Would You Pay $2M for a 70-Year-Old Sandwich Factory?

0:00Welcome to another edition of Acquisitions Anonymous podcast. I'm Heather Anderson, and today I was joined by Mills and Bill, and we did an episode on a 70-year-old food manufacturing company in Mills' backyard. It had some pretty interesting characteristics. We got into a really interesting discussion about boiled peanuts for some reason. I have no idea. It's Friday. So please enjoy the episode and let us know what you think. We'll start Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100 % beers anymore. I'm thumbs downing on just the plus inventory line.

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2:05Enjoy it. I wish people could hear sometimes the before and after the episode, the things, the whole premise of the podcast was kind of anonymity so that we could talk openly about things. But like we've talked recently about offline about Bill selling his business bill buying a house like but then we're also doing these things like where i'm like oh what deal are we going to do next i'm like oh this is a good one and we hit record this is as live as it gets we are reacting live uh so mills is still trying to redeem himself for the ukrainian dairy farm so he says that he has in the russian and the russian music catalog i found this mergers court website and it is the most obscure stuff but i just this one jumped out because the title was 70 year old.

2:50It's a 70 year old business. Then as I'm reading the description to the gang, it's like, oh, it's based in South Carolina, which is where I'm based. So I was like, I stopped reading at that point. Let's hit report. You got excited. Yeah. So this is a 70 year old American producer and wholesaler of pre-packaged foods. Target price is$2 million. Their revenue is$5.7 million and EBITDA is$426 ,000. It says exciting business opportunity located in a prime area of South Carolina, specializing in the production, packaging, and distribution of sandwiches to vending machine companies. This is getting better on it.

3:30I love it. So vending machine companies, grocery and convenience stores, as well as various institutions. In 2023, the business generated an impressive revenue of$5.7 million with seller discretionary earnings amounting to$426. So up here, they said EBITDA, but they're using EBITDA and SDE interchangeably, which is Heather's favorite hill to die on. No, don't do that. Don't bait her into it. No. The facility, encompassing 14 ,000 square feet, is equipped with a substantial operational freezer measuring 60 feet by 60 feet by 30 feet. Oh, my goodness. You might be able to see this thing from space.

4:09The five-acre property, including the building, is available for purchase or lease, providing flexibility for potential buyers or lessees. The company proudly offers a proprietary line of deli meat subs, breakfast sandwiches, hamburgers, hot dogs, and more catering to diverse customer needs. A skilled and capable staff is in place, ensuring seamless operations even in the absence of the owners. Furthermore, the processing and packaging equipment is modern and fully functional, guaranteeing efficient production capabilities. This venture represents a valuable opportunity for growth in an established market supported by a strong operational foundation.

4:44So that is pretty much all the, there's a little bit more info down here. So, wow, they have 42 employees, non-union. It says that the facilities, they list a little bit of information here. they say the equipment is worth 1.2 million dollars they have inventory of 326 000 and then the property sits on an acre and a half or the the building sits on an acre and a half property it's kind of everything so i am just picturing i love this i'm picturing how many square feet you say it is mills it is 14 000 square feet with 40 people hammering out sandwiches all day long. It's a sandwich factory. This is so cool.

5:30I love sandwiches. So this is like heaven for me. But managing 42 people for$420 ,000 of EBITDA sounds kind of like a nightmare to me. Heather, Heather, Heather, please don't. I'm so excited about this one. You're still excited. I'm sorry. Heather's the new Michael. I'll try to be more positive. Yeah, it's Friday. When I got to the number of employees, though, So, I mean, that is, now, I don't think it's seasonal. I'm trying to talk myself into it. Like, maybe they're seasonal employees. They're not. Sandwiches are consumed all year round. I don't know. Okay, so this is 5.7 million revenue divided by 42 employees and$135 ,000 of revenue per employee.

6:16But there's also$426 ,000 of EBITDA. So that's$10 ,000 roughly of EBITDA per employee. That's not great. That's rough. That's rough. Yeah. That's rough. So let's kind of unpack this business. Their customer is probably local or regional grocery stores and convenience stores. You know, you go into the gas station and they have like all the coolers with the beer and the Gatorade and the Coke and all that kind of stuff. And then they have all the candy bars and the bags of chips. But then now more and more, I've seen like this little island cooler that has some fresh fruit and like a very just generic turkey sandwich with lettuce.

7:03And, you know, I guess there's hamburgers on those. I've never really looked at the kiosk that hard, but there's hamburgers and hot dogs as well. Mills, you are in construction, man. You are supposed to eat at one of these places every day. I do. My family has really started to judge me. They're like, why did you spend, you know,$9 at the 7-Eleven? And I'm like, well, the pizza is actually better than you think. And they're like, Mills, I was really counting on your expertise here in convenience store food. Okay, so QT right now has the best gas station food out of any convenience store by far.

7:37Now, I don't know about like some of the niche ones like Parker's and some of these others, but QT has incredible pizza. the barbecue sandwiches are way better than you would think and they have really good tacos including a taco station like a taco topping station with like salsa and like fresh cut tomatoes and things like that so bill i wasn't trying to tell myself but there are some options out there but qt is at the top of the qt i hear mills saying that qt is the best gas station to ever exist. So if all the Wawa and people can come, but like seven 11 has wings that are, they look like they have been eaten and spit back out.

8:20And that's kind of the starting point. So I don't eat those. So I hope that this sandwich company makes the good burgers and sandwiches and they say they have breakfast sandwiches, hot dogs, meat subs, like all kinds of stuff. Have you ever seen like in the gas stations too? There's like the, the microwave, And you buy it and you microwave it and then you have a hot meal, which I think this is kind of supplying that. These are the sandwiches in the clear triangular packages and like ready to eat or ready to microwave. Yeah. So, I mean, I think that this is a very stable business in terms of their, you know, the means of distribution.

9:00I'm just more concerned about, you know, you're not selling to QT. They are sourcing and making their own stuff. You're not selling to Wawa and Sheetz and, you know, Spanx and all these others, the big chains. I think you're selling to the independent operators who are buying gas from somebody and they are just the lower man on the totem pole. I don't think that's a bad thing, but it makes you wonder how you're diversified probably from customer concentration, I would hope, I think, but how hard is it to grow this business? You're also geographically constrained because you're not going to make the sandwiches in South Carolina and take them to Southern Florida.

9:44You have to have other facilities there because of the close proximity of freshness. But, okay, if the business isn't growing or maybe has a very expensive path to growth, but it is stable revenue, is it worth five times? I would guess it has shrunk. This is a 70-year-old company. So my guess is they existed before those chains, you know, had their own in-house, you know, sandwich making and some of the bigger grocery chains may have used them at one time. And I bet you if you look back far enough, you'll see that this is slowly shrinking down to maybe just serving the independent operators. That would be my guess, just because of how old it is.

10:2870 years old and only 400 ,000 of EBITDA. Yeah, I'd love to see the 20-year revenue trend on this thing. Yeah, yeah. So the big picture is it's shrinking, probably. Yeah, you just wonder if this stuff, over time, gets more and more commoditized. It's made in a huge factory in Atlanta and shipped by truck to South Carolina and that you can't beat those economies of scale over time. Yeah, right. Or flip side, maybe it's got to be local because it's like fresh food and you can't do that. So I want to understand the long-term dynamics of how centralized can this get or does it always have to be local because it's fresh?

11:09I think so. I'm pretty sure it does have to be. Maybe it's regional. For other folks I know who are in the perishable food space, it just seems like it really doesn't go that far. Now, if it's something that, you know, like we talked, I think about, didn't we talk about almond pollinating and like moving beehives and stuff like that? Like that's obviously something that somebody is going to travel for. But I just don't know that this goes very far. Sandwiches, fresh sandwiches? Yeah, I don't think they go that far. But they're refrigerated though. They have frozen. There's a walk-in frozen. There's a cooler that is big enough to store like tons of bodies in.

11:52I think, though, that it's like moving fill dirt, right? This is another episode that we talked about. You just don't end up moving fill dirt that far because the law of diminishing returns, your freight starts eating into. These aren't heavy, but I'm just Googling and trying to find this business before we hit publish because I really, really want to know where it is. You could be the sandwich man Mills, only$2 million. Sligging Sammies all over South Carolina. Mm-hmm. But 42 employees and you've got food safety concerns, and this is not an easy business to run. That's a good point, Heather. Like, the food safety stuff and the compliance and all that, like, that's tough.

12:34That's a fair bit of work. Yeah. It is. And there's CapEx, obviously. Look at the freezer. There's equipment. There's trucks, I would imagine. so i wonder i also wondered how it got to the stores because yeah like they do the stores come pick it up from them do they deliver it i don't think you ship it common carrier if it's frozen i mean you could safety wise you probably at least the non-frozen stuff you probably want to control it uh so you don't get sued because somebody else didn't control it well um probably they have some trucks, I would guess. Or yeah, maybe they deliver to a local distribution center.

13:15Maybe. But at the same time, though, you think about that, that might be, this might be the type of thing where nobody ever bids this contract, right? Like the sandwiches at the gas station are such a small portion of it, right? They've got the sandwich guy, the sandwich guy's truck shows up at the DC once a week, every week, and they want to cut costs, they're calling Coca-Cola, to negotiate that type of stuff way before they're renegotiating their sandwiches because it just doesn't move much. Well, and I think, to my point earlier, I think this is so mom and pop. I think there's probably not even a contract per se.

13:52It's just like the guy who comes and provides these other ancillary product lines. It's more kind of just demand and fulfillment. Like, hey, the sandwiches keep getting eaten at a rate of three per week. And so we need you to bring three per week. You know, I just. With a so now you're talking about like a route based business in addition to, you know, manufacturing and production, you know, and assembling this food that that just gets really complicated. If I'm doing a route based business to convenience stores, the white the whale to me is the ATM business. And I think we've talked about these before.

14:31I've looked at them very, very heavily and I can't ever figure out how to make the numbers work because the working capital needs just dwarf the cash flow by like a factor of like 10 or 20. Your inventory is$100 bills. Yes. Yes. Or 20s usually. But you can't go get cash. You have to go to like the Federal Reserve. The bigger the business gets, you have to go to Federal Reserve branches to actually get the vaulting of the cash handled. So if you're going to be on a route-based business and you're going to be going to mom and pop convenience stores, that's what I want to be doing. not necessarily low average order value, low margin, perishable foods.

15:31action limits and automatic reconciliation. So from raising capital to returning it, VeriVend handles it all. Deal marketing, data rooms, KYC and accreditation for your investors, signatures, capital flow, dashboards for your investors, and even fund administration, accounting, and taxes. So whether you're raising a single deal or managing a full fund, VeriVend gives you the speed and confidence to execute all in one single platform. So you can check it out and learn more at veryvend.com. V-E-R-I-V-E-N-D.com. We've looked at a couple, you remember like the pasta salad manufacturing business? Like we've done a couple of these that make essentially private label food, ready to eat food for consumption.

16:15And it always comes down to the contracts. Like, do you have customers that are going to stick around? And are you actually, do you have enough margin in it? Because it is, it's not just food, it's private label food. So like, that's a double margin compressor right there. And you have all the food safety and like, I just don't know that this is a really great part of the value chain. Yeah, I agree. I think that's the key is that it's not a great part of the value chain. And also like, the sandwiches are not why you get, well, meals, I guess the sandwiches are why not. The pizza, the pizza, though, and the tacos, the gas station tacos.

16:50They have to be good though. They have to be good. They have to be really good. But like even assuming maybe these are so good, it's a traffic driver for these mom and pops. I don't think so. I mean, I think that's the whole point, right? If it was good, then it would be like it's a food truck or something like that. It's more that it is just one of those things you have to have. If you're a gas station, if you're a C-store, you have to have gas. You have to have beer. You have to have cigarettes. You have to have lottery tickets. You have to have some fresh food. It can't be all packaged. And this is your, this and like a fruit stand, you know, by the register are your fresh food component.

17:26Yeah. Didn't we do a fruit stand also? I wasn't here for that episode, but I'm really sad I missed it. I want you to go back in the, in the archives. I think we did the fruit guy that refills the fruit display. Oh, maybe we did. Yeah. Yeah. I think the fruit guy needs to come by this business and now we've got something. Yes. So actually Heather, hell yeah. Like that is sort of the only way it makes sense is if you have really good synergies. Yeah. You know, it's the fruit guy or even better if you're like already doing some other, you're the pasta salad guy. Yeah. So you already have facilities with the food safety and it's now an economies of scale thing.

18:03I think this is highly regional, but I'm just thinking about, I know there's no way you have these in California, Heather, But we have an incredibly high saturation of gas stations in South Carolina that have a hot boiled peanut offering. We do not have those. You don't have those in California, do you? Bill, Charlotte? Oh, we do. Oh, yeah. Well, I also drive through South Carolina to the beach a lot. I know exactly. Like, it's like you go in and there is a hot pot. Yes. With an electric burn underneath it. There's Cajun and regular. Oh, all right. And the signs are always handwritten. It says regular and Cajun.

18:41And are boiled peanuts mushy? Are they kind of sour? No. When I come to California in three weeks, I'm going to bring you a bag of boiled peanuts. This is what I need. They're ridiculously good. Really? All right. It's not like a guy outside. Come on, Bill. You haven't had good boiled peanuts. It's like a staple. Bill, bring me a bag of boiled peanuts, too. These good ones you speak of. I'll find out of Charlotte. So I've got two bags. One I'm dropping off in the middle house. and then one that's on air together and see the tsa people are going to be like are you are you serious yes but like that's to me that's a similar type of vendor right where it's not the pepsi you know truck it's not the beer truck it's not the cigarette guy those folks are all competing for shelf space and slotting all that kind of stuff and it's also not packaged the company we're talking about, the deal is packaged food.

19:36This is kind of just like a dispenser that sits on the counter that like has a, yeah, a hot pot underneath it. I have a friend in the gas station business and they have like over 200 stores. I'm going to ask him about packaged food sandwiches and I'm going to ask him about boiled peanuts. He's in Florida, North Florida. So I bet they have some boiled peanuts down there. The reason the boiled peanuts freak me out is because they're hot. So like how, like they, like a Petri dish, like all the time. And that kind of weirds me out. Yeah. The, I have a, I have a friend and a mentor who his retirement plan, he worked at Oracle and like enterprise sales.

20:15He made a boatload of money, but his like true retirement plan was to buy one of the bull peanut trailers and just like get a great location and just work like three hours a day and sell bull peanuts. But those, those would be like fresh, hot, fresh bull peanuts like that are, it'll change your life. All right, Mel, bring me a bag. I'm thinking specifically right now on Highway 26 at the Orangeburg exit, Orangeburg, South Carolina. You probably know the one. It's where the Chick-fil-A is and there's a Spanx and there's like everything right there. There is an Exxon there that has the very stereotypical boiled peanut hot pot thing.

20:49And we usually stop there for gas on the way to Beaufort. And that's just in my mind right now. Boiled peanuts. I bet they have the sandwiches from this place. I was at that exit a week and a half ago. I kid you not. You have to stop there if you're driving between Charlotte and South Carolina. All right. So now you know where to find and kill Mills and I. This episode took a very weird turn, but I will die on this hill. Boiled peanuts are a meaningful food item. All right. Please bring them to me. So Mills has managed in a single episode to create controversy. The sheets and Wawa people are coming for him.

21:26and we're going to have Boiled Peanuts controversy in the comments on Twitter as well. But you know what? I have the Commissioner of Agriculture in South Carolina on my side. Okay. He's a Boiled Peanuts guy. I'm standing up for, yeah, yeah. I mean, in fairness, if he wasn't, they're going to boot him right out of office next time. Exactly. So, all right. Come tweet us about Boiled Peanuts and about QT and the gas station wars. Now I'm just thinking about just the economic model inside convenience stores for this type of vendor, going back to our original deal, and then all the other things that are there.

21:57Because I do think that just like the shelf space at Target and Walmart and the traditional retail model, the C-Store is like this crazy little ecosystem with all the different parts and pieces. And you have the independent Red Bull salesman, you've got the Coke and Pepsi fighting over shelf space. And it's just interesting to think through. This company's carved out a little niche. And to be 70 years old and only be doing this amount of EBITDA in a way, I think it's impressive and also a detractor. Yeah, I can't tell. I have a good friend who worked at Frito-Lay for a while. And obviously they do a huge C-store business and he was in charge of their C-store business.

22:42And he was telling me how it works. And it is an absolute war for turf. All of those shelves, Frito has got the space. If you have some startup chip, you are not getting it in. All of the coolers, most of them are owned by the beverage companies. So what happens is you can't get anything in the C-Store at all. And that's why Coke or Pepsi pay so much for these beverage acquisitions, because then they just drop them in their C-Store coolers and boom, they're everywhere. But you can't get into C stores like at all. Yeah, it's a functional monopoly. Yes. Yeah, it's really crazy, which is weird because then you have this small sandwich store, which seems to exhibit totally different dynamics.

23:24Heather, could you finance something like this? Yes, but I think a lender would have some of the same concerns we've talked about. And I think they'd look at that cash flow and they'd probably hit it for some CapEx. So whether it's SDE, You know, they switched to SDE. So let's just say it's SDE. Now we've got to take$100 ,000 at least off for a salary. So now it's$320 ,000. And then we're going to take off some maintenance CapEx. You got it. And so you've got so little cash flow left against a kind of complex operation. I think a lender might like it at first, but then when they dig in, I think they might not want to lend here.

24:02You know, I said, could you finance this? But what I really meant is, can I finance this?

24:11I wouldn't be surprised too, if this business is not charging themselves rent, you know? And so now we're just death by a thousand cuts. Then there's nothing. Yeah. Right. Right. It's only got a cashflow because it's been around for 70 years, you know, and they're calling it SDE. So yeah, I think there's very little cashflow here to service any debt. Yeah. Obviously you got to see, is there a rent on the P &L or not? Yeah. Yeah. All right. So Mills, thumbs up or thumbs down? Oh yeah. Thumbs up, baby. Sandwich thing of South Carolina. We're going to add boiled peanuts to the lineup and Mills going to crush it.

24:46Thumbs up. I mean, this is like a perfect testament though, to how much geography matters to me. Like because it's in South Carolina, I'm dying to know. Like the business could be 10 times better and have inexplicably higher margins. If it's in Texas, I'm like, I don't know. It just doesn't mean anything to me. But because it's here, I know a ton of C-store owners, right? I spend a bunch of money at gas stations because of a fleet of trucks. I just want to know. Yeah. I thought you were referring to your pizza habit. Yeah. I eat three meals a day at convenience stores. All right. So Mills is thumbs up.

25:20Heather, thumbs up or thumbs down. I've declined this loan. It's pre-declined. you need to copyright that man the prior episode heather agreed to finance on the spot this one she has pre-declined for sba financing you just don't like sandwiches heather let's be right i like good sandwiches i don't think i like these probably i probably don't ouch i think i'm also thumbs down we'll leave mills we'll leave this one to you so we're gonna expand into north carolina and then bill's gonna want to buy in and the multiple is gonna have gone up at that He's not. Yeah. I will have missed it. Get in on the ground floor of convenience store sandwiches and boiled peanuts with Mills.

26:00All right. If you guys like this episode and you're in, or if you're into boiled peanuts, you can listen to Mills talk about his convenience store eating habits on 400 other episodes of Acquisitions Anonymous on our website, acquianon.com or wherever podcasts are downloaded. Almost any industry you can think of, we have talked about it. or just subscribe and wait another couple of days when we talk about something else. So we publish twice a week. We would love to have you as a subscriber and we'll see you on the next episode of Acquisitions Anonymous.