This video discusses the analysis and potential acquisition strategy for a flooring business located in the U.S. Midwest. The company has been operating for 40+ years, with a revenue split of 75% commercial and 25% residential. The business also advertises additional services like window coverings and remodeling, but their significance is unclear. Owned by two partners in their 60s, the business has an asking price of $2.5M, with one owner eager to exit immediately and the other willing to stay for up to two years to assist with the transition.

The company’s financials reveal concerns, including low cash reserves ($56K), reliance on credit and customer deposits, and inconsistent reporting of off-the-books transactions. While annual revenues are projected at $4.5M, recent months show declining figures. The business operates with 25 employees, two locations (a warehouse and showroom/office), and 10 service vehicles. Online reviews and their website were deemed average, with a 3.6-star Google rating from a handful of reviews.

Potential deal structures were explored, with a focus on annuity deals to minimize risk. One option involves paying the $2.5M asking price over 10 years ($250K annually) with no upfront payment. Another strategy proposes partnering with one owner to buy out the other, improve the business over two years, and secure SBA financing to finalize the acquisition. Concerns include broker involvement, working capital needs, and overall financial stability.

The discussion highlighted the importance of understanding seller psychology, particularly the eagerness of one partner to exit. Structuring the deal to leverage the motivated seller’s willingness to accept terms and building a partnership with the remaining owner were emphasized as key strategies. Despite financial and operational concerns, the industry’s stability and the sellers’ openness to negotiation were viewed as positives.

The analysis concluded with a tentative green light for pursuing the deal under specific terms. The recommendation was to engage directly with the owners to discuss potential deal structures, including a straightforward annuity offer or a collaborative approach with one of the sellers to improve and eventually refinance the business.

Full Transcript:

There’s the disclaimer. Again, not gonna read it the third time, but it does apply equally to this deal as it did to the other two. And we’re gonna stop there at the top so people can take a little bit of a look at it. Yeah.

Not as big as the last deal, but still, you know, still a good sized deal. And now let’s get into the notes. This was kinda similar to the last one. I don’t think the seller and the broker were that great at giving, giving Jacob the kind of information that he would need to really get a handle on this.

So notes were a little thin on this, not because of our proteges, but because of the information that’s being given to them. So this business is a flooring company. Products or services identified in the submission form as flooring and installation. Market segments were identified as government buildings, high end residential homes.

Revenue breakdown, commercial seventy five percent, residential is twenty five percent. One note, the submission form only referenced flooring, but you go to the company website, they also list window covering, staircase remodeling, kitchen and bath remodeling. I’m assuming that that’s a pretty tiny sliver of their business because it was identified as a flooring company. So that’d be one question they wanna get sorted out a little bit, know exactly how much of the overall business is flooring.

This is located in a large metropolitan area in the US US Midwest. It was founded forty, forty five years ago, been around a long time. Trading area is local only. Business has been for sale unknown amount of time.

It was not addressed in the submission form. We did get an ask price, however, and that was two point five million. The property is owned by related parties, optionally part of the sale, but no price was given. So you can pick up the business or a business and property.

It’s up to you. They do operate from two locations.

At least one of them is is leased from a related party, potentially both of them. It didn’t specify. One of those two locations is a warehouse. The other one is a showroom in a corporate office.

Always nice to see these businesses with a showroom. Great sales tool. Ownership story, that’s owned by Keith. And Sean, both are in their sixties.

Sixties. Both are baby boomers. They split the ownership. Each one of them owns fifty percent.

Keith inherited the business from his dad, and he’s been active in this business since he was sixteen. That’s a long time. So Keith is active, but you know what? He is looking for the door.

He wants an immediate ex exit. I should have put it in quotation marks. He’s done was the way it was described. So if we’re assigning motivation to this deal on Keith’s fifty percent, we gotta say it’s pretty darn high.

Sean is also active, but willing to stick around for one or two years to help with the transition. He does not quite have the passion for the the exit door to the same degree that Keith has, but, yeah, he definitely wants to retire. So that is the motivation for sale retirement. Keith, right away, Sean, in a couple of years.

The sellers are still critical to this business. I did not see a number two identified to manage the business post sale, as they, you know, make their way out the door. And, you know, Sean very well might have realized that that is the way it’s gonna come across, you know, to a buying group, which is why he has pledged to stick around for a year or two to help with that transition, find a GM, get that acclimated properly to the business. Twenty five employees are working in the business.

They operate ten surface vans, trucks. Both Sean and Keith are still active in sales. Q four is their biggest quarter. That’s when the big government projects come through.

So again, we’re doing an extrapolation here based on nine months of results. I just did the straight projection, but just the same way with the microphones. You know, there could be some seasonality in there. Seventy to a hundred k is typically paid in cash and not on the books.

There was no little explanatory material on that, whether that’s seventy to eighty represented sales, your profit, not really sure. But as soon as you see people, you know, putting stuff off the books for their own financial benefit, you know, then you’re wondering, you know, whether the numbers that they give you are also kind of doctored in some way for their financial benefit. So it always sort of strikes me as interesting when sellers admit this, that they’re perfectly fine, you know, giving fraudulent numbers to, the government for tax purposes.

No. No. No. No. It’s like paying tax, but at the same time, if it’s if they’re trying to save taxes to their own financial gain, maybe the numbers they’re giving us are gonna be subject to the same treatment, you know, not necessarily true, but at least a thought in our mind when we hear people say that.

Sellers are willing to officially take a fifty percent seller note. I think Jacob has the feeling that they might potentially go a little higher on that, which is good news. Commercial flooring is their fastest growing segment. They haven’t been pushing an SBA deal, but they are open to the idea.

I did try and check out their online reviews. The Google review was three point six out of five, but just a just handful of reviews, less than ten. It might be I can’t remember the exact number, but it might have been around five or six, so definitely not indicative.

Website is I would say average, lots of information. Photos weren’t terrible, but they could be better. So I would characterize the MUD score in this deal as average. Keith’s motivation, yeah, super high, but no real distress or urgency noted from either owner. So that’s the that’s the the notes. In terms of the numbers, there was no add backs provided on this deal either.

You know, so didn’t get any real good add backs in the any of the three deals this week. But these are the numbers.

Jeremy, taking a look at these numbers, so you’re looking at deals all the time. You’re looking at them every day. What do you what sense do you get when you take a look at the numbers in this deal, and what’s the overall appeal of this deal for you based on those numbers? Jeremy, are you there? Can you unmute?

I I can go if he’s on a call. Okay.

Yeah. So interesting deal.

I think it’s doable, potentially.

You know, I like the, I like the industry. There are a couple of new proteges on the welcome call before this that were that were into this this space.

Guy from Dallas, put a piece on call, who owns a flooring company, so this would be a a really good deal for him.

I think I wouldn’t go SBA on this deal, because, you know, they they said they’re gonna take a fifty percent selling out, probably take more. You’ve got probably, half a million dollars that you can get out of the balance sheet as a as a closing payment between the AR, and a bit of the inventory. I don’t know what that one hundred and twenty five thousand dollars is due from a related party, but, you know, let let them keep that, just carve that asset out to them. They can collect on that as of when, and you can fund AR and inventory. So you probably get about half a million dollars out of that.

So would they do a five hundred thousand dollar down and then a two million dollar note? I think of I think a two point five, you know, it’s a five x multiple, isn’t it? I think if two million of it is seller finance, I think that’s probably okay. I think on average, if this was an SBA deal, you’d probably be looking at around a million five or so.

And and and again, like, look at the AR.

So the the accounts receivable on this business is about three hundred and fifty thousand into four zero six seven times three six five. So you’ve got about thirty two days of AR.

You’ve got some payables and customer deposits and lines of credit in here as well. Look at the cash. Like, fifty six thousand dollars of cash on a four million dollar b two b is quite scary. So you you’re gonna need some additional money, I think, into this deal to do anything around them. They’ve lost a million dollars of revenue in the last four months. So, you know, we’re at four point seven, then peaked at five, down to four million.

The profitability’s, suffered as well.

That is a projection, Carl, in terms of twenty twenty two.

Is it? Yeah. Okay. Nine months. Yeah.

So That’s that’s a projection on nine months.

Yeah.

So you could probably get the October, November numbers as well now, just to see, kind of where they’re at. And I don’t know how seasonal the business is. You know, this business might have a a huge uptick in q four.

They did said they did say that. They did say that it was just it was, you know, q four oriented because of the government type stuff.

So Yes. It could could be up to four and a half maybe as as revenue. So, again, it’s got some flies on it. It’s not, you know, it’s not like a slam dunk for me. I do like the industry.

It’s reasonably stable, although we’ve kind of had that drop off.

You know, massive lack of cash.

I think working capital’s probably a hundred and fifty k low as well.

Those customer deposits concern me, plus they’ve got a two hundred ninety five thousand dollar line of credit. So they’re using external money to fund this business. So if you add up a customer deposits and the kind of credit, we’re talking nearly six hundred thousand dollars of other people’s money have propped this business up, and it’s only got fifty six thousand dollars of cash in the bank. So that that worries me a little bit.

You know, SBA wouldn’t do this deal in my opinion.

Could you raise it at a half a mil and do this on a big two million dollar note? I might be interested around that kind of level. I think, you know, if they want half the money down, then, you know, I wouldn’t do this deal. So very borderline for me.

Yeah. We said that there’s potentially a half million dollars on the balance sheet. When you take a look at the fact that the line of credit probably secured against some of those assets Maybe.

I see. You can’t have a problem with that.

Yeah. We got vehicles that are also, you know, vehicle loans. So the vehicles have also been pledged for security. So, obviously, we’d have to refinance that probably. Could we get more than that? You know, it depends on loan to value ratio, etcetera, but, you know, definitely an issue.

What are the other things you could do? This might be worth a cheeky annuity offer. Right. What do I mean by that?

So you got someone that wants to leave, like, immediately. So if he was the only shareholder, he’d probably take a ten year note on this deal, like, straight away. The other guy, what you might be able to do, you might be able to go and say, look, guys. This business needs some capital.

It it’s a bit of a turnaround situation. I could raise half a million dollars, but I’m gonna need that to kinda fix some things. So they might get a hundred thousand at closing as a gesture. Right?

It’s a broker deal. This probably wouldn’t work. Is this broker deal?

I don’t think it is.

Yes. It is.

Oh, right. Okay. Yeah. So yeah.

And that’s saying it was a broker deal, but there was no add backs. I remember kinda scratching.

So yeah. So, you know, two and a half million, the broker’s fee is gonna be a couple hundred thousand. So he’s gonna he’s gonna sort them out of this. But, I’ll I’ll I’ll give you my idea anyway. What you could do is is say, you know, a hundred thousand down, you know, just as a gesture, and then the rest of it is on like a ten year note, two two forty a year. Maybe you could offer them a bit more because he’s mostly an annuity. Leverage the balance sheet to get cash in to just tidy things up a little bit.

And then what you could do is basically have a deal with the retained shareholder, have a deal where you could refi the annuity in, say, two years and and buy him out. So what you’ve then got is a two year runway with no risk to improve this business, grow it, make it more profitable, clean up the balance sheet. And then if you get to a point in, say, two years, what you could probably then do is is do an SBA seven a loan on it, and you wouldn’t need any buyer’s equity to do it. So if you, so let you might do a deal, Adam, where let’s say you just buy half of it, right, on an annuity, keep the other guy with the other half, and then in two years’ time, you could buy him out on an SBA deal.

You’d only need if you set the terms down and said, hey. I’ll take you out for one point three million or whatever in two years, If you improve the business in that time frame, the SBA would be all over there. That’d be a really good deal for them, and you wouldn’t need any equity to do it. They’ll just lend you the money on a ten year note.

No p g’s, no equity.

That’s what happens if you own half of a company and wanna buy a partner at. It’s really good deal structure.

So that might work. I think the seller psychology is a key to this deal for sure. You’ve got one seller that’s done.

It’s like what we call the the the whiskey and the revolver guy. You know, he’s, probably depressed, needs to get out. Mhmm. Why is it Sean doing this deal?

Like, if I’m Sean, I’m saying to the other guy, hey, buddy. I’ll buy you out. You know, I’ll I’ll I’ll buy you one point two five million over ten years. I’ll pay a hundred and twenty five thousand a year or maybe two hundred thousand a year for five or six years getting you out.

And then if I’m Sean, you know, I I spent two years fixing it and scaling it, and then you sell out. Let’s say you sell it for four million in two years, and you still owe the the other guy seven hundred ks, you call him in two years and instead of giving him seven hundred ks over four million you’ve just made, you say, hey. Do you want to carry on at two hundred a year or do you want half a million now? We’ll call it quits.

He’ll probably take the money. So you could probably make three and a half million dollars from this, if you if you’re Sean. So I’m I’m intrigued as to why he’s not he’s not doing that. And that’s the only danger where you’ve got two partners and you’re offering a new deal and wants to stay for a bit.

You make the offer, and the other guy says, well, I can do that. Let’s go. I don’t need to go to a bank. I don’t need to, do a lot of complicated due diligence.

He can say, hey. I’ll give you the same deal. Better the devil you know. Right? So so a couple of options there, but, yeah, bought borderline for me, unfortunately.

Yeah. So so I submitted this, couple weeks ago. After I submitted this, I, Sarkis went over a little bit with me, and he’s saying a lot of the same things that you guys were saying with the low cash. And and I asked him about the low cash.

I was like, you know, you only have working capital. He said, yeah. We use credit and then get the accounts receivable and then pay it off. And, so I don’t like the low cash situation.

I haven’t talked to the owners yet. I’ve been just going through the broker, asking questions, getting answers, but he but I think I’m gonna be meeting with them. It’s, right really right around the corner from my house in Maryland and, or Maryland as Carl would say, as he has fun in Maryland.

So, I’m meeting with them for the first time, I think tomorrow possibly.

So I’m gonna ask them a couple questions about, you know, what’s going on and speaking with them face to face, that would be good. I can get some more answers, but yes, it’s, that sounds pretty complicated the way you’re describing what could possibly work.

Sarkis says ditch this. So, so I was kinda going on that path of ditching it.

Yeah. I I think, like like, for for me, I I I wouldn’t red light this deal. I I would abs I I just go in with an annuity deal. I’m I would go with a straight annuity deal.

It’s it’s if if you look at ten deals like this and you just make ten annuity deal offers, one of them is gonna say, yeah. You know, Zafreda had it on a deal we looked at a few weeks ago, and that that was in a much stronger financial position to this deal. So I I would do this deal on an annuity basis. I think the challenge you’re gonna have and and somebody mentioned it in the chat.

Let me find it. You mentioned it. It’s a really good point, actually. Paul Tomale said because Sean isn’t Karl doesn’t know how to do it, which is true.

He probably has no idea that he can do a deal like this. But when you sent it to him, he’s all of a sudden gonna know exactly, how to do it. So I think that’s the danger. So I think I would absolutely make an annuity offer on this deal, but I I think what will happen is Sean will end up doing it.

Yeah. And so that you ask yourself, well, why don’t you call Sean and say, hey, Sean. Let’s do this together. I’m the dealmaker.

You’re not. Let’s do a deal.

Let’s convince the broker and the other guy to do a ten year note, and then let’s own the business, and then I’ll buy you out for one point five million in two years. And if I can’t pull that off, I’ll give you the business back. Something along those lines. So you’re still gonna make money as the owner of that business, current in that business for the next two years, and then as long as you can turn it around and fix it and get some growth back into it, the SBA would do this deal. They’d let you buy Shornell that fifty percent, at that valuation, wouldn’t have to take zero risk on that whatsoever. So that that’s one thing that you could do, for sure, but that is all about the relationship.

Look at your RLEV score with Sean. Like, how strong is your relationship? Can you value Matt to him?

He’s he’s the key to the other guy’s done. The the guy will just walk away and give you the keys. Right? But it’s Yep. It’s Sean that’s the key to this.

And And he wants a stay or Sean wants a stay.

You get Sean on side, he can sort the broker out. Right? Yeah. You don’t Sean on side, you’ve got to deal with the broker in this deal.

And the broker’s going to want two hundred ks on this deal.

I and, yeah, you can raise the two hundred ks from the balance sheet, but actually you’re going to need that money to clean it up. That’s that’s my thought. So, is it a too hard bucket deal?

Maybe.

Maybe. But it’s not a difficult industry. You’ve always got the shareholder dynamics. You’ve got the broker. There’s some financial flies on the deal. Mhmm. It needs cash.

But, for the first time, John, in human history, I’m through red lights this week. The first one, probably one, two, three in order, but I I’d still green light sorry. Green light. I I’d still green light this deal.

I’m a low green light on this. This is definitely worth a conversation. In fact, I’m probably a higher green light than the second deal, if I’m being honest. Right.

I I think you’ve got more chances to do this deal. Deal two needs funding. No question. You need to talk to a bank on deal two.

Deal three, I don’t think you do. I think you might have a chance. Worth it it it’s worth a couple of hours on it to see for me. I I think if you kick this deal to the curb, Adam, I think you’ll always be wondering what happened to it.

Did they say Yeah. Deal?

I have no idea how to structure the new hoodie deal. I mean, hopefully, one of you guys could help me out with that. I have no idea where to go and what to do.

I would just I would just say I would turn around and say, I’d like to make an offer for your business. I’ll pay you two point five million dollars, zero down, two hundred and fifty thousand dollars a year times ten. You’re sincerely, Adam. That’s your annuity offer.

That’s it. That’s it. And So see what comes back. But the other idea is if you can get on a call with Sean separately, walk him through this, but make it sound really, really complicated.

Mhmm. You’re gonna think, yeah. I don’t wanna do that on my own. I need Adam as my deal maker to partner with me, and then you and he can sell the deal to the other party.

The reason you take it all day long. Oh my god. It’s like, hey hey, dude. You’re done.

You don’t need to come in tomorrow. By the way, you’re gonna pay your hundred and twenty five thousand dollars for the year. But he’ll be dancing around the office before he leaves. And then Mhmm.

Whilst both of those guys are sold, who cares what the broker thinks? Yeah. They could fire the broker.

I mean, I could see that I could see that working. I mean, those guys are, you know, late sixties, I’m guessing, about sixty seven, sixty eight years old, so they’re not, like, real old.

They may they may do a ten year.

Yeah. If you check most terms of broker contracts Mhmm. Broker fees are paid at the timing of seller money.

So if you get both sellers to sign off on that deal and they say to the broker, well, hey. Look at pay three of the contract, buddy.

You’re gonna get five percent of our two hundred and fifty thousand dollars a month. That’s what the contract says.

You get both sellers on-site on that deal structure. Doesn’t matter what the broker thinks. You use a broker out of a business cash flow. That’s what I would do.

Mhmm. Okay.

The more I talk about this deal, the more I like it.

Yeah. Well, meeting both I’m meeting both of the owners, both of those guys, I think tomorrow afternoon. So I’m gonna seal it out with them and, yeah. I mean, maybe I’ll make them an offer.

Yeah. So I’m gonna go green light twenty three on deal three, and then I’m gonna go one three two.

I’m gonna go one three chill on this deal.

For people who are new, the one three two, the one two three, we rank these deals against Order of preference. Order of preference. And so, you know, usually, you see a little bit of variation here. One seems to be the consensus choice.

Alex Da Silva. Three, two, one. Bucking the train. I like it. Universal.