Joshua presented an exterior energy efficiency solutions company based in South Florida, specializing in roofing, solar, impact-resistant windows and doors, and HVAC installation. Positioned in a hurricane-heavy region, the business thrives by offering energy-efficient and hurricane-resilient products. Operating as a streamlined, low-cost, high-efficiency sales and marketing company, the business relies on a direct supplier-to-installer model with no showroom or warehouse. Subcontractors handle all installations, minimizing fixed overhead and operational complexity. The owner currently works only 20 hours per week, primarily overseeing the management team, showcasing the business’s semi-absentee model potential.

The team structure is robust, with 25 in-house W-2 employees, 14 sales professionals (currently 1099 contractors), and 15 subcontractor crews. A GC qualifier is also on the payroll, ensuring compliance with licensing requirements. Despite its strong growth trajectory, concerns regarding the IRS’s tightening regulations around 1099 sales staff were raised, as transitioning these roles to W-2 employees would impact payroll and operational costs. Addressing this transition and mitigating potential disruptions to sales culture will be critical.

The business has experienced a significant surge in performance, doubling revenue and tripling EBITDA in 2023. This growth was primarily attributed to an increased marketing spend, emphasizing referral-based and Facebook-driven lead generation. However, questions arose regarding the sustainability of this banner year and the legitimacy of certain add-backs presented in financial statements. Two questionable cost-of-goods add-backs were flagged, one relating to prepaid project expenses and another without sufficient explanation. These discrepancies, along with the business’s reliance on recent performance to justify its valuation, raise concerns about potential inconsistencies.

The Florida market for energy-efficient products, particularly in hurricane-prone areas, is experiencing rapid growth, with a 59% compound annual growth rate for solar installations. This favorable market trend positions the company to scale further through geographical expansion, additional verticals (such as solar and HVAC), and untapped marketing channels like door-to-door canvassing and SEO-driven campaigns. Leveraging its proven marketing system to penetrate new markets represents a significant growth opportunity.

Despite the business’s potential, the asking price—based on a recast EBITDA and the current banner year—appears overvalued at approximately $23 million. Without real estate included, securing financing at this level poses challenges. Potential deal structures discussed included a blend of SBA-backed financing, seller notes, and earn-out components, but the absence of real estate and reliance on add-backs complicates lender approval. Private equity interest may be limited unless the business sustains its 2023 performance for another year to justify such a premium valuation.

Key risks include verifying the add-backs, ensuring quality control with subcontractors, and managing potential payroll adjustments for sales staff transitioning from 1099 to W-2. However, the business’s strong reputation—evident in over 200 Google reviews with a 4.9-star average—indicates solid customer satisfaction and operational execution. With a capable management team, a scalable model, and a strong market, this business offers substantial upside for the right buyer. Addressing valuation and validating financials will be critical next steps in pursuing this opportunity.

Full Transcript:

So, Joshua, you’re on, my friend.

I was challenged in Orlando to go big or go home. So here I am.

There you go. Go big.

I got three big boy pants in the works, and this is one of a couple down in the South Florida market.

So this one is an exterior energy efficiency solutions company.

This is the team, and Carrie is actually on the call with me. So I’m the visionary out of the group. I’ve got a good deep background in sales and customer service, plus a lot of experience in the residential remodeling and real estate markets.

Gary is your true CEO guy. He tested ten out of ten on Brandon Vaughn’s Hirebus assessment for a CEO.

So he is an awesome fit. Understandable.

Tested zero out of ten for a CEO.

Yeah. I fell flat somewhere in the middle.

Yeah. I was a zero. I think I was a one. But, anyway, there you go.

He’s got twenty four years in construction background, including part of his resume. He took a one man restoration band franchise from all the way up to thirty two employees and ten million dollars in revenue in about eighteen months.

Good job.

Brooke Schultz, who is not on this call, is another integrator. Yeah. She is badass.

I believe while she was running Blackledge Emulsions, which is one of the largest, petroleum byproducts manufacturing companies in the space, they do a lot of asphalt.

What a team. What a team.

This is like hundred million dollars.

This is like this is like the Chicago Bulls from the nineties.

So this this is a team that I’ve put together. Good job.

This is a home services business specializing in roofing, solar, impact resistant windows and doors, and HVAC installation.

What they really are is a a rapidly growing sales company.

They are marketing and referral driven.

They do about seventy percent windows and doors. They are in a hurricane heavy area of Florida.

So that is a huge, huge sector right now.

About twenty five percent of what they do is roofing, and the remaining five percent is solar and HVAC.

All focused around hurricane resistance and energy efficient products.

They run a low cost, high efficiency operation around an in home sales model and direct supplier to installer relationship. So what that means is that the installers go directly to the supplier to pick up the materials, and they don’t have to keep a showroom or a warehouse.

Because they are using subcontractors for all their installation, they’re also not having to be dependent on in house installer teams.

That’s good.

And a shining star of what they do is the PACE financing program that is a clean energy, and, they also fund a lot of the hurricane hardening type products such as the impact resistant windows and doors.

And the financing is tied back to the property through property tax assessments, supplemental assessments.

So it ties to the property, not to the borrower.

Mhmm.

And those are hundred percent financing.

My understanding is that they’re not heavily based on credit like most financing.

Mhmm. So they’re not dependent on the customer having a premium credit qualification.

K.

They are well staffed. They’ve got a very strong five person management team in place, additional twenty five in house w two employees.

They’ve got fourteen sales professionals that are currently ten ninety nine.

I’m a little bit concerned about that in light especially in light of some additional guidance from the IRS that just rolled out that is making it even harder to employ ten ninety nine or to ten ninety nine sales staff. So I would wanna dig into that a little bit, but they do have a strong sales staff. They currently have fifteen subcontract installation crews that they’re working with primarily. They’ve got a qualifier GC on the payroll, and the owner is only working about twenty hours a week, and his primary role is overseeing his management team.

So this is the fundamentals of the business.

The as you’ll notice on the left, the global roofing compound annual growth rate is four point nine percent.

Florida does have the sixth largest solar market in the US.

It has experienced just massive growth over the last five years. I couldn’t believe the number when I looked at it either.

And the compound annual growth rate for Florida, especially in the hurricane heavy markets, like where this one’s located, is just massive at fifty nine percent.

Mhmm.

And What’s driven what’s what’s driven the banner year, Jeshua, in twenty twenty three?

Have they almost doubled the business and three x EBITDA in one year? Did they tell you how?

The explanation that I got was they doubled their marketing spend.

So the it as you’ll notice here, it it does smell like a broker deal.

The and I believe that this business has gone on the market for a little while. Mhmm.

I haven’t got to a seller call on this one yet.

I literally just got the balance sheet and tax returns last night.

Been working on this deal for a little bit, and the broker’s been a little bit slow responding. But I teased him with an investor call, and, that that got him to move real quick.

Do you know what your biggest problem is gonna be on this deal? The that they’re gonna want a multiple on the current year’s EBITDA.

Yeah.

They’ll they’ll they wanna sell this on a banner year. Mhmm. Yeah. That’s gonna be the channel.

Just a minute.

Couple concerns I have right here. This is the add backs that they’re asking for.

And it’s interesting that they actually broke it down as a percentage of the revenue.

Or and you’ll see two things are both cost of goods.

One is the prepaid project expenses, which twenty twenty three is on the far right.

That’s their most recent year.

Joshua, what should we be looking at here? I’m I’m looking at smells like a broker deal. Are these figures these are all the add backs they wanna put in?

These are all the add backs they wanna put in. And I want you to look at the focus primarily on the two cost of goods lines. Alright. The first one, he’s saying that they weren’t doing their financials properly and that they were paying out a lot of prepaid project expenses, accounting for them improperly on the sheet. I don’t know that I’d buy that. No. They’re spending that money.

They’re they’re gonna spend that money regardless, and it’s gonna go on that p and l. Yeah.

It’s not an add back.

Right. And then the other one, they don’t have a really good explanation for, but it’s a pretty significant add back as well. The first one went away in twenty twenty three. If you’ll notice, they’ve got a big fat zero there. So not doing it like that anymore.

But the next one is still pretty consistent. They’re saying it’s not business related, but it’s an expense that was categorized under cost of goods with no further explanation provided.

You reckon it’s been solar solar fitting is his and his friend’s houses.

Mhmm. Something like that. Yeah. It’s obviously, it’s, provide prove prove that these are legit or we’re not gonna take them.

Joshua, just to clarify, the figures in yellow at the bottom, are they already included in the previous EBITDA figures? Therefore, they were adjusted already or they wanna add that on top?

Their adjustments based on add backs. If we come back to this sheet, this is with no add backs other than interest and depreciation.

Okay. Yep.

Alright. Yep. Okay.

Still pretty solid, just not quite as good as what they want to represent.

So the opportunities for growth, take their marketing system and expand it out because they are truly a sales and marketing company first.

They’ve obviously got something that’s working, and it’s just a matter of duplicating it in other markets.

Regional expansion being part of that.

The additional marketing channels right now, they’re primarily generating faith their revenue through Facebook and through referral based marketing.

As of as of twenty twenty two, I don’t know how much of this they have included in their twenty twenty three marketing, if they’ve done it started taking any of these steps. But I know they don’t have any door to door canvassing teams as of twenty twenty two. There was several other marketing channels that were identified including, I believe more SEO driven marketing channels and Internet based marketing outside of social media, increasing the marketing spend to continue to drive growth and increase that growth, adding some additional verticals.

There’s there’s a lot of verticals that they’re not or that they’re barely scratching the surface on. They may be providing some of those services at a very, very small scale right now, but the same marketing strategy that they have currently would work there also.

And then working to build an even larger, more robust subcontractor relationship group to leverage to sustain any growth like this.

Here you go, Carl. Here’s here’s the big ask. You were asking about that multiple. There it is.

Yeah. There you go.

It it is a pretty big number. If we take no add backs, it is a seven point four multiple.

With with their add backs, it’s three point four the previous year, and I think it’s about four and a half on their on the three year average with their add backs.

So it’s possible that there may be a number somewhere in the middle given that it’s been on the market for a little while, but we’ll just have to see.

Yeah. So I I had about a three million dollar average, on a recasted EBITDA. And then, yeah, I I think it’s probably worth somewhere in the fifteen to sixteen million range, to be honest with you. I I I think I think you’ll struggle to get the financing at that kind of level.

That’s the only person that’s gonna pay that is a trade buyer.

That is who they’re targeting, but it was interesting.

The the broker let out. He’s like, we’re looking for private equity. We’re not looking for, someone who’s gotta go through the SBA process. And as soon as I told him that I’m working with a group and, we’ve got I’ve got an established broker who’s got experience with SBA closing SBA deals, proven track record doing that. He kinda backpedaled and more or less said, well, we consider as long as there’s an experienced person in the deal that that has experienced closing deals like this.

There’s no real estate in this deal, though, is there?

There’s not.

Yeah. So even at fifty mil, I don’t think I think that’s gonna be too rich for the SBA.

Yeah. I think you you could do a you could do five SBA five top up and then have a five million seller note stroke earn out structure. But, yeah, if they’re looking for twenty three mil, they’re probably not gonna take a ten million closing payment. I I don’t know.

Shame, great deal. Big banner year.

I don’t think PE will pay you might get a six times multiple out of PE. PE might get a eighteen, nineteen on this maybe, but they’ll, they’ll probably buy two thirds of it or seventy percent and and any amount for the other thirty.

And then he’ll be going from employer to employee for three years.

So with SBA the other challenge with SBA on this deal is the feedback I’m getting from lenders, including David Marcantonio, is that the SBA is really, really hostile to earn out.

Yeah.

And so getting getting any type of a deal that You just can’t call them any outs.

You just can’t call them you gotta call them a different word. It’s called the clawback.

Yeah. Okay. That that is that matches with what I’ve been hearing, so good to hear that as well.

Let me see. Yeah. So this is this is what we would be looking for in a deal like this.

Additional advisory partner that’s got experience structuring and closing these larger deals, and, of course, potential debt and equity partners to come along as well.

I know on the SBA side, I could probably handle the credit side, but I would I would need a partner that has down payment funds as well as someone who’d who’d be willing to to PG with the liquidity, the post close liquidity portion of it.

On a I can’t fund that much post close liquidity on a on this big of a deal personally yet.

And then, of course, we’re still preliminary duty on this one, so we haven’t finalized our Yeah. Financial ask ask on this deal.

Yeah. I I think the key next step on this, Jeshua, is I think you you’ve gotta you’ve gotta you’ve gotta get the deal somewhere in the fifteen, sixty million ballpark. I think if you’re if you’re if they’re way outside of that, I I think then this is a trade this is a trade exit for them.

But, yeah, how long has it been listed?

I don’t know that exact number yet. I know it’s gotta be at least a year because the SIM is there’s several references inside the SIM that reference somewhere midyear twenty twenty two.

So it has definitely been on the market a while. I don’t know that you’re gonna attract a trade buyer at top dollar even on just one year. Could be wrong.

There’d have to be something pretty impressive inside that business.

Yeah. I I I’ve got some red flags on this, Jeff. Well, I’ll I’ll tell you why. I think just piecing it all together from what you said, it looks like they took this deal to market whenever a year or so ago. The seller had this crazy number in their mind.

And then, miraculously, you’ve had this banner year where revenues almost doubled, EBITDA’s tripled to justify the valuation in the guy’s mind.

Lot of questionable add backs, lots of weird stuff going on with cost of sales.

If if this guy can reasonably it it it I think this guy is gonna have to do another year of those numbers to get anywhere near that twenty three million dollar valuation.

Yeah. I agree.

I I I don’t know.

I I I think I think this might be a lot of work.

Great business, though.

Really So no one’s gonna buy it at that price because they haven’t.

Give you an opportunity to get to know the guy and build rapport in a relationship over a period of time. Because if price doesn’t come down, the earnings have to go up, profitability has to go up to justify it, so you got a ten x that. And if the price and if they don’t do that, then they either withdraw it and don’t sell it, or they they they drop the price. At which point, if you’ve got a good relationship, you might be able to have another go at it.

Hey, Josh. Real quick.

Have they had have they had a quality of earnings assessment done?

A QA?

Question. I have not I have not been able to get deep enough on that one to ask that question.

I mean, for a business like this that had that big of a jump with those type of add backs, I probably wouldn’t even touch this without telling the the seller to go get a QOV. And shame on the broker for not telling him to go spend twenty five thousand dollars on a QOV to to go to market on this. So I would just be careful with, you know, how much time you spend on that. Any other bank, that you go to, I guarantee is gonna want one.

So that’s that’s a question I would ask.

Yep. Thanks, Jeremy. Mark, any other comments from you?

Nope. Darren, you?

Yeah. I mean, my only comment is I their marketing is, you you know, word-of-mouth, Facebook ads. I mean, that’s I don’t know. To me, that’s a huge blow up of a banner you’re just doing.

Like, I have some questions on it. I also think there’s a huge overvaluation on this business. So it’s I don’t know. I’m I’m not a fan of it, so to be honest.

Yeah. That that that was that was my analysis. I just typed it in. Red light ten for me, banner year, overvalued, sketchy headbacks.

Okay. Anybody got any questions, on that before we go to deal three? Get your votes in, guys.

Great great business. Just overvalued, big banner year, dodgy add backs.

Carl, I had a question if that’s okay.

Go ahead.

So that’s why I I’m just curious. So it’s interesting because I’m looking at a different business where they do the installation themselves and they do the pickup and delivery of the supplies.

So I’m curious, like, how do they manage quality control with this model? I’m just sort of unrelated to the rest of the comments, but I’m just curious how they make sure that whatever is being done is doing right right.

That that’s a great question.

I would definitely wanna know that myself. However, I will say that they’ve got in excess of two hundred, almost five star reviews on Google.

Okay. Just yeah. Just, I was wondering to learn the tip of the trick of the trade.

I I think their Google average rating is, like, four point nine stars out of five over over two hundred reviews.

It’s a great idea to scale a business, but that’s mostly aligned in your own installers and your own, supply chain to do this, but smart. Thank you.

Hey, Carl. If I could jump in. This is Lenny. Hey, man. The company that I yeah.

Hey. Hey. How are you, sir?

Good to see you, my friend.

As usual. Good. Yeah. Appreciate it. Thank you so much.

Yeah. I I had a company that I sold to a PE Group that, was a vendor managed they call it vendor managed business with subcontractors.

And, what we did, just to answer, your your previous question, is we had, we had managers in each territory. We were a restaurant cleaning company, but we were all subcontractors.

And our managers, the only thing that they were involved in, the only thing that they did do was when there are escalations with a vendor or subcontractor, they would go and and make sure that they corrected the escalation and and or they would do routine quality control visits.

So believe it or not, and I had a self perform model before, a vendor model, you can actually achieve, very often, especially in these service kind of businesses, better quality control than you would with a direct labor force, at least my experience.

Cool. That’s great feedback. Thank you so much. Chris Clemens.

You know, that was perfect, perfect timing because, that question that that just or a comment that just came in because my question was gonna be, how do how does this come my wife and I have a business we wanna present next week, on, red light, green light. And, they have their own in house, you know, quality very quality tenured, installers. And so how does this team guarantee the quality of these jobs that they’re doing if, you know, they’re all, you know, all contractors?

And, really, how does that affect? It sounds like they have a really good, Google presence, and and great reviews, but how do they, you know, kind of make sure their quality, of their business is is, you know, maintained with with contractors?

Carl, could I jump in again on this?

Go ahead. Yeah.

If if thank you. If you think about it, in many instances, you can you you have some advantages using subcontractors over direct labor. For example, if I send direct labor to do a job and they mess it up, well, I still have to pay them to go back and redo the job. But if I send a subcontractor to do a job and they mess up, they’re not getting paid until they, you know, they they correct the problem.

So in many instances, at least in my experience, if you run a subcontractor program properly and, you know, Joshua, you brought up a very powerful question in the very beginning, which was, you know, how do I make sure that I’m running that I’m not running afoul of, you know, labor laws? Because it used to be the IRS in America handled, for the most part, whether somebody was a sub or a an employee.

We had a compliance department, eventually, after having labor cases against me, I learned. We had a compliance department in our business, where I had two ladies and all they did was make sure that we were following the NLRB, their regulations regarding what is an employee and what is a subcontractor.

And that’s probably a whole different subject than I know, Carl. You probably wanna move on to the third, business. But real quickly, just to tell you, you wanna make sure that that that you’re not controlling what that subcontractor does. They have to have their own equipment, their own supplies. We made sure that all of our, sub contractors were corporations.

And you could tell them, hey. Listen. We need this job done by, you know, March twentieth, but you can’t tell them to be at the job at eight o’clock in the morning. So you gotta you gotta look at all the NLRB’s issues on coemployment or not their issues, but their, sort of their edicts on coemployment.

But you have to make sure you do it right, Joshua, and that was a great point you brought up because some people do it wrong, and then you can run a foul of both the the labor department and ultimately the IRS. Sorry for that long.

I heard Yeah.

My partner, Carrie, brought up he he saw a very, very fresh IRS publication, specifically dealing with salespeople as ten ninety nine, and there’s some new tests, one of which is an income based test. So if they’re earning more than a I think it’s ninety percent of their income from your company, now they’re gonna be required to be an employee, not a ten ninety nine.

And that’s what I was gonna say. I’ve run business models both ways to answer the last question that was asked where you have in house and you have subs. They’re both have their different set of problems. In house is you gotta continue to keep those people busy. You’ve got to pay them well or somebody’s gonna take them from you anyway. With a sub, it’s a little different. And the best way to manage a sub is to have a project management team.

Even with a large amount of jobs, I can have a project manager managing twenty, thirty jobs depending on the scope and the size. Sometimes they’re managing one on a big job. So you can utilize a project. And with the business Justin was looking at with twenty five internal employees, I’m going to make an assumption without knowing for sure that some of those are gonna be your production management team.

I work with a roofing company now that we use all subs, but we have a project management team and a sales team. And everybody, if they’re on here listening, Karl won’t pay much time. That new change that happened on March eleventh is going to change this industry. I’m I’m bringing more information back.

I’ve got a meeting at one of the groups I’m part of with a lawyer coming up next week because we’re all concerned about that because they’re saying subs and salespeople ten ninety nine, one of the ways they’re gonna look at it is if they make more than ninety percent of their income with you, that’s gonna automatically make them a w two employee. That could really change our industry.

That’s great. Carrie, would you come back with, stuff on that? We we we might have a session on that on one of the Friday calls. That would be that would be awesome.

This is what I love about this community, guys. We’ve got some really knowledgeable people, across all these different industries. Right? So what Carrie’s talking about, what Lenny’s been talking about, this stuff is like gold.

So, if you spread that out across the whole of the community, we’ve got these experts in pretty much every industry. So, you should always be leaning on these people, when you’re doing deals in areas that they know as well as they do. I I think this is a real power of this call that we’re able to all chime in with the knowledge that we’ve got, which is, which is really good. So appreciate Carrie and Lenny for chiming in.

Crystal, I saw your hand raised, but now I can’t see you. Do you still have a question?

Well, I just wanted to touch real quickly both on what, Carrie and Josh were talking about. So the question that I had, on the salesman being ten ninety nine, because, obviously, as Carrie mentioned, that is a huge issue in the industry. Subcontractors that do the work are not necessarily, but it’s the salespeople or the internal. How would you, how would you evaluate that on as far as a take back or calculating that. If you have ten people and they’re all being ten ninety nine, do you take what their wages are and then figure out your employer contribution to be able because they’re gonna get in trouble. Like, I’ve I’ve seen it happen in the industry, and it’s no picnic to be audited on that.

Yeah. So I would definitely, at minimum, be going back and looking at the payroll and benefits costs that would have to be in place for them to convert to w two.

Another cost that I would be looking at, especially if they’re using their own vehicles, which they likely are, I worked for for a company that did this kind of model with high end gutters, but they were all w two employees.

And they forced their employee the their salespeople to use their own vehicles.

They only gave per diem when they made a sale, and it wasn’t sufficient to cover even the cost of the trip around the round trip to make that appointment, much less the ones that where they didn’t close the sale.

And the result was that the cost of the employee was about was about a fifty percent vehicle expense of their total earnings at minimum. And so that’s a pretty big impact, and that’s gonna impact the way those salespeople see you when they’re not able to because my understanding is that it’s still in place. I’d had to talk to a CPA on this. But if you’re a w two, my understanding is that you cannot deduct non reimbursed business expenses.

Mhmm. So my question would be, how is that going to impact their view of their employment with me?

And that’s why I’m asking the question from the percentage. And I can tell you, Josh, from previous experience, I had this happen in my roofing company ten years ago. We had a pissed off employee. They came and they said, we’re not ten nine ten ninety nine. We’re audited. We had a very large tax bill, and we lost half of our sales staff because they lost all the privileges, and they knew they could go work for someone else.

Going through that right now with the roofing company that I’m working with exactly happened last year.

I think we need to all get more information because there’s still a lot of what ifs in this, but I think it’s something that’s gonna affect all of us that are looking at businesses that have salespeople. And I agree with you. I’m more worried about the sales staff than I am subcontractors.

Yep.

Cool. Alright, guys. Fantastic debates. Some really good stuff there.