Inside a $3.4M Rodeo Supply Business

0:00Welcome to Acquisitions Anonymous. Today's deal involved horses and Heather had a feel about it. So I loved choosing the stuff when it goes with the hobbies of my fellow co-hosts. So super excited. We also had a special guest today, Tim, one of the smartest first time out guests we've had. So super, super cool. Here's the episode. We'll set acquisitions anonymous. Hello, another episode of acquisitions anonymous. We don't have 100 % beers anymore. I'm thumbs downing on just the plus inventory. When you close a deal, you inherit the cyber and IT problems that have been piling up for years, Enzo Technologies, that's I-N-Z-O, helps acquisition entrepreneurs evaluate technology risk during due diligence and manage cybersecurity, IT, and voice after close.

0:48CEO Nick Akers acquired Enzo and recently led the company through its first add-on acquisition. He brings a buyer operator's perspective to what needs to be uncovered before the wire and stabilized once ownership changes hands. Enzo offers a complimentary IT risk audit of your target company to help surface the biggest risks in plain English and deliver a 30-day plan to reduce exposure and lower the risk of downtime. Visit enzotechnologies.com slash ETA and mention Acquisitions Anonymous. That's I-N-Z-O technologies.com slash ETA. Well, everybody was talking about the challenge of dealing with lenders.

1:30So please Please continue, Heather. Oh, no. Oh, no. Well, we were just talking about how long it really takes to close a deal. And especially when you're at the end, the final stage, we call it closing, where this long checklist goes out and everybody has to, the buyer has to get it all fulfilled before the deal can close. And, you know, Tim and I were just noting that you basically have to be calling the bank every day. Otherwise, you get sort of put aside or forgotten about. and so it is uh you got to be relentless to get it closed 100 yeah i mean uh we're closing a bunch of deals out of our fund right now and that's my advice to every single one of our uh portfolio companies is just call it otherwise you might spend another three weeks lose the deal like this is this is something you gotta push the bank not the other way around yeah and tim this is your first time on the podcast we're so excited you're here maybe introduce yourself to our listeners and And then I have a deal, which I think Heather will love because it involves horses.

2:33But first, let's talk about Tim. Thanks for having me. Really, really appreciate it. I'm the COO of the Acquisition Lab. But I started off as an acquisition entrepreneur. I actually went through the lab in 2022, found a business within four months, closed on it, ran it for a year and a half, realized there was a bigger opportunity to invest in other acquisition entrepreneurs in this space, started a fund and merged with the Acquisition Lab not too long ago. So now we help people through the entire life cycle of buying a business. Amazing. So what percentage of kind of Acquisition Lab members end up also being one that you guys decide to invest in?

3:09How common is that? It's a small amount. I mean, we have a$20 million fund. It's the largest in the space, but that gets us to maybe 20 or 30 deals. The Acquisition Lab has 1 ,300 members. 450 of them have bought a business. So, you know, by numbers, we're going to invest in a small amount of the businesses. but not everybody going to the lab wants to work with outside investors and that's totally okay. Yeah. And then how does it typically get structured? Are you guys just taking straight minority equity in the deals or are you doing a custom thing per per investment? How, how does it, how do you guys structure things?

3:41Your fund today only works with SBA backed deals. Uh, and so we're taking a minority position, uh, in the company, uh, we take preferred equity and we use the PAC docs, P A C T, a bunch of the funds and investors in the space got together and wrote a shared starting point for docs for these types of deals and so we have a ton of education on etapac.com amazing well cool well sounds very exciting and uh on that note speaking of excitement heather can i pitch you guys on this deal i'm excited yes please do it my first time i'm excited you're gonna do great so you got dear listeners tim got a good 45 seconds of training before the podcast so very consistent with the way we do stuff uh well it's all it's actually super intentional it does two things if there's not a lot of prep required it makes the number one hopefully it makes the episodes better because they feel more natural there's this you know if it's prepared you know i think people want to listen to the podcast because people are we're saying what we truly think and if it comes across as prepared or there's a bunch of notes ahead of time or we study things or gather data other people don't have it kind of ruins it um the second thing which is important for us it's why we have 500 episodes it makes it much easier if we're not asking the co-host to do homework because we're all very busy we have our day job so we just get to show up and have fun and then uh with a light-hearted positive fashion talk about deals all right heather i have good news for you there's a horse in the very first picture i i'm already sold.

5:14It's a thumbs up. Thumbs up. Where do you send a check? All right. So this is a rodeo sports retailer with impressive geographical coverage located in Maricopa, Arizona. Is that the Phoenix area? Do you guys know? I think so. I'm not sure. That's the county that always seems to be involved in some weird election counting thing. Yeah, that's right. It's an election craziness town. Yes. Maybe out Tucson way or something. All right. So they're asking a million dollars for this. They have a guy who kind of looks like an out of shape Marlboro man. Is that how you would describe him? Tim? Sounds right.

5:52Marlboro man after some Twinkies. That's what we got here as the guy on the picture. The asking price is a million dollars. Cash flow is$387 ,000 defined as seller's discretionary earnings there. It includes 1.3 million dollars. Oh no, There's$1.3 million in real estate that is not included in the asking price. They've been in business for 30 years, and they're doing$3.4 million a year in gross revenue. So asking price a million, seller's discretionary earning$387, so less than a 3x multiple for a horse business. Heather. Sounding good. Two thumbs up already. Only 10 % net margin on it. Oh, don't ruin it, Tim.

6:38we had a thing going um all right so the 2025 financials are available soon which is kind of odd because it's july 2026 as we record this but welcome to my world yeah uh this western sports retailer focuses on rodeo supplies providing merchandise ranging from saddles to tack and related bits covering a wide range of needs um saddles are Heather, the thing you sit on, what is tack and related bits? Tack is just a general word for all of it. A bridle, a saddle, that's all part of your tack, your gear. Got it. Think of it as gear. Okay. Tim, are you a horse guy? If you are, I will ask you these questions also.

7:19I don't know. My wife loves horses, but I know none of the terminologies. Well, get her in here. Just kidding. Don't look too slow, but yeah. established in 1996 this business employs six staff of which two are managers covering various areas of activity available with this sale is real estate for purchase or lease valued approximately 1.3 million dollars the real estate includes over 2.3 acres of land a 2300 square foot three-bedroom home and three barns dedicated to retail and storage the seller holds approximately $1 million in inventory, all of which is in addition to the sale. Uh-oh. Those thumbs are going down.

8:01I took one of my thumbs away. So effectively, this is, if I'm doing the math here, Tim, it's$1 million for the business, which is a little less than three times earnings. But if I'm going to buy the business, I have to spend an extra$1 million to buy their inventory. and I got to figure out what I'm going to do with this house slash facility where they've been operating out of for another$1.3 million. So realistically, you can live there. So realistically, this is a business now that is doing$387 ,000, but for me to buy it and own the real estate, I'm looking at$3.3 million. So it's a, what is that?

8:4010 times multiple. yeah oops but they're throwing the land okay um a little bit more here the range of merchandise includes a proprietary land line of saddles built to own specifications and the company's brand is widely recognized amongst rodeo enthusiasts so that's kind of a turn there this isn't this is very special i guess in the rodeo space is that what you're seeing here heather i think so i'm not a rodeo gal but yeah that's what they're saying um and i have to imagine the saddles and the equipment vary by business is that or by use case for whether you're just doing yeah by the sport you know by by what is the event that you know somebody's doing in a rodeo whether it's roping or barrel ride barrel racing whatever i i there are specialized saddles for whatever it is you're doing.

9:30Yes. Fascinating. All right. Well, there's more details here. Tim, before I get into that, anything else in this listing kind of stand out to you? Yeah. I mean, we don't look at a lot of retail deals where we're investor generalists, but like retail restaurants and a handful of other categories aren't, aren't good fits here, but you know, 10 % net margin kind of calls out. I, when everybody lists inventory, I'm always like, is that the, their price for the inventory? Is And I don't know the retail space, but is like a million dollars in inventory and a business doing 3.4 million? Is that a lot of inventory?

10:06It seems like a lot to me, but I, again, I don't, I don't know the space well. Yeah, I think there's a question of what does their turnover look like? You know, how many SKUs do they need to carry? How much is custom versus standardized? There's a lot of questions and all that for sure. um but in the end it sounds like this business tim is somebody who has a you know a retail presence right in front of this house um there's a building where there's six staff work out of and warehouses where they store stuff and then people show up and buy the tack and the gear and the and the saddles from these folks that's the core business like if you're in the rodeo stuff or doing horse work you buy that kind of supply to enable that from these guys is that your read of the thing.

10:50Yeah, I think it sounds like an interesting opportunity for somebody who's super into this space and wants to live on a property here. I mean, I'm guessing this is, you know, truly a lifestyle business. You could get the right person very excited on it. So let's see what else they gave us here in details. There's$476 ,000 in furnitures, fixtures, and equipment. That's included in the asking price. I guess there's a question as to what does that mean? Is that carrying value on the books depreciated? Is it purchase price? How much of that's really usable? But we'll come back to that. They have six employees, five who are full-time, one part-time, and two managers.

11:29So how do you guys feel about there being two managers for four employees? Feels a little manager heavy. Yeah, give them a little better title to keep them on at some point. That seems like what I read there. support and training. They're going to give you two weeks to learn the entirety of the rodeo saddle business. Heather, you'd be up to speed in like 20 minutes, right? I'd be up to speed in what a saddle is, but not much more about how to make one. So, hmm. I mean, there's business by sell stuff. When you see two weeks, you're just like, who in their right mind would buy this business and only get two weeks of training?

12:08I mean, every deal that I've done and work with, with any acquisition lab member, I mean, we're trying to get three to six months of training and support. Two weeks just seems really, really low. How we, I mean, as you've watched that be in practice, I'm always curious about this, like the six-month thing. Like you've got, in my mind, you've suddenly, when a deal gets done, you've got a seller who is suddenly, excuse me, sitting on a huge pile of money. They no longer are in charge anymore. So they're kind of a fish out of water in the business. And, you know, they're going to give six months of training.

12:42And arguably, they're probably somebody who's never done, you know, transition training in their whole life. So it's a question if it's going to be good or not. You know, how do you see that actually working out in function? Like, do people actually really provide six months of value? Or what what kind of happens when after your members kind of get the deals done? I think it's very front loaded. I think, you know, the first month or so, at least in my experience, buying a business, like the seller basically worked the business and I watched so that I could learn. I asked lots of questions and all of that, but it really depends on the seller.

13:13In my case, the seller, uh, there was two sellers, one of them who is really running the business. Um, like didn't want us to change the name, didn't want us to start making changes. So he transitioned out fairly quickly, but I mean, to be available, like it's three years later, there's still times where I call him and ask a question or we have to get access to something, or, you know, there was an account that came back after three years that, and he had, uh, the knowledge on. So, you know, I think having access to them really works, but the second owner ended up staying on for, for two and a half years.

13:44He, he only retired recently because he had a heart attack and his wife made him. So it just really depends on the seller and their personality and what they want to do. But two weeks is just really, really short to learn a business inside out. So. Well, and to advertise it is kind of a bad idea too. Yes. Right. It's like, if that's all the seller's willing to do like that's a that's a major concern have they already left and like you know yeah it just raises a red flag i don't know why you would put that in there uh and it's interesting because this is listed as i look here on the listing is listed by arville knight who is a trans world associate like this is a person in theory who's a real broker um so i wonder what his thinking was when he kind of put that in this um after seeing as you want made the same mistake we do get some interesting emails from the from the business broker community we also don't have a lot of them as sponsors so which is shocking right um i don't think so so i've talked to a number of them and you know the people that are watching this podcast are often buyers and the the if you talk to your typical broker they are not short of buyers and tire kickers and even serious buyers they're short of good deals that are going to close and um i think a lot of them uh do the analysis of okay should i pay to advertise on acquisitions and i'm just probably not like i'm not this isn't a podcast for sellers you know it's a podcast for people who want to buy so i think that's the core of it heather it's not that they don't like us just they don't see the utility.

15:20I will say this though. I have gotten calls from would-be buyers who tell me that they listen to the podcast. So I think there are some, I mean, I'm sorry, sellers. I should have said sellers that, you know, people who own a business who are listening to learn about selling their business, which is kind of cool. Yeah. 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.

15:52They 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. So 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.

16:22Number 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. So 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.

16:52Thanks. This guy does also have some other interesting listings. He's got a commercial flooring business and a Southern Comfort food business. It's like, okay. And the Southern Comfort business, the teaser has a$60 ,000 discount for a cash buyer. It's like buying a used car. Pretty great. Cool. Cool. So what, I mean, Tim, as you think about this business, like what is the, what am I buying here? Like I'm, I'm, I'm obviously going to buy some, some existing customer relationships. Like what, what is the core of, what is the core that I'm acquiring when I get, get into this business? A lot of inventory, um, but at a house, but I mean, I, I think you're just getting the location and the name, uh, you know, seems like it's wildly, uh, recognized and rodeo enthusiast.

17:42I don't know if that just means the area or people travel there. I know nothing about that area, but it seems like you're buying yourself a retail job here. That's my read on it. Yeah. And Heather, how do you feel about the future? I mean, as I read this again, I may have glossed over it. This is a rodeo-specific supply business in Maricopa County. Yeah. How do you feel about the future of rodeo? And the reason I ask this, I know guys who are my age now who in their 20s were professional rodeo guys or who did it just as recreation in their teens, they're broken. Physically, it's really, really bad for these guys.

18:19And a lot of them end up on painkillers. There's all kinds of horrible stories. I mean, which way is rodeo going? Is it going up and to the right, down and to the right? How do you think about it? I think rodeo is growing. And that's just, I'm not a Western, I was always an English writer. So it is funny. The horse world totally divides into two camps and I was in the other one. But I happened to be in Las Vegas last year during the national rodeo, I'm gonna say it wrong, whatever, the big national event, it's like the Super Bowl of rodeo. And I didn't intend to be there during that time, I just happened to be there.

18:55And it was pretty amazing. There was a lot of money, there was a lot of people there, a lot of excitement. So I think rodeo is a growing sport. And you don't have to do the bull riding and, you know, the stuff that really, you know, hurts you. There's barrel, you know, women do barrel racing. You know, there's a lot of, which is not without some danger, but there's a lot of other parts of rodeo that don't have to, you know, cause a lot of injuries. So I think it's growing. I think it's a very popular sport. And I, you know, don't know whether this is the type of gear that a professional rodeo rider buys or somebody who just likes rodeo and kind of does it recreation, you know, does a little bit of it recreationally.

19:37I would assume it's the latter. The problem I see here is that this is totally a lifestyle business, like Tim said. All horse businesses are. We got excited one other time about a horseshoeing training business. And I think, you know, what we ended up learning there was it was also a lifestyle business. They just don't make a lot a sense on paper. They're great for someone who's really into the horse world. It's a great way to make a living and stay completely immersed in what they love, but the numbers don't usually add up, and that's the case here. Even if you took the real estate out of the equation, you figure you're just going to rent the little retail store up front, you know, six times multiple between the inventory and the operating business is just not realistic at all.

20:30So I think this is one of those listings. I wrote a blog post and put it on my website this week. And I talk about the 85 % of listings that come to market that are just never going to sell. And I would put this one in that category, at least at this valuation. And I mean, how would a lender look at this? I assume you're not getting a, you know, 10 % down note on here with the inventory and everything involved, maybe with the real estate it could work out but like i just how is this fundable yeah it's not and that and you notice that they didn't say it was they didn't say sba pre-qualified or anything like that probably on purpose uh the problem with the real estate here is that this is their home and so i very much doubt there's any rent expense taken out of that sde number that's probably you know without any rent expense so even if you came along and bought this business Whereas if you've got to also pay rent and you didn't buy the real estate, your SDE is going to go away.

21:27It's going to shrink or go in half. Could I get one of those FHA loans for something like this, Heather? I mean, this is, and I think those are the ones that are kind of the farmland, you know, designed for this type of stuff, like out in ag world. You could, but only on an LTV on the real estate, which is only$1.3 million. So let's just say you could get 90 % of that. That's still going to leave the business and the inventory unfunded. So that's not going to get you there. That's just going to get you to buy a house and some barns and some land. But you've still got to find a way to pay for the inventory and the business, and they're asking six times for that.

22:06So that still doesn't pencil. yeah um my take on it is if you're like this is the the buyer if they're out there is somebody who's you know had a corporate career or maybe a business owner and uh outside of this made some money in their life as a rodeo enthusiast like wants to move to a farm and be involved and immersed in it in their in their retirement like that and they have a little nest egg like that's and they'll probably you negotiate a seller financing deal on the asking price of the business, get a loan on the house, like on the real estate, like that's where I think this is like somewhat of a realistic buyer for it.

22:42I did look it up. Maricopa is Phoenix County. So, um, I'm sure our Phoenix and Arizona listeners were screaming at the screaming. It's a screaming. Well, you know, that's why everything we say gets couched with the, here's what I think, but you know, uh, we, it is what it is. Um, and also why the game of the game of buying businesses is so fun, right? There's so many moving parts and it's such an exploration and learning opportunity. So, um, you know, Tim, it sounds like you don't think this is something that would be investable for somebody in your shoes in any kind of regards. Definitely not.

23:20I mean, the economics for a professional investor in this space, like it gets really tough if you have any business below a million in SDE, like maybe it could work at$750, but for a professional investor in this space, it's just hard to go below that. There's just not enough cash flow after debt service, after paying the owner to pay back investors. It's just not really feasible. So we would never look at something like this beyond the fact that it's retail-based, which is just something that, again, professional investors aren't typically interested in because there's not a lot of growth opportunity there.

23:50Yeah. Well, let's say I was somebody that wasn't one of these nest egg people and I really wanted to be in this business, but I'm looking at this deal, which I think is like a lot of deals where it's just clearly not going to pencil. It's way overpriced. Uh, the seller's not being demonstrating, not being super reasonable with this two week transition plan. Um, you know, but there's also not that many like, Hey, I really want to be a rodeo retailer, like businesses out there. Let's say I'm the searcher and this is the right one for me. Like how does, how have you guys seen people approach this situation in which a seller is just clearly advertising unreasonable expectations like you just like take your licks or do you go have a conversation with them about where you think the business should actually underwrite and what price you could pay like how do you guys see people approaching this scenario it depends on how well the broker is uh in these deals they're the typically the ones that i think could kill something like this i think if this wasn't a broker deal and you know you were a super enthusiast and you work directly with the seller, like, and the seller loved you and thought this would be a really good fit for their legacy, there's probably a way to make a deal work here.

24:58And it's probably more seller financing and a lower price and, you know, all those, all those sort of things. But, um, you know, my, my experience, it's, it's typically the brokers who, uh, try to prevent those offers from, from actually happening because they don't, they're not going to get comped as higher. Sometimes they don't get comped on seller financing portions and all of that. So yeah, I think the broker might be the one that would prevent this from happening if this was your deal. I would say make an offer and say inventory is included, you know, and just kind of skip the part where they said it's extra and say, you know, here's my offer with inventory included and I'll lease the retail space, you know, for a market rent or whatever.

25:42And my offer is still subject to a multiple of verified EBITDA once I get in there and figure out whether there's rent in there or not. I advise buyers to do that all the time. Just show them a reasonable offer of what it actually could trade for and give them your logic somewhat, like your mathematical logic right there in the offer and see what happens. sometimes you sometimes you're surprised that they may come back and say well that is maybe that is a reasonable offer and i'd want to know and i'd advise buyers like really dig in with the seller on why they're selling why they put two weeks was that just something that the broker put there or was that sort of an expectation on their side like you just you know my whenever we're advising people at the acquisition lab regardless of the deal like to me if you don't get a good read on the seller and why they're truly selling especially if they're not at retirement and age like that and there's like issues in the business that's major red flags for me and i think because the space is so competitive right now and every deal has a red flag on it or some hair on it that people don't know how many red flags to start overlooking and they justify deals that are like clearly not a good deal and clearly have way too much uh baggage on them uh to to continue pursuing but i've seen people in the acquisition lab continue to pursue uh those deals that's like on the outside it's like just clearly too much cool all right well are you guys ready to rate this deal how do you feel about it heather well no this is a horse deal heather you're going last 10 up to you how do you feel about this thumbs up thumbs down i'd go thumbs down unless you were a super enthusiast about to retire and this is your dream yeah i think there's a person out there for whom this is the right deal like if you're a rodeo nerd but this is hard work I don't think anybody should go into this thinking they're just going to have an easy time.

27:33Retail is tough. You're dealing with crappy customers. You've got two managers, Michael. Come on. That'll solve all the problems. I'm thumbs down except for the right lunatic who should totally buy this. Heather? I have to go with my logical brain rather than my heart. My heart wants to give it a thumbs up because it's a horse business and it would be a lot of fun for somebody to run. But the numbers and the fact that we were offered two weeks of training and 25 financials available soon, I have to go with my logical brain, which is thumbs down. Have you, why do you like horses so much? I don't mean this is an accusatory thing, but it's like, I feel like a lot of times, folks, you have an emotional connection to the entire thing.

28:20And it's coming from male energy land, like I don't understand it. So I'm just curious, like, what about it is so, like, fun for you and so cool? They're very, well, riding a horse, they're very sensitive beings. And so there ends up being this, like, communication that's nonverbal communication that you end up having. If you have your own horse or if you have a horse that you ride very regularly because it takes a long time to build the trust and the relationship there. So like compared to like riding a motorcycle where you just tell it to go with your, it's a machine. The horse does not work that way.

28:54And so there's a lot of work involved in kind of getting to the point where you're, you know, you're getting what you want. You know, the horse is understanding you and it's nonverbal. I don't know. It's very, it is very much an emotional connection. Really cool. Very rewarding when you achieve certain things that look like they should be easy, but they're really not. as a married man, a lot of what you described feel like the things I've taken the past 20 years trying to learn. Like, how do you feel a vibe for the moment? Like not, you know, not have to be told things like just know when to unload the dishwasher.

29:24You know, like, I think it's that kind of, you almost described that. It's like, oh, okay. Like I could see, I could see that. Yeah. Cool. All right. Well, thanks for that digression. So Heather, where can people find you? I am at visocap, V-I-S-O-C-A-P, visocap.net. That is our website. And every Tuesday, I do a webinar for people who are looking to buy a business to tell you all about the entire process, what it looks like, answer all your questions, and show you what our services look like. Superb. And Tim, how about you? Acquisitionlab.com. Tim at acquisitionlab.com if you want to reach out to me directly.