Inside a $36M Countertop Business — Is This Deal Worth It?

0:00Hey, everybody. Welcome back to another episode of Acquisitions Anonymous. I'm Bill Snell, one of your co-hosts. Joined today by Heather Anderson, we talk about a really interesting company in Florida that is a countertop, vertically integrated countertop manufacturer and installer. It's a quite large business,$36 million asking price, over$4 million in SDE. We talk about trends in new construction or businesses that are tied to it. We talk about SBA dynamics for something like this. This is quite large, but sell leasebacks. This is a really fun episode. We talk about some dynamics for upmarket businesses.

0:39I think you'll really enjoy. Stick around after a quick word from our sponsor. We'll set Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100 % beard anymore. I'm thumbs downing on just the plus inventory line. 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 in transactions, and the reports are trusted by buyers, bankers, sellers, and brokers nationwide. What sets Toninson Accounting Services apart is premium quality work at an unmatched price, a full quality of earnings report for just$6 ,000.

1:18You'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 TonnensonAccountingServices.com in the show notes, or reach out to Josh Tonnenson 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. Heather, how are you? Good afternoon. Good afternoon to you. I've been busy trying to get ahead of the next government shutdown. I know. Your tweets on it are making me worried.

1:51It hasn't been on my radar, but then you started tweeting about it. I'm not in line for an SBA loan, but if I was, I feel like you're, you're the one with the plan. I'm making you a little anxious too, because, because that's just kind of how it is. But yeah, we do have a plan. We're helping our clients get through it, get their SBA loan numbers pulled before the potential shutdown starts, which would start Monday. You know, so we're trying to get everybody through by Friday, but this will be our second one in a year. Yeah. So we're recording right now this recording is happening um tuesday january 27th in my mind though it is still early january like it was just christmas so i keep being like end of the month like it's it'll be fine it's a ways it's crazy how fast the new year it gets started and then we're in the middle of it seems like so yeah yeah well you're doing you're doing great work um we brought a deal we y 'all guys i wish we had recorded uh like the five minutes of us just looking for a deal because we came across some crazy stuff.

2:52A raw sugar plant in Mexico with exclusive water rights, all kinds of stuff. So we settled on something that was probably actually worth talking about and there was some substance to. I hate that Biz by Cell puts my cell phone number in here. It preloads. I always have to close out of it in the recording. I mean, hey, look, if you were on YouTube, you got my cell phone number. Okay, this is on Biz by Cell. It says it's Florida-based. It's a premier vertically integrated countertop manufacturer and installer. The asking price is a whopping$36 million cash flow, which they list as SDE. But it's also the exact same number as their EBITDA number.

3:37So a little bit maybe of a misnomer on that, but it's$4.8 million of cash flow and EBITDA. Gross revenue is$19.2 million. So this is a pretty healthy margin business. They're asking, what is that? Around seven or eight times earnings? I'm trying to do my math here. Yeah. The description here says seven and a half. Okay. Yeah. Pretty rich. Business description is for over 20 years, this Florida-based vertically integrated manufacturer and installer of custom countertops has serviced its clients across the region. High quality craftsmanship with custom stone fabrication and reliable service have allowed for exclusive partnerships to form.

4:25These partnerships drive consistent business at strong margins, primarily servicing high end residential new construction with a mix of other builders, contractors and designers bringing consistent work. The inventory is only$50 ,000 included in the asking price, which seems shocking to me. Like when you drive by these places, they usually have like marble, you know, lined up outside in the yard. And that's worth a lot more than I would think what this is. Maybe the business is a little bit different. They own the real estate. It's a 45 ,000 square foot building. They do say that their FF &E, their furniture, fixtures, and equipment is included in the asking price.

5:05and they listed at$1.6 million. The facilities, it says population growth and housing shortages in Florida provide ample opportunity to continue scaling operations within their 45 ,000 square foot facility, which is currently operating at under 50 % capacity, offering significant room for expansion with additional volume within countertops or complimentary products. They list again that the facility is under 50 % capacity. There is seller financing available. The broker here is a guy, looks like a very professional picture, Jonathan Molyum from Aquavest Business Brokers and maybe like Exit Advisors or something like that.

5:52Okay, so countertops in Florida. Heather, what do you think? Well, it obviously has a lot of exposure to new home construction and that's part of what they're pointing you to is that there's, they're going to keep building because there's a shortage of homes. But the reality is, you know, new home building is somewhat cyclical. It follows a lot of different economic cycles. It's got a little bit of a boom and bust. And so therefore, this is a business that is exposed to that. So, you know, it don't know whether these numbers that we're looking at here in the teaser, are they the peak here over the last three years.

6:28It could be. But that's the main thing you start to think about is how much of this is tied to new home builders versus where the other side of the business is where they would have a showroom and people are doing remodeling and they and their home decorator designers are coming in to the showroom and picking out countertops and having them cut and delivered and installed. It sounds like they do everything. They say vertically integrated and I believe, you know, They cut, they install. Did they say anything about a showroom or did I miss that? Doesn't say anything about it. Yeah. So that tells me it's maybe all of their customers are home builders or contractors and there's no retail showrooms or there's no home remodeling side of the business.

7:17Yeah. Which, you know, I think that makes it a little more risky. This is, I mean, I've recently put countertops in a home. It is insanely expensive. It is an inventory-based business, right? You go, or at least I did, and I think everybody does, you go look at the stone, especially if it's real stone. So they say manufacturer, I think now I have another tangent story to go off in a minute, but most of these are actual like real stone that is either marble or granite or quartzite or, you know, all these different iterations. but they are real stone that gets mined and cut and then they bring the slabs in and it's not uniform it's like buying a piece of art in a way because you look at it and you go well we have these paint colors or these appliance types and like there's a little bit of blue or whatever and you're picking like a piece of art you know based on and you could have stones that are cut like you know a couple pieces away they look totally different colors are different all kinds of stuff.

8:27So it's largely an inventory-based business because people go, like you said, showrooms. And I went to a place in Charlotte that was just like a giant warehouse full of stones. And you kind of get a better deal, which maybe that's their angle here, is that it's not a fancy showroom with like a Keurig, you know, and you can sip coffee while you choose your stone. It's like slumming it, but you're getting like closer to the source. Nobody goes to the quarry though to pick this out. Like it's, it's all these folks are buying from the same quarries and getting it in. And, you know, then the, the actual though manufacturing of it, I think is what I want to key in on.

9:07They're not manufacturing the stone. They are finishing the stone. So what kind of edge is put on it? What are the actual exact measurements? Cause once you cut it, it's not very forgiving. You may be able to adjust a little bit, but it's usually like kind of one and done. And where does the sinkhole go? And so they're manufacturing in the sense that they're just kind of finishing the stone itself. And then installing is a really, really, really big deal. You're coming in kind of towards the end of a home renovation or a new construction project because they don't want the stone to get messed up.

9:41And you're putting it over finished countertops, which are very expensive too. And it's not rocket science, but it is very high touch. which there's also a lot of times the cabinets have to be in and set and done before the countertop people can come take measurements. Because you can't say, oh, well, my countertops are just this size. They want to know for sure because this is the thing that is going to get most seen, most used. Yeah, absolutely. I did a kitchen remodel years ago, and you're exactly right. I picked a sample that, oh, yeah, I like the look of this. And then the day came to go actually get it.

10:20And I'm like, oh no, that doesn't, they don't have that. You need to come down and look. And they didn't have anything anywhere close to what I thought I was going to get. And I had to pick something that day because of the way the project was being timed out. So yes, it is kind of a touchy part of a kitchen install or remodel because of the timing of everything. I think though, like, so one of the things we talked about briefly before we hit record, there are tons of these businesses like tons i looked really quickly on biz by sell there's 145 listings right now on biz by sell that are countertop related i don't know how that compares to other things but it's got to be second only to like car dealerships and pizza restaurants or something but this one is large i would say i think it's larger than what i typically see yeah but i don't think that these get that much bigger than this obviously there are exceptions to that rule.

11:15But what I normally see is they're much more mom and pop, highly fragmented. Brand is not really a thing. It's not like, you know, it's not like buying Coca-Cola and you're like, I don't, I have an affinity for it. Like you're just probably buying from whoever's closest to you, whoever can schedule you most quickly, whoever has the stone in stock that you really want. And as long as, you know, they don't screw up, then you're not doing this all that often. So So you're just kind of going to the path of least resistance locally. Yeah. Because of the weight of what they're doing and the freight costs associated with it, I think this doesn't like roll up well.

11:55And I don't think it has been rolled up, at least to my knowledge. No. And I think what this has done is, to your point, it's integrated. That's what they tend to do. So sometimes they start out just wholesaling or just cutting and then they get into installing or they go the other direction. And really to get big, you do what this company has already done, which is to integrate and do all of the components of it. So they've already done that. And yeah, maybe they kind of tapped out on how big they can get. And this is it. You know, so you don't have a lot of growth opportunity. And when you're paying a seven and a half, well, let's assume you don't have a lot of growth opportunity.

12:33There's capacity, but that doesn't mean there's demand. They already are telling you there's not enough demand. Right, which is another thing we'll come back to. why did they have so much capacity? Maybe they overbuilt their manufacturing facility a little bit. And you may be overpaying for all that equipment that they put in. I've seen that many times where a seller comes to market and says, but my equipment is really worth X, but I'm only throwing off this amount of cashflow, but I want to get paid for both. And it doesn't work that way. But if you look at this business and you come to the conclusion that you don't really have a lot of good growth levers, which is what we think might be the case here.

13:12And I think it's pretty tough to pay 7.5. You know, that alone, just not having the growth alone is enough of a problem for a 7.5 multiple, but add in that there's exposure to new home construction, which is cyclical. And now I would mark that multiple down twice because of both of those factors. Yeah. And I mean, you know, if this business was doing, I don't know, something amazing, like 60 or 70 % remodels, you know, I think they would be touting it because obviously when COVID happened, people were home, they were doing a lot of home improvement projects. They were redoing kitchens because they were spending more time there and things like that.

13:56I could see there being a thriving business that does have that focus. This just doesn't seem, and obviously, I mean, to work with builders, like you're moving probably down in margin relative to working directly with homeowners and you're moving up in level of difficulty, not that they're finicky, but just that they're going to be very demanding. If you get behind on a, you know, multi, you know, multi home builder, a single family home builder, but who's doing 25 houses a year, if you get behind on their project, they're going somewhere else. The homeowner, you could probably drag them along a little bit because they don't really necessarily know what's customary or, you know, that you're just lying to them about your schedule or something like that.

14:43So I think they're probably, the margins look good. I will say for what this is, I was surprised at how, what their revenue was relative to their cashflow. Um, but I do think, I do think this is a difficult business to be in. The 1.6 million of FF &E, I, I totally believe like having gone in these facilities and the way that these things get cut and the mess that it makes, just moving facilities would be a huge pain. Um, you would not want to mess with that. I think it's mostly like water jets or, or it's, you know, it's, there's a lot of water that goes into cutting them, even if water's not the abrasive, even if there's like a saw, because the stones are incredibly fragile and crack and it's very finicky.

15:26Yeah. And I think that the margin issue is because they, they have basically wholesale customers, you know, they've, they're selling B2B, they're, they're going to the home builders and that allows for this bigger margin, but they're taking the risk of this customer concentration or this sector concentration, if you will, tied to construction. If you go the other route or you try to develop that other side, which is the retail homeowner, the margins are lower because it's more expensive. You know, you've got to get showrooms set up. You've got to man those showrooms. You've got to have salespeople.

15:59And you've got a lot of phone calls and back and forth with every individual homeowner customer that you've got to tend to. So they went the higher margin route, but the higher risk route at the same time. And so maybe someone comes along and says, oh, I'll add the retail side to it. I think that's possible, but not very easy. 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.

16:36That'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. And this is not a very flexible business. If you're not cutting stones and fabricating them and installing them, there's not like a plan B. It's not like you can be like, oh, we're going to use our warehouse to, you know, make something else out of this material, right?

17:15If you're a steel fabricator and you're really, really good at, you know, building trailers or something like that, and the trailer market completely turns from underneath you, you could still fab other stuff. This is kind of a one purpose shop. And I I don't know that, you know, it's not like you could just say, well, we're going to get into glass and shower doors. It's just different tools, different install crews, different go-to-market strategy. Like everything about it is just not congruent. So I did, I looked at a business not that long ago, Heather, that was local that did like an interesting kind of proprietary, they made countertops.

17:54but it was they were like basically like putting i don't know what i don't know what the like core ingredient was but they were like gluing together i don't know if it was like sand or something that was really durable but they were making like a composite kind of like a formica i guess um but they had a pretty good faux stone basically okay it wasn't like butcher block countertops like wood um but they had a good name it was much much much smaller than this and um it was kind of a distressed situation and they needed like a workout and I just ended up being involved in buying the real estate.

18:28But these businesses are just everywhere. It's like cabinet shops, right? There's no, to my knowledge, there's not like national cabinet shops. The cabinet shops are all fragmented, geographically close to wherever their customers are. And they're all kind of doing, you know, whatever their little niche is within the space, just like this. And they've got supply chain constraints, too, because, you know, where is the stone coming from? You know, are you bringing it from Europe? You know, is there certain quarries, you know, in Europe that you've got to have this Italian stone or from Greece or wherever?

19:04There's tariff exposure now, too. so that whole supply chain is also it's not easy to manage for these small companies and it is then again shocking that their inventory is only$50 ,000 I'm really curious about that because you would think if they are importing stone which usually they do, some at least, they'd have a fair amount of inventory just because of the time it takes to get it over here so that is a little curious to me but you've got supply chain constraints. You know, you've got, you know, I'm sure quite a bit of people. Did they tell us how many employees this had? It actually doesn't say.

19:42That's interesting. I mean, for a shop this big, I imagine they've got pretty good size crew of employees that they're managing. It's not an easy business. Yeah. And you don't have, like to your point, there's no pivoting. This is what you're going to do. And you are exposed to the Florida homebuyers, or homebuilders, I should say. Anytime I see a business where someone wants to buy it and they're selling to big contracting companies, I get a little nervous as a lender. Is that relationship going to translate or is it going to create an opening for your competitor who has been dying to get in with those home builders to steal that customer from you?

20:22It feels a little more risky. care. Yeah. I, uh, I looked at a really interesting business in this, uh, in this vertical that was, I liked where it sat in the value chain. This was probably eight years ago and they had a, a quarry, like a mine, which I think a mine is a little bit different than a quarry, uh, technically in the industry, but they were incredibly well known for this one specific type of stone and it was like monument grade stone like super white or something and I was like this is a cool business because if you're a monument maker they're like I don't know how many of those there are out there but it can't be a lot so your customer base is very small and if they're doing it's not like headstones where it's like okay we just got to get some granite that's gray you know and and like doesn't have a bunch of defects and like the headstone can be made out of anything.

21:18This was like, if you're making a statue or a monument, you've got to buy from them. And the underwriting of that business was totally different because it was basically just like, how, what's your permit in the mine allow you to go depth wise with like the local governing body? And how many years of inventory do you have at your current revenue levels? And it was kind of like you were buying a bond that was like going to be like a zero maturity. Right. You just were going to use it as long as you had it. And maybe you could permit more, you know, depth to the mine. And, but like is, I mean, yeah, I guess people aren't building monuments as much as they were, I don't know, a hundred years ago or something, but there was like a really interesting avenue to it.

22:06And, and it was never going to like quadruple in size, but it was also not going to go away overnight. I think I would rather own something like that than something like this that could, you know, it could absolutely get clobbered. Demand can just fall off the cliff on this one. Yep. And I think that's, I've looked at a lot of cabinet businesses and countertop businesses both, and they are always pretty volatile. When you look at the, look back three or four years, it doesn't have a lot of consistency in the trends usually. And I would imagine that's what you're going to see with this one too.

22:41And so like you think about if they're asking seven and a half times, there's not a lot of room for safety. There's no margin of safety, really. You're probably banking on growth. You're talking about a really, really significant debt load going on the business, even with a substantial amount of equity going down. I mean, it just feels like it's just so fragile and so, so many ways it could go wrong. I don't even know, I mean, at four times with a business this, this potentially volatile and so many factors outside your control, I just don't see how it transacts. No, I don't either. You know, I guess the smaller ones might get an SBA loan here or there where a buyer has a lot of, maybe they have collateral or they, you know, they can bolster the lender in some way.

23:34But in this size, it's way out of SBA range, too big. And the multiple is way too high. which I will say I guess they do tell us the real estate's included so maybe let's say 45 ,000 square foot building maybe the real estate's worth 5 million bucks I don't know depends on where it is in Florida it could be where it is where in Florida yeah it does matter but yeah that's true that brings it down a little but you know on a deal this size it's a really inefficient use of capital to go and buy this real estate unless I don't know unless there's some some angle to it that you don't know until you actually look at the piece of real estate and look at the operating business and where it is.

24:16Could be you're getting a screaming deal on the real estate. And maybe you do some kind of sale leaseback or something. Right. I was going to say, as soon as I hear that, and we do see a lot of buyers do that. If they feel like they can buy something together, but they're getting a great deal on the real estate, they do. They go along and do a sale leaseback. If they get enough net proceeds from that and it kind of effectively brings down the multiple on the business, maybe that is an angle somebody could take that would work here. How does the SBA view sale leasebacks in terms of the equity created?

24:48So you still have to put your equity into the deal. It has to come from your bank accounts and your investors or wherever, but you can technically get the money back from the sale leaseback right after close. The way the SBA will look at it is they're sort of ignoring the real estate transaction other than to look at your new lease payment. So they'll adjust in your cash flow model, they'll adjust that, you know, if you're paying, going to be paying more in rent, they'll, you know, subtract that out of your cash flow, but that's it. They won't let that sale lease back be the source of your equity, but effectively it reimburses your equity.

25:24Yeah, you can line up equity for 30 days and do your sale lease back and, you know, be in, you know, it'll reduce the equity amount. I don't think it ever really pans out that you're getting all your equity back out. If you can pull that off, and it's a big enough net proceeds gain from the real estate, it can effectively reduce your multiple and kind of make a home run deal sometimes. Yeah, yeah. Interesting. Yeah. I mean, I like this and it's interesting. I think part of me would say like it makes sense for a complementary business in the same geography, but then you're probably just doubling down on the same volatility that like your own business would be, you know, succumbed to.

26:06So I'm not sure who the ideal buyer for this is. It just something about it tells me there hasn't been consolidation. And that means people smarter than me haven't been able to figure out how to make this work at scale, you know? Right. Yeah, exactly. Sometimes that's the reason things are fragmented because they need to be. Yeah. Yeah. Yeah. I don't know. It's, I think this is probably a really good one for people, you know, who are new to looking at deals to sign the NDA and like really start to pick it apart a little bit. Like there's a substantial amount of, of, you know, EBITDA or SDE, like really look at it and figure out, okay, it's a good one to sign the NDA on.

26:48It's a larger deal. I wouldn't get too excited about it. Um, but really figure out like, okay, go through this company probably has real financials. You know, it's not a$400 ,000 SDE business where you're kind of like coming through their QuickBooks files on your own, you could really look at some substantial elements to this. I just think that, I'd be curious how long the broker has had the listing, how long it's been on the market, you know, and if it's been a while, which it probably has, you know, what's the broker's sentiment on it? A lot of times brokers don't want to and don't necessarily have the ability to talk their seller out of a lofty expectation.

27:26And so, I mean, it could be that the broker's like, I know we're not going to sell for seven and a half times, but I don't get the listing if I don't tell the seller at least some of what they want to hear. And so we're just going to wait and keep waiting and keep waiting. And let the market tell the seller what it's really worth. I always tell buyers, new buyers especially, go ahead and put the offer in much lower than what they're asking. Sometimes that's why it's on the market. Exactly what you said. Yeah, the broker kind of needs some backup, so to speak, on reality setting in. Well, this was a good one.