Inside an $11 M Elevator Services Deal: High Margin, Hard Growth

0:00Welcome to Acquisitions Anonymous, Michael here. Believe it or not, after 450 something episodes or so, we did a type of deal of a company we've never done before. And it's in Houston and also in my hometown of San Antonio, Texas. So stay tuned and see what you think about this one, where we ended up was kind of surprising. Talk to you soon.

0:34that handles your emails, texts, funnels, and more all in one place. Think of it like the Swiss Army knife for small businesses, and you can try it for free for 30 days at gohighlevel.com slash Michael Girdley. Hey, how's it going? It's going great. Well, so there's no mills, and we're going to do a construction-centric deal today, but hopefully enough mills has rubbed off on us. This is going to be a good one. Yeah, so I found this one. I think it was sitting in the chat for a while. It was one of the two we could choose from when we did the dolphin one, which turned out to be weird. Forgive us for the dolphin one.

1:11This one should be better. What's fascinating, it's an elevator business. And I don't know if you guys have ever looked into the business of elevators, but it's a fascinating one where you basically have these natural monopolies across different markets. and like Mitsubishi basically owns all of Japan, a lot of Asia in, in the, uh, in the, uh, EU it's, um, it's Schindler here, it's Otis. And there's like these weird dynamics where it's kind of like our healthcare system. You have different payers, you have manufacturers and the consumers are not the, are not the buyers. So it's just this weird, weird kind of thing.

1:52So let me show you this deal because I think it'll turn into some weird dives into elevatoring. So this business I saw in ByBizCell, it's from Houston, Texas, and it's a strong cash flow elevator services business. They're asking a cool$11 million. That's just under two times revenue. So revenue is$5.2 million. They're renting their location,$10 ,000 a month, and it's been around for 22 years. It was established in 2003. It does EBITDA of$1.4 million. dollars so uh uh seven and a half times seven and a half times yeah yeah um all right it's already pretty rich for my blood hey you know people are paying that much for this hvac stuff so maybe this is an opportunity all right well convince me to pay seven and a half times for this michael tell me more about it i i don't know we're gonna try okay proven profitability with established client base and scalable operations.

2:48This established elevator services company presents a compelling acquisition opportunity in Houston's resilient vertical transportation market. You know, they just can't call it an elevator market. They have to call it vertical transportation. Heather, what's wrong with America, Heather? I don't know. We have to sound, we try to make new words for everything. It's silly. It's ridiculous. Think about in banking. We do way too much of this in banking. When you see a young banker trying to sound smart, they'll describe something. You'll just go, what? You know, what does this business do? We can't even understand.

3:22Oh, yeah. So vertical transportation. I love it. You service elevators, bro. Just put that on the sheet. Okay. They have a strong reputation of serving commercial, industrial, and institutional clients with comprehensive elevator maintenance, modernization, repair, and installation services. Their average revenue, We went through all this before. They operated at 27 % EBITDA margin, which is high for a small business. Got to love it. Consistent year-over-year growth from 21 to 24, strong cash flow generation with recurring revenue base, and clean financial records demonstrating operational discipline.

3:58They have no single customer dependency. They have a balanced revenue of high-margin service work and long-term maintenance contracts, a team of 23 skilled employees across two Texas markets, and a well-maintained fleet of service vehicles and equipment. The FF &E is worth$600 ,000. They have operating systems for scheduling, parts management, and customer service, and they have a great industry reputation driving referral and repeat business. They operate in an essential services sector with stable demand and limited competition due to licensing requirements and specialized expertise. High barriers to entry protect market position and a resilient business model independent of economic cycles.

4:35They have geographic expansion potential, service growth initiatives and different things that can be done to grow it including strategic partnerships with developers and facilities managers they operate out of a 3200 foot square foot lease facility at 10 500 a month the lease expires uh in 15 13 months yeah end of 2026 okay well this isn't location dependent so whatever um inventory value to 200 000 including the asking price an experienced management team and technicians are expected to remain. There's a comprehensive transition support, including training, client introductions, and licensing assistant.

5:12This turnkey operation offers immediate cash flow with significant upside potential, making it ideal for strategic buyers seeking entry into the vertical transportation sector or existing operators looking to expand their service footprint in the Houston market. And I don't think there's anything here in terms of the remainder of this listing that's important except for this thing here, which is a reason for selling is retiring and financing is to be determined. So go back up. It's actually two locations under facilities. It says it's headquartered in a fully equipped facility in the greater Houston area, which has the offices of parts warehouse and a service vehicle fleet.

5:50But that dispatches across greater Houston and South Texas. But additionally, there is a San Antonio branch, Michael. All tools, vehicles, and diagnostic equipment are maintained in excellent condition and included in the sale. uh 23 people fully operational team without owner need so i i have something to share we actually have an elevator in our house did i tell you did i ever tell you oh you're planning to age in place huh well so we bought the house in 2018 and it was more house than i felt like we needed and it was mid-2018 and my wife was like this is our forever house we're moving in you're paying it.

6:29This is what we're doing. This is the house I want. Thank you. And there's an elevator in it. And it turned out the people who had it had had renovated the house to have the elevator in it because they had a special needs daughter. So there's reasons to have an elevator house, even if you're not bougie. So, but yeah, it's weird. The thing breaks. Like if you have a special, if you go ahead, Bill. Well, your wife has a special needs husband, so it does make sense that there's an elevator in the house.

7:00That's true. It's interesting when you see service businesses like this, where you have one headquarters that's really strong and then they have another office in this orphan market. I've had buddy after buddy run a services business like this, where they have the headquarters in San Antonio and then they have the weird Dallas orphan, where it's just like, they end up running running poorly or weirdly. And I've seen it where like, I've been a customer of a service business like this, where the headquarters is in Houston and it's run incredibly well thriving. And then they have their San Antonio branch and it's a disaster.

7:37Like, so anyway, I'm not saying that's what's going on here, but I've seen that pattern a lot, a lot. Is this like a, they'll get it listed for seven and a half times. It says it's mostly maintenance and kind of upkeep. And then they kind of mentioned, oh, also there's some installation at the end because I got to imagine the maintenance contracts on these things are where all the money is, right? Because they're compliance, they got to be certified every so often. If it breaks, people die. I can imagine this is very heavily regulated. You got to have your elevator tuned up dramatically. Michael, do you have an elevator service contract for your elevator?

8:13No, but we haven't come by at least once a year. We just come inspect it, make sure it's okay. Home elevators, you don't have to do the same thing as public ones. We also rarely use it. It gets used like maybe once a month. We've told our kids you can't use it. Nobody uses it. But yeah, I mean, when it gets repaired, we pay for it because you don't want to die in your home elevator. That would suck. That would suck. I will pass on that. So I would imagine like every building with an elevator has a company like this that is maintaining their elevator. I mean, I would be curious if there are like how specialized the skill set is.

8:50Like if I have a 50 story elevator, is that different than a three story elevator? And like, are my guys qualified to work on all the big elevators or not? But at the same time, maybe it doesn't matter at all. Like maybe this is incredibly sticky. You know, I imagine it's kind of long-term contracts. Like you've got an elevator maintenance guy. Like I do not see this as something that you're going to shop. Right. Which I could see like, this is probably why the stuff goes for these businesses go for seven and a half times, or at least that's why they're asking that. It's recurring revenue and it's super sticky.

9:23On the other hand, they keep talking about in this listing, there's so many ways to grow it, all the growth opportunities. They mentioned upside opportunity at the bottom and it's priced at seven and a half times where you're probably going to have to grow this business in order to make the returns work, or you're going to have to have synergies as a strategic add-on. But this strikes me as something that is almost impossible to grow. like i don't know like unless it's new construction and you're putting in the elevator and getting the maintenance contract or somehow bidding somehow the guy who installs the elevator isn't smart enough to take on the maintenance contract i don't see how you displace any of your competitors who are who are already successfully servicing an elevator right i mean do you guys no that's the benefit there's the benefit in the cost of a sticky business uh you keep your customers and the The problem is you can't get new customers away from your competitors, you know, because it's sticky over there, too.

10:18So I think that is the problem with this deal. There's a lot to like. But when they talk about growth opportunities, I don't see this kind of company that way. I see this. If you're going to go geographic expansion, that's really heavy, heavy expense on people and probably some CapEx. And you're fighting against, you know, pulling customers away from existing service providers in that other geography. So I think that's super hard to do. Probably there's a reason why they are where they are and they haven't done that themselves. So asking seven and a half times, you kind of want to see some growth opportunities.

10:54I think what you're actually buying here is very stable cash flow, which is great. It's a really good thing, but seven and a half years worth of it, you're paying. You're not going to be in the black until the eighth year, which if you don't grow. And I just feel like growth is just probably very, very difficult here. Yeah, well, you got to use some leverage, right? Like there's certainly some financial engineering, some debt pay down. You know, I think you could probably make the equity returns look pretty good on an IRR basis. Like if you put some debt on it, you know, it doesn't go sideways.

11:27It's shocking. After my time in investment banking and private equity, it's shocking how stability and debt pay down can create really good returns. Yeah, yeah. That's what you're buying. You're not buying growth. Yeah, that's what you're buying here. But like that, maybe that's fine. You know, it's tough if you're an individual buyer, right? But if you're private equity or really if you're an established business, you're trying to add this on, it's probably a slam dunk. So let's talk about that because what makes this a slam dunk is financing, right? Debt financing, right? This is a tweener. I call these tweeners because of the size.

12:06It's a little too big for SBA and it's a little too small for conventional. Conventional lenders for M &A, they would like minimum EBITDA of$2 to$3 million. This is$1.4. So, and I've had plenty of buyers shopping around for something kind of in this million and a half, million eight size EBITDA size range. And it is very, very difficult to get any lenders. They just perceive the risk to be so much greater when the company is that small. and so the best probably best way to get this financed is with an SBA peri-pusu where you get the five million SBA and you get the extra two or three million conventional loan from the same bank and there's only a few banks that even do those we we help our clients with those on occasion and this is probably a good candidate for that if but then to get that kind of debt the personal guarantor, you're first of all going to have to have one at least.

13:07And number two, that person needs to have decent net worth and resume. So if you had all those factors, yeah, I would say that kind of financing would make this, you know, just on amortizing the debt and paying it down a good investment. But if you don't have that and you've got to go conventional, you've got to put a lot more equity in and those returns get a little skinnier. So question, Heather, when doing Perry, how widespread are these Perry Pursuit loans? Because you hear about them. Like I know Live Oak did them, you know, for a while. But like, are they the only game in town? Like they try to make it sound like that it's like their patented product, the Perry Pursuit loan.

13:45But I mean, other banks will do it. But is it hard to find? Or, you know, if I'm a buyer, should I pencil into my model? Oh, I'm just going to get a Perry Pursuit loan? Or is it kind of a hard long pot? Yeah, you shouldn't just pencil it in. Don't just assume you can get one. Live Oak is not the only bank in town that does them. I account for reliable lenders that do them right now. And there used to be five, and one of them decided they don't want to do them anymore. So, you know, they come and go in and out of that kind of group. Live Oak still does them, but they're tough to get. So even within those four banks, their standards go way up when you ask for the over$5 million.

14:23And it's things like not just the deal has to be nice. I mean, this is a pretty nice company. It has a lot of positive attributes, but they're going to want more equity. They're going to want that resume and they're going to want their personal guarantor to have some net worth. This is not like a searcher out of, fresh out of MBA, you know, buying this with a low net worth. This has got to be someone a little more substantial to qualify for that Perry Pissue loan. They're not easy. One thing that could happen with this one is potentially, it looks like the person that owned this has owned it since they founded it 22 years ago.

14:59They're retiring. They own 100 % of it with no debt. Potentially there's rollover, earnouts, seller note. It all kind of makes sense here that maybe that could help with some of the financing and structure you guys are talking about. Yeah, you could get like a million dollar seller note. I mean, you're going to need to max out your 5 million of SBA and then get a million dollar seller note but like once you're maxing out five million dollars of sba and paying seven and a half times heather your debt service coverage is not there right right right i mean your leverage has to be 3.75 times ebitda maximum to get your debt to get to get your debt coverage ratio in line with what banks want so yeah no matter how you slice it i guess in this case you've got to have more equity than 10 if you go uh sba so that's the modeling you'd have to do is, you know, at 20 % equity, does this still work?

15:50You know, do the investment returns work assuming no growth or, you know, kind of what equity percentage does this still work? Well, I think you're closer to 50 % equity, right? Because it's 1.4 million of EBITDA. And let's say I can't, I can get not quite four turns of debt. So that's like 4 million of debt and I got to pay seven and a half million for it. So I'm bringing three and a half of equity here. So you're 40 % equity on this deal to get it done with an SBA loan, you know, under kind of conventional terms. Yeah. You can't get more leverage than that conventionally because they actually go a little bit lower on leverage usually.

16:26So then SBA would because it's their term is shorter. So, yeah, you're right. That is the math. That's the best case. Yeah. Okay. So it is in like SBA strike zone. You just have to bring more equity. So it's not that SBA won't finance this deal. Right. you can put three and a half to four turns of SBA debt on this thing. You've just also got to bring 3 million bucks of equity on top of that. Yeah, exactly. So the math is, does that make enough money for you to do that? So I pulled this up and it's a report on the PE involvement in this space. And there, as you can imagine, it's recurring revenue.

17:04So PE has set up platforms and a number of them been around for a long time. this one from jupiter partners oracle elevator has been around since 04 and it's on its third third pe ownership as of the time of writing here like why isn't this getting why hasn't this deal been picked up by one of these platforms like texas is one of the few growth population markets in the united states like houston is a great market to be in san antonio even better like why haven't any of these you know that's my big question. Like, why is this on by biz by sell? And why isn't corporate development from any one of these platforms called?

17:42That is weird to me. I agree. Is it, Michael, you have the listing up. Is it for sale by owner or is it for sale by broker? Uh, let's see. Patrick Ortiz with a phone number. I will Google Patrick Ortiz and see what comes back. It's a good point, Michael, because, you know, for all of our listeners out there who already own a business. If you own a small business, especially if it is in an area where private equity is rolling up, you are getting inundated with emails like, hey, do you want to sell your business? Hey, do you want a new beach house, et cetera, et cetera, et cetera. And you would be insane to not realize that people want to buy your business.

18:22So it seems kind of weird to me that after being, and if private equity is very active in the space, they've got whole full-time corp dev guys canvassing, searching, who have certainly called this guy. So it is puzzling why he hasn't replied to any of them and why he would just list it on biz by sale. Unless he, I think I find it less puzzling if there's a broker where he probably hired a broker and it's part of the broker's ordinary course. I got to put it on biz by sale. I need to generate some additional interest to keep my private equity guys honest so I can say, hey, we've got other interests.

18:57We're running a process. We've got 20 people who've signed the NDA. You know, you got to build a market multiple. I want to make it very clear you don't have a proprietary look at this. That's the only rationale for this being here. Yeah, that could be it. 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.

19:29With hands-on support, world-class resources, and a community of like-minded entrepreneurs, Acquisition Lab gives you the tools and confidence to navigate every step of the journey. And we're proud to call Walker and Chelsea, the lab's director, longtime friends of the podcast. 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. I think it's something we advise buyers all the time.

19:59There are some areas where you're competing against better buyers, basically, and that's not where you want to be if you want to get a good deal for yourself as like a first-time buyer using an SBA loan. So yeah, it is kind of curious why it's here and why it hasn't been snapped up already. so michael you had you had something about the growth of the of this market over time which i saw you put on the screen briefly yeah let me pull that back it looked like you're kind of classic up and to the right curve which everybody loves yeah it turns out yeah it's a great way to sell reports right you just like people want to buy reports that tell them what they want to hear a lot of times so is this this market is growing substantially right what do you got here market This is a$7.3 billion market?

20:45In 2033. In 2033. It's supposed to go, yeah, 9 % per year, 8 % per year. This is the CAGR. 11 % per year overall market. That's because we're building more elevators or because we're charging more for the maintenance. What drives this? I think a lot of it's price increases. Yeah. That's the way it looks. But it's interesting. This next graph, where was this graph? the elevator market split by value 48 is is spent on maintenance which is interesting 75 of the profit comes from maintenance oh wow yeah and i have to think i have to think back because i read one of the like business school case studies about elevators just like five or six years ago maybe longer they talked about all the factors that have created these natural monopolies um and i have it here on the slide, these guys, Otis, Cohn, Schindler, like there's reasons all this happens.

21:40And a lot of these guys, there was like a trend happening where they were starting to do like the airplane manufacturers do and like really hammer people on the cost of replacement parts and put all these kind of pressure on the independent folks. So I don't know. I got to find that. I got to find that case study. I mean, it does strike me like once you have an elevator in your building. It's super regulated. You're not going to close the elevator. I mean, often you're not allowed to take the elevator out because you have ADA and we're going to come back to ADA in a minute. But there's a lot of pricing power here.

22:14Each individual firm, you've got to be careful not to push it. Otherwise, maybe they will bid you out. But the industry as a whole feels like it has a whole bunch of pricing power. And now let's talk about ADA. So we were, our warehouse building when we still had it was kind of at a 40 foot clear warehouse in the back. And then it had office, a two story office building that's kind of attached to it. Um, so like, you know, 12 or 15 foot ceilings on each of the floors and then a 40 foot clear warehouse in the back. We were, had our offices on the first floor, the upper like office floor was not finished out yet.

22:51So we were going to put up some drywall, put in a bathroom and, you know, kind of finish it out and expand up there. We get the architects in and they go, yeah, we got to pull permits. And then they go, well, there's no elevator in this building. So to bring it up to code, if we have to pull permits, we are going to have to put in an elevator to, and I'm like to up to the second floor from the first floor to the second floor. And it was like egregious. It was many six figures. It was hundreds of thousands of dollars. And you know, we were the tenant. So that was clearly not happening. But it was not only the couple hundred grand to put it in, it was then you're signing up for all of the maintenance, all of the inspections, all of this stuff.

23:32But that was mandated by ADA, the Americans for Disabilities Act, which is like a 1980s? Or is this a Bush or a Reagan? I think it was the 90s. I think it was Bush. I think it was W. Bush or H.W. Bush. Yeah, I think so. But it mandates, you know, all of this stuff. And one of those is elevators. So every building that is now built or brought up to code is getting elevators. So I got to imagine this is the best legislation ever for the elevator market. So I spent a couple of minutes looking at looking at trying to find Patrick Ortiz and the phone number. They have a 210 phone number, which is San Antonio area code.

24:14And there is basically nobody either in Houston or San Antonio related to elevators or business brokerage named Patrick Ortiz. So just kind of a bizarre listing that it's like, well, there's no footprint whatsoever. Just really weird. Huh. That is weird. Well, maybe he is a for sale by owner. I don't know. Yeah. But even if I giggle Patrick Ortiz, San Antonio or elevator or Houston elevator, it doesn't come up with anything. He's a ghost. I mean, isn't that what we all should strive for? To own a business that makes$1.4 million a year of EBITDA and you're just invisible on the internet? Oh, now you tell me I'm supposed to be a nobody on the internet.

24:56How am I supposed to delete all this stuff? How am I supposed to delete all this stuff, Bill? Yeah, I was talking to Eric Pacific. How do you say Eric's last name? How do you say it? I was talking to Eric Pasapici at Main Street Summit when I'm wearing the Main Street Summit jacket today actually uh two weeks ago uh and he was saying that he knew somebody uh who had sold his law firm and like disappeared was like i don't know what's wrong with you you should delete all that stuff on the internet and eric was like it's gonna be kind of hard at this point man like you know i'm all over like that's a one-way door i think all of us too today on twitter there was a whole discussion about oh you should not build a personal brand it's really dumb don't share on the internet.

25:44I was like, whoa. I was like, uh-oh. Yeah. Don't build a personal brand. We don't need any more competition. Yeah. Right. No. You know, I did really like, I was reading Patrick Dichter, who has bought, is rolling up several accounting firms and was one of like, at this point, he bought his first business in 2020. So he's like one of the OGs of entrepreneurship acquisition. And he wrote a really good piece about what had changed in ETA over the last five years. And one of the things that he called out was that there's just been this explosion of information and he said in the paragraph he goes when i was getting started there was only acquisitions anonymous and he listed like one other thing and i was like we're the ogs of of eta info i mean now 450 episodes later uh which makes me feel old uh but this is still the we're still doing new businesses like i don't think we've ever done an elevator services you know business which is why small business So many crazy little ways to make money.