This Garage Business Made $590K… Then Everything Changed

27:03I actually, I agree with what you're saying in the logic bill, But what I've seen, and Alex, you can correct me if I'm wrong on this inside the franchisee network, I feel like other franchisees typically undervalue the existing and buying in adjacent territory because they have a much more realistic picture of what it's worth. And typically in an acquisition, I'm not going to pay somebody for the synergies I bring. I'm going to pay them for what they've got, and I'm going to realize my synergies. Unless I have to, because I need to in order to win the deal. Unless it's that competitive. But what I typically see is that the new person who's very green and is like, I've never bought, you know, a Smashburger before or whatever.

27:45They're like, how hard could it be? And they'll kind of overpay naively relative to what known operators will. Interesting. So it could cut both ways. I think it does. My question for Alex, though, is like, it is a real risk that they kind of already know who the best buyers are. It's the adjacent Zs inside the same system, right? Those are the best buyers, for sure. They can pay the most. Whether they will pay the most, to your point, Mills, who knows? But they certainly can because they have the most synergy. But let's say I'm not an existing Z. I want to get into this system. How do I differentiate myself as an offer, right?

28:21Because what you don't want to do is spend a bunch of cycles, come in with a fair offer, and get top ticked by 5%, and they go with the guy they're going to go with anyway. How can I differentiate myself as a buyer? I mean, I've got some thoughts, but I wonder if there's any kind of franchise-specific ways. And also, Alex, who decides? Does the seller just pick the high offer, or do you need to convince the Zor also that they should sell to you? So the Zor does have to give sign-off, but typically, nine times out of 10, they're going to do that. If they have an operator who's checked out, even look at this exact example, the revenue is declining.

28:59Part of that's macro things. Everyone during COVID was doing home renovations and garage outfits, etc. And so part of this decline, I think, is just the macro environment that we're in. Part of it's the owner is starting to be checked out, has made enough money throughout their career, and is not as aggressively involved day-to-day as they used to be. And so as that revenue declines, the brand is losing more and more money. They'd rather get someone who's got new energy, new blood, new capital, coming in to get excited and grow and build that business. So more often than not, they approve it. Again, especially if their partner, the franchisee, is checked out.

29:37But they do have to approve it. So you really just need to convince the existing seller. Yeah, they're the gatekeeper. They ultimately are the one kind of dictating where this goes. It's ultimately their business at the end of the day. The franchisor, it would be a very bad look on the franchisor if they just kept declining franchisees from selling their business because now all these investors and franchisees are coming in and not having liquidity, which is part of what makes the whole franchise model work. I had this instance come up this week that clarified something for me where franchisors have a kind of a right of first offer or like, you know, a last look.

30:18And it was a situation where the franchisee, it was multiple territories, it was kind of underperforming. And I looked at it And I thought the pile of assets was like the most valuable thing, separate and distinct from the, you know, the franchise network. Like I just wanted to take them kind of scrape the branding off and, you know, run it as a standalone or, you know, kind of like a tuck into something else. And I was talking to the franchisee about it because I was like, hey, man, this might be the best way for you to achieve maximum value on this. And he was like, I hear you, but I need to check my franchise documents.

30:51But I'm pretty sure the franchisor would never let it go for that because somebody else would probably pay slightly more. And if not, then the franchisor would just, they don't usually like to take back a store and make it corporate. But they would probably preserve the market value by not letting it just go, you know, kind of and dissolve. So on this particular deal, do we think this is one where you can be positive in it? Or is this one where you have to be an owner operator? because it for sure looks like this owner is doing the owner-operator model, but is this one where you could be a multi-unit franchisee in it or is it onesie-doosies?

31:31What do you think, Alex? I think eventually you can. I think you need to get to a larger scale than this individual is. I was talking to, I don't know if you guys know Brian Beers at all. He puts out a lot of really good content around acquisition. I mean, all the acquisitions he's done over 30 or 40 acquisitions out of Meineke's. so he's an automotive franchisee, have almost all been seller financed. And he's found his lane and he's got his playbook now. And he's built a really big business. But he has this mantra that I love. And it's, first I do it, then it's we do it, where he's got GMs, or in this case, maybe a local sales manager driving these projects and managing some of the team.

32:08And then it's they do it. And he didn't get to the they do it phase until he was at 20 plus minor key locations. And so he was very, you know, not fixing vehicles or anything on a day-to-day basis, but very much involved in, you know, the day-to-day operations of a portfolio of these businesses. And so I think a lot of franchises follow a similar path. I think for this one, you've got to get to probably 10-ish million plus in revenue before you can start to think about removing yourself from a pretty involved position in the business and definitely beyond one territory. What I like about this in terms of like, it's, it's technically in the construction, you know, industry is that this is fairly formulaic construction.

32:49It's not like you're doing one-off home renovations where the person's like, well, you take down this wall in my house. And like, you have to constantly like do discovery from like zero to 60 every time. This is, we're not moving walls. We're bolting these, these things to existing walls. It's a, it's a slab. Like, it's kind of a nice blank palette. it's not gut my kitchen and put it back which is a lot more variables which is why their gross margins are what they are yeah it's so systematic it's a rectangle yeah so like i had this done i didn't go like totally ham with all the cabinets and stuff because i had some of that stuff already but it was i had the floors done and we moved in and it's basically like the guy shows up he measures your space because the quotes per square foot so he's got to measure the space and then they show you like a book of here's what all the floor coatings look like and there's slightly different prices per square foot because there's a premium level, a basic level, et cetera.

33:44And then you just show them a catalog of like, what cabinets do you want? And those are skews. I mean, those are functionally drop shipped. You know, it's not like you're manufacturing all that stuff. You're typically assembling it on site, but like, it's not rocket science. So the variability here is not a lot, even though it feels very custom, it's not like a custom home. So I, it feels to me like you could standardize this. You know, the problem is with just one unit, you don't have a lot of room for a gm i mean like his sde in the bad year was 120k in a good year was 600 but like still you hire a good gm for 150 plus like that's a material chunk of your operating profit which again comes back to the first unit's the worst right if you had three of these i definitely think you could sop this and probably start to get out of the day-to-day yep that's the other thing i've been shocked by too and i think home services is a little bit different.

34:39But the average price for a GM, and this is food again, but the average price of a GM in a McDonald's, in a Taco Bell, et cetera, is a lot lower than I thought it was. It was 70 to 90K. For district managers who are managing multiple locations, it's in that 125 to 150 range. But I was shocked at the quality of a person that could manage 20, 30 hourly employees and what their wage was in some of these brands that are doing$2,$3 million in average unit volume in food, it's not too, too dissimilar here, I think, where you could find a pretty talented person under six figures to run the location. But to Bill's point, you still absolutely need to be beyond one territory or a revenue number that justifies and supports doing that.

35:27Yeah. Wow. That's surprising to me in a good way. So we have a whole bunch more data here on kind of comparing this franchise, their FDD to a competitive brand, which is cool. I think this is like one of the nice things you get when you use someone like Franzi is instead of just looking at this deal in a vacuum, you can say, hey, how is this doing against comp franchises? Which I think is going to give you a case for, can I actually run this better? You know, because every seller is going to go, oh, you can run this better. But, you know, I think if I were to look at this and go, oh, all of his metrics are garbage against even the Zs in the same system and against Zs in the comp system, then I have a lot more belief that maybe I can make this better.

36:13But if he's saying, oh, you can do this so much better and he's like average for his system and average for the competitive systems, you're like, well, probably not. I'm just new to this and you already know what you're doing and you kind of suck at it. So this is some, and we won't go through all this data, but it's helpful to use a broker. Like we always talk about, Heather's not here today, but we talk about the advantages of using an SBA loan broker because you compare data across lenders. I think it's kind of the same thing with franchises. There's just so much more data that you have in a franchise than in a kind of a one-off business.

36:46I was just going to say when people come to us, I mean, they have a mixed bag of, they're doing some traditional kind of independent ETA searches. Sometimes they're dead set on franchising. And one of the interesting takes that I keep hearing is they'll use Franzi or other data sets in franchising, the FDDs, to basically underwrite a sector or subsector because there's just all this data across hundreds of locations. And let's say it's roofing you're looking at or HVAC or Pilates studios. I mean, anything you can possibly dream up, there's probably a franchise brand for it or multiple that have dozens and dozens of locations with publicly available data that's audited financials on how much revenue are they doing.

37:28sometimes by region what's the cost to build one of these locations and so you get all this pretty interesting information whether you're going to do franchising or not or resale or not or develop a new area or buy an independent business that data is still so helpful in helping you underwrite where is this market at and what are people on average doing and which direction should i be headed and i don't know it helps validate or disprove some of the convictions or gut feelings that an individual might have as they start this journey Yeah. Yeah. More data, always better. So let's kind of try to land the plane here, but I want to talk about what the heck is this business worth?

38:07So there's an interesting case here. It's presented a little bit as here's the average of the past three years, but the average does not tell the whole story. I mean, there's a significant dive in 2024 where you, so the variation here is from 124 ,000 of SDE on the low end to almost 600 ,000 of SDE on the high end. I want to know, you know, I'll start with you Mills and I'll ask you Girdley and then I'll ask Alex and I'll go, but like, how do you guys value this thing? Like, what are you going to bid? The thing that concerns me about this one is just how discretionary the purchase is. And I think there's even some mention of that, like in this, uh, or, or what's on franzi.

38:48I just think this is like one of the first expenses to go, you know, in terms of what a homeowner is considering, which is why we see this revenue volatility and maybe even more revenue volatility in this space. So I would be kind of very conservative in the way that I would think, like I think, Alex, you said they were looking for somewhere around like three times the EBITDA plus SDE number, right, in that category. I at least like that they are realistic in thinking about it as an average versus trying to top tick, you know, the most recent year or something like that. I would have a lot more questions before I could like really pin that down in terms of like, what's the quality of the operation?

39:37And yeah, so are you, you can't bid yet? Yeah. I mean, I think roughly three times seems doable, but you could get under the surface of this and realize like it definitely doesn't work in the off years. Three times what, right? Three times what? Three times average, yeah. And in the off years, you probably can't cover your debt service with an acquisition like this. So, yeah. Yeah. And Heather's not here to say, Hey, it's going to get hard to get, you know, real bank financing for this, which I think I forgot who said it. Like many of these are seller financed, you know, so I'm probably come in with a seller financing structure because it's going to be tough to get bank debt on a project based thing.

40:17And thankfully, they've been around long enough that it's not like somebody tried to do this as a new franchise territory developer or something like that. And they've only been doing it two years. It didn't work. They have SBA debt hanging over their head. You see that a lot where they really can't sell for a lower price, like the price of my mortgage bill. Your term is like my floor. I don't think that's the case here because this person's been doing it for 10 years, I think, or something like that. Gerds, what do you think? I think I would really value this based on what 2025 and the first half of 2026 looks like.

40:52To me, that feels like it'll be the new normal for this business in a post-COVID environment. But yeah, I think I'm kind of where Mills is. Two and a half to three times seems pretty reasonable and a good margin of safety. Yep. Yeah, the thing that for me, and I'll keep my mouth shut. What do you think, Alex? Then I'll go. I'm in the same category. I think two and a half to three times is fair for a services business like this. And I would have a lot of questions about the upside potential. Like why did this individual not expand into Idaho or Oregon? They bought the rights at some point. What was the reason for not doing it?

41:28Is it because you need another showroom and there's all this fixed costs that I wasn't anticipating having to build in another state? Or can you leverage the same showroom in Seattle or outside of Seattle and Washington to reach this other market that effectively is paid for and I can go pretty significantly grow the business without too, too much additional investment. I'd want to understand more about that because that could really make this incredibly valuable and super interesting. That's a great point. You get two extra territories kind of for free when you buy this that you could expand into.

42:04For me, the thing that I am laser focused on here is kind of this buy versus build idea because if you want to be in this, and this is the case for any system, I mean, most systems that are taking new operators, not all of them are, but you can just approach the Zor and go, I want a Greenfield. Like I want to open a new unit in a place where you don't have one. And that's why I thought it was interesting to look at kind of the replacement cost. So the initial investment on this brand from the FDD is about 300 grand. So you can start one of these for 300 grand. Now you have zero revenue, right?

42:37So you have 300 grand of startup. But then for me, on top of that, I'm looking here at the more information about the deal. They've got$220 ,000 of inventory and$250 ,000 of FF &E. So that looks like it's on the high end. That's about$470 ,000 of working capital plus whatever the franchise fee is. It looks like that's about 60 grand. so this person's got north of half a million in it right of kind of working capital and franchise fee and up from well actually they've probably paid a couple franchise fees because they have two secondary markets so they've paid 120k of franchise fees so like they're pushing 600 like capital in now in a good year you take 600 of capital out you know that's amazing in one year So like, it's not that the ROI isn't there.

43:29I mean, they took out 322 of SDE as a 50 % return on your capital. Like that's pretty good. But I'm asking myself, what am I going to pay for this versus what could I just open up? I think it's more, it's worth more than just opening up, but maybe not a lot considering it's not recurring at all. Like you do this once, it's kind of unlikely you're going to do it again. Like this is about a brand and a Google placement and like some reviews. so like i don't know how much moat there is to an existing z versus just greenfield and one in my area so i would like if i like this i would diligence this opportunity but as i learned about it i would always be comparing to greenfield like if i'm going to pay this guy if it's three times last year that's 450k if it's three times his average it's a million bucks yeah you know so It's kind of right in there at parity from buy versus build.

44:23It's in the ballpark. I'm always going to be looking at build versus buy on this one. This is a good one. I like this. Yeah, it's a cool business. It's got to be fun to own. Also, you turn these in a week. Every week, you're cranking out a really cool case study, beautiful pictures, great for social media. This is a fun business to own, I would think. I love this category. when people ask me like which category should I look at I say any senior care certain subsectors just because it's the largest aging population I think humanity has ever seen and you know so there's tons of demand we do calls into various markets just to kind of see what are the wait lists on certain senior care facilities and whatnot every market is you know 12 months out 12 months it's just like there's clearly demand there and so there's tons of opportunity and garage as the subsector of home services is one of my favorite categories because I think more and more people are wanting this secondary space, this kind of other third space in their home, if you will.

45:26And it's super easy. It's a small crew to do. You don't need a ton of heavy equipment or machinery. And the ticket is super high. So if you're good at sales and you're good at beating the local mom and pop person at marketing, which the bar is pretty low, I like it for just the affordability to get into the high ticket size and the upside potential. I love this category and this type of business. Yeah, it's kind of home office adjacent, right? Like if you're working from home, spending more time in your space, this is something you're paying attention to. They don't show us the COVID year, 2020 and 2021, but I would bet this business crushed in 2021.

46:03Yeah. Crushed. All right. Well, let's wrap it up. That was a fun episode. Alex, thank you for coming on and being our franchise expert. I always learn a ton. Franchise is such a big world. It's fascinating to me. So it's cool. Well, thank you for being here. Yeah, thanks for having me. Alex, where can people find you and Franzi on the internet? Yeah, so go to www.franzi.com. It's like, again, like Zillow, free to go check out and explore. We don't charge you anything for all the data that we've put together. And then if you want more content about franchising, I am Alex from Franzi on all the social platforms, Instagram, TikTok, et cetera.

46:40And then we have a podcast called The Exit Plan where we break down stories of people who have actually gone and done this from zero to either one or zero to 101. We tell how they financed it, how they vetted the brands, how they talked to existing operators, et cetera. And you can check that out to learn more there as well. That's awesome. Thanks for being here. If you guys liked this episode, obviously you can check out Franzi's podcast, but you can also check out 550 episodes of Acquisitions Anonymous, which are on our website, acquianon.com. You can also get on our email list. We will email you the new episodes if you're not an audio person and you just want to read.

47:16Skim, we'll drop them in your inbox. So lots of ways to find us. You can also find the pod and all the hosts on X with a simple search. Thank you for joining and listening this week. And we'll see you on the next episode of Acquisitions Anonymous. 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.

47:55Sign 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. Okay. So at the same time though, isn't this sort of a red flag for this deal? Right? So like for me, knowing this dynamic is totally true. This is, I mean, one more anecdote about this. Like we've looked at FedEx routes on the pod before and the FedEx, the whole dynamic on FedEx routes. And this is actually the whole dynamic for any deal. You should always ask yourself, why am I the lucky person that gets to see this deal? And that dynamic of FedEx routes are they all operate out of the same terminal.

48:34um so if you are selling your routes the obvious buyer is like the guys at the same terminal right who see you every day and like know all your guys and you're definitely just going to ask all the other operators at your terminal like if they want to buy your fedex wrap so your trucks are crappy i'm not buying yours you know and so they've all passed on it right by the time it makes it to biz buy sell in the fed in the fedex context like everybody at the terminal has passed on it now it might be because fedex has concentration limitations at that terminal that they won't let one operator get too big or whatever.

49:06But still, you got to ask yourself, why has no one in the system, you know, in the adjacent territories wanted to bolt this one on? So like, you have to ask that kind of first and foremost. Like, are there, Alex, like structural reasons? Or is it just sort of like, definitionally, your first one's probably not the best unit, but you've got to eat it anyway to get into the system so you can buy two, three, and four? That's a great question. and I think some of it is structural. We're trying to navigate solving this now within Franzy. And part of it is you think from the seller's point of view. We all collectively own Jimmy John's or whatever it is together.

49:45We want to sell for the best price, probably. I mean, we care a little bit about who's buying it and who's going to take care of it. But at the end of the day, we want to get the best multiple on our business. But the franchisor, now look at their seat. They're getting paid their six-ish percent on revenue regardless of what happens. switching operators is a pain in the ass for them right like it's an event that now has to happen have to retrain potentially they of course want someone else from within the system so they're very much incentivizing that they're going to help you you know share your deal with the rest of the system they want that to happen but you as a seller you're better off if both people in the system and outside the system are looking at it because it creates competition and when there's competition i'm getting paid more you know likely a better outcome and so at franzi one of the things we've started to do with resales is we go to these sellers of these popular brands and all of them want the ability to get it marketed to other private equity guys other multi-unit operators and other brands so still good operators just might not be in the jimmy john system yeah and so i think historically there just hasn't been as much liquidity or access and i think platforms like franzy and other tools now especially with ai are making these deals more available but structurally it's been this kind of good old boys club again behind closed doors and the seller hasn't really tried to challenge the status quo because that's such a large structural change you'd have to make to go shop it at that level and really get it out.

51:06It's just easy to take the bird in the hand when the operator down the street wants to buy it and it's a decent multiple and I just want to be done with it and move on. Right. I think this is probably also, it reflects where the franchisor is in their maturity. And I think we've talked about this with you before, Alex. There's only 50 territories and this is one in one state and two rights in adjacent states. So it may just be that there's not other territories close by, like when you look at these numbers. So, but back to Alex's point, like the owner would love lots of bids from inside and outside the system, right?

51:45To drive the price up. Of course, the challenge is the best buyer who can pay the most is the buyer with synergies, right? Is the buyer inside the system who already has an accounting manager and an area manager and all that stuff, right? So if I'm listening to this podcast and I like this garage franchisee and I want to bid, I mean, the most likely scenario is I am the stalking horse bid to drive the bid of the interior buyer up, right? Like the way this works out, sort of the most efficient way this works out is that someone from inside the system buys it, but you have an outside stalking horse to drive the price up, to force them to pay the synergized multiple.

52:27I actually, I agree with what you're saying in the logic bill, but what I've seen, and Alex, you can correct me if I'm wrong on this, inside the franchisee network, I feel like other franchisees typically undervalue the existing and buying in adjacent territory because they have a much more realistic picture of what it's worth. And typically in an acquisition, I'm not gonna pay somebody for the synergies I bring. I'm going to pay them for what they've got and I'm going to realize my synergies. Unless I have to because I need to in order to win. Yes, unless it's that competitive. But what I typically see is that the new person who's very green and is like, I've never bought a Smashburger before or whatever, they're like, how hard could it be?

53:10And they'll kind of overpay naively relative to what known operators will. Interesting. So it could cut both ways. I think it does. My question for Alex though is like, it is a real risk that they kind of already know who the best buyers are. It's the adjacent Zs inside the same system, right? Those are the best buyers for sure. They can pay the most, whether they will pay the most to your point mills, who knows, but they certainly can because they have the most synergy. But let's say I'm not an existing Z. I want to get into this system. How do I differentiate myself as an offer, right? Because what you don't want to do is spend a bunch of cycles, come in with fair offer and get top ticked by 5 % and they go with the guy they're going to go with anyway.

53:53Like how can I differentiate myself as a buyer? I mean, I've got some thoughts, but I wonder if there's any kind of franchise specific ways, you know, because, and also Alex, like who decides, like, does the seller just pick the high offer or do you need to convince the Zor also that they should sell to you? So the Zor does have to give sign off, but typically nine times out of 10, they're going to do that. If they have an operator who's checked out, even look at this exact example, the revenue's declining. Part of that's macro things. Everyone during COVID was doing home renovations and garage outfits, et cetera.

54:29And so part of this decline, I think, is just the macro environment that we're in. Part of it's the owner is starting to be checked out, has made enough money throughout their career and is not as aggressively involved day-to-day as they used to be. And so as that revenue declines, the brand is losing more and more money. They'd rather get someone who's got new energy, new blood, new capital coming in to get excited and grow and build that business. So more often than not, they approve it. Again, especially if their partner, the franchisee, is checked out. But they do have to approve it. So you really just need to convince the existing seller.

55:05Yeah, they're the gatekeeper. They ultimately are the one kind of dictating where this goes. It's ultimately their business at the end of the day. the franchisor, it would be a very bad look on the franchisor if they just kept declining franchisees from selling their business because now all these investors and franchisees are coming in and not having liquidity, which is part of what makes the whole franchise model work. I had this instance come up this week that clarified something for me where franchisors have a kind of a right of first offer or like, you know, a last look. And it was a situation where the franchisee, it was multiple territories, it was kind of underperforming.

55:49And I looked at it and I thought the pile of assets was like the most valuable thing, separate and distinct from the, you know, the franchise network. Like I just wanted to take them kind of scrape the branding off and, you know, run it as a standalone or, you know, kind of like a tuck into something else. And I was talking to the franchisee about it because I was like, hey, man, this might be the best way for you to achieve maximum value on this. And he was like, I hear you, but I need to check my franchise documents. But I'm pretty sure the franchisor would never let it go for that because somebody else would probably would probably pay slightly more.

56:23And if not, then the franchisor would just. they don't usually like to take back a store and make it corporate, but they would probably preserve the market value by not letting it just go and dissolve. So on this particular deal, do we think this is one where you could be passive in it, or is this one where you have to be an owner-operator? Because it for sure looks like this owner is doing the owner-operator model, but is this one where you could be a multi-unit franchisee in it, or is it onesie-twosies? What do you think, Alex? I think eventually you can. I think you need to get to a larger scale than this individual is.

57:02I was talking to, I don't know if you guys know Brian Beers at all. He puts out a lot of really good content around acquisition. I mean, all the acquisitions he's done over 30 or 40 acquisitions now with Meineke's, so he's an automotive franchisee, have almost all been seller financed. And he's found his lane and he's got his playbook now and he's built a really big business. But he has this mantra that I love And it's, you know, first I do it, then it's we do it, where he's got GMs, or in this case, maybe a local sales manager driving, you know, these projects and managing some of the team. And then it's they do it.

57:34And he didn't get to the, you know, they do it phase until he was at 20 plus minor key locations. And so he was very, you know, not fixing vehicles or anything on a day to day basis, but very much involved in, you know, the day to day operations of a portfolio of these businesses. And so I think a lot of franchises follow a similar path. I think for this one, you've got to get to probably 10-ish million plus in revenue before you can start to think about removing yourself from a pretty involved position in the business and definitely beyond one territory. What I like about this in terms of like, it's, it's technically in the construction, you know, industry is that this is fairly formulaic construction.

58:14It's not like you're doing one-off home renovations where the person's like, well, you take down this wall in my house. And like, you have to constantly like do discovery from like zero to 60 every time. This is, we're not moving walls. We're bolting these, these things to existing walls. It's a, it's a slab. Like, it's kind of a nice blank palette. it's not gut my kitchen and put it back which is a lot more variables which is why their gross margins are what they are yeah it's so systematic it's a rectangle yeah so like i had this done i didn't go like totally ham with all the cabinets and stuff because i had some of that stuff already but it was i had the floors done when we moved in and it's basically like the guy shows up he measures your space because the quotes per square foot so he's got to measure the space and then they show you like a book of here's what all the floor coatings look like and there's slightly different prices per square foot because there's a premium level, a basic level, et cetera.

59:08And then you just show them a catalog of like, what cabinets do you want? And those are skews. I mean, those are functionally drop shipped. You know, it's not like you're manufacturing all that stuff. You're typically assembling it on site, but like, it's not rocket science. So the variability here is not a lot, even though it feels very custom, it's not like a custom home. So I, it feels to me like you could standardize this. You know, the problem is with just one unit, you don't have a lot of room for a gm i mean like his sde in the bad year was 120k in a good year was 600 but like still you hire a good gm for 150 plus like that's a material chunk of your operating profit which again comes back to the first unit's the worst right if you had three of these i definitely think you could sop this and probably start to get out of the day-to-day yep that's the other thing i've been shocked by too and i think home services is a little bit different but the average price for a g and this is food again but the average price of a gm in a mcdonald's in a you know taco bell etc is a lot lower than i thought it was it was you know 70 to 90k for district managers who are managing multiple locations it's in that you know 125 to 150 range but i was shocked at the quality of you know person that could manage 20 30 hourly employees and what their wage was in some of these brands that are doing$2,$3 million in average unit volume in food, it's not too, too dissimilar here, I think, where you could find a pretty talented person under six figures to run the location.

1:00:43But to Bill's point, you still absolutely need to be beyond one territory or a revenue number that justifies and supports doing that. Yeah. Wow. That's surprising to me in a good way. um so we we have a whole bunch more data here on kind of comparing this franchise to you know their fdd to a competitive brand which is cool i think this is like one of the nice things you get when you use someone like franzi is instead of just looking at this deal in a vacuum you can say hey how is this doing against comp franchises which i think is going to give you a case for can i actually run this better you know because every seller is going to go oh you can run this better.

1:01:21But, you know, I think if I were to look at this and go, oh, all of his metrics are garbage against even the Z's in the same system and against Z's in the comp system, then I have a lot more belief that maybe I can make this better. But if you're, if he's saying, oh, you can do this so much better and he's like average for his system and average for the competitive systems, you're like, well, probably not. I'm not, I'm just new to this and you already know what you're doing and you kind of suck at it. So this is some, we won't go through all this data, but it's helpful to use, you know, a broker.

1:01:56Like we always talk about, Heather's not here today, but we talk about like the advantages of using an SBA loan broker because you can compare data across lenders. I think it's kind of the same thing with franchises. There's just so much more data that you have in a franchise than in a kind of a one-off business. I was just going to say when people come to us, I mean, they have a mixed bag of, If they're doing some traditional kind of independent ETA searches, sometimes they're dead set on franchising. And one of the interesting takes that I keep hearing is they'll use Franzi or other data sets in franchising, the FDDs, to basically underwrite a sector or subsector because there's just all this data across hundreds of locations.

1:02:34And let's say it's roofing you're looking at or HVAC or Pilates studios. I mean, anything you can possibly dream up, there's probably a franchise brand for it or multiple that have dozens and dozens of locations with publicly available data that's audited financials on how much revenue are they doing sometimes by region what's the cost to build one of these locations and so you get all this pretty interesting information whether you're going to do franchising or not or resale or not or develop a new area or buy an independent business that data is still so helpful in helping you underwrite, where is this market at?

1:03:10And what are people on average doing? And which direction should I be headed? And I don't know, it helps validate or disprove some of the convictions or gut feelings that an individual might have as they start this journey. Yeah, yeah. More data, always better. So let's kind of try to land the plane here, but I want to talk about what the heck is this business worth? So there's an interesting case here, you know, it's presented a little bit as here's the average of the past three years, but the average does not tell the whole story. I mean, there's a significant dive in 2024, uh, where you, so the, the variation here is from 124 ,000 of SDE on the low end to almost 600 ,000 of SDE on the high end.

1:03:53I want to know, you know, I'll start with you Mills and I'll ask you Girdley and then I'll ask Alex and I'll go, but like, how do you guys value this thing? Like, what are you going to bid. The thing that concerns me about this one is just how discretionary the purchase is. And I think there's even some mention of that, like in this, uh, or, or what's on franzy. I just think this is like one of the first expenses to go, you know, in, in terms of what a homeowner's considering, which is why we see this revenue volatility and maybe even more revenue volatility, um, in this space. So I would be, I would be kind of very, uh, conservative in the way that I, I would think, like, I think Alex, you said they were looking for somewhere around like three times, um, the EBIT.plus SDE number, right?

1:04:41In that category. I at least like that they are, uh, realistic in thinking about it as an average versus trying to top tick, you know, the most recent year or something like that. Um, I would have a lot more questions before I could like really pin that down in terms of like, what's the quality of the, the operation. And yeah. So are you, you can't bid yet? Yeah. I mean, I, I, I think roughly three times seems doable, but you could get under the surface of this and realize like, it definitely doesn't work in the off years. Right. Three times average. Yeah. And in the off years, you probably can't cover your debt service with an acquisition like this.

1:05:26So. Yeah. Yeah. And Heather's not here to say, hey, it's going to get hard to get real bank financing for this, which I think I forgot who said it. Many of these are seller financed. So I'm probably come in with a seller financing structure because it's going to be tough to get bank debt on a project based thing. And thankfully, they've been around long enough that it's not like somebody tried to do this as a new franchise territory developer or something like that. And they've only been doing it two years, it didn't work. They have SBA debt hanging over their head. Like you see that a lot where, you know, they really can't sell for a lower price, like the price of my mortgage bill, like your, your term is like my floor, you know?

1:06:04Yeah. I don't think that's the case here because this person's been doing it for 10 years, I think, or something like that. Gards, what do you think? I think I would really value this based on what 2025 and the first half of 2026 looks like. To me, that feels like it'll be the new normal for this business and a post COVID environment. but yeah I think I'm kind of where Mills is you know two and a half to three times seems pretty reasonable and a good margin of safety yep yeah the thing that for me and I'll keep my mouth shut what do you think Alex? I'm in the same category I think two and a half to three times is fair for a services business like this and I would have a lot of questions about the upside potential like why did this individual not expand into Idaho or Oregon they bought the rights at some point what was the reason for not doing it?

1:06:52Is it because you need another showroom and there's all this fixed costs that I wasn't anticipating having to build in another state? Or can you leverage the same showroom in Seattle or outside of Seattle and Washington to reach this other market that effectively is paid for and I can go pretty significantly grow the business without too much additional investment? I'd want to understand more about that because that could really make this incredibly valuable and super interesting. That's a great point. You get two extra territories kind of for free when you buy this that you could expand into.

1:07:28For me, the thing that I am laser focused on here is kind of this buy versus build idea because if you want to be in this, and this is the case for any system, I mean, most systems that are taking new operators, not all of them are, but you can just approach the Zor and go, I want a greenfield. Like I want to open a new unit in a place where you don't have one. And that's why I thought it was interesting to look at kind of the replacement cost. So the initial investment on this brand from the FDD is about 300 grand. So you can start one of these for 300 grand. Now you have zero revenue, right?

1:08:01So you have 300 grand of kind of startup. But then for me, on top of that, I'm looking here at the more information about the deal. They've got$220 ,000 of inventory and 250 of FF &E. So that looks like it's on the high end. That's about$470 ,000 of working capital plus whatever the franchise fee is. It looks like that's about 60 grand. So this person's got north of half a million in it, right? Of kind of working capital and franchise fee. And up from, well, actually they've probably paid a couple of franchise fees because they have two secondary markets. So they've paid 120K of franchise fees.

1:08:40so like they're pushing 600 like capital in now in a good year you take 600 of capital out you know that's amazing in one year so like it's not that the roi isn't there i mean they took out 322 of sd is a 50 return on your capital like that's pretty good but i'm asking myself what am i going to pay for this versus what could i just open up i think it's more it's worth more than just opening up, but maybe not a lot considering it's not recurring at all. Like you do this once, it's kind of unlikely you're going to do it again. Like this is about a brand and a Google placement and like some reviews.

1:09:18So like, I don't know how much moat there is to an existing Z versus just Greenfield and one in my area. So I would like, if I like this, I would diligence this opportunity. But as I learned about it, I would always be comparing to Greenfield. If I'm going to pay this guy, if it's three times last year, that's 450K. If it's three times his average, it's a million bucks. So it's kind of right in there at parity from buy versus build. It's in the ballpark. So I'm always going to be looking at build versus buy on this one. This is a good one. I like this. Yeah. It's a cool business. I mean, it's got to be fun to own, right?

1:09:57You're just every... And also you turn these in like a week. So like every week you're cranking out like a really cool case study, beautiful pictures, great for social media. You know, it's, there's a fun business to own, I would think. I love this category. When people ask me like, which category should I look at? I'd say any, you know, senior care, certain subsectors, just because it's the largest aging population I think humanity has ever seen. And, you know, so there's tons of demand. We do calls into various markets just to kind of see what are a wait list on certain senior care facilities and whatnot.

1:10:30Every market is 12 months out. It's just like, there's clearly demand there. And so there's tons of opportunity. And garage as the subsector of home services is one of my favorite categories because I think more and more people are wanting this secondary space, this kind of other third space in their home, if you will. And it's super easy. It's a small crew to do. You don't need a ton of heavy equipment or machinery and the ticket is super high. So if you're good at sales and you're good at, you're kind of beating the local mom and pop person at marketing, which the bar is pretty low. I like it for just the affordability to get into the high ticket size and the upside potential.

1:11:11Again, I love this category and this type of business. Yeah, it's kind of home office adjacent, right? Like if you're working from home, spending more time in your space, this is something you're paying attention to. They don't show us the COVID year, 2020 and 2021, but I would bet this business crushed in 2021. Yeah. Crushed. All right. Well, let's wrap it up. That was a fun episode. Alex, thank you for coming on and being our franchise expert. I always learn a ton. Franchise is such a big world. It's fascinating to me. So it was cool. Thank you for being here. Yeah, thanks for having me. Alex, where can people find you and Franzi on the internet?

1:11:46Yeah, so go to www.franzi.com. It's like, again, like Zilla, free to go check out and explore. We don't charge you anything for all the data that we've put together. And then if you want more content about franchising, I am Alex from Franzion, all the social platforms, Instagram, TikTok, et cetera. And then we have a podcast called The Exit Plan where we break down stories of people who have actually gone and done this from zero to either one or zero to 101. We tell how they financed it, how they vetted the brands, how they talked to existing operators, et cetera. And you can check that out to learn more there as well.

1:12:22That's awesome. Thanks for being here. If you guys like this episode, obviously you can check out Franzi's podcast, but you can also check out 550 episodes of acquisitions anonymous, which are on our website, ACQ and on.com. You can also get on our email list. We will email you the new episodes. If you're not an audio person and you just want to read skim, we'll drop them in your inbox. So lots of ways to find us. You can also find the pod and all the hosts on X with a simple search. Thank you for joining and listening this week, and we'll see you on the next episode of Acquisitions Anonymous.