Would You Pay $18M for a Metal Fab Biz That’s Only 5 Years Old?

0:00Hello, everyone. Welcome back to another episode of Acquisitions Anonymous. My name is Bill D 'Alessandro, and I am one of your hosts. And this is the internet's number one podcast on buying, selling, and operating small businesses. I'm on this week with Michael and Heather, and we have a big one. It is$4.5 million of EBITDA fabricating metal, we think, for oilfield services in Houston, Texas. This business is really cool. It's been around for just five years. So from zero to almost 5 million bucks of EBITDA in five years. We're asking 4X. So we're digging into this one. Is this a good searcher deal?

0:39What's wrong with it? A couple of things tip us off. So I hope you enjoy this episode of Acquisitions Anonymous. We'll set Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100 % ears anymore. I think I'm thumbs downing on just the plus inventory. Hey everyone, it's Bill. And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called Capital Pad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses. So Capital Pad is a marketplace for acquisition entrepreneurs, that is people who want to buy a business and need capital to list their deals and solicit capital from other people who want to invest in acquisition deals.

1:27So if you want to back somebody buying a small business, CapitalPad is the place to do it. And if you want to buy a business and need capital, you can go on CapitalPad to be introduced to investors. So the really great thing too from the investor side is that CapitalPad takes care of all of the details that can get hairy with small business acquisitions. They handle standardized terms, standardized governance, standardized distributions all up front in black and white. Basically, Capital Pad professionalizes investing in small businesses. And the returns can be really, really good. I'm so stoked they exist.

2:04It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out CapitalPad.com and tell them that Acquisitions Anonymous sent you.

2:23Acquisitions Anonymous Hosts:so we're changing the sba rules again i want to hear from heather so heather we right before we started recording heather was like i said heather did they change the sba rules recently and she goes they changed them a lot and so i want to hear heather how they changed the sba rules recently okay they changed a few things one rollover equity just doesn't really work anymore because they put three really onerous rules on it so if you want rollover equity the seller has to personally guarantee your loan for two years. Any percentage? Any percentage. So if they're below 20 % and they got some proceeds or they divested some of their shares, as long as that's the case, they have to PG your loan for two years.

3:07So I don't know many sellers that are going to agree to that. Number two, this is only in rollover situations. You would have to do it as a stock sale and any investors in your cap table that even if they're below 20 % have to personally guarantee the loan for the life of the loan the whole time. Yeah. So it's like, who's going to do that? Those are really, I think, just unreasonable terms for a seller or investors or anybody to do. So the problem with not being able to do rollover equity is licensed businesses where you need the seller to stay on or anytime you need the seller to stay on board more than 12 months.

3:43Because when you buy the seller out fully, the rule is they can't stay more than 12 months. So we revert back to pretty much everyone's going to have to do that, buy them out fully. And now we can't have any situations where you need, you have any seller dependency license is usually the situation beyond 12 months. So there's all these. So there's actually no way for the seller to stay involved past 12 months at all. Because they can't roll because that's not workable anymore. Exactly. And if they don't roll, that means definitionally they're getting bought out entirely. And so they have to depart the business within 12 months.

4:17That's right. Can they get rehired in a month Yeah. Right. And so even if it's a master plumber's license and it takes you three years to get it, I don't know many master plumbers who are out there, you know, doing M &A. Sorry. Only licensed business is now on sale with an SBA loan, functionally? close, pretty close to it. Like there might be some exceptions if there are employees that also have the license and you know, there, there might be some exceptions, but it's not easy. And yeah, there's a lot of them that are technically, they just can't be SBA finance. The seller will have to carry is maybe the only way.

4:54Acquisitions Anonymous Hosts:So the takeaway here, kids, if you're going to do an SBA loan, don't go to loan, call Heather. She'll help you because this stuff's confusing. We will spot stuff for you early. In the meantime, I brought a deal in celebration of Bill being back from his vacation. So welcome back, Bill. I'm glad to be back on Acquisitions Anonymous. I have missed you guys. Because you're back, I brought a big boy of a deal. Big boy or big girl, depending on how you look at it. It's both. It's a cash cow, so I think it's a girl. There we go. So the huge cash cow metal fabrication business with strong client base in Harris County, Texas.

5:37Acquisitions Anonymous Hosts:Do you guys know where Harris County is? No. It's in Houston. Okay. So Houston, Texas metal fabrication. Yep. Yep. So there are all kinds of metal fab businesses like this. And this, I think, is probably a picture of the metal fab. And you can see these appear to be oil field parts. Yeah. Okay. As one would expect in Houston, right? Yep. One of my friends owns an immensely profitable business where they make for oil refineries, they make, when you hang pipes in the air, you have those little connectors, little metal connectors that connect the pipes to whatever the supports are. They make those connectors and they do very well.

6:28Acquisitions Anonymous Hosts:the past few times i've seen them they had a chauffeur drive them so that's all they make is the can like it's like a band that goes around a pipe and then like crashes and that's all they do correct that gets you a chauffeur amazing yes the economy so big i didn't even this has been a few years since i've been in their presence but they also you know you can buy like stretch may box and stuff like that they had like one of those it's pretty amazing yeah so like stretch so you have more room in the back like Rolls Royce style. So if I own an oil field services company or I'm building oil rigs or whatever, and the guy who makes my pipe fittings rolls up in a stretched Maybach, I'm going to have a problem with my pricing immediately.

7:13Acquisitions Anonymous Hosts:I mean, it's just... Yeah, well, they're probably doing$250 million a year in those little attachments. Whoa. Yeah. I mean, there's just so... If you look at it, I think... oil field oil petroleum is like the 11th biggest industry in the United States. There's just so much money floating through. And, yeah. And all the stuff that goes on with fracking and the stuff, you know, it's just so much money. But he does have to live in Houston. So. Some of Houston is really nice. Some of Houston is really nice. I would say Houston is actually, if I had to pick Texas cities to live in Houston's number two for me.

7:50Oh, really? Really? Yeah.

7:53Acquisitions Anonymous Hosts:West, West Houston is really, really nice. Memorial. in all those types of places. And the thing I like about Houston is the culture is the opposite of pretentious. Like they're all just like, they're all oil people. It's like living with a bunch of gamblers. It's just great. Have you lived with a bunch of gamblers, Michael? Yeah, a bunch of degenerates. All right. I'll fill right in. We just gamble with SBA loans. Don't tell us. Pretty much. Right. Asking price is$18 million for this metal fabrication business. It does$4.5 million a year in cash flow and$15 million a year in gross revenue. I like it.

8:32Acquisitions Anonymous Hosts:Yeah. EBITDA is not disclosed and real estate is not disclosed. It was started in 2020. It's four years old, five years old. Okay. So it's got 30 % EBITDA margins started in 2020, 18 million, no, 15 million sales. Wow. Yeah. So they want to sell for just under four times cash flow. this well-established privately owned fabrication company has been serving industrial and commercial clients since 2020 known for its quality craftsmanship and reliable turnaround times the business has built a strong reputation and brand presence in its niche market ownership is preparing for retirement is offering the business along with the real estate as an option for a bundled sale this opportunity is best suited for an established industry operator or manufacturing business seeking to expand through acquisition harris county texas which is houston real estate is owned, 17 employees, and the operations are housed in a company-owned facility featuring dedicated fabrication bays, a loading dock, and modern equipment capable of handling a range of custom jobs.

9:27Acquisitions Anonymous Hosts:The property includes administrative offices and ample space for production and storage. The 30-acre property, which the business fully owns, is also listed for sale as a bundle. The business serves a diverse mix of repeat commercial and industrial clients across construction, energy, manufacturing, and infrastructure sectors. A strong portion of the revenue comes from longstanding relationships with regional contractors and project managers. There are significant opportunities to scale the business by expanding into new markets, diversifying service offerings, and enhancing marketing and sales efforts.

9:54Acquisitions Anonymous Hosts:The seller is prepared to provide transitional support to ensure continuity and set the new owner up for continued success. And the reason for selling is retirement. And it's listed by Dr. Amir Hassan from Business Links International in Houston, whose sponsoring broker is Rocco Bell. so heather you've probably looked at some businesses like this what what do these guys do exactly i'm not sure exactly what they are making but obviously it involves metal it could be pipe and valve i mean i see i see some things that look like pipes here um serving the oil industry um maybe all kinds of specialty metal fabrication um you know i'm i'm kind of a little surprised that it's five years old.

10:37They talk about longstanding, you know, strong client relationships, but being only five years old, it makes me think that whoever started this business had these relationships in some other business a lot longer than the five years that we're looking at. It's got to be that, right? And they're retiring. So they started this business at what, 60 maybe? You know, someone that's older, that's well-established, went out and started this business. Maybe we're working for another company, killed it. and now they want to, you know, get that retirement pop so they can go retire. That's what it looks like to me.

11:09That's what it looks exactly like to me too, that somebody has deep experience here and said, hey, we could do Melfab in addition to whatever else we were doing. I'm a little nervous about the line also that says, this is the best acquisition for an existing player who wants to do add-on. And that makes me nervous too. Why can't, I mean, this has got four and a half million EBITDA. Like anybody should, this should be a standalone business. Why isn't it? Yeah, it's connected to something else already somehow through this. Whoever established this, it's connected. And it could be that that that other connection is the sales pipeline somewhat, so to speak, pipeline.

11:46Get it? Yeah, exactly. Which is a great business to start. I mean, it's like a vertical, it's probably a vertical integration attached to some other business, right? Which is awesome and great. And it's thrown off$4.5 million a year for this person, but tough to sell. I would argue if that's the case, they should fold it into the other business. It should just like - That should be the buyer. Yeah, that's the buyer that you sell to. Yeah. And maybe there's a reason that that's not the buyer. I have a lot of questions.

12:21Acquisitions Anonymous Hosts:My friend is starting an industrials private equity firm. So I just sent this deal to her. Okay, well, you should buy it then. We'll see if she takes food. It says he's not allowed to buy it home because it's best for a strategic who needs to do an add-on acquisition.

12:41I mean, the finances business are amazing, right? It's got 15 million sales. It's wrapped to 15 million sales in five years. It has 30 % EBITDA margins. It appears to have a relatively custom, or I should say purpose-built building, which probably is great for it. It's got the fabrication bays, et cetera. I've got to assume that the price does not include the real estate. You could go buy the real estate somewhere else, which of course raises the question, is the EBITDA fully loaded for market rent if you don't buy the real estate or not? Who I'm getting on the seller also owns that, obviously.

13:21So questions, diligence questions. 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. 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.

13:58That's V-I-S-O-C-A-P.net and click Zoom Sign Up.

14:03Acquisitions Anonymous Hosts:I'm trying to figure out, I pulled up the picture. dollars to donuts this is the their facility why it's in black and white i really don't know but i would yeah it looks like kind of the old school like types of facilities you would see in michigan like for car parts and car manufacturing like long skinny you know we're going to move stuff through the through facility but it doesn't look like they're running that type of assembly line here it's it looks actually like it's stamped out vertically so you can see those kind of towers on the right on the floor and there's like individual uh bays or units that are probably all cranking out the same thing yeah there's like some like this thing right here has some gears to it that's just the extent of my mechanical knowledge i don't know what this look at there's some screws there bill i'm not gonna say anything i have no idea what this is So what I do know here is there is significant CapEx in this picture, right?

15:03I mean, there's the building which you can buy or not buy, but if you don't buy it, you got to rent it. So there's a cost of capital either way to use the asset that is the building. There's also all of the CapEx that went into whatever these machines are that we're looking at, which I wonder if that is how they were able to ramp so quickly. You know, it could be that there is late demand for this thing, but there is a capital mode here. And whoever is the founder here had the capital, stood up the facility and bought all machines, and boom, you're in business immediately soaking up late demand.

15:41I would say if that's the case, that is almost better. If they were able to cross a capital mode and get started here, that might indicate that the only cheat code they had was capital and not some sort of pipeline of leads or some attached business, in which case maybe that's better and there's a mode here.

16:03Acquisitions Anonymous Hosts:It would not surprise me if the guy who started this had done this before and sold the business and then all of his customers came over and started working with him at the new business smells precisely like that like the sell it the sell it but it organically goes back to you type situation so yeah it's a great situation to be in man well we talked about that there's a guy here in san antonio that has uh sold and bought back twice now an aviation business that is located out in the west side of san antonio sold to private equity twice they screwed it up twice he bought it back twice and each time he sells it sells it back double for the size he sold it for um or i'm sorry doubles it from the size he buys it back for so pretty cool amazing i love that um all right so where are we at on this one you guys like it or hate it i want to like it i don't know a ton about it i love the financial profile of it i'm a little nervous it's five years old um if there's capital mode here you know maybe this machinery is pretty new right it's not fully depreciated.

17:08This is only five years old. So you're not looking at a whole bunch of deferred capex or maintenance capex. I don't think, uh, actually I would want to understand the maintenance capex if that's an EBITDA or not. Um, I, I like it cautiously. I worry why they think it's only an add on, but I like it. I have one more concern about it and it has to do with cyclicality and how much, you know, if this is the kind of, whatever they're producing, if it's the kind of thing that is only in high demand when oil prices are high, you know, and goes back down when oil prices go down. So I'd want to, there's a lot of questions.

17:43I have a list of like 15 questions that are like the answers to each of them could be the deal breaker. But, you know, if they all answered those correctly, then yes, I like it.

17:53Acquisitions Anonymous Hosts:Look, I think they're asking 3.8 times cash flow cash flow not ebita right like they're asking 3.8 times that for a capex heavy business that has grown to 15 million in gross revenue in five years in a niche in the energy sector in a re-industrializing america that wants to build more things here i think this is worth getting the sim on and seeing what's going on but i will tell you i am thumbs up but it's like a blue thumbs up because I guarantee what's going to happen is you're going to dig into this and there's going to be just some huge deal killer on the whole thing. And that's why it's on BizBuySell and that's why it's so cheap because stuff like this is not trading for...

18:37Acquisitions Anonymous Hosts:If this is a business with a moat that's generating kind of stable cash flow and has all the characteristics I just talked about, they're not trading for 3.8 times. They're trading for seven or eight times. And there's just something screwy about this deal. But I think somebody should go figure it out and then they You should tell us what it is. You've seen these businesses a lot that are too big and too underpriced. And to your point, Michael, it always means there's a deal killer. There's some reason it's not transactable. Now, it just means you can solve that with maybe risk sharing, maybe earn out.

19:09I immediately reach for those tools in these situations. But typically in these situations, when it's priced that low, it's because it's really hard to transfer the risk to a buyer. And you usually can't buy these at all with debt because of the risk.

19:22Acquisitions Anonymous Hosts:agree all right well we'll put the link below somebody go check this one out it's on biz by sell and uh hopefully you find out something interesting because it looks really interesting or somebody should buy it or this is the deal you've been looking for searcher this seems like a perfect super searcher deal perfect super searcher deal you know that 15 to 25 million ev 3 to 5 million EBITDA. So we should do it. Heather should do it. No. She's dying to go to Houston in the summer. Too hot. Human. They have horses there. Well, okay. I'll do it. All right, everybody. If you enjoyed this episode, tell a friend and help us grow the pod.

20:08Acquisitions Anonymous Hosts:We'll see you next week. Bye.

20:19Thank you.