Howdy, my friend.
I’ve looked at thousands of businesses for sale and it’s a fun way to learn business. I like to read between the lines. For every issue, we'll take a deeper look at a listing of a business for sale, learn something, give some hot takes, then I’ll rate the deal with whatever system comes to mind.
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This week’s listing: It’s a tourist aquarium! Haven’t you always dreamed of becoming the Walt Disney of fish? :-)
The numbers: $3.3mm revenue / $800K adjusted EBITDA / 70,000 gallons of water,
Green flags
Okay, so first: I love fish.
And you’d think the perfect buyer for a business like this is definitely someone who loves fish. Or, at least loves selling tickets to people who like looking at fish. So, a weird combo of an entertainer and fish lover.
The cool thing about a business like this is that there’s usually little competition. Not a lot of towns have more than one aquarium. A competitor realizes that even if they come in and take 50% of your business, everybody will lose money.
You often get what is called a “natural monopoly” so nobody decides to compete with you.
(If you’re interested in the math behind this, the category is called Game Theory. If my layman understanding of the topic is correct, this is a natural monopolies comes from the phenomenon of a Nash Equilibrium. Remember the movie A Beautiful Mind? Yeah, that Nash.)
So, as long as you don’t let things fall apart, you’ll probably keep doing well once you’re the first to a market.
I also like that it’s not eligible for SBA financing. That means that if you can swing the deal, you’ve got a LOT less potential buyers at this size. Too small for PE. Too big for most buyers..
Red flags
The aquarium near me in San Antonio had some horrible stories in the news about mistreatment of the fish and woeful mismanagement. (This might even be the SA aquarium for sale!)
So there’s a real possibility for PR risks. If your business involves caring for a bunch of animals, you must ensure you have your systems in the right place. Anything like this, schools or day cares that take care of the less fortunate can be nightmares if things go wrong (trust me, I know!).
That leads to the next thing: you’ve buying a lot of fixed costs. It costs X amount to get the fish in there, feed them, keep the facilities up and running, keep your staff, all that stuff. That doesn’t change no matter how many tickets you sell.
You'll do fine if you have enough guests coming in. But if you don’t hit your fixed costs, it’s easy to start losing money quickly. And you see many amusement parks going bankrupt over the last few decades. Even big operators like Six Flags aren’t immune.
High fixed costs means you’re higher on the risk spectrum.
On the other hand, fixed costs can also be good when marginal costs are low, like here: once you cover your costs, every customer coming in is mostly all profit. It’s just about getting the demand to cover your fixed costs.
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What I’d ask
Three big things I’d want to know here.
- History and reputation. If it’s in the dumps, it’s a lot more likely that someone will come in and compete with me. Or this thing is going down, but the numbers haven’t shown it yet.
- What’s my break-even point? How many people need to walk through that door for me to be profitable?
- What’s up with the adjusted EBITDA? EBITDA (earnings before interest, taxes, depreciation, and amortization) doesn’t pay the bills. I need to know how much cash this place is generating. Because if I’m not generating cash or have a path to do so, this isn’t nearly as exciting.
My rating
I’d give this one a tentative 🐟🐟🐟 out of 5. Knowing the actual profit, not the EBITDA, would tip the scales up. But, this is one where I want to know the story before passing complete judgment.
What do you think? Yay, nay or slay?
And if you check it out, let me know what you find!
Michael
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P.S. I loved hearing your thoughts on last week’s brew pub breakdown!
- “I got a kick out of the first word in the listing “absentee”. Nothing like being physically absent from a place that isn’t making any money.” - JB
- From CB, who left the industry: “Breweries are over-built, craft beer is declining in market share, and younger generations aren't drinking beer the same as older generations. Craft isn't cheap so if they trade up (wealthier Z, millennial) it's to spirits and wine. Non alc (and legalized cannabis) trend is serious threat as well.”
- From TW, who’s in the non-alcoholic biz: “I agree with the suggestion! [...] Less taxes, bigger TAM and you’d have a monopoly on local market (admittedly niche) but can convince the other brewers to carry your non-alcoholic version. [...] Only issue is you need some expensive equipment to retrofit existing tanks.”
- “I’ve looked at a couple of these and they’re like pizza businesses, tiny COGS and massive marketing budgets. Though the deal with marketing spend is it is optional, scalable and easy to evaluate for effectiveness. You can make beer for 4 or 5 cents a can, but you might have to pay 10x that to get people to care.” - WM
