• Deal flow has started to pick up

  • I reviewed 18 new deals in February

  • I saw a noticeable dip in deal flow at the end of November that stretched into early January. So it was refreshing to see more deals this month.

• Pursued 4 deals in February

  • I pursued 4 of these deals, which included a (1) commercial HVAC business, (2) residential pool service business, (3) residential roofing business, and (4) marine electronics business.

• Valuation expectations showing signs of “realism”

  • I’m seeing a shift towards more realistic valuation expectations

  • I think Sellers are also becoming more receptive to higher Seller Notes. We’ll see if that holds up!

• I pursued a marine electronics company doing $1.05M in Adj. EBITDA on $3.2M in sales (33% margin) 

• The company installs & repairs marine electronic systems, primarily on yahcts and superyachts (some B2B). Services include installation, service & repair of:

  • marine electrical systems (electrical panels, re-wiring, transformers, etc.),

  • marine electronics (navigation systems, A/V, etc.), and

  • marine automation (monitoring / control of engines, security systems, tanks, etc.).

• Why I liked this business:

  • Consistent High Demand: There is always a need for the service and the business is supported by a 70% repeat customer rate. Despite the project-based nature of the work, boats are going to keep having electrical issues - so there is consistent demand.

  • Experienced, Full-Time GM: The presence of a knowledgeable full-time General Manager who is well-versed with the operational intricacies of the business.

  • Established Reputation and Versatility: With a 25-year track record, the company's broad service range allows cross-selling opportunities, setting it apart from niche competitors who tend to focus on a single vertical

  • Low Working Capital: Customers provide up-front payments, covering 100% of parts and 50% of labor costs, with full payment due on completion of work.

  • Price Insensitive Customers: Company caters to a market that values quality and reliability over cost, ensuring sustained high margins.

  • Compelling Valuation: An asking price of $3.3M, translating to just 3.2x Adj. EBITDA

• Concerns:

  • Labor Force Expansion: The challenge of growing a skilled workforce, with a lengthy training period (~2 years) for new technicians to reach full productivity.

  • Dependence on Large Projects: A significant portion of revenue hinges on sizable installation contracts, posing a risk if those projects go away.

Unfortunately, this deal went quickly to another buyer. This one was unique because it was under LOI and set to close, but according to the broker the “first-time Buyer” who had it under exclusivity “got cold feet” and walked from the deal.

By the time the broker re-listed it publicly, he’d already received several LOIs from buyers who evaluated the deal the first time it was listed. The Seller decided to go with one of the buyers he’d already met. So I never really got an opportunity to fight for this one.

• I reviewed a 34-year-old residential roofing business but decided to pass due to concerns that 2023 revenue and EBITDA were not sustainable.

  • The business showed a pattern of revenue spikes following hurricanes, with 2023 being an exceptionally high year post-storm. However, the owner's valuation expectations were based on these atypical earnings, which didn't align with the company's standard financial performance.  

If the owner had been willing to consider a fair price based on “non-hurricane” year earnings, here is what I liked about the business:

• Experienced Management: A solid leadership team including a vice president, director of operations, senior estimator, and head repair crew chief, all committed to staying post-sale.

• Strong Market Reputation: Company did virtually no advertising (all word of mouth referrals), had 5-star ratings across all major digital platforms (and even won a few awards), and had decades of history in its geography. I’d actually seen their trucks driving around and made note of the company before I saw it listed for sale.

• Captive Workforce: Unlike most residential roofing companies these days that rely on subcontractors, this company employed tenured W-2 staff, ensuring consistency and quality in their work, albeit with higher worker's comp insurance costs and less pricing flexibility.

• Selective Project Choice: They strategically avoided new construction projects, avoiding the cyclical volatility, high competition, and thinner margins typical of that sector.

Given the essential nature of roofing, the potential for high-ticket transactions, and growth opportunities to expand service offerings, I think the industry can be attractive if I find the right opportunity.

• Ready to Close a Deal:

  • I feel like I’m primed to close a deal. After 100+ deals reviewed and counting, my instincts are better. I can assess whether I’m genuinely interested in a business much more quickly.

  • Patience is still a challenge for me, but my confidence is solid. I’m ready to move fast when the right deal comes up.

  • The key is persistent effort; I'm convinced the hard work will lead to the right business.

• Proprietary Outreach Reflections:

  • I've dabbled in proprietary outreach, but it’s been more “exploratory” and hasn’t led to much. I've made some direct contacts, but the scale of my outreach hasn't been big enough to get results

  • Rather than relying solely on the prevalent "cold email campaign" method, I'm contemplating a more nuanced, differentiated approach to engage with business owners directly. We’ll see if that leads to any better progress on this front.