Railroad Infrastructure Services Business Review

0:00Welcome to Acquisitions Anonymous. Today's deal came out of left field, actually, into my inbox from BizBuySell who sent me an email right before the episode. And the deal was so good. I said, guys, we've got to do this one. It is a deal here in Texas, priced at four times earnings. And there was a moment towards the end where you'll be surprised where this one went. We actually found somebody that we think should do this deal. And you can see what happens next. All right, here's the episode. Hope you enjoy it. We'll start Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous.

0:33We don't have 100 % beers anymore. and thumbs downing on just the plus inventory. Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size fits all. There's the best rate, fastest to close, the specific loan structure that you need, or a little of all of those things. That'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.

1:05Sign 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 dot net and click Zoom sign up. Heather, happy Tuesday to you. It is Taco Tuesday and Cinco de Mayo all in one day today. Taco Tuesday. Are we about to have some changes in foreign policy? Oh, wait, there's a no politics jokes. No, no politics. It's Mexican food only, please. taco tuesday is good it's good stuff or what we call every day taco every day here in san antonio that's true we love the texas food i'm going to the most overpriced mexican restaurant in orange county for dinner tonight what's what's it called it's called javier's anybody that's been to newport beach will know it's more for people watching it's more the kind of place you go to see people what kind of people go you know the typical the cliche orange county like housewives of orange county type often is there big hair suntan hair big personalities fancy clothes that kind of stuff ozempic probably a lot of those yeah they're not eating as many tacos so it's not good for business, I don't think.

2:25There is a bunch of talk where like food, I don't know if you've seen this, where food freight traffic is like way down. Yes, I did see that. People aren't eating as much food. Dear America, do your job. Get fat again. Well, it was like, it was staggering. It was like 850 ,000 truckloads of food less than, you know, normal levels before. That's a lot of wasted food that we were consuming. It's unbelievable. All right. Speaking of freight, a deal showed up today. Sometimes the universe opens up for us and it just emails me a great deal. And today it did. It did. Because I get the Biz Buy Sell daily newsletter and they sent me this deal.

3:09They're like, you should look at this girdly. They also sent it to a million other people, but I was signed up for it. But we're special. We're special. Yeah. So here's the deal. So let me pitch you this. So it's in Parker County, Texas, which is in west. That is basically due west of Fort Worth, I believe. It's where Parker County is. Oh, okay. And the picture has basically what I kind of imagine an old-timey railroad look like back in the 1800s going through some mountains. So I don't know where they have this picture, but it does tie to the deal. So it's from Biz by Sale. It is a specialized telecom engineering and safety services business that is 25 years plus in a niche in Parker County, Texas, west of Fort Worth.

3:57There's a picture of a choo-choo train. That's my expertise. It's a choo-choo train. The ASCII price is$6 million. It was established in 1999. And they have an EBITDA of$1.5 million on gross revenue of$4.8 million. So basically they're asking four times EBITDA. Is my math right there, Heather? Yeah, roughly. That's right. So it is a specialized infrastructure services provider with a 20-year history of profitability. They forgot the illity. It's just misspelled. Profitabil. P-R-O-F-I-T-A-B-I-L. The company is a highly specialized telecommunications, infrastructure engineering, permitting, construction management, and railroad safety, flagging firm serving class one freight railroads and tier one wireless carriers across the United States of Canada.

4:51Founded prior to 2000, the company has spent over 25 years building a defensible relationship-driven platform in one of North America's most protected niches. Subsurface telecommunications engineering within a railroad right-of-ways. The company delivers mission-critical services that require years to qualify for and cannot be replicated quickly by new entrants. 2025 represents a breakout year. Revenue reached$4.8 million with adjusted EBITDA of$1.53 million and a 31.5 % profit margin. It's the company's strongest financial performance in its history. Okay. Well, Bill is here. Hey, Bill. I'm here.

5:32It's like the bat signal. I started talking about a good deal and you like appeared. You're like a dude. So far, so good. I'm into it already tell me more uh yeah yeah well heather okay how would you in plain us gen x english how would you describe what these guys do uh i okay they're doing underground cabling i'm guessing in the railroad along the railroad line in the railroad right of way so they somehow can use that land to, I guess it's internet type wiring, cabling. I'm not exactly sure. Telecommunication, so I'm just thinking it's fiber optics or it's wire for internet. I think there's telecom along the railroad right-of-ways.

6:21And then that also ties into wireless carriers as well. Fun business trivia for you guys. Do you know why Sprint is called Sprint, the telephone? No. Why? What are the first three letters? S-P-R, Southern Pacific Railroad. Really? You were making this up. No way. You're making this up. This is like one of those crystal ball things. No way. Clod the hell out of that one, bro. No way. Like, next you're going to tell me. They started on late fiber and they got into the stuff. This is like the meme with Charlie Day and like all the strings. and he's like, and that's why. And he came out of the railroad and then they called it Sprint.

7:01Here's how it's going to work. I'm like 98 % sure this is true. But if it is true, I'm going to be like, yeah, I wasn't joking. If it's not true, then I'm going to be like, I was joking. So I'm setting myself up for a can't lose. But yeah, it's one of the weird byproducts of the railroad stuff is, you know, the government was so anxious to let railroads crisscross the United States. They just basically gave people these right-of-ways that are just like channels across the United States. And one of the things they discovered was there was other stuff that they could do with this railroad land besides just have rail on it because it's a 200 to 500 foot wide easement across the entirety of the United States.

7:44And one of those things that you'll see running through a lot of that railroad land is also telecommunications, buried fiber and that sort of thing. I see. So they already, these companies already had big right easements clear across. And if you want to run telecom infrastructure, that's also what you need. So they just put it in the same easements, thus bypassing all of the permitting, all of the arguing, all of the town halls, etc. Correct. And so what I think these guys are doing is they're doing a combination of, for the railroad, like they have all these communication lines that are going and there's all those like little signals and stuff that are there for the railroad to tell the trains to go faster is lower.

8:23And then there's a bunch of kind of how that telecommunication also interfaces with nearby cell phone towers and different communications infrastructure. And I think these guys do that telecom maintenance stuff for the railroads and then make money also from working with the wireless carriers. Wow, interesting. I love this already. How fascinating. You have more though, Michael. Tell us. But there's more. There's more. rare barrier protected niche railroad right away certifications mw or slash e-rail qualifications i don't know what those are but they sound amazing and 25 years of class one relationships cannot be bought or built overnight accelerating growth 1.2 million in 2023 2.3 million in 2024 and 4.8 million in 2025 with consistent ebitda margins of 20 to 31 percent across all years They are first mover on in-track 5G and 4G coverage mapping, sole operator of carrier-specific coverage analytics for over 32 ,000 miles of Class 1 track for Verizon, AT &T, and T-Mobile, fully integrated, vertically differentiated service model outside plant engineering, EIC flagging, construction management, permitting, and wireless analytics under one roof.

9:31They have nationwide operations with active project experience across the continental United States and Canada, including environmentally complex and geographically demanding corridors. They have a 22-person team of W-2 employees and 1099 contractors with irreplaceable domain expertise. The seller is willing to support for a 6-12-month transition period to ensure continuity. It is ideal for strategic buyers in the telecom engineering space, railroad infrastructure, or fiber, 5G, PE groups pursuing buy-in bill strategies and engineering services, and operators seeking a cash-flowing defensible platform of proven growth.

10:02I love how this ideal for Bill is like, this is great for everybody. Do you have money? This is a great business for you. I deal for somebody with a lot of money. Yeah. All inquiries handled through Sunbelt Business Brokers of Fort Worth, NDA required to receive SIM and Financial Workforce. Contact Jake Wozorinski, CMSBB, or Daniel Hurtado, CPA, CMSBB. If your name is Bill D 'Alessandro, you can call this special hotline, 1-800-BizBuyer. Love it. And you'll go right through to the broker. I love it. Yeah, I got Jake on speed dial. Oh, there's even more. There's more. Wait, there's a teaser. oh no i have to i'm not logging in i ain't got time for that okay this is actually helpful will you read the competition and growth and expansion sections yes uh this company well we i think this will also prove what i was right about what they do this company operates at the crossroad of two of the most active infrastructure investment cycles in the country right now national fiber optic build out and railroad railroad modernization Federal broadband regulation has at least billions in fiber deployment funding, driving sustained demand for qualified contractors who can engineer and manage complex projects, especially within constrained railroad corridors where few firms are authorized to work.

11:19At the same time, Class 1 railroads are under mounting pressure to modernize communications infrastructure, including positive train control compliance, IoT integration, and expanding wireless connectivity are all driving long-term recurring revenue pipelines. This is not a business a competitor can replicate overnight. To work within railroad rights-of-way, a firm must hold MWOR qualifications, e-rail qualifications, independent high-rail operating capability, and a documented safety record built over years of Class 1 project performance. I like that, assuming it transfers. You can grow and expand it by scaling the 5G and 4G coverage analytics service line.

11:57Demand for rail corridor wireless connectivity is accelerating. The company is already the sole operator at the scale, expanding care relationships and route miles as a directory. revenue lever capture, the fiber build-out wave. Man, there's a bunch of other ways that things you can grow. Environmental compliance. Yeah, good job, Jake. Yeah, all right. And in Parker County, Texas. So I do think, Michael, there's a little bit more than just pulling fiber because they keep nodding to train telemetry and seeing IoT and actual communications from the trains. So I do think there is a degree of making sure that if you're on a train and you have a cell phone, I mean, metaphorically, this is more if you're, you know, the computers on the trains have cell service the whole way.

12:47Right. And you can know where all the trains are. You can know how fast they're going. You can receive telemetry and metrics and statistics from the trains and the engines and all those things. So if you're a train operator, you need data connectivity. Well, that's convenient. You have fiber in the ground along your entire track, but you need to put 5G antennas along the track. So I do think there's some of that. It seems like these guys are probably more of an engineering, we can do whatever you want. The real moat we have is we're the techie guys that are allowed to step into these easements and design projects.

13:23It seems to me like that's what they've got. And anything you want to do inside that easement from kind of an IT perspective, we can do. My buddy has one of these, but for power generation plants, it's a really good business to be in. Heather, you were going to say something? Well, where's the demand coming from, I guess, is my question. Who's really this$4.6 million in revenue? Is that mostly coming from the railways, from the trained companies themselves operating their own network? or is it wireless internet that's being put in in these rural areas? I'd love to know sort of the mix of where the revenue is coming from and what, so I could get a feel for the demand, the long-term demand for what they're doing.

14:08Like, have they already built most of this out or is there a long way to go, you know, to keep building? And then I always think about this when I think about wireless internet in rural places. What about competing with Starlink? And, you know, does that change the game enough or eventually to make the underground cabling maybe less important or relevant. Yeah. Well, so I think for question A, what they say here is they service the tier one freight railroad. So that's Union Pacific, SPR, and a couple, you know, there's been tons of consolidation in the space. So they service them. But then I think there's the tier one wireless carriers so AT &T T-Mobile and Verizon right and so what I think happens a lot is the T-Mobile the T-Mobiles of the world have towers on the on the right-of-way of the railroads and then so these guys service both the railroads and also the tier one wireless carriers because the tier one wireless carriers can't do their normal stuff because it's special because it's railroad you You have to do special stuff because there's railroads.

15:20So they have to bring these guys in. Yeah, so I think they have two types of customers, but I think you're kind of hinting at one of the things we need to be careful about here, which is how much customer concentration is there. There's not that many railroads and there's not that many cell phone folks, which has me kind of worried. They may have six customers. Well, that's good. Yeah. Could be worse. Yeah. I mean, they may have two customers. It may be Verizon and AT &T. Yeah. Yeah. Right. Yeah. Yeah. And something grows a demand to increase. That's why I'm wondering what that was because they made it really clear 25 is their best year, which is always a little scary to say, oh, you want to sell the business on the best year?

16:02Okay. I wonder what the prior years looked like, but I'm more wondering what's driving that growth and is it something that is going to continue? Yeah. I mean, what's going on? This business has four X literally from 2023 to 2025. Right. You know, I would try to sell it too if I were to sell, you know. It just makes all my spidey senses go off when a business suddenly takes off like a rocket ship and then they want to sell it. Mm-hmm. They claim the re-industrialization of America, including the fiber optic build-out and the railroad modernization, are two massive tailwinds. There's massive build-out going on.

16:40If that's true, I love it. Yeah. It does say retirement. Well, I can retire also at 40 years old. You know, if you're going to write me a huge check for this business. I'm telling you this business will cause me to retire. Okay, before we come back to this deal, I did talk to Claude. And Sprint originally stood for Southern Pacific Railroad Internal Networking Telecommunications. That was the full acronym. Wow. They started in 1959 building a microwave radio system. for their internal communications. By the 70s, they started to lay out different lines across their stuff, and then they sold it in 1983 to conglomerate GTE.

17:28Wow. So it is Southern Pacific Railroad. That's right. That makes me understand this business better. It does. Yeah. Okay. So the railroads grew into kind of the original wireless carriers. Yeah. Or at least on the Sprint side. Interesting. It's a network to carry physical goods and digital goods. Makes sense. One of the biggest risks in entrepreneurship through acquisition is buying a business with fragile systems. Unclear demand or a single owner who holds all the knowledge. Franchising approaches that problem differently. You are buying into an established brand with documented systems, unit level data and repeatable operating playbooks.

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18:46Some of them were generating massive amounts of royalties from oil and stuff like that. Then there was another one. I can't remember. There was a couple of small independent public stocks and I think Warren Buffett did one back in the 60s that were basically just like, hey, we're sitting on 15 ,000 miles of railroad right away and that was the whole business. And they were trading like below book value. Back in the day when Warren Buffett or whoever could just like go find nickels, nickels that cost a penny in the stock market back in the 60s. There was some story like that. I gotta look it up again.

19:23All right, so is this one of those ones that we should just like stop recording now so somebody could get the SIM? Yeah, go buy it. So it's been around since 1999. It grew to 1.2 million over 20 years. and then it took off to 4.8 million over three years, two years. Obviously, that's your primary diligence point. And this does happen, stroke of pen benefit, stroke of pen and a ton of federal funding and purchasing comes into an area and the contractors can't keep up. That absolutely happens. I think if that's what's happening here, you are pretty quickly getting into a diligence on the durability of that government funding.

20:10This also strikes me as a great risk-sharing deal where you could structure something whereby if this falls back to$1.2 million, you're covered. But if it keeps cooking to$10 million, the seller participates in that a little bit. It should cut both ways if the seller's going to share some risk here. And he should be able to get more than$6 million for this thing. You can do that only if you don't get an SBA loan because the SBA allows you to protect your downside risk but won't allow you to give the seller upside, which is kind of crazy, but that is the way the rule works. So if you have to strike a deal that's kind of SBA size, which this one kind of is or it's close to that, and you want to give the seller upside, you can't unless you can find some other way to finance it.

21:00Interesting. Can I, let's say we crush it, and I pay off my SBA loan? Can I structure something whereby it doesn't kick in until the SBA is paid off? Most lenders would say no. That, you know, it's still just working around the rule, and they will reject it even if it only happens after the SBA loan is paid off. So, the SBA, for whatever reason, doesn't want a moving target on the purchase price unless it's down, which unless it protects them and the seller or the buyer, but not when it rewards the seller. Yeah. Is there a fraud reason for that? Is I mean, what is this just a dumb government rule or is there a dumb government rule?

21:46Someone did something. It's probably somebody did do something. That's usually the beginning of all these rules. I don't know what it would have been, but I think it is a little bit of a dumb government rule. They don't want anyone having upside. They almost don't want anyone having upside that doesn't have a personal guarantee on the line. and they just, they have these rules about 10 % equity and they say, well, if the real purchase price is going to grow potentially a couple of years from now, how do we know that we met the 10 % rule? There's a lot of kind of weird reasons for it, but nonetheless, it is there.

22:23I see. It probably just went, ah, too complicated. Yeah, right. Makes everything else too complicated, right? Okay, interesting. So you might have some challenges if you use an SBA loan. Besides that, Heather, if I didn't need to structure upside for the seller, can I use an SBA loan for this business? Yeah. I mean, I think this is a perfect size. It's an engineering service company. There's no exclusion there? No, there's no exclusion there. I mean, you know, there's credit concerns that a bank might have about customer concentration and the contracts and all that good stuff. But if you could get a lender, a bank, comfortable with that, this looks perfectly eligible for SBA.

22:57And it's a good size. I mean, you could max out your SBA loan at$5 million. and as long as you can cover the difference between the five and the six and your transaction costs with equity or a little bit of seller note, this could work. A nice SBA deal. Okay. You would not get, what's it called? Qualified small business stock because this is a services business, I think. It's an engineering business. Yeah, I think that's correct. Yeah. So, I mean, minor tax downside, maybe not minor, real tax downside. But if I'm assuming, I think we just kind of, I don't know what any of these certifications are that Michael read, the alphabet soup of certifications this company has.

23:38But we've got to assume if those don't transfer, there is no deal here, obviously. Right? Right. Now, they did point to a team of 25 people. Was it something like that? Yeah. They said 22 people, I think, and then class one relationships that cannot be built or bought overnight and the team can't be replicated overnight. It's funny. I hear that and I go, if they leave, you're screwed. That's the other side of that, right? You've got to lock the people in. And then, yes, it's got 25 years of class one relationships, but you are new, right? Imagine you've been working with a company, a counterparty for 25 years, and some new guy shows up and goes, hi, I'm the new guy.

24:23I don't know anything about railroad corridor engineering, but it's totally fine. We have a 25-year relationship, right? Yeah. Yeah, you can see how that's a little iffy. Right. How transferable are those relationships? And sometimes the question from a lender is, who owns them? Is it the seller? Who's the guy that they've been relying on? or has the seller already let the team be the guys that pick up the phone, the guys and gals that pick up the phone, and are more owning the relationships at this point? That would be a really important question to ask. By the way, these certificates sound like BS barriers to entry to me.

25:00I just Googled both of them, and they're just like a safety training program that an individual goes through if they want to work on a railroad right away. I think it's like day one, do not stand in front of train. Day two. See day one. I'll put a penny on the tracks. If train is coming, get out of way. So then it probably comes down to the 25 years of class one relationships, the credibility that they can probably bid on these projects and win. Right. They're probably the de facto supplier. I would think, you know, Heather, to your point about customer concentration, it's possible they have two customers, but they know these, how many miles of track did you say, Michael?

25:44They have 32 ,000 miles of class one track. It says they're the sole operator of carrier specific coverage analytics across 3 ,200 miles of class one track. So, you know, I wonder how defensible that is. If you've got 32 ,000 miles of track locked up and T-Mobile needs to maintain them and you're the only guy that does it, that mitigates your customer concentration risk a little bit. What I know about the parallel engineering firms that do power plants and all that kind of stuff is a lot of times there's just one. You're the only one in Texas. Like there's nobody else because nobody else, there's not enough business or scale to have more than one and there's not enough to have zero or there's too much to have zero if that makes sense.

26:38And your only barrier to grow because every one of these big vendors just comes back to you over and over again. Your only barrier to grow and make the business bigger is can you recruit the people to work in it? and like there's just not enough engineers who know this stuff to help these firms grow. I would be shocked if these guys weren't at 150%, if these guys were not at 150 % capacity across everybody in the company with this level of growth. I bet they haven't been able to keep up with the hiring. Yeah, and the margin sort of tells you that too. They bragged about the 31 % margin, but is that really sustainable?

27:14You know, to your point, if they grew and barely kept it together with the team that they've got, they probably need more people. I mean, it seems like a really great technical business. Your challenge here is maintaining the continuity of relationships and the continuity of employees. If you can do that, and if there really is a whole bunch of government funding here that requires us to build out fiber, maybe you've got a nice tailwind. This reminds me, Michael, I'm trying to remember who I was talking to. who do we know that bought all those rural wireless internet providers? Do you remember who I'm talking about?

27:57Anyway, a mutual friend whose name I can't remember, and maybe I shouldn't say, bought a whole bunch of rural internet providers or was looking at that industry. Oh, Xavier Helgeson did. That's right. That's right. Hilariously enough, he's not the only one I know. I knew three guys that did it. Oh, that's why the blank look. Which one is he? I was like, I wonder which one he's talking about. I looked at lots of deals in that space. actually myself. Yeah. Well, cause it kind of reminds me of that. Right. And that, that was one where there was all this federal funding to like wire up rural America, right.

28:29With internet. And when you actually look at the economics, it was dumb. It was like a hundred thousand dollars per house or something. And you could have just bought them all a Starlink terminal. And I think I think a lot of those funding programs dried up because they were really stupid. And so I would be interested to kind of figure out what happened there with the rural wireless internet providers and figure out if it rhymes with the fiber build out subsidy that they're referring to in this business. the so the interesting thing so i go out on my bike a lot into rural rural texas way outside of where they have wired internet um and you used to like five six years ago you go out and there'd be tons of signs were like wireless internet and they were selling you that like internet on the tower thing that we're talking about um which had line of sight so if a cloud came in it stopped working and now if you go out and you do the same areas there's still not wired internet underground no cable modems, none of that kind of stuff.

29:33But what is out there is people selling you Starlink access. And you're doing Starlink accesses there, and then there's a few of them who will sell you AT &T, like MiFi's, right, that'll sit in your house. And everything I've heard is the people that rolled up those things. And I don't know anything about Xavier's situation, but in general, the few anecdotes I've heard is like any pricing power just went out the window for them with Starlink and the wireless carriers trying to come after that business. So that's what I know. It seems to have gone from massive tailwind to massive headwind, Bill.