Would You Pay $6 Million for a Tent Rental Business?

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'm one of your hosts, Bill D 'Alessandro, and I was here today with Heather Anderson and Mills Snell, and we did a great business that I wanted to buy. It is a tent rental business in Maryland, has made north of a million dollars of EBITDA for 10 years, super stable, reasonably priced. and Heather actually had financed some business related to this so she has some interesting insights on how you finance a somewhat seasonal business with heavy assets.

0:34So this was a fun one I hope you enjoy this episode of Acquisitions Anonymous.

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1:34Visit enzotechnologies.com slash ETA and mention Acquisitions Anonymous. That's I-N-Z-O technologies dot com slash ETA. Welcome to Acquisitions Anonymous. this. We were laughing because Heather says she has some experience quasi-related to the deal we're doing today. And I told her, well, you have five seconds to remember. And I hit record. So here we go. There's no pressure at all. Well, this is a good one though. So this is a tent rental company. It says it is highly profitable and they do special events. I said, so I should share it for our folks on YouTube. So you can actually see it on your screen.

2:12Tent rental. So So this is a 30-year established special events tent rental business. It has$2.9 million in sales and$1.25 million in EBITDA. Heck, a margin on this. It is in Maryland, and they are asking for$6 million. So is that a little under five times EBITDA. It says, this business caters to the special events market, weddings, galas, corporate events, etc. It is very well regarded within the industry and has consistently produced between$2.9 and$3.25 million per year in gross revenue over the last 10 years. The business is highly profitable, typically generates over$1.25 million in owner comp per year, and can easily expand if the new owner installs a marketing program and advertises its services.

2:59The current owner has owned the business for the last 30 plus years and is now set to retire. An owner-operator-buyer is preferred. the seller is willing to stay on for a three to six month transition period so we don't have a lot on this business but it's a pretty straightforward business they put up those you know nice heavy duty white tents at your wedding um heather tell us about the related experience you have i think i remembered something so you gave me a little more than five seconds and i did remember something usually these businesses have reoccurring revenue they have reoccurring clients because basically there are events that are held every year by, you know, whoever it may be, the charity or the city or whatever is going on.

3:43So they have a lot of kind of standard events that they are the go-to tent provider for, and those are very sticky. As long as those events still happen, these guys will get the call. So there's probably a certain chunk of this$2.9 million of revenue that we could say is reoccurring, not contractually recurring, but reoccurring. So that's pretty good. And there'll be another chunk that will be, you know, weddings and things that are just going to be happening once. And so the lack of marketing, you know, it would be nice. They probably could grow a little bit for those kind of one-time events.

4:18But that has a limit to it. You know, there's only so much, you know, so many events that are going to need these kinds of tents. And when I see that this is in Maryland, it reminds me of a different deal I did in that area for bounce house rentals. And that is, I learned it's very seasonal there. You know, this is outdoor parties and it gets cold, you know, at least half the year, it's probably a little too cold to be having parties outside. So this is probably, you know, got a busy season that's about six months long and then kind of a dormant season, most likely that where nothing really happens.

4:57So that's interesting. So that would make it tough to debt finance generally, right? But at the same time, the broker here says it's stable as heck for the last 10 years. So that's working in your favor. You have 10 years of interesting seasonality despite COVID. Like how did this business, I mean, maybe he's just rounding COVID kind of out of the thing, But the fact that this, I think this was probably, I think this crushed it in COVID. Yeah, that's what I was going to say. I saw another one. Yeah, you had to have outside events, I think. So I bet this was the right COVID was great for this business.

5:34Yeah, that's what I've seen that in other tent rental businesses. It's, it was actually, they had more events outside and they did do well. So it could have just been very stable. The problem with the seasonality is, is a couple things for financing. If you want to buy a business that's got that kind of seasonality, you have two problems. One is when are you going to close? You can't just sign an LOI and race to the finish line and close as soon as possible because you may land right in the middle of the, or the beginning, which would be the worst thing, of the slow season. And then the bank is going to go, wait a minute, I don't want to close this loan right now.

6:12You're not going to have cash flow for six months, so we're going to wait. Right. So the the bouncy house rental, actually, that is what the buyer and seller did. They entered an LOI knowing that they needed to close in March, which would be just the beginning of the season. Right. Where cash flow was going to start again. But they sat on a signed LOI for, I think, like four months. Oh, wow. You know, because they wanted to start the loan process. And I had to tell them, no, that's not really going to work. You can't really start a loan process and then kind of sit it over on the shelf. it's going to turn into a mess.

6:46You kind of have to start the loan process and kind of finish it with the bank. So we shouldn't start it until maybe January if you want to close in March. And so that's what they sat on a signed LOI for, I think, three or four months. And then we started the loan process and then they closed at the beginning of the busy season. That's what you have to do with a company like this. So it's not that you can't get a loan, but that's your first problem. And your second problem is if you close in March, you've got to show the bank that you're getting enough or you're bringing in enough working capital to go through a nice busy season and end up with enough cash at the end of that that you can make the payments during the dormant season.

7:28And that the bank is going to trust you that you can manage your cash that way. Will they make you do an escrow or will they actually just trust you to manage it? I mean, you know, there are banks, so they would rather you do an escrow and some would make you do an escrow. They don't want to trust you for anything is the real answer. But, you know, sometimes they'll trust you. If you, you know, this is a case where if you have a stronger personal net worth, personal liquidity, they might trust you more. If you don't, if your personal financial statement's on the skinnier side, then maybe the only way you can do that is with some kind of an escrow holdback.

8:05And anytime you have to get into weird things like an escrow holdback, a lot of banks will just say, I just don't, that's too much trouble for us. We just don't want to do it because it's outside the norm and it creates a lot of extra work. yeah that makes sense one thing about this business that is interesting to me on the recurring side of things is you know for weddings you're not necessarily having to go find every bride and get out in front of them you just go build relationships with the venues where the venue says hey look we're an indoor outdoor venue and if you want you know to expand your seating and you need a hundred more seats outside, you know, we'll handle, you know, putting you in touch with the tent company or, or the venue itself will do it and mark it up to the bride or to the corporate event or whatever.

8:55I have a friend who owns a, uh, a larger event venue space here in town and they just are kind of like, look, you have to use the chair person that we say, you have to use the linen company or the caterer or whatever. So you could, you could really add some potential leads and lead volume without having to go like pay for really expensive, you know, pay per click or, or, you know, you're not doing B2C marketing. This is still B2B marketing even to get the brides, both, both venues and wedding planners. Yeah. I do wonder, like once you figured out, you know, storage and installing these things and taking them down and all the logistics associated with that, it seems like it would not be that difficult to kind of expand into another vertical like bouncy house or water slides or whatever, because you've got to have a big box truck to move this stuff.

9:53You have to have a place to store it. You have to have people to take it up and put it down. Once you figure that out, it's not that hard to do it just with something slightly different. Yeah, I think that's a good point. And really, the difference, the only thing you have to add is marketing, if you're going to kind of pursue those kind of different types of parties or events. I think that's a good point. There is some maintenance capex on these, you know, businesses, because, you know, the tents do get worn out and or ripped or whatever, and they do have to, you know, replace them. So I doubt that that's factored into this million 250 that they're talking about.

10:30They're also saying, they call it net cash flow, but then down below, they call it a million two and owner compensation. So it's also, there's a problem with that because sometimes, uh, you've got to, it probably means it's a lot of ad backs, you know, like your whole million two 50 is probably ad backs, uh, sellers, you know, car and sellers, uh, health insurance and, and possibly even vacations or whatever else. But that's not the end of the world, right? I mean, that's if you, as long as it's kind of clear and you can see, oh yeah, you're running your F-250 through the business. Like I can add that back, right?

11:07Yeah. Yeah. There's some that you can add back, but it can get carried away. Like, you know, this is the kind of business where if the seller has just never paid any taxes because they've just run personal expenses through it and it's really like the tax return looks like zero net income and you've got the entire million 250 is made up of personal expense add backs. Now you're in a territory where it gets pretty difficult to get a bank on board with. There are limits to it. There are limits. Like you can't go too far. And this is the kind of business where I often see that they have gone a little too far.

11:42And they don't say SBA pre-qualified, which is always my hint. Thank you, Robert. Yeah, Robert. Good job. It's my hint that maybe that's the case here. Perhaps. Or like cash or something. Like who knows. Or cash. Could be cash. Yeah. Buying 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.

12:20People 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. It'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. They haven't said anything, and this is a very short synopsis of this business, this, but I wonder what the asset base is like, you know, the utilization here is going to be critical.

13:01And, and also like how recent, you know, is, is their stock? Like if, if these are all old tents and they're dry rotting and like, you've got tons of maintenance issues and you're looking at, okay, these tents cost 50 grand to buy new and we need 10 more. All of a sudden the, the whole deal changes. I don't know that this is rocket science to figure out. I don't think you have to be a huge insider to figure out. You can walk in their warehouse, you can go to some events where they have things put up in due diligence and see the quality, but it would be a real, it's all asset-based. It's all kind of short-term rental of those assets.

13:42The quality is really going to matter for, for upcoming CapEx. Yeah. I'd be really curious about kind of how these things wear out or don't, you know, it's not like, you know, they're tense. It's not like they're hard wearing. I wouldn't think, you know, people aren't walking on them or anything. It's your staff putting them up and taking them down. So if your staff is, you know, probably gonna be careful with them, maybe they last a long time, you know, which would be great, but you definitely have to diligence, you know, I'm sure they're fully depreciated from an accounting point of view, but how depreciated are they from a true usage point of view where you have to throw them away if it rains you've got mold issues too i think there's you know things that can happen definitely to this kind of stuff well and how well has it been taken care of right to your point heather like you put them away wet they're going to get moldy if you manage that maybe not the thing that i found interesting is just how consistent this business has been between 2.9 and 3.2 million of revenue for 10 years straight and very, very stable.

14:40But then it says can easily expand if the new owner installs a marketing program and advertises its services. And this of course is like the most common throwaway sentence in broker language. But at the same time, it makes me go, are you trying to tell me that the owner of this business is so stupid that for 10 years, his business has been flat and it has never occurred to him to do any marketing or ever to advertise his services, you know, and maybe, I mean, possibly that this guy says, Hey, 1.2 million is enough for me. That's fine. I'm just kind of on cruise control. But anytime I see that I go, are you really telling me we've really never done any outcome?

15:23Like show, show me the, like the 10 years of PNLs with no expenses. Like why haven't you done it? And if you haven't done And how have you gotten this big? You know, and it's possible there is a giant gold neckline on the ground here, but it is rare, you know, small businesses don't say small on purpose, typically. So I really want to diligence that because, you know, we're sitting here having not even signed an NDA thinking of ways to grow this thing. Like this didn't occur to the guy who owned the business for 10 years. You know, the best answer that I have heard in response to that is one where they either kind of have like a limiting belief or there's some kind of constraint where they're like, well, you know, Bob is my truck driver and he only wants to work four days a week.

16:11And I just, it would be too hard. I don't want to hire another truck driver, you know, to move this stuff around. So like, I've just kind of been content where I'm at. like, and I, I've really run into situations like that where you go, but you could do X, Y, and Z. And as an outsider and a newcomer to this, like, it seems like really easy. And they're like, yeah, like, I just don't, it's a risk thing where they're just like, I'm comfortable enough. And I don't necessarily want to take the risk. Is there reward? Absolutely. I just don't want to take the risk to do it. I don't want to risk buying another truck and hiring another truck driver.

16:43It's easy from the cheap seats where we are, but I've seen it tons of times. I know y 'all have too. Yeah. Our tents are fully utilized. I would need another truck. Like there's like a step change of it needs$200 ,000 of CapEx and another truck and another employee. And I'm like, I just don't want to do that. I'm taking home one and a quarter, you know, on a good year and I'm taking home a million, you know, on a bad year. Like I'm happy. yeah i see it a lot i think it is a personality type and just a reluctance to reinvest it kind of comes down to but it will cost me money that will create some risk and yeah i don't want to do it and i think it's interesting this there's a there's a lot of small business owners who you think of them as risk takers because they are entrepreneurs but they kind of reach a plateau where they become not risk takers yeah you know and they don't want to grow for business yeah Yeah.

17:35Yeah. Um, but I like this business. I mean, it's stable as heck, you know, this is sort of the type of thing you could buy, figure out pretty easily. And I hate to say the, you know, the cliche thing, you could have a general manager here. You know, I think you probably still got to live in Maryland, like near it, but I don't think you have, you're going to every event. Like I would think you could, you could own this business pretty passively.

18:10Sure.

18:31aren't or weddings, you know, might ebb and flow. So the other word making more nervous mills, because that would make me wonder, does the owner of this have some political connection? Like this is, this is the type of thing that, you know, fence company or a tent companies are roughly interchangeable that the political administration changes and they start throwing the work to their buddy. Yeah. Yeah. That would make me nervous. I like corporate events and weddings and stuff like that way better. The fact that they've been this stable makes me think that it's probably not that. They would have two-year swings, political year, election year, a lot's going on, down years revenue-wise.

19:11Heather, you had made a point about weather being a limiting factor in seasonality. I think though that these businesses thrive on extending the season and extending the use. Here, it's super, super hot or it's very rainy and you have an outdoor wedding, you've got to get a tent, you know, uh, up there, all of a sudden you put heaters in a tent like this and now we can do something outside where we couldn't before. Um, so I think it, it, it's elastic in that way. Not, not perfectly elastic, but, but somewhat. Yeah. Maybe that, maybe my slow season is not six months. Maybe it's only three, uh, three or four.

19:49That's, that's really too cold to be outside, but that's a good point. And, you know, You said political. It could also be like nonprofits. D.C. is an area where you have, and I've seen a lot of businesses where they cater to nonprofits of a certain ilk or another. And that's kind of their marketing niche. So I think that's a really good question. What do all your customers have in common here? Are they mostly nonprofits or are they politically oriented or whatever? Is it relationship-based with the seller? Because it really could be in this business based on where it is. Bill, do you remember in the first 20 or 25 episodes of Acquisitions Anonymous, we looked at this marketing business that we were like, look at their revenue.

20:38It's so weird because we had like, I think it was like 10 years worth of revenue or something. And the revenue had these hard cycles, Heather, up and down. And it fell on election years. And it turned out like they didn't, they didn't come right out and say it, but it was like niche marketing consulting or something. I think they were maybe helping buy, uh, ad, you know, media buyers for political campaigns. And it was like, oh my goodness, their revenue cycles up and down by like a factor of 10. Yeah. It's one thing to have a seasonal business like inter, inter year, but it's totally different to have one on like a two year or four year cycle.

21:14I have worked with a ballot printing company. Ooh. You want to talk about crazy cycles. Yeah. And a lot of pressure. I had someone recently looking at one and I said, I would stay away from that. It is a lot of scrutiny. Yeah. The scrutiny today is just, it just keeps going higher and higher and it's a crazy business to be here. Yeah. Wow. Cool though. So, I mean, the other thing that you could do, what I would be diligent saying, you kind of mentioned it earlier, Mills, what else can we rent? Like the slam dunk thing is to rent those like toilet trailers, like not porta potties, but like the nice ones.

21:53The nice having a wedding. That type of stuff. There's so many other things. If you're already coming to the site with a truck, you know, tables, chairs. I mean, full, you change this from a tent rental to like a party rental company and you can do all of it. But like if you're already in with all the venues and you can say, hey, we just do it all. Again, it shocks me that the owner wouldn't have thought about this for 10 years. But that seems like a fairly straightforward expansion opportunity. The only risk to that, and I would be really curious to get this owner's take on it, is, is it territorial enough that you don't want to step on somebody's toes?

22:28And like it may be the reason that this business gets, you know, in with certain places is that they're not going to step on anybody else's toes. Like all we do is tents. You don't have to worry about us taking your linen rental, right. Or your port-a-potty rental, like, or whatever, because from folks that I know in this space, it's very like, I don't know, cagey is not the right term, but certain places it's like, if you're using our venue, you have to use our catering company or, you know, you have to rent your tables from us. we won't let you have somebody else bring them in because they, they can say like, Hey, if you want your wedding here, like it's a nice spot.

23:06You got to play by our rules. I wonder if doing that could potentially bite the hand that feeds you. Yeah. It could be that the venues have kind of parceled out. Like they're throwing this bone to you on the tents. They're throwing this bone to these guys on the tables. Like don't upset the, you know, the grave. Yeah. Yeah. Let's bring this to a close. What do we think? Thumbs up. Thumbs down. Mills, what do you think? I like it, but I think it's probably overpriced unless I find that, you know what, they actually have massive underutilization of the assets. And like you could, it's doing$2.9 million in revenue, but you have assets that could do$7 million in revenue and they're all new, you know, or relatively new.

23:50But it just feels like maybe a little bit overpriced at the$6 million ask to me. Yeah, that makes sense. Heather, what do you think? I would agree with that. I would say like, I would probably sign the NDA and just find out two things really fast. Who are these customers and what percentage is reoccurring? You know, do I feel stable enough there? And then I'd go to Mills's question, utilization. And if both of those were great answers, you know, I still think it's maybe a little overpriced, but you know, there's room to probably negotiate and get it to a price I could agree to. But if those aren't great answers, then I'd probably walk away after that.

24:28Yeah. What about you, Bill? I really like it. I do think it's a little overpriced. I wonder, oftentimes we see these businesses and it's like, you have to pay for the business plus$2 million of tents or something. So I wonder if behind the scenes, that's what they've done. They put a 3X multiple on the business, which would make it worth, you know, a lot more$4 million. And they've got$2 million of FF &E tents. And that's how they got here. So I do think it's a little overpriced. I like the business a lot. You know, I would be signing the NDA, learning about the business and not hitting the bid, but that's totally fine.

25:01Um, I can't buy this business. I don't live in Maryland. You know, I, it would scare me too much to do this. You cannot phone it in for this business. It's like do or die. Your manager could, you know, like get hit by a bus and the tent still has to get delivered. Exactly. Yeah. So I think you got to be there. Uh, but I like it. I mean, I love how stable it is. I think it could be a great kind of cornerstone for like a local type holding company as well. All right. That's a good one. This was a great one. Shout out to GirdlyBot for finding this for us, even though the Girdly himself is not here.

25:34So if you like this episode, we have almost, geez, 600 more like it on acquanon.com on our website. They are organized by industry. We have done a number of other equipment rental type businesses. I don't know if we've ever done tents before, but other party rental and heavy equipment rental. So if that's something you're into, asset rental, you can learn more about it on our website. A couple other episodes there. You can also get on our email list at the website, acquianon.com. And we will email you the episodes with little summaries every week. In case you don't have time to listen to it on audio, we'll drop them in your inbox.