Gabrielle Cabelli is currently evaluating an off-market acquisition opportunity for a Chicagoland-based wholesaler in the automotive industry. The company, which specializes in emergency lighting and tractor-trailer accessories, has a compelling origin story. Founded in 1996 by two former employees of a trucking company that abruptly shut down, the founders started the business from scratch with a few folding chairs and a storage unit. Today, the company generates $3.8 million in revenue, with an adjusted EBITDA of $660,000, and has established a solid market presence across the United States and Canada.

The business operates in a niche market, providing emergency lighting solutions for vehicles such as tow trucks and ambulances, as well as offering various accessories for tractor-trailers. With a lean team of six employees, including a family member serving as the bookkeeper, the company owns a warehouse in Chicago near Midway Airport, which provides a strong logistical advantage for the business. Gabrielle sees this as a great opportunity to expand her existing portfolio, as she is already running a similar wholesale distribution business.

The sellers, one of whom is in his eighties and the other in his sixties, are looking to exit the business, but their seller psychology has been evolving. Gabrielle initially presented offers that were rejected, partly due to the sellers’ belief that their business was worth more than the initial offers suggested. However, after further negotiations and the removal of seller salaries from the business’ operating costs, Gabrielle’s adjusted EBITDA offer improved, making the business more attractive for acquisition. Despite their desire to stay involved in the business for a couple of years, Gabrielle has made it clear that she would prefer a more rapid transition to ensure smoother management post-acquisition.

Gabrielle has also done her homework on the valuation and applied a conservative 2.7x multiple, which aligns with industry standards. Although the sellers had previously expected a higher valuation, they have shown willingness to engage in further discussions after Gabrielle’s offer was validated by a third-party evaluation. The combination of strong historical performance, a solid asset base, and a strategic location makes this a promising acquisition target.

The company is poised for growth, with opportunities to expand revenue streams by adding more automotive products, increasing sales channels, and leveraging existing relationships with first responders and other industries. Additionally, the possibility of acquiring similar businesses to create economies of scale presents further growth potential. With the ability to finance the deal through SBA loans, this opportunity offers a low-risk entry into the automotive wholesale market with strong potential for future expansion.

Gabrielle’s background in supply chain and pharmaceutical manufacturing positions her well to optimize the company’s operations, streamline logistics, and increase profitability in the coming years.

Full Transcript:

What is up, guys? Happy Thursday. Welcome to Red Light Green Light call. I will say good afternoon because, yes, I am still in the UK, but I will be, back in, wonderful Texas as of Saturday.

But, looking forward to the call today. Let’s go to Gabrielle. So, Gabrielle Cabelli, you are next up on red light green light. Let’s see what you’ve got.

Hopefully, you can see see my screen.

Chicagoland. I like it already.

My old stuff.

A little bit about this opportunity. It’s a Chicagoland wholesaler.

There are two pal partners in this, who own this business today. It was a and this is an off market deal that was found using a Facebook funnel.

And, the the founders of this business, they started in nineteen ninety six. They have a really sweet origin story where they were at their Christmas party in nineteen ninety five, and one of the the owner of the business that they worked at, which was a kind of a trucking company, whispered to one of the exit the partners today and said, hey. Don’t tell anybody, but today is the last day that this business is in existence. And then the very next day, they shut that business down. So these two guys got together and, you know, a couple of folding chairs in a in a storage unit and started this business the next day, basically, you know, supplying, consumables in in, to the automotive industry.

Now one of the owners is in his eighties. He’s gonna turn eighty four next month, and the other owner is in his sixties and wants to stay employed for a couple of years until he hits sixty five.

In twenty twenty four, they did three point eight million in revenue with an adjusted EBITDA of six hundred and sixty thousand.

They’re in the automotive space, and they have a bit of a niche market. They do emergency lighting, so think tow trucks or, or ambulances, anything that would need some kind of lighting feature on the vehicle.

And they also deal in tractor trailer accessories. So the easiest thing to to connect to on that would be, like, straps that might hold a a a low down or chains, things like that.

There are six employees in the business today. One of their family members is the bookkeeper, and they own a warehouse building in Chicago literally across the street from Midway Airport.

They sell in all fifty states, and they also sell in Canada.

So that’s, that’s the wholesaler opportunity.

A little bit about me, I’m a Northwestern grad, a Columbia University grad, and my background is in the sciences, and I spent most of my career in pharmaceutical manufacturing.

However, during COVID I know we don’t talk about that much, but I had moved into a supply chain role. And so, when I started looking for businesses to acquire, I, I I acquired my first business in October twenty twenty two using Carl’s CEO training program. This was prior to being a Cote d’Ivoire. Thank you.

And it also happens to be in wholesale distribution. We’re in Chicagoland, and we do automotive consumables.

So, it’s a little bit different than the hard sciences, of course, but, you know, supply chain is something is one of those areas that I delved into before I left corporate America.

Okay.

And then just a little timeline here. The first contact with the seller was kinda first week of April, first meeting mid April, and then, I presented a my first set of offers to the sellers in mid May, which they immediately rejected, and then they went on vacation for a couple of weeks. And when they got back, the the week after Memorial Day, they contacted me and asked if I was still interested in the business. And so we’ve met a couple times since then, and I present I gave them a second set of offers, just on Monday. And then this afternoon, we’ll be they’ve asked for a call.

So that’s where we are on this.

Any questions? Otherwise, we’d like to move to the numbers.

And then Nice.

Forecast model. Love it.

Yeah. I I was gonna ask. I I haven’t been on one of these calls in a couple of weeks, so I wasn’t sure if we were still using the One Sheet or forecast model.

Yeah. We’re still using we’re still using the One Sheet, for people that aren’t building forecast models, but I think, like, the the the one sheet captures a lot more than just the, you know, the the numbers on the deal.

Obviously, it gives you, like, the whole SWOT analysis, covers seller psychology, key Mhmm.

KPIs in the business. But the forecast model is for you to showcase, like, what you can do with this business and what the returns might might look like. So, ideally, you would use both. When we’re we’re retooling, see, we’re retooling the the whole training curriculum right now. When it goes live in August, all of all of these models are all gonna be integrated together. So, so Okay.

We’ll we’ll That’ll be great.

We’ll definitely, be doing that. But, yeah, you you you carry on great so far.

Okay. Well, I do have the one sheet of with those additional statistics on it, but I like this forecast model because, I went ahead and put my existing business in as the second business just so that I could kinda see the two combined. Yeah. And I I am actively looking for other businesses that look just like the one that I’m currently running. I mean, this this wholesale opportunity is a little bit different, but I don’t I I do think that it’s quite reasonable to acquire two or three more that look just like what I’m doing today. So it it gave me a little bit of a of an idea of how to merge those two.

So when I talked to Jeremy about this, Jeremy did my did a nine one one call with me prior to doing those first offers in mid May. And, the seller the sellers had wanted to stay in the business, and so I had there was a lot of add backs in there that just made it made it a bit cumbersome. Well, since after those first offers were rejected when we met, prior to me providing the second set of offers, I really talked to them about the realistic aspect of them being in the business. You know, they’re gonna draw salaries.

That’s gonna take away from the monies that are available to pay them and to to pay them the price of the business and things like that. And we had come to an agreement that that we would take those salaries out, and I would just present an offer that that didn’t have them working in the business for years to come. So with that, the the adjusted EBITDA was increased since those salaries didn’t have to be, don’t have to be paid. And, also, they can be you know, they’re paying themselves both over two hundred thousand dollars a year in salary.

So the the work that they’re doing can be replaced with much lower, much lower salaries.

So that made made the change in here to around six hundred, around six hundred thousand. And with the first set of offers, we were looking at something in the low fives, but, adding those salaries back in increases what’s available there.

Any questions on that or or why that’s changed?

No. No.

No. I I I do like this deal. Let so two questions for you. So on the valuation, you you’d applied a two point seven multiple to the three year average, which I just got into the multiples model.

And even though I’ve not seen the seller psychology scores yet, that multiple would be pretty accurate. And then you’re adding the real estate to get, an equity evaluation of about two point two million. Is that what the ask is, or does he want two point two for the business plus the real estate? So he wants two point seven.

That’s right. He wants two point two for the business. I you know, in his mind, someone told him a couple years ago that the business would be worth over two million, and they had probably a broker. It’s probably a broker.

So yeah.

They’ve had only increasing sales since then, so they think it’s worth more than that. I have shared with them some multiples about the industry. I even did a with my we’re in Indiana, and our we have, kind of a nonprofit that we that comes out of Purdue called the Indiana Small Business Development Center, and they’ll do evaluation report, for just a couple hundred bucks. And so just to kinda because these guys aren’t working with a broker. So to to kinda legitimize where my offer was coming from, I’d ask them to do a report. That way, it’d be kind of a third party looking at it, and they also came in right around this range.

Yeah. Of course.

What what I love about this deal what I love about this deal, though, is that you can do, you you can do an SBA deal with no equity because you’re buying for industry.

They’ll do a ninety ten deal structure with you. So, yeah, I I I do I do like that. What’s what’s the seller psychology like with this?

Well, it’s it’s changing over time. I will say that after the first set of offers that I presented, which were, because of the change in in the in the adjusted EBITDA, the first offers were around one point three, one point three million for the business. And, you know, I got a flat out no from the from the seller, with that offer. And they basically wanted to go and talk to a a broker. So they’ve been doing some of that over the past couple of weeks.

And I expect that this afternoon, part of what they wanna talk about is going to be whatever they’ve shared with the broker thus far.

So in terms of seller psychology, these guys, again, they’re off market. You know, one is in his eighties. One is in his sixties.

They feel like maybe there’s more out there than than what I’m offering.

And I I, you know, I believe that what they’re doing right now is just kinda playing the field, if you know what I mean.

Yeah. But Yeah.

Yeah. Okay. Alright. Okay. Any anything else do you wanna share?

Let’s see. No. You’re you’re right about the, talking to either, One Source Business Capital or Readycap.

It it This business certainly qualifies for the, the business expansion program from the SBA. So Yeah. If it if we do go the SBA route, it could be actually a hundred percent financed through it. Yeah.

I presented three offer yeah. Yeah, I presented three offers. One was a hundred percent through the SBA. One was with the sellers, each retaining ten percent, as a note, and then the other one was a hundred percent, you know, a hundred percent annuity deal. And I haven’t gotten any feedback yet, but I will this afternoon.

So Okay.

Perfect.

Alright.

Are you ready for analysis and thoughts, or have you got anything Mhmm. Yeah. Okay. Great. Well, well, I I I like this deal.

I like this deal. The margins are really good. It’s growing. I think it’s a great deal for you, to add to the existing business that you’ve got as a reverse take takeover. I love I love the fact that you can blend it a little bit, above the ten years because there’s a piece of real estate. I think it’s it’s a shame they’ve gone down the broker route. I I think all that might do is just cost you some time if they they initiate the broker, who tries to shop it around, I do think the valuation that you’ve modeled is is is pretty bang on.

But, no, I, I like it a lot. Jeremy b, what do you think?

Yeah. I I like this business as well.

You know, it’s it’s pretty consistent.

The the EBITDA, you know, continues to to grow, but in terms of the overall percentage as a as a percentage of revenue, it’s consistent year over year. It’s been in business a long time.

That means so it’s, you know, went through a number of ups and downs and and still, still exist.

So that’s that’s always a positive thing. I know when we we originally talked, the the big issues that we talked about were the the owners, one being in their sixties, the other one being in their eighties and wanting to stay around for for two years. You know, in in those types of situations, you know, they’ve they’ve grown the business to to where it is for for a reason.

How much value that they’re at actually gonna add in the future and try to take four hundred thousand dollars out of the business does doesn’t make sense. And, you know, somebody that once they actually sell their business, how how motivated are they actually gonna be to to continue to help you grow after the fact. So that’s one of the things I always, you know, consider is, you know, you you need those people to to be advisors for you once you acquire these, but you gotta get them out of the way so you can get in there and and run it and, you know, take it to the next level. So, you know, it’s it’s good that you were able to talk to them, and it seems like they, you know, they’re they’re they wanna have a, quicker transition period. So so that’s always positive as as well.

Yeah. Great. Thank you, Jeremy.

Lot of comments about what’s unique about this deal that the SBA gave it one hundred percent.

And thank you to Richard and to Ben for replying to Anker’s comment. But but, yeah, they’re right. And that when when you own a business in a in an industry, if the first three letters of the NAICS code don’t change, the SBA will do, either ninety ten deals where it’s ninety percent debt, ten percent seller financing, or in some cases, they’ll do a hundred percent, debt deals, which means that, you know, you can buy that company with no equity. Right?

So and that that’s a great strategy for anybody. Right? Even if you don’t own a business and you’re brand new, if you wanna do SBA deals and not have to do, you know, any, any equity fundraising, go do an annuity deal. Right?

Just just find thirty deals, annuity deal on every one of them. One of them is gonna say, yeah. Right? You might only need to find ten deals.

And then close that deal, and you can close that deal really quickly.

And then use that as your toe into the market to go and do SBA deals with no, equity required. So don’t ever let equity stop you from doing an SDBA deal. Just go close on an annuity on a smaller business. And whilst there’s no hard fast rules on the comparative size of the first business and the second business, David Marcantonio tells me it’s gotta be at least twenty five percent. Right? And in this example, the you know, Gabrielle’s first business is doing a million bucks of revenue.

This business is doing, about three point eight. So she’s just, over that twenty five percent, ratio.

So and anything twenty five percent or more, you would get the, you know, the green light on this. So, so that’s good. Alright. Let’s let’s talk to a few more people.

Let’s go to Joshua Patrick. Joshua, what do you think?

No?

Doesn’t wanna doesn’t doesn’t have an opinion.

Toby, you you made an absolutely killer comment at the end there.

Let let me let me read Toby’s comment now because he’s so cool. He said, seems like the sellers looking for more money is ego driven activity, which it is.

What else can you do to build their egos? Right? We’re in the business of being creative as dealmakers, and we’re always looking for ways to give sellers what they want that doesn’t cost them money. Right? So I absolutely love that comment.

Toby, do you wanna expand on that? I really, really like that comment.

So this business is in your lane, and you’re you’re intending to buy more businesses like that in the future.

And and so you compliment them on how well they’ve done in in running this business.

And and the fact that you want to not lose you don’t wanna lose the secret sauce that they’ve poured on the on the on the company. Maybe they won’t want a position on your board moving forward.

It could be a paid or an unpaid position. It could be include equity or not include equity. It could be an advisory board or board of directors.

But but say, hey. I want you to be one of my advisers moving forward. I really value your input, especially that eighty year old seller.

What that person has left is their knowledge. They don’t have a lot of energy. They don’t have a lot of ability to go out and do more work with their hands.

They have a lot of knowledge, and it probably contributed for the for the business to be where it is.

So can you can you massage their ego and make them love you because of how you made them feel?

Yeah. Thanks for that perspective.

Yeah. I do. In fact, on one of the one of, like, the middle seller calls with these guys when we were discussing, you know, how they want to stay on and this and that, literally, one of the guys said, you wouldn’t even wanna buy this business without us. You know, it was truly an ego driven, thing.

Like, it’s a you could just tell how much they’ve put into it. And and, also, these two guys are just best friends. They they’ve built their lives together. They’ve built their business together, and, you can tell that that they’re they’re also I mean, I can’t stress enough.

These are two sweethearts. You know? I talk to a lot of sellers who are just jerks. And, like, when you talk about ego driven, they’re just, blinded to, to whatever the value is either in their business or, or how they contribute to it.

But these two guys are are real sweethearts. Every time we meet, we spend the first half an hour talking about their families, their wives, their kids, things like that. So, two people that I would love to be in business with, or to have advisers for sure.

If if you could swing it, that they don’t that you can take over control and make the decisions, but you could let them keep a desk there and be there and have everybody say hi to them when they walk in in the morning. They will feel utilized.

Mhmm.

That that’s a tough thing because if they’re if they’re micromanaging the employees to do different things than you want, then that’s a bad place to be.

So you’re gonna have to judge that.

I’ve I’ve I’ve done that with a with a seller, and I really respected him, but he didn’t necessarily guide all of my employees in the direction I wanted them to go. So that that’s something to be careful with, but if you can do it, it, is gold in their mind because they still feel important.

Yeah. Thanks for that.

Cool. And then and then, hey, just, something that Jazz has flagged, that you might just wanna tweak in your model. I think your, I think some of your percentages are off in the forecast b. So you you were at forty three percent gross margin through the combination of the two businesses.

Then, you know, you you would expect that to go up a little bit from twenty five through to twenty eight, but not at seventeen percent. I Yeah. I think you’ve just not changed the the, you know, the basic number in the model. And then as well, your SG and A as a percentage of revenue, that’s gonna fall. Right? So that would definitely fall. So you’re at sixteen point zero two percent in the combo.

Going forward, you’d probably drop half a point to a point per year in your SG and A. I don’t think your SG and A would jump up, eight points, year to year. But, but when I when I look at it, I saw a hundred and two x ROI.

I think, yeah, if you if if you adjust those numbers, you’ll still get phenomenal forecast returns.

Mhmm. But I think that will, that will make the model absolutely, bob on. So, it’s a great Thanks. Great job. Darren Darren Yi, are you are you back on the call?

I am back in the call. Sorry.

Yeah. That’s right.

The last call, that was what my account called me.

Yeah. No worries.

Everyone knows the the pains of taxes. Right?

No worries, man. But, yeah, what do you think about this deal?

Yeah. I actually Gabriela and I probably met, I don’t know, maybe a month ago, and we actually were were talking about this deal. And, I thought this is actually just a real perfect deal for her wheelhouse of what she knows and stuff. And so bringing this into what she’s kind of already doing right now just really suits it really well.

I I really like this deal in general. We’ve talked a lot about it. I think it’s a great valuation on the business. There’s good margins here. I think she has the opportunity to continue to actually increase those margins, just knowing her background and what she’s doing already.

And, I think there’s just a phenomenal opportunity for her here. So yeah. Right. Good good stuff.

Yeah. Thank you for that. Yeah. What what I love about this business, right, is it doesn’t matter what the business distributes.

The distribution of the product is is what’s key. This this this could be this could be distributing anything. Right? This this business is about logistics and supply chain.

Yep. And and I think with Gab with Gabriel, that’s your superpower. Right? So you could buy distribution companies that distribute anything.

Right? The the the the source in this business is not the product. It’s how it’s pushed through the supply chain. And, like, historically, those types of businesses, the margins suck.

Right? But this one doesn’t. Right? So there’s obviously something really good about this business to have margins that, in my opinion, are, maybe not best in class, but they’re they’re above average.

Right? They’re they’re pretty solid. They’re they’re pretty strong.

Alrighty. Dan Giordano, what do you think?

Probably on a sell a call. Everyone’s multitasking today. Yeah.

Yeah.

Well, I’ll say the other thing about supply chain logistics, the other thing about these business because these are commodities, you know, you can kinda go Google for these types of, pieces, but there’s a huge part, especially just in this business to business or in the automotive industry in general, of just, of liking who you’re working with. So, you know, part of it is also the research piece. You know, even in my own business, I get calls, from from existing customers just asking for information. They wanna know about a certain chemistry, chemistry, or they wanna know about a certain new item coming through. So there’s a bit of, being that knowledge center in these businesses that, that I think is why, you know, why this one particularly can pull the margins that it can.

Yep. Perfect. Alright. Thank you for that.

Alrighty, guys. Get your votes in, and then we’ll go oh, James got his hand raised. James, you got a question or a comment on this deal?

No. I like it. There’s there’s with this business, I mean, there’s multiple and she already knows that there’s multiple avenues to generate revenue. And, I mean, doing wraps in your first responders doing wraps, you’re already doing the lights.

There’s all kinds of things, and there’s so many different avenues that you can go. I commend you. It the the business looks good. And then with then with getting more rev more, buying power and ex expanding the economies of scale, then all of a sudden, you’re getting your cost of goods down even more, which you could add another five percent to your bottom line with no problem.

Yeah. Great great deal. Great deal.

Yep. Fantastic. That’s great analysis, James.

Thank you. You’re getting very, very good at this. Thank you very, very much for that.