The Million-Dollar Wine Cave Business Nobody Talks About

0:00Hello, everyone. Welcome back to Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. I'm one of your hosts, Bill D 'Alessandro, and today we have a really fun episode for you. It's me, my co-host, Michael Girdley, Heather Anderson, and Travis Jameson from Capital Pad. And we have a specialty construction company that makes wine caves. Yes, wine caves, not wine cellars, but wine caves dug into the ground underneath your mansion or at your winery. So specialized construction. It has$600 ,000 plus of SDE. It's in Sonoma County, California, kind of wine capital of the country.

0:41So really interesting dynamics here about whether this is SBA financeable, how we might expand in this business. And we also start the episode with a fun aside from Heather about tariff refunds and how those are affecting small business acquisitions just over the past couple of weeks. So lots of fun things to dig into in this episode of Acquisitions Anonymous.

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1:42They'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. All right. Are we doing a deal? or are we just going to talk about AI again? Well, now I just click record. So now we're starting with the BS part of the episode. This is the BS part of the episode. That's why I'm not talking. Someone's on their open claws. Heather, do you have an open claw yet?

2:12No, I don't. I know how embarrassing. Heather's not regulatorily allowed to have AI in their business. That's kind of true. It is a little different when you're handling people's confidential information. It's a little scarier. Like we use a data room system that doesn't have hardly any open APIs. It's all locked down. Because everything needs to be like audited. Who looked at what, when. It needs to be. Yeah, it does. Open call is really trustworthy though. It'd be fine. I'll be fine. Just let it run loose. Yeah, just go. Just go. Just go. It surprises me. I have, so I have basically my whole team has access to the open call that's running on the Mac mini in front of me right now.

2:55with no password, no nothing. If you're on our Slack, you can get in. Congratulations, everyone. I just told you how to hack into my entire universe. But it has access to nothing. It's totally isolated. There's nothing really that I can access that matters. But several times when my teammates are like, hey, I want to stop doing this cron job that I do every night. They're like, no, no. Michael needs to tell us it's okay. He's the boss. And I didn't train at that or nothing. I was the person that created it. So it's loyal to me. It's perfect. It has reverence for you. That's cool. The pot father.

3:27Yeah. So not necessarily related to that. I had a question for Heather, an SBA question. So if you run a small business, you may know that the tariff refunds have started coming out this week. I have a friend who got a check for$4 million of tariff refunds this week. Now, of course, he paid$11 million of tariff. And so in theory, the other seven should be coming. But Heather, you tweeted the other day something I thought that was really interesting is how businesses are dealing with sort of the ad backs and the cash flow. Like, how do you value a business that had a bunch of paid tariffs in the TTM and then just got a huge tariff refund?

4:11exactly so we're starting to see it in uh deals you know where we look at the ad back schedule and all of a sudden there's this new one there that says tariff ad backs so the idea is that these tariffs are no longer in effect this is the extra tariff that they were paying um we're telling buyers you can't just take that at face value you've got to be really careful look at how much they're getting back from the government and compare it in the one deal I can think of that the seller is saying they think their refund should be higher, like they're wanting to add back more than the government is agreeing to.

4:44So number one, don't add back more than the government is telling them that they're getting back because that's your third party check. But also you have to try to understand whether they pass along some of these tariffs in their prices to their customer. Because if you add it back the tariff and they pass it along in the price, you're overstating the cash flow, assuming that you're going to bring those prices back down. Or maybe you're not, maybe they won't have to bring the prices back down. There's just a lot to think about because it creates a very dynamic kind of margin situation for some of these businesses.

5:16And it's not as easy as just here's the amount of tariff you can add back. I have to imagine if the demand could support the increased price of covering the tariffs, then it would probably stay. And a lot of businesses are now just getting like, it's Christmas, right? They raise prices, they pass it on their customers and now they get that money back. The customer's paid for it and they just get a big check. They're not dropping prices. They're not dropping prices. Doesn't ever seem to happen. Thus, I don't understand how people argue that tariffs are not inflationary. I mean, like you just articulated how tariffs are inflationary.

5:49That's how they are. Exactly. The other thing though, that's interesting to me from a deal perspective, Let's say you're closing on a business this week. And that business gets a check next week for a million dollars of tariff refunds. Whose tariff refunds are those? Is that an asset of the business? Like, did you buy the claim on the tariff refunds? Do you owe that to the seller? You know, that's a very interesting dynamic. It could be big dollars. It could be, but I think it'll be treated a lot like PPP forgiveness, you know, where it really is the seller. They're going to, and they're probably going to write it into the LOI that that's an asset that they are not selling.

6:31They're receivable, you know, from the government on the tariff. But you're right, it could also create a situation where maybe they sell some of it. You know, maybe you could negotiate to get some of the tariff refund included in your price as a buyer. It would be interesting. Well, I know some people were buying the tariff claims as recently a couple months ago for like 25 cents on the dollar. Yeah. um interestingly one of the largest buyers was canter fitzgerald which is how would let next bank i know crazy so like when i saw that going on i went tariff refunds are coming like clearly if they're buying them yeah for sure yeah quick forex in under a year yeah crazy um but yeah so expect to see that in purchase agreements that any future tariff refunds are probably carved out and stay with the seller probably uh but that's still tough though because the treasury is going to remit that check to the company right and that's dicey because yeah is nine tenths of the law in a lot of cases and like can you offset like what if you have claims against the seller can you offset them against the tariff refund that you now have this is why

7:50All the what-ifs and penciling that out, all lawyer fees. Ka-ching, ka-ching, ka-ching. Yeah. So would you guys like to hear a bit of business trivia that ties into our next deal? Yes, because last week you blew my mind with a bit of business trivia about Sprint. Did you guys know this? Michael, say that one again. That was so good. Yes. Oh, so the railroads owned hundreds of thousands of miles of right-of-way across the United States, gathered at the time when nobody cared about the Western United States because there was nothing out there. But what that gave them was a perfect way to create telecommunications infrastructure along those railway lines between all these cities.

8:32So Sprint, actually, the first three letters are SPR, Southern Pacific Railroad. that's who that that's how that got started sprint long distance so sprint long distance was spun out of southern pacific railroad because they had the right of way to lay cables for free all over the united states and spr sprint is southern pacific railroad and i thought that was so cool that i call bullshit on michael i was like that's not true you made that up and he googled it live and proved it he was so violent about it that i started to doubt myself i mean that's like classic what internet memes are made of.

9:07Like, no way that's true. I make up a lot of stuff, but not this one. All right. So if your next bit of trivia is anywhere close to as good as that, I'm on the edge of my seat. Do you guys know what a heart stent is? Do you know what that is? Yeah. Yeah? Yeah. Okay. So if you go through and you have like major plaque or blockage in your artery, they put this little thing in, which is like a collapse. The surgeons go in and then they'll run up through your veins or arteries. up near your heart where there's blockage. And basically they put this little metal mesh in there and then they expand it to basically expand the blockage, right?

9:44And so if people have bypasses and all that kind of stuff, like, are you here if somebody gets a stent in their heart? That's that. Okay. So number one, you've heard of that. Huge business. Somebody has a patent on that. And the guy who patented it is actually a San Antonio doctor. Not anymore. Now he's a San Antonio billionaire. So he's made a bazillion dollars. He's like, you know, every city seems to have these like, that guy's a billionaire? Yes. Okay. So it turns out the guy is a huge onophile, a big wine guy. And he supposedly owns, and this is a rumor. So this is where, Bill, you can call the BS, but supposedly this is where I'm going from veracity level 100 to, I think so.

10:24The rumor is supposedly he has the largest wine cave in either Sonoma or Napa Valley because he's such a big onophile out there. And today's deal that I brought you is a specialized construction firm that makes wine caves for people. That's all they do. They just make wine caves. Apparently. Oh, not wine cellars, wine caves. Subterranean, it says. Is this a wine bunker? Is that what we're talking about here, basically? So anyway. Okay, so let me put you on this deal.

11:04specialized subterranean construction firm with niche market dominance in Sonoma County, California. And they have a photo. Here, these look like excavators, and this thing is one of those pokey things, Heather, that breaks up rocks, whatever that's called. Pokey thing, yeah. It's a technical term. They got diggers, pushers, and pokey things. It's a jackhammer, basically. Yeah, it's like a jackhammer and a pole. Asking price is$2.1 million, and seller discretionary earnings,$635 ,000, and they do$3.3 million a year. This is a specialty wine cave builder with a tenured field team. This specialized construction company dominates a highly technical niche, providing excavation and construction services for below-ground commercial and residential projects throughout a major Western market, and it's in Sonoma County.

11:55With nearly three decades of operation, this business has built an exceptional reputation serving wineries, hospitality venues, and high-end residential clients seeking custom underground facilities. In other words, these people make wine caves. The company's core expertise centers on creating subterranean spaces, including wine storage facilities, production areas, entertainment venues, and luxury residential installations. Projects range from intimate residential cellars to expansive commercial facilities spanning thousands of square feet. Additional services encompass specialized excavation work, retaining wall systems, utility installations, and architectural finishing for underground environments.

12:31Their operational strength lies in season field organization. They have dual licensing, both as an engineering and building contractor. They do safety, yada, yada, yada. They make money across winery projects, luxury residential installations, and related infrastructure work. They have strong referral networks within the wine industry and architectural community, gathering consistent project flow with minimal marketing investment. Profit margins reflect the specialized nature of the work and limited competition in this technical market segment. There are significant opportunities to grow through expanded contractor partnerships, formalized marketing initiatives, geographic expansion within licensed territory, and so on.

13:07Current ownership seeks transition after a distinguished career in specialty construction and will support the buyer transition through training and relationship introductions. They have 10 employees, nine are full-time, one contractor. The owner wants to retire. It's located in Sonoma County, California, and the business location is leased and not owned. And that's about all we know. So Heather, what do these guys do? Well, they do both commercial and residential caves. And if you've ever been wine tasting in Northern California, you know, some of the higher end wineries will have like cave storage that they can even kind of take you down into.

13:44It keeps things cooler. I'm curious how much is, you know, those kind of big projects, commercial projects versus residential projects. But basically they're building an underground sort of basement, but I guess it sounds way cooler to call it a cave, for your wine storage. Keep it at the right temperature. So do you guys like, I hear the dog whistle throughout this entire thing. Underground environments, luxury residential homes. This is a, if I was building a bunker, I would totally permit it as a wine cave. Or I mean, right? It's the same thing. It has HVAC. It has electric. I mean, high-end residential clients seeking custom underground facilities.

14:29They don't say high-end residential and clients seeking wine cellars or wine caves. Well, if nothing else, even if that's not true, this is how you expand your market. You now do bunkers and wine caves. Yeah, maybe that's what it is. Bunkers for rich people in their homes and wine caves for the wineries in wine country. Or if the end of the world comes and you have to be in a bunker, it might as well be a wine cave too so you can have fun. I hope so. Might as well be full of wine. Double duty. I love it. So like this, what I love about this business, this is a classic example of niching down. Like this is a company that digs holes in the ground.

15:05Like it's not that specialized. I mean, many construction firms could probably do this. But what they did is they planted a flag and put a banner on the building metaphorically and said, we make wine cellars, wine caves. This is the thing that we do. We're the wine cave guys. And now they probably get a huge proportion of the calls. Or when they reach out to a GC or the GC needs a wine cave, they go, we're getting the wine cave guys. And they just win the bid automatically. So I love that. And that strategy works in so many markets. I wonder how specialized it is, though. You know, the wine storage industry is highly complex, right?

15:48Because this wine can be worth just millions and millions and millions of dollars. And if there's like, you know, a failure in the HVAC system or something like that, then this can have an impact. So I do wonder about that. Are they just digging the holes and pouring some concrete around it? Or are they actually like installing the goods? My thesis on this, when you deal with this type of clientele, you're dealing with ultra-rich wine nerds who want the absolute best to show something off. My guess is that these people have figured out the model to look the part and play the part of the people that deliver you the Ritz-Carlton plus plus of wine caves.

16:28and to your point, Bill, and to your question, Travis, I bet you if you talk to these people, they walk in looking like they've walked out of a Ralph Lauren thing, just like you would imagine somebody would look if they were building wine caves that cost a million dollars apiece. That's my suspicion here. There's no other magic other than these people play the part really, really well. I wonder if they have competitors. Is there just one wine cave digging company in Sonoma? Well, I think they have tons of people who could compete. The question is, in practice, who actually bids against them? Who even gets invited to bid against them?

17:07They only did$3.3 million in revenue last year. How many caves is that? One and a half? Yeah. One and a half. I don't know. I mean, I could see at a winery, you could spend a million dollars on a cave. Right, a big one. So maybe it's just the concrete. Have you ever heard the rumor that they're supposedly one of the Google founders has nine homes around the world that are all like 8 ,000 square foot mansions and all these like amazing places like Bali and Kauai and stuff like that. But they're all identical with the identical setups down to like where the toothbrush is on the inside. So it just shows up and like an identical to everything is there.

17:47I don't know which one it is, but that's the room, right? That's weird. I would do that if I was a billionaire. I would exactly do that. I empathize with that a lot. The biggest house in my neighborhood is exactly that. they have a carbon copy in Florida and one in North Carolina. Exactly. Yeah. Same floor plan, everything, everything. So they might not realize where they are in the morning. That's amazing. So you just like, you see him. Oh, I'm in my Florida house. Zoom background is the same. Everything's the same. I mean, I don't know if you really like where you live and how everything is.

18:20Like, I don't know. He's stuck in your ways. Sure. I can see it. And probably all, they all have a wine caves, aka bunkers. This place totally has a wine cave, 100%. So I want to point out, and I'm curious what you guys think about it. They did$635 ,000 profit as a project-based general contractor on$3.3 million in revenue. So Bill, that's like a 20 % SDE on that small of a company for a contractor? Yeah. I mean, that sounds good, but that's why I think they've kind of niched down and they make better margins. I don't mean to belittle what they do. There are probably some specialized, they know how to write the permits the right way.

19:03They understand how to put in the subterranean humidifier to keep it exactly right. They understand what the racking is needed. But it's not proprietary. It's just they've kind of learned how to do it. If you did a couple of these as a GC, you would figure it out fairly quickly. But the value is in packaging it. Like, hey, we've got a couple SKUs, right? Like here's like our small, medium, large, like here's what people generally do. So you want to just kind of buy one and then customize it. They kind of can make it easy for you. So I'm going the opposite direction than you, Bill. I think the margin should be higher if it's specialized in rich people goods.

19:41This margin kind of makes me nervous for a project-based company. Yeah, I was hoping it would be like a 30 % margin or more. because you're because your tam is how big you know is this the best year three million uh be nice to know what historically it looks like but you know realistically you've got a you're you're confined geographically to this sonoma to the wine country area which is a great place to be but how many wine caves are going in every year i would really love to know the number of jobs that they are doing. Are they doing five a year for this or is this 30 a year? That really kind of changes the math and the risk profile quite a bit.

20:25Hi, 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. 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.

20:59That's V-I-S-O-C-A-P.net and click Zoom Sign Up. At some number, if this is four jobs a year, I almost don't think it's saleable. I mean, that point it just becomes a hustle right um i mean maybe you're a local area gc that wants to kind of bolt it on but it's not really a business at that point i mean i'd like to see but like think about it like the smallest residential wine cave 100 grand i mean i would think so that means at most they're doing 30 a year so they're doing anywhere between kind of 10 and 30 at the lower end, this feels more like a hustle. At the higher end, I probably, this feels more like a business.

21:39They've probably got more SOPs. They're more stamping it out. And then you might be able to scale it. You start putting in bunkers, et cetera. I like it more. They do have nine full-time employees and one general, and one contractor, not one general contractor, but 10, 10 employees on staff to do 3.3 million in revenue. And that's such a double-edged sword. On one hand, the owners not the business as much that's great on the other hand you have full-time employees that you have to feed regardless with a project-based company so double-edged sword i feel like this would be better as a division of a contractor that also does basements or something kind of adjacent to this and this is just kind of one marketing channel that's specialized and i would want this marketing channel to have a little bit better margin than it does but I feel like it would be a little safer business if it was that instead of all wine caves and that's it.

22:36Heather, is this financeable from an SBA standpoint? It's the right size. Yeah, it is the right size. The project work would scare off a lot of lenders. It, I'm sure, requires some licenses. That's going to limit the number of buyers because most SBA lenders want to see the buyer of something like this at least have a construction background and ideally have some kind of contracting license or be able to get one pretty quickly. So you've got a really limited pool of buyers who could get financing and you've got project work. So you kind of have a lot to overcome to get a loan on this. I mean, this is a classic seller financing situation, right?

23:15I mean, it's like quasi project work-ish. It's not that big. It's specialized. The guy who owns it probably lives in the area. Relationships with GCs probably matter. They're, you know, they're probably getting work subbed out to them. This is a classic kind of go work there for a year, buy 20 % of it a year, you know, and you own the thing in five years type thing. Heather, what's the climate risk in Sonoma? Well, they've had fire problems. Yeah, fire is the big problem up there. Obviously, there was, I don't remember how many years ago it was, but it wasn't that long ago that a lot of the wine country burned down.

23:48And it is very hard to get insurance in these areas, fire insurance for homes and commercial properties, because the fire risk remains really high. So that's one of the challenges. But if you are serving the ultra-rich, I'm sure they've figured out how to self-insure. That's probably not a problem for them. Are the fires a benefit to a company like this? Could be. If enough is destroyed, somebody has to build it back. Yeah, potentially. But I don't, does your wine cellar burn? Is that the only part that your wine cave makes it through because it's underground? I don't know. I don't know what happens.

24:27I mean, the other trend that's hurting here, I mean, there's two trends, right? There's reduced consumption for kind of high-end luxury second homes. The numbers are not supportive of that. My generation especially is not that interested in owning luxury homes when Airbnb is available. But the bigger one that scares me is the decrease in alcohol consumption, and especially wine. Like, they are all cratering. And I'm sure there's still people who are kind of into wine, quote unquote. But, like, does that have an effect on the demand for this business? Or the ultra-rich are going to want this stuff no matter what?

25:02I think the ultra-rich will still want it. I agree. It depends how much of the company's revenue comes from commercial-based deals, probably. You know, if you're a winery and you're starting to feel the heat a little bit, like you don't want to go build a new wine cellar, I imagine. This is not a big business. You know, like a lot of times people there go, oh, this isn't a shrinking TAM or this isn't a really growing TAM. At small scales like this, like this business could 10x and the TAM is irrelevant. it's entirely about kind of micro scale execution and winning against competitors and selling new business and closing that new business, et cetera.

25:43And yes, all else being equal, I would like to be in a growing TAM because things are easier. I would love to be selling a high speed memory right now, right? Because the world just can't get enough of it. And that makes everything easier. But this business, regardless of what the TAM, if the wine TAM is bleeding slowly over the next decade, you could still very much double this business. well said we only need to get like two customers exactly a year to tell them make some phone calls exactly yeah like if you're selling like candy on the street corner like it doesn't matter that less candy is being sold like you can double your candy stand by just like making a better sign you know at some point like it's just business it's just execution at small scales if it is relationship based how important is the owner yeah if people are showing up in their ralph loren clothing as you said girds then uh if it's the owner of ralph loren clothing and he knows all the winery owners and all that stuff that's different but and i think it comes down travis to where's your revenue come from if you're just if your phone's just ringing from gc's because you do a good work and people kind of know you as the wine cellar guy that's probably more transferable but if you're trying if you've got to go hobnob, you know, at all the wineries and all that stuff, you got to be a certain person.