Would You Pay $1.3M for a “Med Spa” for Dogs?

0:00Welcome back, everybody, to another episode of Acquisitions Anonymous. I'm Mills Snell, one of your co-hosts. Me and Heather from Viso Capital are joined today from Alex from Franzi. Alex always brings an amazing deal. He brought a deal so good we had to boot one of our co-hosts before the recording started. But we talk about a really, really interesting multi-unit pet franchise. It's pet wellness. Think dog washing, grooming, nail clipping, even blowouts for dogs. It's an established franchise, but it's early on. It's in a growth trajectory, kind of wanting to be compensated for the growth that they have that is coming up.

0:39But we talk about the unit-specific dynamics here, franchisee-franchisor relationships. We talk about SBA eligibility for something like this. Cover kind of all the bases and get pretty deep into the weeds on this one. Hope you enjoy. Stick around after a quick word from our sponsor. We'll set Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100 % ears anymore. Thumbs down on just the plus inventory line. When you close a deal, you inherit the cyber and IT problems that have been piling up for years. Enzo Technologies, that's I-N-Z-O, helps acquisition entrepreneurs evaluate technology risk during due diligence and manage cybersecurity, IT, and voice after close.

1:26CEO Nick Akers acquired Enzo and recently led the company through its first add-on acquisition. He brings a buyer operator's perspective to what needs to be uncovered before the wire and stabilized once ownership changes hands. Enzo offers a complimentary IT risk audit of your target company to help surface the biggest risks in plain English and deliver a 30 day plan to reduce exposure and lower the risk of downtime. Visit Enzo Technologies dot com slash ETA and mention Acquisitions Anonymous. That's I-N-Z-O technologies.com slash E-T-A. Welcome back, everybody, to another episode of Acquisitions Anonymous.

2:07Alex, Heather, how's it going? Fantastic.

2:13It's better than Monday, Heather. It's true. And coming back from a vacation. So Monday after vacation was probably a real Monday. That was tough. That was very tough. But I am settled in now. And all the tension is back in my muscles. So we're ready to go. It was weird. It was like the SBA did not plan their announcement schedule around your vacation schedule. So was it tough to be off last week with the - It was very tough. Yeah. The SBA SOP changes dropped on a Friday before I started vacation. So the week of vacation was a little bit crazy. So it was getting back. It's still a little crazy because everyone's still trying to interpret it all.

2:54But lots of big changes and, you know, little by little, everyone's sort of finding what it says and digesting it. So, yeah. And then everybody goes to find that line that they can flirt with, with the SBA of like, how much is too much? Let me put my toe on the line. Yeah. We have Alex from Franzi, who's our resident franchise expert. And Alex, you always get the host of the day, the guest of the day award, because you always bring a deal. and it was such a good deal that one of our other co-hosts who will go unnamed had to recuse himself. So thank you always for bringing an amazing deal with great context and for booting one of our co-hosts in the process.

3:37We didn't want to hear it. I'm going to pull this up. Yeah, yeah. And this is on Franzi's platform. So if you're on YouTube, you can look along, follow along with us here. Alex, do you want to read this one and take us through it since you're more familiar? Yeah, let me walk you through it. So it is a membership-driven dog wellness portfolio in Southwest Florida. So they've got two studios live and the rights to a third. So there's a little bit of opportunity to get a third one open. They are asking for 1.3 million purchase price and they currently have 1 ,124 active members. So again, it's a recurring revenue business, but for pet wellness.

4:21And when I first saw this, I was like, well, what is pet wellness? What does that mean? So it's kind of like packages where you get a set number of services a month for routine grooming, bathing, teeth, nails, you name it, kind of the whole grooming services. But their whole call out is not every dog needs all of those four or five things every time. Some dogs maybe very rarely need those things. And so they give you this kind of like base layer membership and you can add things on as you want. So no vet, right? Is that the delineation in this space? It's like if there's a vet involved or not?

4:56It's basically a spa for dogs. It's a spa for dogs, which I am laughing that this exists. Heather already likes med spas. I do. I do. And I have a dog. So I feel like my dog should be going to one of these places. This episode is brought to you by a company I genuinely use across every single one of my businesses. It's called Mercury. I've incubated a lot of businesses over the years. a media company, a podcast business, a staffing firm, a quality of earnings firm, and several others. And Mercury has become my go-to banking across all of them. I've personally been a Mercury customer for more than three years now.

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7:01so that you're seeing a lot of this kind of stuff pop up like you know pet uh daycares and hotels and pet spas, I guess. So this is one of those. Again, two are already open, two are already cash flowing. The first location did just under a million in revenue in its first year and profited a pretty small or abysmal$3 ,500, but that's because it was the first year, lots of fixed costs and getting open. And then in its second year through June, it did 290 ,000 in revenue, but 68 ,000 in profits. So it's starting to grow and margins are starting to normalize now that first year is behind them. And then the second location, let's call it location B, they did 375 ,000 their first year, but lost 97 ,000.

7:51And in their second year through June, it's done 310 ,000, but 33 ,000 in profit. So these are very new. I mean, less than. You said the oldest one is 24 months in? Yep. Okay. Very new. That's probably one of my first kind of diligence questions that I don't have an answer for, but why is the owner? You know, it's starting to turn a corner, it's starting to do well. I mean, June, if it stays on pace, we'll have 140K in profit in its second year. And location B, we'll have just under 100K. So across the two, $3.350 in profit with the rights to open a third and plenty of upside for membership growth.

8:39So yeah, it says here like they're selling because of a change in the owner's personal circumstances. They had the plan kind of moving to open the third and they're going to pass that along to the buyer. That may or may not include like site selection already worked out or something like that. We don't know. I doubt it. They might have done some preliminary work, but typically franchises, you're on a development schedule within franchising. So if you buy the rights to five, you're required to open those five over a three-year period or a four-year period. That can be negotiated with the brand.

9:13So that would be interesting to figure out. Does that transfer? Does the brand give you flexibility when you buy into this to get 12 months of your bearings and then the clock starts and you've got 12 months to open the third or what does that look like? This is kind of cool. You guys have this like buy versus build. Yeah. Graphic here on Franzi, like starting it from scratch versus acquiring this portfolio. Is this something y 'all do by default in these kind of scenarios? Yeah, so for resales, we do this every time. If it's a de novo opportunity where you're buying the territories, we typically don't do it until a candidate or a client is further along in the process.

9:56Just because each brand is different and each state and each city is different. And we try to be as accurate as we can on what's the local construction cost and are there tap fees if you've got a car wash or a laundromat where you got to pay extra for water in certain municipalities. So we try to get very detailed and specific depending on what brand and what geography they're building in. And then this is kind of a helpful financial summary. So you've got it kind of combined. This is combined with both. Is that right? And then broken out location A, location B. Okay. Those numbers kind of make sense.

10:37So we've got, and I think you read some of this, but combined full year 2025 was about$800 ,000 in revenue. So far this year through June, they were at$600 ,000. So run rate is definitely, you know, increasing and growing. They have positive year-to-date net income at both studios in 2026. And then the breakout here, it looks like, it's interesting. These two locations kind of tell different stories. So location A has a higher revenue per member, but it looks like 25. 25, location B is, is the more recent one. So like the trajectory is different between 25 and year to date, 26. Interesting. So the way this works is I'm a pet owner.

11:31I maybe have one or multiple dogs and is it dogs only or dogs and cats? Dogs only. And I'm signing up for a recurring membership because I think, you know, these active members are, you know, kind of always churning in some way, shape, or form. But I'm signing up for a flat dollar amount and that gets me in the door. But you're saying part of this franchise's value is you maybe don't need a cut and a wash and a nail trim and whatever other things all at all times. So this is a price to get in the door and then maybe a reduced price per service? Is it that type of model? Yeah. So it depends on the market.

12:16It's 35 to, I think 60 was the highest I saw in like tier one markets for the base membership, which gets you, I think you get to pick from five services, uh, you know, three or four a month basically. And so you're getting in and you're getting a nail clipping, uh, teeth brushing, uh, they offer blowouts, believe it or not, uh, where they're just kind of like, um, so you get to pick, you three of those kind of basic services and then you can add on like they had uh more deeper like uh what's it called like the plaque buildup on a dog's teeth like they'll actually use tools to scrape more of that kind of built up plaque off um and so more like specialty services you can add on for an additional cost but the base membership is 35 to 55 a month okay all right gotcha and And like, are there like family discounts for this kind of thing?

13:11Like, you know, I have three dogs and I want all three of them. Are there price breaks for volume per household kind of thing? I didn't see that anywhere. I know as you had tiers of the membership, so there was like the essentials, which gets you four or five services and then seven or eight, nine or 10, but the higher up the tier, the bigger discounts they'd give you on the add-on services. So if you had the basic tier, you'd get 25 % off other services, 40 % off, 50 % off, etc. What's the gross margin profile like on services like this? Because you're layering on a monthly component, it kind of obfuscates the data a little bit, I would think.

13:50But if you're doing this, you should be operating at 75 % gross margin or something like that. Yeah, I think I look at it similarly to other membership-based gyms where a lot of your cost is in the fixed cost of getting a location built out and then almost like, again, a gym membership, we have to pay a trainer, you've got to pay a groomer here, someone to cut the nails, brush the teeth, et cetera. I imagine the skillset and cost point of an employee here is maybe the same or even a little bit less than or easier to find than potentially a fitness coach or trainer. But so, yeah, I imagine gross margins are north of 50%, probably in that 70 % range.

14:34I would think that there's like still a compliance and like regulatory component. But Heather, you've got a ton of experience with med spas. It seems like on the pet side, maybe it would be a little bit less because you're not dealing with people. I think this is just like in a human med spa where they're not doing injections. You know, there really is no, the regulations are really not there because you're basically doing cosmetic procedures. I think this is pretty close to that because the closest thing I heard to medical was more dental here. It didn't sound like there was anything that you necessarily need a license to do.

15:09it's more like really high-end pet or thorough pet grooming that you're sort of locked in with a membership prepaid um and so they're capturing you know that these are our customers and they keep coming back because they're on this regular uh payment schedule i think it's really really smart uh business model and i don't think it probably has any regulatory um burdens it doesn't sound like they do any boarding of dogs. It's just literally come in and pick your dog back up after the service. So no, this sounds like it would be fairly easy to run, to be honest, and certainly something that appears to be SBA eligible.

15:51Of course, with franchises, the first thing any SBA bank is going to want to do is look up this franchisor and see if they are on the SBA approved list. The SBA approved franchisor list went away for a while. The SBA got rid of it. And then last year in June, they brought it back and it was a little chaotic because there were a lot of brands who didn't even know they needed to be on it and had to get like hurry up and get all their documentation submitted. And there's this one guy that works at SBA who's been there forever, a lawyer who reviews all the franchise documents for LHP. That's crazy.

16:31Fun fact. Wow. I did not know that. I'm glad you shared that. I didn't even know that. Yeah. I won't say his name, but I know his name and he's been around forever and everything goes through him. I probably got a cell phone. I probably do. He used to be based in Los Angeles. I don't know if he still is, but yeah, it's interesting. They brought it back, but now you can look it up. So you could Google, if anybody's looking at a franchise concept, you could just Google SBA franchise registry and you'll find it and see whether the concept that you are looking at, that's the first thing lenders will do is say, is this concept already SBA approved?

17:06Which is a fairly easy thing to get because it's all they're looking for there is, does the franchisor give the franchisee independence enough so that they're kind of running a business? Yeah, that's kind of it for the first pass. The second thing is there's a lot of data on all the loans that have been made to franchise businesses. And so the next thing banks will look at is what is this franchise concepts track record with the loan defaults? Do they have a high level of defaults? And sometimes that's enough to just turn off all the banks. This concept's got too many defaults, we're not lending.

17:44So those are the two things banks will look at first. This seems like it's got to be a brand new concept, though, I would assume. Yeah, I know this brand is newer. They've had a lot of early success. This one, this specifically in the Florida region, is only a couple years old. Alex, is this a crowded space? I haven't seen this specific of a take. There's a lot of pet boarding or daycare where you've got to go to work and you're dropping your pet off. Same with boarding. I haven't seen a lot of grooming, hygiene, wellness specific franchises like this. I've seen just grooming, but not at this level of kind of thought, attention, detail, membership based.

18:33And from what I've heard about this brand is it's going really well. I think it's probably because of the joke I made earlier. I just think people are putting their pets on a pedestal much more so than they used to. This just seems like a really difficult time for this seller to sell this business. Like I'm looking at these financials. So net income and in 2025 across both locations, which I agree, like, hey, they're not stabilized. So we'll give them credit for that. But 2025, you're looking at like negative$95 ,000 in net income. And then 2026 year to date is closer to$100 ,000. in net income.

19:16And let's just say you annualize that through June and it's about$200 ,000 in net income. So you've got these like very disparate, you know, two financial data points. One last year, negative$100 ,000. One this year, annualized and forecasted to be$200 ,000. Either way, you know, if you take into account any historical data beyond this year, the asking price of$1.3k kind of seems like a lot to bite off given just the underlying financial performance. If everything goes amazing, maybe the numbers work, right? Yeah, I agree with that because the capacity for one of these locations, the highest in the system, I think is a little over 1 ,100 in one location.

20:02You know, this one has, yeah, members. So at each location, where did that number go? It was like 527 and 560 or 90 or something like that. Yeah, the average is 780-ish per location today in the system. So they each have another 50 % growth as far as capacity in the membership base, which is great. I mean, there's upside. You have the third location, but I agree with you. I think it's a little premature to price it as though that's already happened or that's a guarantee. Or you still have to go get those leads. You still have to retain those existing members, et cetera. up. And so, yeah, I think a little on the high end, it's almost as though they're assuming these two are at more capacity and the third one's underway.

20:47Buying a business might be the biggest financial decision of your life, and most people try to make it alone. Cold emailing brokers, reading financials at midnight, and guessing whether the numbers actually hold up. Acquisition Lab exists so you don't have to. It's the leading community, platform, and fund backing serious vetted acquisitions entrepreneurs with a standing board of advisors who've actually done this. People who will talk you out of a bad deal as fast as into a good one. The education and the deal search tools are free and open to everyone before anyone asks you for a dime. The easiest way to feel that is a roundtable.

21:20It's a free live conversation where you talk through what you're actually stuck on with other buyers and advisors who've been exactly there. Nothing recorded, so it always stays in the room. Sit in on the next one for free at acquisitionlab.com slash roundtables and tell them that Acquisitions Anonymous sent you. It's so fascinating here too, because like these two locations, they're valuing location B, you know, at a higher value of 650 ,000 versus 600 for location A and location B does have more members, but without like really delving into it, like these could be, it's such a new location. These could be members that have, I feel like there's always this tricky dynamic with like prepaid dynamics in instances like this that you've really got to delve into.

22:08They might've run amazing specials right off the rip and given people significant discounts to sign a six or a 12 month, you know, Hey, we'll give you 25 % off if you go ahead and pay for 12 months. Well, the churn is going to, you're going to fall off a cliff and churn really, really hard. And in this case, it may have more members just because they haven't reached that cliff point yet, whereas location A is older and maybe they have and they haven't completely built back up yet or they're still in the rebuilding phase from that. I have an interesting thought on this because it's September and it takes about three months to close a deal with an SBA loan from LOI to close.

22:52Someone could come along and negotiate an LOI in September, maybe get it under LOI towards the end of the month. Now they've got three months to close, by the time you actually close, you could see whether these year-to-date numbers actually pan out into a full year. And you could decide at the end when you see that, whether you actually close or not. So sometimes I know a lot of people complain about how long it takes to get a deal done. But when you're a buyer, especially in a situation like this, where there's not a lot of history, the longer it takes you to close is sometimes an advantage because you could see what the full year 26 actually looks like.

23:34And then you might decide, yeah, this is a good deal, you know, at a million three or not. That's a really good point. And I haven't thought about it in the franchise world. I mean, my background's kind of tech startups and we raise venture capital, et cetera. And I see investors, you know, kind of do this trick a lot. We're like, oh, it's the long maybe or I'm on vacation for a few months. and they'll kind of intentionally, because it's free, it's a free look, it's more data. I haven't thought about leveraging that same tactic or approach, leveraging the SBA and financing and getting more data or more of a free look along the way.

24:09Smart buyers aren't always in a rush. It's clever. Yeah, a lot of times smart buyers are okay with things taking a while because that's more data. Mm-hmm. Well, I think, like you guys were saying, And I think also understanding the motivation of the seller, which is always a missing part, because we have the numbers and what the business does and all that, but it's hard to really get into why is this person selling? Why are they motivated? Because they might be open to seller financing where it ends up being a lot cheaper to buy this business that's cash flowing and you could get into it for much cheaper than developing it de novo.

24:48It's just how motivated is the seller? Is there some personal issue and they need the cash quickly? or is this, you know, they found out operating a business was a lot harder than they thought and they figure, hey, we're in year two with a lot of upside. Let's try to get what we put into it back and, you know, someone else can run with it from there. I just think that, like, this is, you know, I can imagine two very disparate outcomes. You know, one where a buyer closes on this and they find all the reasons why, you know, this seller was getting out of it. You know, the unit economics aren't there.

25:21Maybe the franchisor is slightly underdeveloped. The leads that you thought you were going to be getting aren't converting. They have some data here on that. You could get in and realize this is just a falling knife and all I did was grab it on the way down and now I'm bleeding also. And the seller before me was bleeding too. And somehow the franchisor is the only one making money. But there's also a scenario where like a really astute multi-unit operator who knows what they're doing and they know the questions to ask. It's not that hard to imagine based on just the average kind of unit economics that you talked about, Alex, that you're getting from their FDD.

26:03it's not hard to imagine the cash flow in these two units at, you know, 100 or 200 more members per, you know, per location. I would think the cash flow starts to really, you know, accumulate in a very healthy manner. And then all of a sudden with the right operator, you could look back and this is just a rounding error, so to speak, you know, on the purchase price and on your entry multiple. And so I think this is where, you know, multi-unit experience and dealing with people in the franchise space is just huge. The disparity of outcomes is so significant. And like the, you know, physician or real estate agent who's never done an operating business and never done something multi-unit is like, oh, this is great.

26:53Like, how hard could it be? And the franchisor is like, you have a fat income. Like, great. well yeah we'll you know we'll prove you and the sba is like you have a bunch of unencumbered assets great we'll do it no problem and then all of a sudden like you're the sucker you know who's at the table and you don't know until it's too late i i just can imagine a couple different outcomes here and not a lot in the middle yeah and that's where like i think having the context of the seller because i was just trying to do some of the math on you know hey what is the margin on location a because it looks like location a has been a little bit longer you're open a little bit longer what if you got to the full membership potential and it looks like today they're getting like an average acv or you know average monthly revenue from a customer of 91 so if you do that on 750 members it's you know 820 grand a year and they currently have you know 24 margins it's 200k a year in cash flow there's a price where that could make a lot of sense and it could be a really good business but for what they're currently asking I think it's a little too rich and there's way too many assumptions and things that would have to, to your point, go right I like Heather's idea of can we drag this out a little bit to get more information or can you work with the seller to structure clever financing and maybe seller financing or something different for figuring this out Well, and astute buyers will do that.