Welcome!
I’ve looked at thousands of businesses for sale, and learned to read between the lines. Every issue, we'll take a deeper look at a listing, learn something, and I'll rate the deal at the end!
This week’s listing: This is a lanscape and architectural lighting company in one of the bougiest neighborhoods in the world — the Hamptons. So basically, if you want to light up your $40M mansion, they’ll design, install, and maintain the equipment to do that. Check out the listing here!
The numbers: Asking $1.25M on $800K annual revenue and $375K cash flow. Making almost 50% profit is pretty great — that’s high margin business!
Green flags
So, I love the profitability. Running a business like this at 40-50% profit margins shows there’s a real demand for premium service.
It also requires some level of expertise, so this is not a super easy industry to get into — you can get whole degrees to understand the science of this stuff, so you’re not going to be competing with a ton of newcomers.
I also like the area — you get to live in a cool place! If this same company was in the middle of Topeka or something, I’d be a lot less excited about living there. But it’s the Hamptons. Cool houses, beautiful people, you might even see Billy Joel! (Or did he leave?)
Red flags
This is not a set-it-and-forget-it kind of deal.
You’ve got to be schmoozing, getting to know all the architects, contractors, etc who are doing design out there, because you want them calling you when they need lighting. You need to be hanging out at the hitching post (fancy towns have those, right?) to make sure you’re the go-to person.
You’re also probably doing everything yourself. Here’s how I figure that:
Anything where your customers are residential means you’re probably dealing with a lot of small to medium jobs.
The mega-rich people with the $80M homes will pay whatever it takes to get the best landscapers in the world — so they’re probably flying people in from Berlin or Hong Kong or whatever. So you’re probably taking care of the more modest jobs.
At $800K annual revenue, I’d guess the average job is probably $20K, which works out to about 40 jobs a year.
That tells me there’s probably just one crew here, likely the owner-operator who has all the relationships, sells every single deal, runs the jobs… and maybe the spouse is doing bookkeeping, taxes, collections, etc.
So for buying yourself a job, $1.2M is a lot of money.
At $375K cash flow, you’re taking 3 or 4 years to get your investment back, and that may not be the best use of your time. I’d love to see it priced more cheaply.
What I’d ask
If I was looking at this deal, I’d probably cozy up to the seller. Make friends, and see if there’s some alternative way to structure the deal differently.
I’d look to get in by working with them first and doing a slow buyout (what I call entrepreneurship through apprenticeship) rather than pony up $1.2M.
Realistically, the seller is probably looking to retire. I’d bet they started this business with a truck out of their garage and are looking for someone to take over the reins. People like that are often more open to creative structures than other sellers.
My rating
Overall, I like the deal! Living in the Hamptons is definitely cool. But I do wish the price was a little lower. I’ll give this one 4000 out of 5000 lumens. (I’m a businessman, not a light scientist!)
You can check out the deal yourself here on Synergy. Hit reply and let me know what you think!
Have a great week,
Michael
Want to go deeper? We covered this deal on Acquisitions Anonymous — check out the episode here!
