Jacob, Ben Gaccioia, Risto, and Jamika are considering acquiring a well-established architecture and design firm with a focus on sustainable architecture, engineering, and construction. The firm, founded in 2006, specializes in architectural, interior graphic, branding, and industrial design. The team sees this acquisition as an opportunity to create a platform business for expansion and roll-ups, particularly leveraging its expertise in these sectors and building on its current strengths.

The firm operates with two locations—one in Cincinnati and one in Tampa—and has an excellent reputation within the industry. It is licensed in 48 states, thanks to key employees who hold licenses, not just the principal architect. This allows the company to expand across the country and offer services nationwide. The team plans to add structural, civil, and mechanical engineering capabilities to broaden the firm’s service offerings.

The current owners are looking to sell the business due to retirement plans. One of the owners, in his eighties, wishes to spend more time with family, while the other, in his sixties, is open to staying on for a few years to assist with the transition. Their desire for a seamless handover is part of their motivation to continue working in an advisory role. The team plans to integrate the key employees—who have extensive experience and expertise—into the future growth strategy, ensuring a smooth transition while continuing to scale the business.

Financially, the firm has been performing well, with projected revenue of approximately $3.8 million in 2024 and an adjusted EBITDA of $1.2 million. However, the asking price for the business is set at around $8 million, which the buyers find somewhat high. After presenting initial offers, the sellers have indicated they have received higher offers but are still open to working with the team due to the rapport and their desire for a smooth transition. The team plans to negotiate the price, potentially offering an annuity deal to accommodate the seller’s financial needs while adjusting the overall deal structure to suit both parties.

In addition to negotiating the purchase price, the team is keen on expanding the business into new verticals, such as adding landscape architecture, which is currently missing from their service offerings. They plan to use the firm’s strong design and project management systems as a base to offer a wider range of services to clients in the multifamily, mixed-use, and commercial sectors.

To facilitate the acquisition, the team is exploring various financing options, including leveraging SBA loans for a significant portion of the deal and potentially using a hybrid structure that combines annuity payments and equity retention. They aim to negotiate a fair deal that ensures financial stability while maintaining a sustainable growth trajectory for the firm.

Full Transcript:

So let’s get cracking, guys. I wanna see, Jacob and Holt’s deal, so I’m gonna set my screen share to share screen security.

So, Jacob, you are you’re up. Let’s see what you’ve got.

Yes. It’s actually a deal together with, Ben Gaccioia, Risto, and Jamika. So Nice. We’re gonna all be on it.

I’m I’m Well, the floor is, the floor is yours.

Perfect. I’m gonna hand over the microphone to Ben.

Hey, guys. It’s a good thing to be here. It’s wonderful opportunity to, learn from all the big boys. We are looking to buy an architecture design studio and is shaping, the sustainable architecture engineering construction.

This, we want it to become a platform, and on top of it, we wanna do roll ups.

Next.

The this business, the current situation that we have, it was founded in two thousand six. It offers a number of, sectors, interior graphic design, branding, and industrial design. And the, the what it has given us is, ideas to be able to expand on potential in, unexploited, revenue, to be able to push these branding and interior graphic design, industrial design, which are normally right now used for their own work to be able to promote it to going outside of the firm and, adding some, roll ups on that. The products and services, obviously, I’ve said it a little while ago, and it’s, architectural interior design, graphic and branding, and, industrial design. We plan to add, engineering, structural, civil, and mechanical, electrical plumbing.

The industry reputation is is really in in an amazing tip top condition for this locate location is for the number of, jobs that that they’ve got and for the number of employees they have. The Target Industries, which retail stores and auto restaurants bring a little bit of concern, not a whole lot right now, but it it is the sector that went through, some trouble and, during the pandemic.

So we aim to come back a little bit on the renegotiation with the price that he’s asking to come back on on that.

The multifamily and mixed use is very strong and has been very strong for, for a bit. So that’s something that he’s leaning on very heavy for the asking price. Next.

So the legal structure, the workforce, the employee expertise, and specializations are, as I said before, very good, very, strategic.

And, the locations, he’s got two locations, one in Cincinnati and one in Tampa. And the good thing is he’s actually licensed in forty eight states, not by the head architect, but but the three key employees. And so he they they aim to remain in the, in the firm. And, the philosophy, the track record, the approach, the notable projects, for, all of the disciplines that they, are having next.

They’re actually, all combining, pretty much the same philosophy, graphic design, industrial design, and technology. They all have amazing, focus on trying to help each other. And, as I said, within the firm, but we’re trying to get them to think that they’re separate business entities.

Next.

This is a quick overview. The orange is obviously the EBITDA, and the blue is the, revenue that they have. Next. We’ll get more into details with that.

So the factors to keep in mind is that the, architect wants to retire because of his age, and he wants to spend time with his family, and he wants us to have a seamless transition, wants to stay as a member of the board of advisors potentially.

The key employees that I mentioned is one is the director of architecture, one is the managing director, and the other one is the director of operations. Both, all three of them are, have been, extensive, number of years and, very qualified, and they’re they can run the business without the senior architect in place. Next.

So the vision, that that they have, which is what we plastered, we placed here, we are thinking that, our vision and theirs line up really well. And our vision is to transform spaces into functional, aesthetically pleasing environments while building a successful platform company for investors.

We blend innovative design with practical construction solutions, ensuring projects are visually stunning, structurally sound, and cost effective.

With communication, collaboration, and meticulous attention to detail, we create a foundation for a thriving empire of roll up and bolt on companies. This strategy sets us up for a rewarding exit, leveraging our experience and proven track record to inspire confidence and achieve remarkable success success. Next.

So this is basically, some of the work, some of the pictures.

Next. Some of the artwork that they’ve done is, a classic old fashioned, and some of it some of it is really, really, leading edge, which is what this one alludes to. The talent they have is, relies on the passion, the expertise of the client’s vision. They do have amazing, technology.

They have, very the latest, program software and people that are, very, very, experienced in the, rendering and the, BIM technology and so and so forth. And the business development is, from geographical growth expansion to business model enhancement. The company will devise strategies that says for shield, itself from economic volatility. That’s something that they’ve done to try to, keep their, balance and the profitability goals, next.

I believe, Risto takes over.

Yeah. Pull it back one one, Jacob.

Yeah. This is actually one of the project. All the big stores would be showing is is part of the what they already designed.

Yeah. So they’re all for from the what they already done and designed. So it’s really nice nice what they’ve been done. Got the next what we what we offered actually already offered, this is we calculated how we can how we came out with the multiple.

We had the, SPA offer for them with the we used the transfer of value because they have a good systems on the place. It’s it’s for seventy one percent. Yeah. The match score is is around sixty. It’s it’s not any kind of stress or anything, on on a financial.

So and this this is the SBA, structure was two point eighty four or two point nine. And then we, calculated the annuity, offer for them for the five point forty. Actually, we gave them a five point one offer. We have a little bit room to co see it on that. So they got that multiple came out with five point forty eight. So go ahead, Jacob.

This is how we came out with the with the multiple from those, the the it’s about average how they how they’d almost in a best in class. So we came out with the seventy one percent of the Yeah. Of the transfer value. So that’s how how it looks like on the on the multiple scale.

Next.

I love how you’re using the tools, guys. Like, I I I love it when I do the stuff for you guys and and you use it. It it really makes me happy. So, good job.

Yeah. This is the we call it actually we have offer a, which says PO. We call it partnership offer, not annuity offer. It’s just because we wanna keep that word away. So we call it partnership offer and say we can partner with this with the basically annuity offer. And there’s a owner. There’s a the the three key employees, and we’re gonna team up with them.

We have we have a architect in our group, a couple engineers, and then we have, Jacob who is, who is, also engineering engineer in, what that call is called?

Master planner.

Yeah. Master planner, and he is, his father is an engineering engineering and architect as well. So it’s coming on a on a on a roots.

So that’s the crew of what we what we’re planning to take this on to grow the company because only gonna stay all the key employees gonna stay only gonna stay a couple of years. And, we’re planning to take this company double or triple quickly.

Go ahead. The next.

The exits for, for us, we were thinking about, you know, if there’s a trade a trade sale, trade companies can buy private equity. IPO is one option. Also, the employee, what’s that called? E SOP?

ESOP. Yeah.

ESOP.

Yeah. Also, that’s option. Those are the exit options what we’re gonna think about later.

Go ahead the next.

The one we actually need from the group is the advice how we can because seller wants eight and we were calculating, it’s gonna be somewhere around five, five and a half.

How we, how we mitigate to the middle of them middle of the pricing and and how we can get to close that cap so we can get to close he’s open to do the annuity deal, but how we can get to the value as a for what works for the both of us.

What’s the EBITDA right now? Is it about a million?

Yeah. One point two, one point two.

Yeah. One point two. So if it’s doing one point two million of EBITDA, you need to model it, but you could probably pay six hundred thousand a year for ten years. So that’ll be six million dollars. Yeah.

You you can buy less than a hundred percent of the company, let the owner retain a piece of the equity, and then you’d give some pre equity, I’m guessing, to those three key employees that hold the license. And then maybe give him give the owner a little piece of the TopCo and sell him on your roll up. Because what you’re doing is, like I so I’m I’m from this world, although a long, long time ago. My my first degree was in, civil engineering and architecture back in nineteen ninety two.

Oh, wow.

After three months working in that industry, not making a lot of money, I decided to become an investment banker. Right? I’ll tell you that story another day. But, so my I I I work for three summers as an intern for O’Varepa and Partners who are the largest, most successful, multidisciplinary engineering firm on the planet.

And then and they have a a division called Arup Associates, which does exactly what you’ve been talking about. They’re not just architects. They’re interior designers. They’re landscape architects.

They’re master planners. They do civil engineering, structural engineering. They do mechanical and electrical engineering. They do sound and acoustic engineering.

They do all these different things. Right? And they design some of the best businesses in in the world. And, I think it’s a great strategy to provide that multidisciplinary expertise because, like, in any project, in any building project, whether it’s a a mini dealership or whether it’s a a shopping center or whether it’s a coffee shop, the the general contractor that is building that out who’s on the project needs all of those different consultancy services.

Right? So rather than go to ten different people, and as you know, the drawings and the construction schedules all have to be integrated. Back when I was doing it thirty five years ago, we used to draw on sheets of paper, this way before AutoCAD became really popular. Now you have one master AutoCAD file or or something called the BIM, a BIM, business inform a a building information management file, And then every one of those services has their own drawing layer in in the software.

Right? So then they can see how they you know, for example, the architect does his design, then the structural engineer has to do his design. But then the mechanical electrical engineer, if he has to route the cables through the steel work, that will impact the design of the steel work. Right?

They gotta brace it and do all that all that kind of stuff. I’m a bit of a nerd when it comes to this. This is what I used to do a long, long time ago, and I’ve I I never forget things. So I I think this is a great business.

I think one of the challenges with this business, because it’s so best in class, They do have this extremely high valuation on the business.

You know, this this is what I call a Cybertruck deal. Right? Everyone’s gonna wanna buy it, which is why the valuation is so high. And they would probably get that, if not more, if they sold to a large trade buyer, another large architectural firm, or maybe a big structural engineering company that wants to, move into the architectural design stuff.

So, yeah, I I think if he’s up for an annuity, offer him more, but model it out. Make sure you don’t have cash flow. You could maybe put an earn out in there. You could give him retained equity. You could give him some equity in the top coat. There’s loads and loads of different ways that you could sweeten this deal, but what a fantastic business.

Incredible job utilizing all the tools I’ve given you over the last few weeks. Transfer bioanalysis, multiples model. You clearly watched the presentation I did last week around, having at least three ways to exit a deal. Man, I love it when you guys do what I say. It really makes me happy. So, great job.

Do we have another, slice, Jacob? Yeah. Keep going. One seat. I think the Jamika is ready to jump one seat.

Yeah. So so one of the things that, like, our our our status right now is we we presented this this off this this offer to the seller, and then the seller responded to us saying that he has, already, like, two offers in the pipeline that gave him around the eight million, valuation.

But still, he he wanted to work with us. So I I I I think that’s, like, all the points that you’re mentioning a while ago, Carl, it would be helpful for us to get back to the seller on what’s the proper response for that.

So yeah. So here’s the here’s the one sheet that we have, and we peg the multiple at five point five point one, which is what the seller is gearing towards the, the annuity deal.

So, yeah, that’s that’s, Yeah.

One of the things so I’d be interested to know what happened in twenty twenty one. Maybe it was because it was COVID and, you know, we know the world was in different place.

Hundred percent correct. It’s COVID related.

Yeah. So for me, I would probably just take an average of the twenty two and the twenty three, which gives you, an EBITDA somewhere in the one point three range. And then when you apply the five point one multiple, you’re at the kinda you’re you’re around six point six million dollars.

So, yeah, I and and and I I think if you look at your current adjusted EBITDA of one point three five four, you could easily fund you could easily fund six six and a half million dollar loan annuity.

There’s there’s a million bucks of cash in the business.

I think you could do a little bit of analysis around the working capital. You might not need all of that cash in the business, because AR is pretty low. Well, saying that it’s sixty five days, so kind of average.

You could probably get a little bit of a of of an AR facility on that if you’re doing an annuity. So you might be able to get, you know, probably a million bucks out of that as well. So you could do a hybrid deal where you might put one to one and a half million down leveraging the AR and a little bit of cash and then, put the rest on annuity. And then I would sweeten the deal with, with some shares in the TopCo, sell him on the roll up idea, tell him you’re gonna give a little bit of equity, a few points each to those three key employees.

But, but, yeah, I’m gonna let Jeremy and David take over and get into the details on this a lot more. But, yeah, I I love these types of deals.

It it it’s surprising to me I never bought a company like this when this was the world I originally came from. Maybe it was my Freudian brain never wanting to go back, you know, to that to that world. Right? But, what an absolutely amazing business. Yeah. So extremely high green light for me on this.

If it wasn’t overvalued in the mind of the seller, you didn’t have to get super creative and all the different things, probably a golden buzzer deal. But Jeremy, David, I’ll let you guys chime in.

Yeah. I like the I like the business. For sure, I I really like these architecture, firms. Yeah. The, obviously, the the challenge is gonna be with the the the entire valuation.

You know, that that eight million dollar offer that they have is obviously from, probably from a trade buyer. So the reason they’re able to probably offer that is just looking at their overhead percentages, a percentage of revenue, they’re at about thirty percent.

A trade buyer can probably cut that in half, get it down to fifteen. So you figure you’d cut fifteen percent out of the business. That’s almost another one point five million dollars, which puts them in about a three two and a half to three million dollars of of adjusted EBITDA for a trade buyer. That’s why there were that’s why that trade buyer is willing to pay, you know, through, eight million dollars for the business. Now, obviously, you not having that, that platform company to, you know, to to build off and and do that yourselves, I I would really try to sell them on, you know, hey. Let us be that trade buyer that goes out into the the market along with you with you rolling over equity, and we can do this along with you and, you know, increase the overall value of, you know, what what you’re worth, you know, three to five years down the down the road in the same. But I I really like the business.

I really appreciate that, Jeremy. That’s awesome.

Yeah. I I think, I I I I I love the space. I mean, you you guys have talked we’ve talked about that, I think with with all of you. My daughter is in this world as well. She’s a landscape architect, and Jacob and I have talked at length about that.

I I I I’m calling on what Jeremy was saying. I I I do think that overhead is is high for this business. You know, it’s, looking at twenty twenty three, it’s at about a thirteen percent EBITDA margin.

I like to see professional services businesses, you know, north of the mid twenties.

So, that would be the one concern for me. And that might be something you can talk to this in terms of of talking about the multiple with the seller, that might be one place to have the conversation with them is, look, the overhead on this business is is really high. So one of the things that’s driving down, both your valuation and the multiple we offer on the valuation is the fact that while there’s a lot of things about this business that are best in class, the cost structure isn’t.

So, you know, build building a little bit of, you know, as I like to call it the, I’m sorry, but your baby is ugly, conversation.

The, so so that’d be one thing. The other thing, to me, just my gut reaction looking at this business, I I’m a little curious at what a million dollars in current liabilities, is in this business.

I I I I unless they’re subcontracting a whole bunch of work, I really I’m I’m I’m curious as to what they’re coming up with to have, have those current liabilities at that level.

So I I don’t know, Jamika, if you have any insight into that and in the details, but that would be another another inquiry that I would make.

Yeah. That’s really helpful, David. Jacob, can you go to financial inputs?

I think we it’s it’s because they have they’re operating on two offices, one in Florida and one in Ohio.

And they’re all standing, so it’s, that’s one. And then here, it’s it says it’s accounts payable.

Yeah. Yeah. So AP I I’m I’m curious, you know, what what this business has by way of AP other than probably subcontracted, professionals. You know, they they you know, if they’re the lead on the project and they have, you know, they have the civil, they have the structural, they have the, the landscape architecture, all potentially as subcontracts.

But I wanna explore that. And then what they what that four twenty eight of other current liabilities is. That that almost bugs me more than the accounts payable number.

That that’s a that’s a big number in the kind of miscellaneous category that I wanna understand.

And, David?

On the accounts payable, real quick, I mentioned to him in one of the videos and one of the Zoom conversations we had that we had the ability to actually hire, off, off the United States. We actually can hire teams that are very qualified in Mexico and South America, And we were we’re already doing that, and he was extremely ecstatic. He says, oh my gosh. You can actually improve the bottom line quick.

Yeah. Yeah. No. Absolutely. That yeah. Off offshoring, a lot of the technical work, the drafting work, and and things like that are are super, are are super viable in this field.

Going north south, as you mentioned, going east west as well. I know in my, a company I worked with in the structural steel space, they outsource all of their detailing to to, to India, to a firm in India. So so there’s a lot of opportunities there. Yeah. Luis just said the same thing.

The other question I I so the two real, burning questions I have on this deal, though, number one, is taking a really, really hard and honest look at transfer value. How much of the value of this business is the principal architect?

A lot of these small professional design firms, it’s really all about the the the the senior architect, the owner, founder is the brand.

So making sure that that there truly is transferability of of of that value and that you can maintain this eight, ten million dollar revenue stream if if he is beginning to phase out of the business and that you’ve got a really, really solid plan to transition the brand from from him personally to the firm.

And then, the second piece, I I would I would wanna know more about is the, what the licensing, structure looks like within the design professionals. How many states are they currently licensed in? What do you need to do? You know, Ohio, you mentioned them being in Ohio.

I I don’t wanna pick on Jeremy’s home state, but I I’m I’m not really crazy about the the construction business in Ohio, in in terms of of growth prospects. You know, you also mentioned Florida. Okay. That I am crazy about. You know, you look at, the Piedmont Atlantic, Central Florida, Texas Triangle, Front Range in the Rockies, Arizona Sun Corridor.

All of those areas, population is projected to grow fifty percent between now and, twenty fifty. I wanna be in the construction world in those spaces.

Don’t necessarily wanna be in the Rust Belt.

So so where does that licensing look like? How do you expand the geographic footprint to take advantage of that growth?

Yeah. It’s forty eight percent. I mean, the forty eight states they’ve got, already, and it’s the personnel that has the licenses, not the senior. And he’s willing to stay, up to three to five years with us.

He says, I I’m not I just wanna have some time to go and visit with my, relatives and family and grandchildren, but I wanna be involved in the presentations and all of that and make sure that you guys understand that. So I feel that, he’s trying to minimize that as well. Also, the market in the United States is seventy three billion dollars in twenty twenty three with a four percent to five percent increase. And America only, let’s see, is nineteen percent of what it can be in the world.

So we’re thinking that we can take it outside of, design wise, and consultation wise. We can take it outside of United States and go because of the level of design and achievements that he has acquired, we can take it outside of the borders of the US.

Yeah. Absolutely. You know, you’ve you’ve got firms out there like like and and you’re in the industry, Ben. I know you know this. But, you know, firms like HOK that are, you know, global architecture firms, and design firms. You know, they have offices all over the world.

And even small firms are able to do this. We looked at a landscape architecture firm with my daughter, that was was based in, based on the US West Coast. But prior prior to COVID, eighty percent of their work was in China.

Now, that that that became very, very problematic for them. And and with COVID, it kind of dumped the you know, it it it it dumped the the firm and the wrapper. So you gotta be careful about those international pieces, but but there’s definitely opportunity there.

If we just look at one of the forecast I know we’re probably running out of time. If we were to look at the forecast model just with one addition, it goes just really the numbers look really good. So we’re very, thinking that it’s it’s a potential. Some of the input that you guys have given us, it’s amazing. It’s some of the hurdles. The annuity hurdle is a big one, in the sense that he feels that he receives all the risk. And so we’re having to deal with that right now.

Yeah.

Yeah. And and then the other thing I’ll put in and and I I’ll I’ll I’ll I’ll I’ll I’ll needle Jacob a little bit here. You listed all of the additional disciplines that you wanna incorporate vertically, but you didn’t mention landscape architecture in there.

So Oh, yes. Absolutely.

We we I I guess that that that that’s inside that’s inside of architecture.

I guess. Yeah.

Can you take over this put it in your Yeah.

My my daughter is in is is in a landscape architecture firm now that’s a it’s a start up, but it’s relate it’s it’s tied to a two hundred professional architecture firm. And she spends her day walking around the architecture firm explaining to them what landscape architects do because none of them understands.

Tell tell her to watch her phone. It’ll be ringing.

Alright. Let’s see here. Lenny, you got your hand up. You got a question?

Yeah. No. I just want to comment on it. I I think it was fantastic presentation. I’ve talked to Ben before, sharp guy.

I think that the thing to to, also keep in mind, and I see this a lot, and I know Carl and David are gonna be going over this on Monday. But when we look at a deal, we sort of factor not sort of. We definitely stress test the deal based upon what is it gonna look like when you take on debt service.

And in this particular situation, and why I think people should stand tough in the negotiations and try to get numbers that are closer to the what the one sheet tells you they should be. Because if you were to do an SBA loan, let’s say, at six and a half million here, your yearly debt service is gonna be over a million.

And one small, you know, change in the macro economy or even in the industry, can put you at really at at risk.

So, you have to be careful when you’re going for these higher numbers and factor in what’s the debt service gonna look like if you do pay that higher number.

Yeah. Well, true. Absolutely. We’ve looked at that, and that’s the reason what we start to to the charts that, you know, especially the transfer value, table that, Carl has given us. We we’re looking at that, but, there you know, it’s a broker deal. So there you go. Brokers talking to it.

Yeah.

Yeah. Yeah.

Yeah.

Understood. But in the end, you know, it’s your business. Right? So you have to service that debt.

And, so you’ve got to make sure that you negotiate the best possible deal you can, especially for a bigger deal like this where, you know, you know, without any hesitation that you’re gonna be able to service that debt. Because in businesses like this, there’s going to be, you know, industry standard. There’s gonna be a reasonable period of of collections. Right?

Sixty plus days, typically. And so, you know, you have to service that debt. And even if you do get a reasonable amount of working capital, you can burn that cash quickly.

Exactly. Thank you. Thank you, Lenny.

Alright. One more, and then we gotta move on to the next one. Lydia?

Hello, proteges.

Great business, incredible work that they’ve done.

I recently just had a experience where the price of a business was raised, so I passed on it.

Can’t agree more with, Leonard where, you know, you need to make sure that, you can actually cover the debt, especially if it’s too high. My number one question is, you know, why would you believe that they do have, that they have those offers of eight million dollars?

You know, it’s sometimes it can be just advertised or misadvertised that that’s what the rate is. So I would question that, first of all.

And secondly and secondly, you know, maybe it would make sense to, you know, overpay, but I think that because the money is expensive today, I don’t think it makes sense to overpay. But, again, that’s just my two cents. I would just be really careful with overpaying for a business.

Again, they’ve done a beautiful work, so I can understand why you would be very interested. But I feel like you have advantage because you’re coming in with the team, with the knowledge, and passion towards this business versus a, trade buyer. So perhaps you can have more rapport and and kinda get more get get this person more reasonable, in terms of the evaluation.

Thank you, Lydia. It’s amazing.

Other route is actually get it professionally evaluated, and bring that to the table.

Thank you. Will do it. Great points.

We had a couple of com comparisons, what we’re gonna bring in in a negotiation, what was sold recently.

And, we can we can use that as a leverage on a on a coaching. He’s open. And we’re talking about it saying, you know, we have to have enough cash flow, enough enough, enough reserves to have a make a payments to him. So the SPA is out of the table anyway. So so he’s gonna be the one who’s carrying it. So he understands if we have to have enough, enough revenue pay him and pay pay the future and our growth.