Would You Pay $6.75 Million for a Magnet Company?

0:00Hello, everyone, and welcome back to Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. I am one of your hosts, Bill D 'Alessandro, and we had a great episode today. I was with Travis Jameson from Capital Pad and Mills and Heather, and we talked about an industrial magnetics company. They make those giant magnets that hang from cranes and lift up cars in junkyards or pull out iron out of junk metal scrap piles. So this business has$1.3 million of EBITDAs for sale for five times. So I think you'll really enjoy this episode of Acquisitions Anonymous.

1:01business, I really would not consider anyone else. Like I said, I went back to them three times. I work with three different brokers at Quietlight, had a great experience all three times. Even on one occasion, they found a buyer for a business that I just didn't know it was even going to be possible to sell. So they have pulled rabbits out of their hats several times for me. They've been in the e-commerce and SaaS business brokering game a very, very long time. They really know what they're doing. They have great reach with both buyers and sellers. And the other thing I I really love about Quietlight is all the brokers there are former operators.

1:34So you can't just show up and go, Hey, I'm a lifetime business broker. I want to work at Quietlight. You have to be a former operator. So they all know what it's like to be in the operator chair. So if you go to quietlight.com, they have free business valuation calls, which they'll do with you. No obligation. Just tell you what they think about your business, what they think it would be worth, and then what you might need to do to kind of get it ready for market. Those guys over there are great, great SOPs, great systems. I just felt like I was in really good hands all three times with Quiet Light.

2:03So if you're interested in selling your business, especially in e-commerce or SaaS, hop on over to quietlight.com, fill out their onboarding form for a free valuation call, and you can tell them Bill or Acquisitions Anonymous sent you. All right. This is going to be a great episode of Acquisitions Anonymous because I pick the deal and no one else has seen it. So this is off the cuff as live as it gets, Acquisitions Anonymous. We are here joined this week by Travis Jameson of Capital Pad. Nice to have you, Travis. Good to be here. Thanks, guys. Travis is one of my favorite guests because we are friends IRL.

2:37So I just feel like hanging out. And also, I mean, Heather, you and Mills as well. You just feel like we're only internet friends. Yeah, we're only internet friends. Well, no. I mean, Mills, we're going camping in a couple weeks, which is going to be fun. I don't think I've met you yet in person, Mills. We got to fix that. Yeah, I know. You want to go camping? i have a three month old i just want to survive that's fair you're like i'm fighting for every uh every increment of sleep i can get i had a 10 minute nap today it was glorious well i'm even more impressed that you're here then like with bags under your eyes hanging on by a thread yeah all right you guys want to hear about this deal let's do it here we go so this is from much embattled but always interesting broker website closers.com this is a lender pre-qualified industrial magnetic equipment company it has a 50 percent repeat order rate a 42 percent net margin zero ad spend and is semi-absentee so pretty interesting the stats on it are uh 3.3 million of revenue 1.35 of cash flow and they're asking 6.75 million.

3:53So a little quick math tells me they want 5.2 times for it, roughly about five times for it. And this business has been around since 1999. So I like to hear that. Let me tell you guys a little bit more about it. So this says, Website Closers presents a market-leading industrial magnetic equipment company serving commercial, industrial, consumer, government, and enterprise customers across North America and international markets. This business is pre-qualified for a partial SBA or conventional flex lending. Heather, I want to come back to that with you in a minute. With more than 25 years of operating history under current ownership and roots dating back to the early 1980s, this business has established itself as one of North American's leading brand in their niche.

4:36That is North American's leading brand. I read that verbatim. In case you thought I was having a stroke. Their reputation for quality, reliability, and product performance has helped them build longstanding relationships with distributors, OEMs, Fortune 1000 companies, and major commercial organizations that depend on their products to improve workplace safety and operational efficiency. Unlike traditional manufacturers, this company operates through a highly efficient outsourced business asset light model that outsources production, fulfillment, and logistics while maintaining complete control over branding, customer relationships, and product development.

5:06The company offers approximately 125 SKUs across multiple product categories and supports a dealer, distributor, and OEM network exceeding 1 ,500 partners. So a lot of interesting stuff here. Let me tell you a little bit more. You make the stuff, but don't make the stuff. That's right. I mean, this is also like every D2C brand in the world, right? Contract manufacturing, contract logistics, and you're just kind of the brand, the IP, the customer support, the go-to-market, right? Although, actually, these guys are barely the go-to-market because they have 1 ,500 distributors. Yeah. Right? And dealer networks.

5:39So, fascinating. So, this says, the company specializes in professional-grade magnetic sweepers, lifting magnets, separators, retrieval tools, magnetic fork covers, and other industrial magnetic safety products. Their products are used in warehouses, manufacturing facilities, airports, distribution centers, recycling operations, construction sites, trucking facilities, food processing plants, and a whole bunch of other places. Most customers replace products every 18 to 24 months, creating a dependable stream of repeat purchases. Customer retention remains exceptionally strong, with repeat buyers accounting for an estimated about half of annual sales activity.

6:16Their products maintain an outstanding reputation in the marketplace, a return rate of less than 2%, and the business requires very low working capital and operates with a highly efficient 20 to 25 day cash conversion cycle. Most orders are paid before suppliers require payment. It's pretty nice. The company has built a dominant online presence over many years and enjoys first page rankings for virtually all major keywords within their industry. More than 95 % of website traffic comes from organic search, direct visitors, and referral sources, enabling the business to generate consistent demand without significant advertising expense.

6:47They have 2 ,000 monthly sessions on their website, and that's their primary lead generation engine for both buyers and large commercial accounts. They have 3 ,000 contacts in their email database across aviation, warehousing, transportation, and a bunch of other markets. The company has been intentionally designed to operate with minimal owner involvement. The current owner spends six to eight hours per week primarily focused on financial oversight, strategic planning, and major account management. Day-to-day is managed by an experienced op manager with 12 years of tenure who has expressed interest remaining with the business after the sale.

7:18They have experienced outsourced IT contractors who have worked with the company for over a decade and they manage the website, SEO, security. Most orders flow through automated systems and are routed directly to fulfillment partners or manufacturing suppliers. There's a whole bunch more here, but it basically says it's a rare opportunity to buy something really cool. It says they've got early traction in overseas markets, but creating a framework for how to go international would be helpful. It says they also own a secondary website asset with strong online visibility that remains underutilized.

7:49Expanding this platform into a larger wholesale or industry-focused sales channel provides another avenue for growth. So that's the meat of it. Again, 1.3 million of cashflow, asking five times, 6.75 million. The codename was Magnetic Obsession. I love that. How do you know? Where is that? It's down at the C Companies represented by you. There it is, Magnetic Obsession. I love it. All right. Someone tell me what the heck this does. So we have, we use something like this. The one in the picture, if you're on YouTube, looks like something that's mounted like on the end of like a crane rigging and it looks like it's in a junkyard and they like, you know, drop it down and get like a bunch of metal shavings and stuff like that.

8:37We use a much smaller ones like to nail rake our parking lot or nail rake jobs, just because like nails end up everywhere. And we try and cut down on flat tires and people stepping on nails and stuff like that. So is it a giant electromagnet or like a ferrite magnet? The one that we use is like a very dumb one. It's like$200. It's like four feet wide. It has two wheels on the end and like a handle. And you just like roll across the parking lot. But we will make like kind of homemade rigs for our forklift and stuff like that to drive the forklift around in the parking lot and pick up nails. so this one looks like maybe it's somewhere in between an electromagnet and a regular magnet i find it shocking though one that this business is on website closers and two that this business generates uh most of their sales online because this is like this is a very heavy expensive thing to ship like their average order value i'm thinking has to be in the you know thousand 500 to$1 ,500 range.

9:37And the freight could easily match that if this is, I mean, that magnet looks incredibly heavy. It's all LTO. Will the magnet not try to attach to the freight truck? I thought the same thing too. Yes. Unless it's an electromagnet and it's not energized. I don't know. I mean, there are also all kinds of weird restrictions about shipping really powerful magnets for that reason, Travis. But I think that's all great. That's moat, right? Yeah, totally. Everybody's like, that's too hard. The same, same reason we're coming up with. So this is a thing that I think like mounts to a crane. I mean, there's different sizes, you know, Mills pushes across a parking lot to pick up nails.

10:11There's probably the Mac daddy one that you mount to a crane and like, you can pick up a car, you know, like a junkyard, like a magnet that picks up a car or you can sweep it across recycling to like pull out anything that's magnetic for recycling purposes, like pull out steel or whatever. So these are enterprise magnets for picking stuff up. fast, not e-commerce-y, you wouldn't think at all. Yeah. And I mean, so 125 SKUs is kind of interesting. It looks like they don't actually have any inventory. It's all made to order. Is that right? I'm reading it as it is probably a mix of like drop ship directly from their manufacturer and they stock some stuff at a 3PL.

10:59Yeah. That's how I read it. What's the mode though? I mean, like if, okay, so like big magnets made by other people, maybe they're more sophisticated than just like a big dump magnet. Maybe it is like an electromagnet. Maybe it's in like unique packaging. Like I think one of these things says magnetic fork covers. So like forklift forks, you could put magnetic covers over them so you can like sweep certain areas. But they don't mention any intellectual property. They don't really mention anything that makes me think there's like brand specific or product specific, you know, mode. To me, it seems like the moat might be the cumbersomeness of the industry.

11:37It's relatively super tiny. Anyone who's looking to get into e-com and find some interesting niche, they're not going here. This will be the last place you start because it's not tiny and fits in a box. All the things that people usually go for e-com, this is not it. But I don't know, it just seems like a weird enough industry that just not enough people are doing it, probably. Can you imagine that they have competitors making 10 times as much doing the same business model that they are? I have a hard time seeing that. I don't know, maybe. I mean, if you're selling to Caterpillar, I honestly was kind of surprised at how small they are.

12:15So I think that's probably a different thing. Those huge industrial things like the Caterpillar, that's a whole different business. That's straight to enterprise, I would imagine. They're not going to an e-com site and clicking checkout. Yeah, I guess this is more like Mills' roofing company needs one of these or the local general contractor or whatever has got to have one and they just buy it. You put it on a company credit card for three grand or something. So I think the enterprise value is probably in one sentence that they said here, which is 40 to 60 percent, which is a wide range of repeat orders.

12:48And I found that kind of fascinating because when I looked at this picture and thought about Magnet, I would have thought they were more durable than that. But they said 18 to 24 months. And I actually Googled it to try to understand why that is. And I guess heat and vibration kind of wear out magnets. And then they also have just a natural life where they become less effective. And then there's safety issues as they become less effective. So you do have to replace them a lot faster than I would have thought. So I feel like that's the best thing they've got going here is they've got this customer list that has to keep reordering.

13:27Well, and they also have the dealer distributor and OEM network, which they say is 1 ,500 partners who they're in people's catalogs, et cetera. Yeah. I mean, I like that. Yeah. I like that a lot. They're doing the hard work of putting it all together. Some of the individual magnet manufacturers overseas or wherever they are, I have no idea where they're at. They just don't have that skill set built up yet. Yeah, I mean, maybe this is like they source a giant cylindrical magnet from one place and then they've got a steel bending or casting or something company that makes the harness and puts them together and drop ships it wherever it needs to go.

14:05So this is a, at least it's kind of one of those classic businesses that until you get into business, you don't really understand how these could be a business, but they're like glue businesses. like this business doesn't actually do anything but it itself but the value it creates is it glues together all of these parts of the supply chain right to make something that's really valuable they take a magnet manufacturer and a steel manufacturer and the they know how to do the freight on the magnets and then they know how to do the e-commerce marketing and they're not actually maybe even touching it but they make all the pieces come together in a way that creates value for everybody and kind of makes the whole thing flow and then they extract some of that value i like it yeah yeah it's very great business i also have a 20 25 day cash conversion cycle so i think what this means is they are probably charging a credit card and then placing the order with a vendor and then it ships and they pay the vendor upon ship so they probably just go oh there's a three week lead time on one of these things it's not like it's not like you need one these magnet sweepers tomorrow, I wouldn't think.

15:09And they go, just drop ship, right? I get my money right now. I give 60 % of it to the drop shipper. When it ships in three weeks, I keep the rest negative working capital. Amazing. What do you guys think kind of price-wise here? So they want five times EBITDA. What thoughts? I think the problem I have with the price is probably the growth levers that it has. I'm not against paying 5x if something has a lot of room to grow. I wouldn't be convinced that this has that. Probably sounds like it's getting towards the top of Google already. I don't know what other avenue. You're not going to hop on TikTok and sell a bunch of these things, right?

15:52It's a very straightforward business. I mean, you're not requiring, you're not tying up a lot of cash in this business. So that definitely helps the ability to pay a higher multiple. But that's the only thing that's given me pause. I mean, I think this would be a great business otherwise. I love that it's been around since 1999. I mean, that in and of itself is a really positive sign. You know, I don't think this technology is going anywhere. You know, magnets are magnets. We got to separate magnetic stuff from not magnetic stuff. I don't know if there's AI threat here. This seems pretty stable.

16:28It almost feels like with their purchase price, you know, expectations, they're like kind of reaching for more of like, this is e-commerce and not distribution. I think they are functioning much more like a distributor, but you know, they don't have distributor margins. They have more e-commerce margins, maybe not just like direct to consumer type margins, but in a good way. I mean, good. Yeah. In a great way, in a great way. I think, I don't think they're overreaching, I guess is what I'm getting at. Like you've got a beneficial, you know cash conversion cycle you've got it's mostly it seems like your own i don't know is it their own.com or is it more network centric dealer networks well i'm reading it as dealer network but they also say they have 2 000 monthly visitors on their own.com which is not a lot but when you go okay those people made it to your website they're probably really high quality leads and you don't have to convert that many.

17:27I'm thinking that the average order value has to really help in this case. And if I'm buying something like any industrial part or anything for equipment that we have, the shipping cost is kind of irrelevant. I have a piece of equipment that is down. It's not generating revenue. And I'm probably going to have to rent something in the meantime in order to make up for it. So even if I need a$1 ,500 part and it's$500 of shipping, like whatever just get the thing in because we're renting something for much more than that so here's the opposite perspective though uh with our capital pad deals one thing we look out for a lot is we want to buy a business that is that is a business and the the example that we use we try to avoid is like something that's just like a nice website with some really good seo because i feel like that's a lot easier to disrupt than an entire business that has its tentacles into everything.

18:23So this business is$6.7 million. How much capital would it take to recreate this and get even halfway there? That's the question. A lot of the e-commerce type sites like this, from what I've seen, tend to be almost in the stone age. Maybe this one's not, but you see that a lot. They've just been riding on this being an undiscovered industry for a long time. If you were to recreate this e-commerce site, you're not going to get those OEM relationships, but that's only 40 to 60 % of the business, right? You could maybe overtake them on the organic SEO, which seems like is their only other way of getting customers.

19:04That's half the business right there. And you can do that for a hundred thousand dollars, maybe. And that's the part I'd be really focused on in diligence is where does the demand come from? because if the demand is 90 % from these 1 ,500 dealers, distributors, and OEM partners, I really like that. I mean, assuming there's not one that's 80 % of their business, right? Because then you get a customer concentration risk. But if you have this kind of nice diversified dealer network that understands the specs of your product, knows how to sell it, swapping in another brand with slightly different specs, it's probably just not worth it.

19:40This probably isn't one of their main product lines. They're probably also selling all kinds of other more high ticket items that they really have to like that the meat of their business and this is an accessory. So like you're already in those catalogs. It doesn't change it out. And if you're getting, you know, 20 % of the business from the website, I like that more. If it's 80 % of the business for the website, that just feels a little bit less sticky to me. And then also there's the repeats, right? Really, there's like dealers, websites and repeats, right? Like those are your three buckets.

20:10And I want to understand how defensible each of those really are. I also want to know how difficult it is to line up these suppliers. Definitely on these terms, but at least finding the suppliers in general. Maybe it's easy. Maybe it's not. I'm not sure. Well, that's the thing. So I agree, Travis. If they're providing a lot of glue where the people who make this only make one piece of the thing and there's no one supplier who makes the total kit that you can just go buy it from, that's positive. right because that's somebody off the street has to do a lot more work there's more of a moat there and the more the worse those manufacturers are in marketing the better the less english they speak the better you know like all of that like it should be really hard it should be opaque to put this together from a supply chain point of view and the more we talk about it the more i'm like if somebody understands this industry and has relationships wow build this yeah and i would Interesting.

21:05It's only 3 million. I would think if you were good at sales into the construction, into whatever end markets these are, construction or recycling or whatever, you could probably really scale this. I think, so in Googling around, I wasn't trying to find the company, but I was just trying to like figure out like who are other people who do this. And there's a website that comes up, a business called Industrial Magnetics, who it does not line up. It's not the same company, but, um, it's interesting because they have kind of similar, it seems like types of things. Like they have big things that go like underneath the hook on a crane.

21:39Then they also have like, just like little telescopic wands with like magnets on them. Um, but they have grown via acquisition and it seems like a fairly professionalized, like the website functions well, they have like, you know, e-commerce integrated, integrated into their website. It seems like really good SEO because it's broken down by application and by industry. But they've done acquisitions and they talk about an acquisition they did of a company called Walker. And they acquired it in 2020 and it was a business that was founded in 1896 by the inventor of the electromagnetic chuck. It just makes me think about the reality when you get really deep into something niche-y like this, like magnets.

22:22Okay, it's kind of a weird alternate subsector of manufacturing. And like a lot of people are just like, oh, that's too difficult. Like maybe it's hard to ship or it's difficult to work with or like put it in the too hard pile. We looked at this business years ago that they specialized in all stainless steel fittings because stainless steel fittings are like much more expensive. And most people are like, oh, we don't want to hold that much inventory. So like we're going to just stock like regular fittings, galvanized fittings or something. Well, they were like, all we're going to do is stainless steel.

22:57So, yeah, we are going to have a bunch of inventory, but everybody's going to come to us for it. And they also cost like five times as much. I wonder if magnets are kind of a subset like that, where like you've got to specialize. And then all of a sudden you get inside, you become an insider in the industry and you realize it's not that big of a pool. Like there's only so many of us. One of the biggest risks in entrepreneurship through acquisition is buying a business with fragile systems. Unclear demand or a single owner who holds all the knowledge. Franchising approaches that problem differently.

23:23You are buying into an established brand with documented systems, unit level data, and repeatable operating playbooks. The hard part is knowing which franchises are actually worth evaluating. That's why Alex Merezniak, former CEO of 2U Laundry, built Fransy. Fransy is a free platform that helps acquisition-minded entrepreneurs explore franchise ownership without broker bias. You answer a few questions and Fransy shows you franchise opportunities that align with your capital, lifestyle, and long-term goals. You also get free coaching from people who have actually built and scaled franchise businesses.

23:50If you're exploring ETA and want to understand whether franchising fits your acquisition strategy, visit franzi.com. That's F-R-A-N-Z-Y.com. And thanks to them for sponsoring today's episode. I saw a business similar to that Mills. It's like a fastener and like a custom product distributor. And it's for ships. So like big freight ships, military ships, et cetera. like they come into port and they've got like a manifest of like all this stuff but it comes from like 20 different suppliers so these guys are like we're just going to have the relationship with all 20 suppliers you just give us your one manifest instead of placing 20 orders and we'll turn around in a day because your ship needs to leave again so their value that they provide is basically holding a ton of inventory because they don't have time to order it from each of the 20 vendors because that ship's got to turn around.

24:45So their whole business is we're just deep on everything. Now, luckily for them, they are like 50 years old or something. So they've been able to plow this working capital in over decades and decades. But it's the type of business that's very hard to sell because the working capital is substantial. If you kind of look at it like how much capital I have in this, the yield on the inventory capital is not awesome. I mean, it's not bad, but it's like 20 % or something. And you're like working a full-time job and you got you've got millions of dollars tied up in capital, but the business is also totally unassailable.

25:17Like no one is coming for you. They can't compete. It's not economic for them to invest the working capital. It's not, they're never going to get all the relationships with all the shipping companies and the catalog. It's like totally defensible. And this family just runs it as a cash machine. That's so cool. That's cool. I think that this is, it's not like the perfect example of like the$200 ,000 piece of equipment that has like a$2 hydraulic hose, you know, that could like make it go down hard, but it does seem like, okay, if you're at a, you know, they mentioned like food processing plants.

25:49If you're at a food processing plant, like you're not constantly, you're always like process engineering and doing process improvement. But at the same time, you don't want to go with that, like completely untested, unique thing that like could shut the whole facility down. So like, if you're, I have a friend who I've talked about on the podcast before has a lettuce washing and packaging business that is monster. I mean, it's huge, 600 employees. Well, they have a metal detector at the end of the line for shredded lettuce. They actually have two metal detectors at the end of the line when the bags are rolling across the conveyor.

26:23And I was like, that's weird. Why do you have that? And he was like, well, if a nut or bolt shears off in the equipment, you know, we don't know about it until much later. And we can't send like McDonald's or wherever, like shredded lettuce with, you know, a piece of metal in it but they have two because you know like they learned the hard way one time that the metal detector goes out and you don't know about it till it's too late so there's redundancy oh wow my guess is that type of company does not like switch metal detectors you know every six months they're kind of like we have the one that works it's tried and true like let's not mess we're calibrated for it we know how it works yeah which actually would you bring up that's a great expansion for this business right like yeah like they're shredding well they're not gonna pull metal out of the lettuce with a magnet, right?