This electrical contracting business, established in 1977, offers a compelling opportunity for growth and development in a multi-state environment. The company serves a diverse range of sectors, including commercial, residential, and industrial, with revenues split across these pillars. The business operates in the Southeast, covering six states, and has built strong relationships with national franchises such as Dollar Tree, Red Lobster, Starbucks, and Burger King. With average contracts ranging from $30,000 to $50,000, this established business has the infrastructure and reputation to expand further.

The owner, who is in his late forties, is looking to retire and spend more time with his family, which presents an opportunity for a motivated buyer. While the business has experienced a decline in revenue over the past few years, it has managed to maintain or increase profitability due to improved internal processes and a focus on higher-margin work. For 2021, the business saw $9.3 million in revenue with an EBITDA of $1.1 million. Although revenue dropped in 2022 and 2023, EBITDA remained strong, indicating the company’s ability to adapt and focus on more profitable work.

One of the significant opportunities for growth is transitioning the business model from a heavy reliance on new construction projects to include more service-based and remodeling work, which currently makes up less than 10% of revenue. Implementing annual service contracts for existing clients is another avenue for recurring revenue. Additionally, expanding the service offerings through a referral program could incentivize clients to generate leads and bring in new business, providing a more stable cash flow.

The company has a strong, tenured workforce, including licensed master electricians who have been with the business for over a decade. This stability in staff is a significant asset, as it ensures quality work and customer satisfaction. The business also offers emergency services 24/7, which could be leveraged further to generate more revenue. The brand has high customer satisfaction, contributing to long-term relationships with clients, and this reputation for reliability is a major strength.

The biggest challenge for the business is its dependence on new construction, which makes the revenue stream more volatile. Shifting to a more balanced approach by expanding service and remodeling work could mitigate this risk. Additionally, the company is looking to expand through acquisitions in the electrical, HVAC, and plumbing sectors, creating a platform for further growth. The ultimate goal is to grow the business to $18-20 million in EBITDA, with plans to exit within 10 years.

Given the growth potential, the company is seeking equity partners, operating partners, and strategic partners to help drive expansion and streamline operations. An SBA deal is likely, and the company is open to different structures, such as an asset sale or a stock sale, depending on the buyer’s preference.

Full Transcript:

We, we have an electrical contractor, Joe Ager and I. This is a little bit outside of our buy box. We actually looked at this, back in December, and the broker, we ended up having a whole bunch of questions. And brokers like, yeah. We’ve had those same questions from several different people.

And so they pulled it off the market. And so that’s when we really honed our our, buy box into HVAC.

And so that’s been our our real real focus, but, obviously, this kind of fell back on our laps here in the last month.

So we decided to take a look at it while we get our, off market deal flow going.

So a little bit about us. Joe Ager has over a decade as a life insurance actuary. He’s a real estate investor, a family man, a badass MF er. And, if you guys don’t know, he’s an expert T shirt designer.

He’s made T shirts with, for for Chris, for Carl, with their faces on them, for Abraham, etcetera. Right? So, and the other thing so I I guess a little bit about me, I’ve got almost a decade in real estate, over six years experience in electoral HVAC industries.

Little Tommy Boy reference. I don’t take no shit from anybody.

And I’m a car guy.

I’m a car guy, master car buyer.

Love cars. Everything to do with, with motors.

Little bit about the industry.

The Kangaroo of electrical trade is, three point nine four percent.

Their their market size by twenty twenty eight is projected to be at two hundred and eighty three billion.

So not crazy growth, but still growing healthily.

The business background. So this electric contractor was founded in nineteen seventy seven.

They serve commercial at about forty five percent of their revenue.

Residential, same thing, about forty five percent, and then industrial at about ten percent.

They operate operate in, half a dozen states in the southeast.

They’re certified Generac generator installers.

They worked with many franchises such as Dollar Tree, Red Lobster, Chili’s, Starbucks, Burger King, Ruby Tuesdays, Toll Brothers are some of the builders, and they have, several other builders that they work closely with.

Their average contract is between thirty and fifty thousand.

And then onto business growth for us. So these are some of the kind of preliminary things that we see that we can add to this, and it’s gonna be our our main focuses.

So we wanna grow the, all three pillars, the industrial, commercial, and residential pillars of business, in each state that they currently operate in, by seeking new partners with builders in each state.

Then we’re gonna transition to, performing more remodel service and, service work. Basically, their, right now, their service work and remodel work is less than ten percent of revenue. So they’re heavily relying on all new construction in every single pillar.

And then the other one of the other things we wanna do is offer an annual service contract to be able to perform all electrical service work for those clients that they have.

So right now, they don’t necessarily follow-up or have a contract, that makes them exclusive with, the people that they’re doing the work with, right, with current clients. So being able to to have, like, a a yearly service or or, biannual service, contract with these people just to be able to form maintenance and and whatever else pops up for them, could be another revenue driver.

And then last but not least is develop a referral program.

So, basically, when when we start implementing more remodeling service work, we wanna be able to develop that referral program to basically like, whether it’s offering them a hundred dollars off if they, you know, refer someone and do a a phone introduction right there. We got this idea from hundred million dollar leads by Alex Hormozi, and it seems to be a a great potential revenue driver.

Our secondary focus is gonna be to roll up other electrical businesses.

And then then from there, we’ll we’ll end up bolting on HVAC and plumbing, just because, obviously, they serve each other and we can cross sell.

And with with the eventual idea of to reach eighteen to twenty million in EBITDA with plans to exit within ten years.

So some potential issues.

It’s a broker deal. It’s a broker deal. Smells like a broker deal. The broker has been pretty helpful, but also has lied to us several times, saying, hey. Yeah. We have we have an offer at five million dollars or we have an offer for four and a half x, and then, obviously, nothing to back that up. And then when we ask questions, they get back to us within fifteen minutes.

So another another potential issue is the revenue trend. Year over you year revenue is, declining as you’ll see in the one sheet.

And then add backs, there are some material add backs for day to day business expenses versus discretionary spent.

Some strengths and weaknesses.

Strengths, we have experienced licensed employees with tenure. So, we have two licensed master electricians in Georgia, and one of them has been with the company for over twenty four years, the other over fourteen years. So they’ve been with the company for a while, which is great, and I think they only have, a handful of employees that have been there for less than five years.

So it’s they have a strong reputation because, obviously, they were established over forty years ago.

And their their high customer satisfaction, because that’s that’s really their main focus is is satisfying the customers that they have. They way they can, keep those relationships going and and keep going with those those new build projects.

They do have a wide range of service projects. So so small and large. Small being like a wiring for a hood vent at a, you know, a commercial kitchen or something. And large, obviously, being from ground up, electrical full on installs in large commercial buildings.

They do offer twenty four seven emergency services.

We haven’t been able to dive into this and see how much of their work is emergency work. But this is something that they offer.

And, like we said before, the business was established over forty years ago. So they do have, strong brand awareness in the industry.

Some potential weaknesses. So, obviously, they rely on new construction market. Right? So ninety percent of their revenue is is from new construction market.

The owner holds licenses in five other states. Right? So the the master electricians only have the the state of Georgia, which this can be looked at as a positive and a negative.

The positive being that then we can incentivize, the current workforce to go and get licenses in other states to be able to, earn more income, and, you know, potential potentially do revenue share.

You know, the downside is, you know, maybe we have to keep the owner on, to be able to work under those licenses for the time being.

So another potential weakness is is obviously supply chain issues like we saw with COVID.

And and some of these issues are are still lingering, especially the skilled labor shortage. That’s definitely still lingering, and that goes, you know, nationwide.

And that’s gonna be something that we have to address.

So our ask, what we’re looking for, we’re looking for partners. So we’re looking for equity partners. We definitely want to eventually have an operating partner, and we definitely are looking for strategic partners. So equity partners, we have not quite pitched numbers yet. We we are not under LOI on this.

But when we do, what we’re thinking is, the the way that things are looking, this is most likely going to be an SBA deal. And so, we’re looking at probably ten percent, if not fifteen percent, for for equity partners.

And then operating partners.

So currently, they have management in place, and they are running the day to day. The the owner doesn’t necessarily need to be there. He just enjoys, you know, playing in the dirt. So every once in a while, he’ll, you know, jump on the excavator and help dig a trench or or something. But he does not need to be involved in the day to day.

So strategic partners, what we’re looking for is is obviously somebody that wants to do, be part of a roll up and and bolt on scenario. So if you’re in the plumbing industry or, HVAC, you know, even electrical, we’re we’re looking to to roll up and and make this obviously a a larger business than what it is.

Cool.

So the numbers quick glance at numbers here, before we get to the one sheet. So twenty twenty one, you could see revenue was nine point three million with adjusted EBITDA of one point one.

And then twenty twenty two, it dropped, by just over four hundred thousand in revenue, but the EBITDA jumped. And their explanation for that was that they had a lot of, workers, leave in twenty twenty one, and they ended up using a whole bunch of subcontractors.

And then in twenty twenty two, they were able to hire out some more guys, and keep a lot more of that profit in house.

And then, obviously, twenty twenty three has has dropped again by over five hundred thousand in revenue.

And then EBITDA is, has has dropped by about, you know, six hundred thousand. So, the the explanations that we were given for that, was that they they have their contracts. Their industrial work varies year to year, which impacts gross numbers greatly.

And then, obviously, for twenty twenty two, twenty twenty three, you can see that the company shifted work from in town in the to the suburbs. And so, they wanted to kind of, mitigate some of the problems they were having with the, cities and the permitting process for for the work that they do. As some of you may know, permitting can be, very slow when you’re in a a major, metro area. And then when you get out to the suburb, it suburb is way, way quicker, and a lot easier to deal with. So that has been one of the things that they changed.

And then commercial, so they reduced management and then balanced the workload to match. That was another another thing they gave us for the the drop in revenue. And to us, that kinda sounds like, hey. You know, we had some guys leave or quit and, you know, we weren’t able to replace them, and so we couldn’t take on as many jobs.

Okay. And now we’ll go to, Joe Ager for the one sheet.

Perfect.

Thanks, Joseph. Alright. I’m sharing the one sheet. Hopefully, everyone can see it. If not, just yell at me. Okay.

So a few high level comments before we get into the numbers a bit more. This is an s corp. It’s obviously a different taxation than a c corp. The SIM did call out that an asset sale would be preferred.

Obviously, we’re hoping that we’re not, you know, kind of pigeonholed into picking one structure, and it’s kind of open, and we can determine what’s a win win for both sides and and potentially look at a stock sale as well.

The reason that the current owner is selling is in early retirement, essentially.

The owner’s late forties, early fifties.

He thinks he brought the company as far as he could for now and wants to spend more time traveling with his family. You know, that combined with the fact that he’s mostly absentee. He doesn’t need to be working in the business. He just chooses to work in the business and likes to play in the dirt, and he doesn’t travel outside of the state with his cruise because it interrupts his fishing trips. We do think that there is a fairly low motivation to sell here. We’re still waiting for our first seller call. I think once we submit our IOI, we’ll be able to do that.

So we already talked about the revenues and the EBITDA. Obviously, things are decreasing. We did get some explanations that Joseph went through, and this is also a project based business. So that could lend to it as well. You know, maybe twenty twenty four is a great year, and it pops up to ten billion. We just don’t know.

The biggest concern for us right now or one of the largest concerns is the add backs.

Yeah.

There are fairly material add backs, between a hundred and fifty and two hundred k each year, and they’re all just day to day expenses that are supporting the top line. They have things like office, advertising, utilities, subcontractors included in those add backs. So that’s definitely something we need to push back on.

But for right now, we’re taking a lot of that face value because we’ve been getting a lot of pushback from the broker. Even though Joseph said we don’t take no shit, we haven’t been trying to take any. But he’s kind of hiding behind the guys of an IOI trying to make sure we’re serious.

So we are drafting that, and shout out to team Hangman members for sending us some templates as well. We’re gonna do some cross referencing just to make sure we have all the information there and then send that over to the broker and then hopefully open the floodgates to some more information.

But taking that at face value, we’re we’re taking the most recent year of adjusted EBITDA in our valuation just because the dip from twenty twenty two to twenty twenty three, and we’re using a three x multiple here. Definitely open to feedback on that. We did do some, looking into deal stats with search funder and saw about five different transactions in twenty twenty two, twenty twenty three in the same industry, same, revenue range that we’re about at two point five to three x multiples. We’re being conservative there. And then for our adjustments, we obviously have, you know, the cash deficit.

This will be a cash free debt free deal, but cash on hand is so low that we just, you know, didn’t really modify that and and kept it as is based on the spreadsheet calculations.

And then the real estate’s all leasehold improvements. It’s not referencing any buildings owned by the company.

However, the owner did just buy property, and he’s moving this business into that new property next month.

So that says a few things.

You know, maybe he’s focusing well on real estate, wants to sell the business, get cash, and have a guaranteed tenant, which sounds pretty smart. Or, you know, the business isn’t really for sale. The motivation is super low like we thought it was, and, obviously, we hope that’s that’s not the case.

Couple of questions for you.

Can I ask you a couple of questions?

So you’re not buying the real estate, just buying the business. Correct?

Correct. And then, what’s the asking price on this business?

Yeah. We’re supposed to get there next. They haven’t told us an asking price. Seller and broker are saying that they would just want bids on what they think it’s worth. But like Joseph mentioned, the broker’s been telling us they’ve been getting offers for a four point five x multiple, and another offer for five million dollars. So we think that’s a leading indicator on what they’re actually looking for. And if that’s the case, we do think it is overvalued based on the numbers we’re showing here.

Yeah. Okay. Alright.

So I I like the business.

I like the fact that you’re looking to grow it organically with contracts, recurring revenues, and you’ve got some, acquisitions that you’re potentially looking to make. I really like that. I think rolling up in home services in construction is always really good. I like the fact it’s multi state.

I love the twenty million dollar EBITDA target. Can probably exit for a two hundred million dollar valuation.

I think you can get around the licensing, issue by maybe letting the seller keep five percent of the equity, silent partner, then the master license, can stay across the other states. I think that would be a problem if he’d completely exited. You’d have to figure out how to get a new master license across the, the the other five states that that this business operates in. So so I do like the business, but there’s some issues.

Right? So, I never like to see businesses decline in revenue but increase in EBITDA. Right? So they they dropped a million bucks almost of revenue in two years, but they were just at EBITDA went up a couple of hundred thousand.

Yeah. There’s there’s some significant add backs in there. You would need to you would need to vet them. But I I think the biggest challenge in this deal, and you’ve alluded to it, is the mud score’s too low.

Right? The the the motivation is not, is not as high as it needs to be. There there’s obviously some financial things you need to figure out. You know?

It it’s starved to working capital. The AR is really high, which people have mentioned.

And have you done a transfer of value analysis on this?

No. We haven’t. We we have fairly limited information enough to, you know, kinda do an initial evaluation, but we’re looking for that first seller call, which would allow us to start digging into that.

Yeah. I I I think I think three and a half, four million bucks is probably there or thereabouts, as as as an average or above average kind of business when you look at transfer of value. I I I think though, be worth you doing that. You know, the the customer concentration’s pretty high.

You know, I’d love to see what systems and processes this business has got.

I I I I think it’s probably average or below average multiples.

So, yeah, four million might be a little bit on the high side. So this is definitely a green light for me. It’s not a high one, just because I think there’s some, there’s some hairs on this burrito as somebody said to me the other day. There’s there’s some flies on this deal.

I think you need to, to investigate. It’s definitely worth, you know, continuing, you know, the pursuit on this. I I’m I’m just worried the seller’s psychology is not there, you know, to really get a deal. Maybe he’s holding out for a big trade buyer or somebody that’s already rolling up to come in with, with a bigger offer because they’ve got all the the the leverage and the synergies that that you would expect.

But, but let’s let’s let’s get some other input on this. Kyle, what do you think?

Kyle, you still there?

Nope. I think we lost him. Let’s go to David. David, what do you think?

Yeah. You know, I I I same on the right observations. I I did have to step away for just a minute, so I didn’t catch the whole presentation. But, you know, looking at the numbers, one thing you have to be careful careful about in any of these, service delivery or construction trades delivery type type businesses is are they are they properly doing some form of work in progress analysis on their on their financials?

Because a lot of this variability that we’re seeing in the gross gross margin could just be timing issues where they’re recognizing COGS and revenue in in different periods because of the timing of their billing. And there’s a proper way to account for that, but a lot of smaller trades, don’t don’t do the proper accounting, and that can really skew your numbers. I am curious what what the, that three hundred grand in other current liabilities is. That that’s that that’s a big chunk of the of the, of the balance sheet.

Yeah. That smaller portion of it is payroll liabilities. I think most of it’s credit card.

Okay.

So, yeah. You know, obviously, cash position, we’ve already talked about.

For a for for doing commercial work and doing construction work, the AR actually seems to turn fairly decently.

I’m not I’m not I’m I’m not shocked or horrified by by sixty eight days.

I’d like it to be better.

But but for trades, it’s not it’s not stable. I’m kinda like Carl. You know? It’s not, I would understand kind of what’s going on with the volatility and and see if that’s a numbers problem or a more fundamental problem, with the business.

And, then the question is, yeah, are are they really are they really here to get a deal done, or are they really just, you know, running it up the flagpole and see if they can get a salute?

Perfect. Thanks, David. Darren Yee, what do you think?

Yeah. Sorry. Much like David, I I had a phone call come in too, so I apologize. I I did miss some of this. But from a numbers perspective, you know, I think you guys’ evaluation is fair on it.

You know, the broker side of things always makes me a little worried. Right? They’re they’re slipping out maybe five million, right, kind of a situation. You’re probably about three point nine. I’d give them an offer just to see what they say and at least open the door to start that conversation with them. And, you know, maybe there’s some middle ground in there.

I don’t know if you covered any, like, your financing side. I apologize.

You know, what is your debt? I’m I’m sure you’re covering your debt service no problem. But within your in your what is it?

Yes. This isn’t, like, you know, the specific SBA tab, but this is just what the initial indicators are with the the spreadsheet. And we we do anticipate this being an SBA deal.

Yeah. Just don’t think the MUD score is there for an annuity unless we’re just misinterpreting why he wants to sell the business, and the balance sheet is not strong enough to support a meaningful LBO.

I think it’s worth the strategy guys. I do. I think, that that five million dollar, ask might be worth you going in at five, five point five on the annuity. And then coming in, yeah, I I think it would be probably I don’t think it’d be highest for I think be be probably low. I’d go in at, like, low threes, maybe three point one, as an SBA offer, and then, you know, just kind of flesh them out where they’re at. So I like I like Darren’s idea of, you know, just putting something in there just to see, what they what they think. But I I’d try and do a quick transfer of value analysis first.

I just get a sense on where where you think that multiple is in the ranges.

I’m I’m guessing it’s average or below average.

So I think this business might only be worth maybe a two and a half times multiple. That that’s just my that’s just my guess of the limited information.

Yeah.

Alrighty. Thanks, guys. David Vario, anything to add?

Yeah. I think that, I mean, I I like I like the business. I like the, you know, your vision. You guys I’m assuming you don’t have deal heat on this, And you have other things in play because, you got a strong team. So I think that, you know, you can you can pretty much go anywhere, so I wouldn’t you know, we get bogged down. But you might wanna try and sell the guy on, your vision and let, you know, like Carl said, let him retain five or ten percent to maybe incentivize him to get a second bite at the apple. That’s that’s the only thing I can think of to add.

Thank you.

Alright. Perfect. Does anyone have any questions on this deal? Anybody in the group, wanna come on and ask a question?

Bunch of time, so I wanna keep moving on to the other deals. But no?

No? Nobody got any questions? Alright, guys. We’ll get your votes in. Great presentation, by the way. I think that, you know, real standout presentation, very thorough, love the vision, love the strategy, great use of the tools.

It’s definitely a green light for me. I’m gonna go green light forty five.

I’m just worried about seller psychology, and, I think there’s a little bit of of financial analysis that you need to do just to fully vet this. But, you know, definitely worth, definitely worth a punt in in in my opinion. Let’s just see what everyone’s voting. Mostly green lights, guys, which is what you would expect.

Margins are pretty good. I you know, fifteen percent margins are solid. Right? But I as I said, I always worry when when revenues drop a million bucks, yet adjusted EBITDA goes up. Like, what what are they doing differently? Right?

Have they have they cooked the numbers, just to get the higher valuation?

Yeah. I always I always worry about stuff like that. But, but but let’s let’s see.

Alright, guys. Well, well, excellent job.