standing in front of a giant turbine for like a jet engine. The revenue is a little over$12 million, cash flow of$3.8 million, and the inventory value is listed at$2.3 million. It says, serving the industrial sector across North America, Lucid is a leading branded inspection device company supplying video inspection devices used in the inspection, maintenance, and repair of critical machinery and equipment across a range of industries, including aerospace, power generation, chemical processing, and automotive.

4:18With exclusive distribution rights with its manufacturing partner, the company engages in continual product development to add products and features requested by its customers. The company's robust sales and marketing engine not only attracts and serves hundreds of industrial customers annually, but also provides a direct link between hands-on users and the R &D efforts supporting the product line. This market includes premium vertically integrated players as well as resellers of lower-end products. Lucid separates itself from the competition by exclusively partnering with a leading manufacturer that invests heavily in R &D, providing technologically advanced products in a seamlessly branded environment.

5:00They offer a premium product at a lower cost than their traditional premium competitors. Companies positioned to scale as technological advancement has continued to narrow the gap between their products and the ingrained premium market players. Customers have begun to notice with one large individual customer, a former customer of the competitor, making the switch in the last year. This momentum can drive repeat sales and new enterprise customer wins. Day-to-day operations are run by a capable leader with minimal owner involvement. Ownership is seeking retirement and is open to a transition period post-close.

5:34A related entity holds the real estate, which ownership is flexible as to the sale or lease to new ownership. In bold, buyers will be required to have a minimum$5 million in liquid funds to be considered for this opportunity. Y 'all, I was getting in the shower this morning and I was still thinking about this requirement. I can't wait to talk about this. Thank you for reading this overview. The extent of the information that we are publicly permitted to reveal about this opportunity is contained in this overview. Blah, blah, blah. Sign an NDA. There's 15 employees. They recently acquired a new office, which can accommodate their growing operations.

6:11They lease it from that related party entity. And it says limited seller financing available. That's all the info we have on it. What do you guys think about Project Lucid? oh man it's so it's 3.8 million of they call it cash flow but maybe it's EBITDA I mean the margins are amazing it's got 30 margins right or 25 margins right no 33 margins yeah 33 margins I mean on 12 million sales 3.8 of EBITDA and it seems like they've got a brand a branded inspection device company and probably their it seems like their own technology because it says that their technology is catching up with the incumbent.

6:57I'll tell you what, Calderette's a pretty good teaser because I like this one on the face. But it's a distributor of one brand from one manufacturer is what I think it is. Okay, Heather, you're putting the wet blanket on it. I'm on a paper. I didn't say that was bad. No, you're right. You're right, though. So they aren't manufacturing it. They are. Are they not? No, because they talk about having this manufacturing partner who probably contract manufacturers it for them. I'm shocked, though. They talk about the competitor a lot, but they don't talk about any IP. They talk about their research and development arm, but there's no talk of a patent or anything other than just that their device is kind of starting to eat the big guy's lunch.

7:46As a distributor, maybe they don't have the IP. That's my thought, is that they're just sort of a regional distributor, maybe a North American distributor. They say exclusive distribution rights with its manufacturing partners. So maybe they just are the North American distributor of this. But it also says the company engages in continual product development to add products and features requested by its customers. And then it says that they partner, they exclusively partner with a leading manufacturer. Is that the same company? its manufacturing partner? I think so. Okay. So they've got some, it sounds like the manufacturer has probably got some kind of IP around here and this is the, and they're the go-to-market partner.

8:30So you like, think about this. This is a video inspection device and it is, it is branded. There's, you know, DeWalt and Milwaukee and Hilti and all these power tool companies they make. And what I'm picturing is like one of these like little scope type cameras that you can, you know, stick the wand and the arm down into something to inspect it. And there's a little, you know, LED screen that shows you, you know, what's down in that area. I'm imagining this is probably more sophisticated than that. And it may be that, you know, probably a higher price point, but maybe there's some, you know, advantage or some kind of increased technical ability over and above just the kind of thing you can buy off the shelf at Lowe's.

9:12I mean, what this could be, Mel, like, Like this could be a drone that inspects sewer pipes, you know, or this, this could be some sort of thing that goes inside the bore of a huge airplane engine or something like, you know, this could, this is likely, I mean, if it's got$3.8 million Viva DA and they talk about the aerospace power generation, chemical processing and automotive industries, this is, I think this is not even close to what you buy at Home Depot. I think this is like some kind of big inspection thing that you need to fix your giant machinery or engine or something. Which I love. I mean, that's fantastic.

9:52Like maybe you, maybe like this is the way you inspect the middle part of a pump of a certain pump that is used in all these industries before you repair it. Yeah. Chelsea, what do you think? That's where my brain went when I was talking about the industrial customers and the fact that he's standing in front of what appears to be a giant turbine. um i like the i like the how core i guess it is right how integral this kind of product would be i was struggling the whole time i was reading with figuring out what exactly is this company that like right is it distribution is it that they've got this thing and they own the product or like and so you guys went there automatically with the conversation so that i was grateful as i was trying to figure that out myself.

10:38Because it does say that they have exclusive distribution rights, but I still am struggling with whether or not it's their product or the manufacturer's product, right? Are they the selling arm of the manufacturer or is the manufacturer a partner that they use that they have exclusive rights with? I just, anyway, it doesn't really matter. But I'm curious that there's IP involved because they say that they're investing in the R &D efforts so much. Like who's investing? The manufacturer? Because if it's literally they're the distributor arm of the manufacturing company, that's a little like shaky, right?

11:23Like because the majority of the values with that, the actual manufacturer, right? They get a different distributor and then your entire company falls apart. Yeah. I mean, to me, there are basically two things that you really need to diligence and understand here. Number one is what you said, Chelsea, which is the relationship between them and the manufacturer of the device. You know, it sounds like their IP might be more in the brand of it, where the manufacturer's IP might be more in the technology of it, which maybe you need both, but I'd kind of rather own the technology IP at the end of the day.

11:55But the other thing you really need a diligence is the durability of the application. So like, I'm just making this up, but say that this is a specific scope that is used on a certain type of turbine, or whatever. And that type of turbine is widely deployed in all these industries, etc. But if the technology for that turbine advances and it becomes obsolete or different or something that you don't need to inspect it in this way anymore, your market also goes away overnight. So if you are inspecting a specific piece of technology, that technology has to be durable as well in order for your end market to be durable.

12:34So I would want to diligence kind of how confident I would be that that's going to be around. I mean, there's probably an installed base and it's industrial and like they're not going to get ripped out. But I would want to be confident that. I mean, I like the deal in and of itself. And I like Calder, so that helps. But I in my brain automatically went to buy this one and then buy the manufacturer. Right. Like, let's. My guess is that it's probably it's probably that they have either some intellectual property that they don't talk about or it's not something that is protectable. Like maybe they found kind of a unique way, like if it's the drone example, right?

13:14Maybe they found a unique way to make like a drone that does something that others don't, but it's not really, it's not really patentable. You know, there's nothing other than just their, their brand, you know, and their, their trademark and their name that really is worth protecting. But my guess is that the person who's manufacturing it is one of many possible manufacturers and they just contract manufacturer for them. I've seen this a lot. you want to go with the incumbent, right? Because they have the history and you don't want to upset the apple cart and quality control and all those things.

13:46But if you needed to, and you had the actual, you know, you owned the intellectual property around it, or even if you just own, you know, the design that you could take it to somebody else. I like that they say that that's the competitive advantage is that they partner with that person that's constantly staying up on trends. I do like distribution models because of the margins, But at the same time, distribution models can be really tricky from the cost, right? They're heavy from a cost perspective. And this is not typically, I mean, distributor margins are not typically in the, you know, mid 30s, right?

14:22They're usually in like the mid single digits. the inventory does at least kind of acknowledge that, yeah, they're sitting on inventory. Maybe it's, you know, the kind of turnkey product or line of products. And there's like just a handful of SKUs. The one thing I really like about this type of business is not only like, Bill, I think you mentioned the install base. Let's just say there's, you know, 10 ,000 of these things, this inspection device out in the field. Anytime it needs a part, they have to come back to you, at least unless it's just like some kind of random wiring or something, something that's more commoditized.

14:59But it is like a perpetual feeder for this business that people have to keep coming back to you for parts. And hopefully when you sign the NDA and you get the P &L, the P &L distinguishes between kind of product sales and some other revenue category that would be like ongoing parts sales. I'm curious about the competition. They seem to say that theirs is the lower cost, they are the low cost option, and they just want a big client away from these other like integrated players. So it sounds like maybe they're sort of unique. We just offer the inspection device, you know, and the alternative is a packaged product and service, you know, offering from some other players.

15:45That's, I think, what they're telling us is why they get such good margins is they're only selling this one little piece. And because of what they do, they're able to be the low cost provider for that piece. But sounds like the customers are sticky and hard to pull away from the competition. That's my guess. Yeah, it sounds like the way they described it, Heather, it says the market includes premium vertically integrated players. And I would assume that would be people who make the machines and the inspection devices and the parts and all that stuff. And then it also says resellers of low end products, which I imagine would be like Chinese commoditized hardware, sort of like DIY.

16:26And then they position this as sort of in the middle. It seems like that their technology is coming up the curve. They seem to have a partnership with one of the manufacturers, which maybe makes it quasi vertically integrated. Like, I don't know if they're forward integrated also, like with the people who make the turbines or whatever it is we're inspecting here. But I wonder if that's sort of their pitch here is we're in the Goldilocks spot. You know, we're not the super premium option, but we're also not this cheap Chinese junk. Yeah, which I like. You know, I think that's really interesting.

17:02So that part's great. Do we want to talk about the$5 million we need to even talk to them? What do you think, mills. I mean, I understand the sentiment, right? That they want a qualified buyer who isn't, you know, cash strapped. But I've worked at lower middle market private equity firms and done business with a lot of them. There's tons like the firms don't have$5 million cash on hand. They're going to, if they have a fund, which most people who are buying this business at almost$4 million in EBITDA are going to be deploying out of a fund, either that or a family office. Family office, absolutely.

17:44They've got the cash on their balance sheet. But a fund is raising capital. So raise$300 million in a fund, and you only call that capital as you have deals available to deploy it. So at no time are you sitting with the$300 million in your bank account and going, great, we're just looking for opportunities. Here's a picture of our checking account. So it makes me wonder if there is something kind of to this, right? Is there something wrong with the business? Like, is there some kind of skeleton or like something around the corner that they're trying to prepare you for to say, hey, you're going to need a bunch of cash?

18:30I don't know, but it's unrealistic. The majority of buyers, even private equity firms and independent sponsors, they're just not going to have$5 million cash to show you in their checking account. Are you ready to take a 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.

19:06And we're proud to call Walker and Chelsea, the Lab's director, long-time friends of the podcast. They'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. So Calder, we've done deals from them before, and I think they're fairly sophisticated intermediary. My sense is what they're trying to telegraph is, hey, this thing's got$3.8 million of EBITDA.

19:37If it goes for seven times, that's$26 million. You're going to need to put$5 million of equity into this thing at a minimum. And I wonder if that's what they're trying to telegraph. Don't think you're going to come in here with a million bucks of equity and lever the crap out of this because we expect a real multiple. Like this thing is not going for two times. You know, maybe that's what they're trying to tell. I buy that. But also because they're sophisticated, like if you show up and you're like, you know, hi, I'm Snell Capital and I have a, you know,$500 million committed fund, they're going to take you seriously.

20:15But it goes back to my pet peeve. One of my pet peeves, which is brokers lower middle market, where we do SBA loans asking for proof of funds. You know, what it comes down to is, do you have the equity and can you get the financing? And that's a very different question than show me your bank account. And yeah, so they could have said this better, but I think you're right, Bill. They're probably just telegraphing. That's about how much equity you're gonna need, at least. I was just having this conversation with a lab member, right? That has to fill out the forms to get access to the CIMs. And it's like, it's like, they're asking my net worth.

20:51And net worth is such a stupid number. Like in the grand scheme of things, right? Like a proof of funding would just, is what you want to know. Like anyway. I was going to say, Chelsea, because y 'all deal with a mix of kind of first-time buyers and repeat buyers in the lab. You know, how do you coach them through that? Like, I feel like when I was, all I was doing was, you know, deal flow on the buy side, I just would blow it off and it would make me so mad. But in order to get access to deals, you kind of have to put up with some crazy stuff sometimes and ridiculous demands. Correct. And that's what's because like some of our members, right, we work with pretty well capitalized humans.

21:30And so some of their net worth is really high. And it's like they don't want to disclose their full net worth to a broker. And so we were literally having this exchange around like, OK, well, what's an acceptable level of net worth to disclose? Because I'm not telling them everything. And I just think the whole metric is dumb because you could have it and have complete no liquidity and no access to any of it because it's net worth, not actual like what's your capability of buying this business. And so I wish that they would just get people to get approval letters either from investors or from lenders.

22:03And that's what they asked for. Because this whole like show me snapshots of your bank account is such bullshit. I do think that, you know, this is a reasonable intermediary. If, you know, So if you don't have$5 million liquid, then I think there's a way to navigate it. There are others, especially like y 'all are saying, on kind of the more business broker, Main Street side of things who, you know, they make up some crazy demands. And one thing we haven't talked about all that much, you know, they talk about the NDA here, but especially with Main Street brokers, you'll get these crazy things that they try and slip into the NDAs.

22:42Like I've had instances where in the NDA, they're trying to get you to commit to pay their fee if the seller doesn't pay it. And just, you know, wild things where you're like, this is not even the time or place to negotiate this. And you're, you know, you're trying to slip it in. I told one of my members, there's one brokerage where I am dying to put them on blast and like show their name and show their file because their NDA legally binds you to work with their lender, lawyer and accountant. Whoa, no. Oh, yikes. How on earth do you think that that is ethical? Yeah. And so when the member showed it to me, I was just like, first I thought he was misunderstanding something or like, obviously that can't be true.

23:25And he shared it with me. And like, if that person's listening to this podcast, you're just not ethical. Like, just stop. It's just bizarre. But yeah, absolutely binds you. And so when this member wanted the deal that he was representing, the member's like, absolutely not. I'm not using any of your people. And this is like not okay. And it caused a big uproar. And I was like, I kind of just want to blast this person out because it's absurd to think that you can do that. Like, I have a new one. We had a discussion on Twitter that some brokers are putting you can't use chat GPT or AI. You can't put the SIM into an AI model.

24:04and we were discussing that because i mean good luck enforcing it but uh you know there there's the whole ai angle too because they don't want the information leaking into the model right being used to train the model that's interesting right like you're disclosing it to ai that can do whatever it wants with it uh don't do that when we were i guess two years ago i was working on developing software to help our members analyze deals. And that was something that I was, like, I was going back and forth with the developers with because I wouldn't give them information because I was afraid of how it would be used, right?

24:41And we had this whole back and forth thing about it, and I just actually stopped developing the software. But I get where they're coming from. I think there are things that you can do within ChatGPT that you should be doing anyway. Anytime I'm talking about anything that I think is sensitive, I always put it in the forget model or whatever that's called, temporary, so that I know it's not going anywhere. So I think everybody should, just in general, in human being a human, be protective of your stuff. But I can see where they're coming from, but it's completely unenforceable, and I don't know what to tell you as a human.

25:18Welcome to technology. Yep. So, I mean, this, I think we all agree, like this is an interesting business. They, they obviously have like compelling revenue, compelling free cashflow. Bill, I think you alluded to it earlier. I think that the, the difficulty with this is that it's just going to trade for a really high multiple. It's going to, it's expensive. Yes. I mean, and it probably deserves it. I mean, right. I mean, this, this is$3.8 million of EBITDA. It seems like they've got, you know, something unique here that I was just flipping stuff from Alibaba on Amazon. You know, this is going to trade for high single digits, I would think.

26:01Yeah. Yeah. I would agree. As a multiple of EBITDA, not millions. I mean, this is, this is going to be a six to nine times deal, I would think. I think too, that there's probably a kind of a strategic edge here where the person who ends up getting this is not just a financial buyer. It's somebody who already has maybe a similar product line or, you know, they use it as a means of expanding their, their existing distribution. Cause if let's say you sell something that is similar and adjacent, but not competitive to this, and all of a sudden you can automatically get in those like 10 ,000 doors.