Transcript
Speaker: Welcome back to another episode of Under the Vinyl, a rental management media podcast. As always, i got my co-host Kyle. Kyle, how are you? I'm great, Nate. i yeah I had dinner last with some friends of the podcast, actually.
Speaker: Did you? Who was that? Alex Renaud and Julie from ah Fiesta Tents. They had nothing but good things to say. so That's always a great time. Great time. It's really funny you say that. When we were down at um Lee's Wedding um down in Mississippi this past weekend... I met a guy and he said, introduced me, told me his name and I hadn't met him before. And we kind of went about our separate ways. And I came back and he goes, I just realized your na you're Nate. And i was like, well, yeah, I just introduced myself. And he said, no, I listen to the podcast. He goes, my name is Daniel, Daniel BB from um down the Gulf Coast. um And he was like, i listen your podcast. Love it. So it was really funny. So we've we've been getting some good friends of the podcast, it feels like lately.
Speaker: It's always good to hear that people are actually listening. Yeah, no kidding. Well, I think this one here today is going to be a good one that everybody's going to want to listen to with all the ah acquisitions acquisitions and um people just acquiring different things and different things going on in the industry with mergers. um We have a wonderful guest in Gary Stansberry from the Stansberry Firm LLC. Gary, how you doing?
Speaker: Great. How about you guys? Wonderful, Gary. Thanks for jumping on with us. Really happy to have you here, honestly, because yeah people are talking about buying, selling, trading. It's everyone's goal is to get out eventually. So, yeah, yeah. I tell you what, there's ah a lot of guys my age that would very much like to sell Yeah.
Speaker: Yeah. it seems like that. ah It's we're kind of in that transition phase right now. And if if people aren't, if the older crowd right now just wants to stay it for the rest of their life, they're staying or they're quickly transitioning right now. It seems like, is that kind of what you're seeing? Yeah.
Speaker: Yeah. ah You know, i i use myself as ah as an example. You know, my name's my name's Gary. Okay. I challenge you to go find somebody named Gary and and you will, but they're all 55 maybe Okay.
Speaker: eighty You know, and, ah you know, you could insert different names, Mike, James, Joe, whatever. There's a lot of guys my age that, you know, they've they've been through the 08 downturn and, you know, got some battle scars from that. And then they went through COVID, obviously got some battle scars from that.
Speaker: ah And, you know, now, you know, the challenges, you know, of of a business owner in this industry you The labor market. and if you do find somebody you know ah i know james arback was on ah not too long ago and he talked about you know how you used to pay guys twelve dollars an hour you know there's a ah chick-fila down the road from me with a big old sign starting pay twenty dollars an hour And, you know, ah he mentioned, you know, Amazon and UPS and all of the delivery drivers that were taken from our pool. So, you know, these older owners, they look at that. They look at the interest rates, you know, they're borrowing money at. And, you know, basically the cost of everything out there, you know, the fuel, the supplies and all of that. And, you know, a lot of them are saying, hey, i I'm done. I want out, uncle. And, you know, the the challenge ah has been, you know, post-COVID, there wasn't a lot of buyers out there.
Speaker: You know, now we're seeing some activity. But, you know, I'm going to put an asterisk on that on that activity that we're seeing. ah i feel like I'm just jumping in here. But, ah you know, the asterisk is that, ah you know, maybe back in 2019 that, you know, we had we had a pretty good period.
Speaker: after 2008 to 2010. Maybe it took till 12, maybe it took till 13, but that pretty good period ran from maybe 13 to 19 and deals were getting done, multiples were going up. ah You know, if you if you want to measure the market against that,
Speaker: it It looks a lot different. I know that you had Ian Goff on, and and one of the things he mentioned about one of the acquisitions that he did was that the owner financed it for him. And, you know, I mean, a lot of guys have the impression that, you know, hey, I'm going to put this thing up for sale. I'm going to have a long line of buyers out the door, and they're going to write me a check for $5 million or $10 million, and I'm going to go on down the road to to Key West or whatever.
Speaker: And I got to tell you that that ain't how it's working in 2026. The multiples have been muted. The amount of cash that you actually get and what that looks like at closing is a lot different. So, you know, like say, I'm kind of jumping ahead, but but we can get into all of that. But ah it's it's a changed market. And you've got to understand what you're getting into. And I'm afraid a lot of the people that I talk to still have this perception of somebody's going to write me a check, you know, and ah I'm not going to say that never happens. I am going to tell you that it rarely happens. And I am going to tell you that if that's your stance,
Speaker: You know, I'm probably not going to take you on as a client because the the the the chances of a sale actually happening decrease, not not necessarily to zero, but it might be in the single digits or the low double digits.
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Speaker: Well, just so you know, the older name, as you you stated it, not me, is not dying because my daughter's name is Josephine Louise. and She's three years old. She's three years old. So that's making a comeback for the record. yeah but yeah um But just, you know, jumping ahead there, that's great. And this is exactly what we want to dive into. But tell us what you do to get those deals, ah to get involved in those deals and kind of what your job role is.
Speaker: So I represent the seller of the business. So generally what happens is, is somebody calls me up, you know, uh, we have a a basic conversation about the business, you know, ah you know, Hey Gary, I've been thinking about selling and, you know, then I ask a series, series of questions, you know, hey what's your revenue?
Speaker: What's your ah legal structure? You an LLC or USC corp or UNS corp? ah You know, how's that structured? You know, tell me about your facilities. ah Tell me about the last few years of trends. Have you been up? Have you been down? yeah You know, you know,
Speaker: Tell me about your your your wishes going forward. Are you looking for a full exit? you know Are you willing to stay on for a transition period? you know Sometimes I get guys your age. you know I sold Ventworks in South Carolina.
Speaker: okay So we sold that to a private equity and i don't know, that was 2018. And They rebranded the whole thing as EventWorks eventually. ah But those were young guys, man. They they were like 40 years old and they're saying, hey, I've got some some gas left in the tank, ah you know. And and so they they welcomed, you know, a private equity buyer that had a vision to expand the business and get them the capital and all of that.
Speaker: You know, a lot of my sellers so are are, you know, I'm 67, actually 66. I don't need to make myself older than I am. You know, there's there's a lot of lot of, you know, in the 60s to even the 70s that say, you know, i'll I'll help them for a period of time. But, you know,
Speaker: Reason I'm calling you is I'm done. I'm not looking for the next challenge. i I'm done. So, ah you know, each each circumstance is a little bit different and it it affects the way the deal might be structured.
Speaker: So, you know, ah we we have that initial conversation. And ah what I do is I invite them to send me some financial information ah that that I will take a look at.
Speaker: And ah i will then give them two things. I'll give them my opinion of value and how the deal might be structured.
Speaker: And then the second thing that I do is I talk about the marketability of the company. And, you know, ah every company will sell at some price, but how hard is it going to be to sell? You know, if you're in Austin, Texas or Dallas or Atlanta, you're in a big market, you're growing and And, you know, there's going to be a ton of interested parties in that one.
Speaker: If you're in Podunk, Oklahoma, doing a million five, man, you know, it's it's going to be tough sledding, you know. So so I every every business has a value, but the marketability aspect of it is is hey,
Speaker: whether or not I can sell this business. yeah And I'll be real honest with you. I can't sell every business out there. And i am very particular, especially as I get older, about what I do take on. I don't want to waste their time and I don't want to waste my time. So my threshold is before I take on any project,
Speaker: I want to have an 80% chance of selling that business. Okay. So, ah you know, the odds are that it, that it will sell. And I give them that, that opinion of value. And I give them that, whether I think I can, I can sell it or not.
Speaker: And, you know, sometimes we're not on the same page valuation wise. Maybe I say the business is worth five million and they think it's worth 10 million. Well, that's that's an on start.
Speaker: You know, that's that's too big of a delta, you know. ah so Things like that can be can be a deal breaker on my side and on their side, for that matter. You know, the the inability to be able to to sell it can can be ah a deal breaker. But if we decide if if the stars align, so to speak, and, you know, honestly, a lot of times the the answer I get back from the owner is, well, that's about what I expected. Right. And and if if that was about what they expected and I feel like that I can sell it, then we go to the contract stage. And that's when I go to work. you know i I put together what's called ah a SIM in the business. It's a confidential information memorandum. It's basically a way for buyers sitting at their desk to evaluate the business and You know, by looking at ah at a package of information.
Speaker: And ah so what I do is I go out and, ah you know, usually another thing about it is I want to, in my mind, have at least, you know, four or five prospects that I think would be interested You know, if I'm racking my brain thinking, you know, i this looks like a nice business, but I, I don't know who the hell would buy it. You know, uh, again, that that's a non-starter. So I like to have four or five, uh, you know, people that once I get all that information together, that, that I go to town, so to speak. How are you finding those prospects, Gary? Is that just a Rolodex you have from being in the industry?
Speaker: Now, are you talking about the prospects that want to sell? So honestly, ah you know, I don't know how you guys found me, but very similar. You know, you found me somehow. oh you're very well known. That's how we found you. So, you know, i ah my name's been out there. I've been doing it for a long time. ah So, you know, I mean, the way i look at it is is I usually at least get a call.
Speaker: you know And I encouraged my clients. I said, you know you got to you got to trust me. You got to feel like that we can work together. And I got to feel the same way. you know And ah so a lot of people will will call me up. And ah you know I may be their one and only call. I don't know. you know Some of them may may call around and and talk to a few others. ah you know There's really only a handful of us out here that that do this.
Speaker: And ah so at this point in my career, most of my business is is word of mouth or referrals. You know, they will have heard about a deal that that I've done and they'll maybe they know the former owner or, ah you know, track down the former owner. And, know, sometimes they call the ARA and I, you know, i get referrals from the ARA.
Speaker: I'm not sending out a bunch of mailers. I'm not running some big telemarketing operation here. You know, i i'm I'm a, you know, what's considered a boutique, okay? I don't have 15, 20 clients at one time. I might have three, four, five is about my max. And every one of those, so a lot of lot of big brokers, it's throwing spaghetti against the wall. They might have 200, you know, and they might have restaurants and dry cleaners and whatever else. So they're throwing spaghetti against the wall and seeing how many noodles will stick. That's that's not me. I have three or four or five. And using that 80% criteria, I expect results on every one of those. Okay. And I'll look my client in the eye and I tell you, I'm confident.
Speaker: I'm at least 80% confident that I will sell this business. Now, sometimes there may be a few question marks and I'll say, hey, look, honestly, this one might be a little bit on the fence and here's my reservations. i You know, I might be willing to take I hate to say a flyer, but, you know, I might be willing to take one below that threshold as long as you understand what the challenges are and that that we may not have that 80 percent chance of success. Yeah.
Speaker: So and how did you get to this? How did how did you get to the rental side? You know, a lot of us either stumble in here and haven't left or we're family. But I feel like somebody in mergers and acquisitions, um you know, this could be a very fun industry um and because there's constant changes. But then also it it's struggle because.
Speaker: you don't really have that turnover until later. And we've, we've just been fortunate right now that we've hit like a big turnover. And I know there was some years back where it hit back in the recession, you know, 08 or, you know, going into COVID things like that. But how did you get to this part of the industry and the rental industry and and what made you want to stay here?
Speaker: So first off, i'm I'm a CPA and I would be remiss not telling you i am a lifelong Texan and I'm down damn proud of it. So i I'm outside of San Antonio now, i lived in the DFW area for years.
Speaker: So ah I'm a CPA. i got a yeah accounting degree from TCU in Fort Worth. and ah worked a couple of jobs. of them was an oil field service job. ah And oil field service was a very customer-driven business. I mean, you answer the phone at two o'clock in the morning, and if you need to have a crew out there, 20 people crew at at five o'clock in the morning, then that's what you do, okay? So ah that, you know, it's very cyclical. And the company that I work for, you know, went through a downturn and and does not exist anymore. But I went to work for a construction equipment dealership in Dallas, and ah we sold Komatsu product, which at that time was the primary competitor to Caterpillar. So we were sales, parts and service. We didn't do rental.
Speaker: So the owner of the company lived up in Michigan and he had a company up there that was in rental. So he came to me. i was originally the CFO and then became the general manager. And he said, I want to start a rental division here in Texas. So I started that rental division and it really took off. This is in the early 90s. And honestly, I've been an entrepreneur my entire life. And i looked at that and I said, hey, I think this is something I can do. So ah me and another guy that worked there, we formed our own construction equipment rental business in Dallas. ah And we were kind in the right place at the right time. And it really took off.
Speaker: ah But I had a client say to me, ah you know, a partnership was the only ship built to sink. And i was in the right place at the right time and all of that, but I had the wrong partner. So I ended up selling out to my partner and I went to work for RSC Equipment Rental. And the the CEO there said, hey, you know, Gary, you got the financial background, you got the operations background. We want to put you in the acquisition department. And man, the the construction equipment rental business was going crazy at that at that time. And ah in terms of consolidation. So ah I did about 20 deals for ah RSC and then I was recruited away by a company called Nations Rent. But the way I made it to special events is back in the day, you know, you you hear this is a mom and pop industry, especially back then. Well, not to sound misogynist or whatever, but
Speaker: Dad and son ran construction equipment and mom and daughter often ran party rentals. So we would we would have a a target, you know, ah ah somebody we wanted to buy yeah and would go to them. They have a party rental side and they would say, you know what?
Speaker: You know, I'm not selling this business business in pieces. You got to buy the whole thing if you want it. So I never will forget. My boss looked me in the eye. We did a couple of those. And he said, Gary, you bought it.
Speaker: You need to sell it. So ah i ended up both with RSC and Nations Rent having to sell things. And special event rental operations. So ah when I went out on my own and in the year 2000, you know, i i just made the decision that I'm going to do everything under the ARA umbrella. I've got experience selling party rental. I've got experience selling construction rental.
Speaker: So i would tell you from the year 2000 to 2019, my business was roughly 50-50. I did 50% party and event rental, you know sold a bunch of them back to classic in the day, probably six or seven. um you know I've done probably...
Speaker: 40 something total. ah You know, some of those have been to, you know, nearby competitors. Some of the vast majority in all honesty has been to ah private equity backed.
Speaker: So I did my best, you know, when I was in the construction equipment side, I learned all of the metrics. I learned how to evaluate a company. You know, part of my job in acquisitions is, you know, what did they do right?
Speaker: What did they do wrong? How will this fit into our organization? Are they doing things that we don't do that we could benefit from? Are they doing things, are are we doing things that they don't do that they could benefit from?
Speaker: And, you know, it ended up being kind of a, you know, we didn't come in, our attitude, especially at RSC, was we're going to come in and dictate the way you do things. It was more like we've analyzed your business. We feel like this is where we can make improvements. We get their buy-in and then you try to execute that plan.
Speaker: So I've tried to bring that same mentality where I go in and i kind of evaluate, if you will, the party rental operations. And i try to present the best foot forward to the buyers of the of the the business.
Speaker: So that's kind of my road. My wife used to hassle me. I i used to be, I mean, i I know how to run a bulldozer. I know how to run an excavator. And she says, she said, I don't get this. You know, one day you're out there running a bulldozer and the next day you're talking ah chargers and linens and place settings.
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Speaker: What are the things you're looking for when you come up with a value of a business? So, ah you know, there's there's a few ah key metrics, but, ah you know, honestly, everybody talks about EBITDA, and that is that is the the kind of, ah you know, separates the the performers from the non-performers. so So the main things that I look for revenues,
Speaker: revenues What the composition of that revenue is, is it is it rental and rental related? You know, it might be labor, it might be delivery, it might be damage waiver, but you know, the rental is a reoccurring revenue.
Speaker: Other things like sales, you know, ah you don't get much value for those. ah So I'll look at the composition of the revenue. i look And also, you know, hey, is this a tinting company? Is it primarily a linen company? Is it primarily a tabletop company? You know, what what is that and what are the dynamics of of this business? Are they full service and do a little bit of everything? Are they more of a high end or specialty or niche? Maybe they're, you know, more furniture oriented. ah
Speaker: You know, who's their customer base? You know, ah generally we're looking for commercial repeat customers, you know, caters, venues, event planners, wedding planners. generally not looking for homeowners, backyards, one-off kind of things.
Speaker: Also look at the revenue and see if there's any large or unusual, uh, jobs, maybe a one-off job that has caused a spike in revenue. And if you take that out, you know, maybe it's flat or down, uh,
Speaker: But, ah you know, that was a big thing, especially like, you know, during the years with with hurricanes and whatnot. And, you know, even the covid and the covid testing and and that kind of thing. So at the end of the day, what acquirers are looking for is repeat predictable revenue.
Speaker: OK, you know, it it helps if you got contracts with with ah clients. ah If you don't have a contract, I like to see longevity of the client, you know, like, hey, you know, you didn't spike your revenue because you got you picked up this client six months ago and they may be gone in six months.
Speaker: So, ah I look at revenue trends. I mean, ideally, you know, I know you guys talked recently about the ARA predicting 8% this year. You know, you kind of use that as kind of the guideline or a benchmark. So, if the benchmark's 8%, were they underperforming, were they overperforming? What you'd like to see is a nice upward trend, okay? Mm-hmm.
Speaker: And really, honestly, kind of a smooth upward trend trend. If you got a hockey stick, that's going to raise some questions. You know, a good, smooth, you know, let's say 10% growth a year, even 8% growth a year.
Speaker: ah So, you know, if you've got a down year, you know ah Or you know as Lucy used to tell Ricky, or Ricky used to tell Lucy, you got some splaining to do. you know you you got to You got to give the reasons for that.
Speaker: ah you So you got to have a good story. ah So I look at the the revenues, the revenue trends. The EBITDA is very important. I like to see ah ah really a minimum of 20% of revenue as EBITDA. So I look at that as kind of the the dividing point. If you're under 20%,
Speaker: you're kind of underperforming. If you're over 20%, you're doing good. You know, I tell ah clients a lot of times, you know, 20%, you're kind of getting maybe a a B or a B minus. You know, if you're at 22%, 23%, you're getting a solid b You know, if you're at, you you're getting an A.
Speaker: And, you know, anything over 30, you know, ah I mean, that, you know, you're you're getting down to the top 10% if you're over 30. And honestly, sometimes if that's too high, an acquirer will look at that, you know, especially if it's a strategic and they're saying, we're not doing 30%, you know, are we going to be able to maintain that 30%? Yeah.
Speaker: So, you know, that the facilities are important. You know, if if you're absolutely maxed out in your facility and you're looking to have to move, ah that causes what I call uncertainty.
Speaker: You know, I mean, are you going to be able to find uncertainty? A big enough warehouse and, you know, on a similar location, a strategic location and a location where you're not going to lose a bunch of your employees because, you know, it used to be a 10 minute commute. Now now it's a 45 minute commute. So that that can cause, ah you know, some heartburn.
Speaker: Uh, and the other thing I really look at is re reinvestment in your rental inventory. Okay. And one of the things I tell sellers, you know, lot of times, you know, it's just human nature. You know, they think, oh, Hey, I'm 65. I'm going to be selling this thing in the next three years.
Speaker: You know, I'm not going to, I'm not going to, going to buy the inventory that I usually would here, you know, and, You know, I call it coasting, you know, and, you know, it's like if you play if you play golf, let's say that after 14 holes, you're you're five under par, and you say, I'm good, you know, I'm done, you know, I'm five under par, I've done great, and you walk off the golf course, you're going to lose the golf tournament. And, you know, it's surprising how quickly things can go can go downhill. And you've got to keep pushing all the way to the end. And that reinvestment in in rental inventory is is one thing that I see as being kind of the first on the list that goes by the wayside. You know, an acquirer, let's say they're going to pay you $10 million for your business. ah
Speaker: That... ah you know, if they have to turn around and buy two million just to kind of get you back to even, well, guess what? Now their offer is going to be eight million or or less even.
Speaker: Well, and i feel like that was a big thing though. um Kind of maybe not so much a lot of the owners right this moment, but the owners before then that they purchased from, I feel like a lot of those owners kind of coasted or were minimalist or, you know, didn't spend nearly as much and put as much into the businesses where now these, where the owners that are now getting ready to sell, they invested a lot more and they were buying a lot more. So these businesses are looking more lucrative to the younger crowd that's coming in to buy. Now, you talk about that hockey stick method, and I love how you talked about that analogy. um You know, I feel like that was a big thing during the COVID era. We we boomed during that. We came down, and then during COVID, we did the hockey stick thing where we came up, and we came –
Speaker: We either got people to buy right around that 21 mark where it looked really good because they were doing best numbers ever. um You know, and the trends were coming out in the magazines and everything that these people were doing the best numbers ever. But those COVID numbers just were ah unrealistic. And it finally feels like it's coming back down to the normal. um or pre-COVID, I guess, is what you could call normal numbers. And so people think that they're down, but then you know it feels like people are now getting out still at a good time because those numbers are still somewhat riding high. So I guess now my question is,
Speaker: what makes this industry look lucrative from the outside looking in Because when you see that and you see that spike and knowing what we know, you know kyle and I, Kyle's been in it since he was a kid because his family. I haven't.
Speaker: I've been in it for 22 years, but I don't have family in it. But I've watched the whole evolution of it. And to me, it's like... If you're not in this industry and you are an outsider, I don't understand why, what makes you want to come here? Yeah. What makes you want to come here And I'm not saying it's a bad industry. I love this industry. That's why I'm doing it doing this podcast and I preach it to everybody. But I just want to make it make sense in my brain because I see the labor aspect of it that they don't see. And I feel like, yeah, when they see it on paper, it's different. But do they just feel like they can just come in and they got high hopes? They can flip their fingers and everything goes to normal.
Speaker: So ah one thing, if I look at this industry, this side of the rental industry versus construction equipment, construction equipment has a lot higher reinvestment rate.
Speaker: OK, so if you've got 10 million dollars of EBITDA, you might have to put four or five million of that EBITDA back in every year investing in rental fleet.
Speaker: So that the party and event side had so they have about a 40 percent dollar utilization on that side. So they're they are making ah four hundred dollars for every thousand dollars. 400 verinal income for every thousand they have invested in the fleet, you know, with with the cost of inventory from from China. And, you know, honestly, even before the China, you know, became such a big deal. You know, it's you see a lot of times it's at least one to one. So if you got a million dollars of fleet, you're getting a million dollars of rental revenue. And, you know, I've been seeing it, you know, 125, 150, 200 percent. so the lesser
Speaker: amount that they have to reinvest is is to draw ah There's no, you know, again, just comparing to the the construction equipment side, man, you got Sunbelt Rentals, you got United Rentals, you got Herc, you got all these behemoths out there competing for the dollars. You know, there's not really, you know...
Speaker: brights probably the biggest out there right now you know you don't have those behemoths it's a lot less consolidated than than the equipment side ah but one of the things you know about you asked me about multiples earlier and and you know we'll talk about that a little bit but when when you get down to the transaction yourself, I mentioned that you're not getting all cash, okay? So the private equity is looking at this as they want to share, they they do see this industry as risky, okay? You know, if if you go back to 2008, what, 18 years ago, and then you look at COVID
Speaker: In the last 18 years, we have had two major events that drastically affected revenues. You know, and maybe you could even go back to 2001 and, you know, that was maybe a shorter term impact, but an impact nonetheless.
Speaker: But, you know, they look at that and they say, well, at some point we're going to have another one of those down down the road. Right. um So instead of handing you $10 million dollars in cash, they want to structure maybe maybe 70% sixty percent cash maybe seventy percent cash So that other to could be a combination of a seller note.
Speaker: It could be a combination of an earn out. So, you know, hey, we want to buy this thing and we want to make sure that the revenue doesn't fall off the the cliff.
Speaker: um And they want you to take equity so that 30 to 40 percent could be a combination of all of those things. So at the end of the day, what that does, you know, they call it risk sharing. They're asking you to take a part of that risk going forward. Because they know that on their side, it is a bit of a risk. What's your opinion on that, though, Gary?
Speaker: Do you advise your sellers to do it? So it depends on how bad you want to sell. kind it's like i'm mentioned I mentioned mentioned to you.
Speaker: ah So there's a lot of pent up inventory out there, if you will. There's a lot of people that want to sell. So these private equity and the buyers that are out there, you know, they have multiple opportunities they're looking at.
Speaker: So if if you're not willing to do that, we're moving on to the next one. You know, are they willing to do it? Yes or no? They're not willing. All right, move to the next one. I guarantee you there's somebody in that group of 10, and it's probably more than five of them that are willing to do that. yeah You know, what i what I say to my clients is it's it's risky. You literally equity...
Speaker: is a blank sheet of paper, okay? You're getting a sheet of paper. Here's your $3 million. dollars it's it's up It's a sheet of paper, okay? That sheet of paper, at you know, when they make their exit, you know, they tout you're you're going to get three to five times your money back on, it's called the second bite of the apple. You know, these private equities want to sell in roughly five years. You know, it's three to seven year window. So when they sell,
Speaker: You're either getting money for that piece of paper. ah Maybe it's maybe you put a million, you know, like a million of your proceeds was that maybe you're just getting that million back.
Speaker: Maybe you're only getting two hundred thousand. Maybe you're getting zero. Maybe you're getting three million or five million. And honestly, I've seen it go every way. You know, I've sold, you know, this last round to to Dubin Clark.
Speaker: you know they had Essentially, they had the the peak operations, they had the CE operations, and they had the marquee operations. Well, the people that were in the CE and peak, they did okay.
Speaker: the people that were in the marquee didn't do so great. Okay. You know, and, and, you know, even ah a company that's been very successful like Dubin Clark, you know, they, they had a one out of three, didn't quite work out, you know, and, and there is that risk. So I can't advise a client whether it's right for them to take that risk or not.
Speaker: I have to make them aware of that risk that you are taking a risk, that that could be worth anywhere, that $1 million dollars sheet of paper could be worth anywhere from zero to $5 million. dollars you know ah You know, I've had some sellers in the last few years come out very well on that.
Speaker: I've had sellers that that kept that piece of paper for six years and got a 50% return. So off of a million dollars, they got a million five. Now, you know, arguably in six or seven years, could you have taken that million dollars somewhere else? Got more than a million five. You know, honestly, during COVID, they were looking at that million dollar sheet of paper. It's worthless. You know, so they were ecstatic they got a million five. And then I've seen sellers that got nothing for that sheet of paper. So ah it's ah it's a risk. So I advise the clients of the risk. But if you tell me that you're not willing to do that, you're probably not going to be my client.
Speaker: Right. And and so... To the point of the recession and everything else that they've made it through, do they see it as a recession-proof industry? Because to me, that's – okay.
Speaker: To me, that's that that's what I think that they see it as, but you know that's that's my question, I guess. No, they see it as a a potentially lucrative that carries some risk. But honestly – you know what You know, what investment doesn't carry some risk? Exactly. 100%. Scared money don't make money, right?
Speaker: Go buy a Tesla stock today. you know it's either going to go to $1,000 it's going to go to zero. I don't know. you know That's life. You know, the whole deal with me is I say, i will give you the information in an unbiased way where you can make that, you know, you have to make that decision, what's right for you, what's right for your family, what amount of risk are you willing to take?
Speaker: And, you know, sometimes that's the only way you're you're going to sell this company. So, know, you know that's That's the reality of it today is if I had to, you know, you said what what are the multiples now?
Speaker: If 2019 was kind of the baseline, let's let's just say you had a $5 million dollars company in 2019, you're probably looking at about a five times EBITDA multiple.
Speaker: OK, so honestly, at that time, you were probably getting about 90 percent cash. OK, you know, had some deals that were 100 percent cash, but kind of the the over and under was about a 90 percent. Some them might have been 80, but I would say 90 was the norm. So now.
Speaker: Multiply whatever you are going to get 2019 0.75 or 0.8. Okay. The multiples are down 20 25%. And the Okay. twenty to twenty five percent and at the same time the non-cash portion of it is up So, you know, the the multiples, to one of your questions to me was, what's the difference between a 3X and an 8X? And, you know, I can't answer the 8X question because that's not happening right now. i mean, you got to be, you know,
Speaker: unlocked three five unlike what most of our guys, most guys think, size matters. Okay. The bigger the bigger you are,
Speaker: the bigger multiple you're going to to get. I mean, if you're a $2 million dollars company, you know maybe you're looking at at three. you know if you're If you're less than five, you you may struggle to get to a four times multiple. you know If you're five to 10 million, you know maybe you're looking at you know four and a half and maybe a quarter point in either direction. you know If you're 10 million or over,
Speaker: You know, then maybe you're talking five plus. But, you know, every acquirer is going to see it slightly different. How strategic are you? You know, you you know, so I'm a CPA. So the numbers tell you the black and white.
Speaker: the The rest of the story is the color. you know What's the market? How many competitors do you have? ah you know What's the upside potential of that market? Are you in a are you in a big high growth area like Austin or Nashville or Dallas or Houston or Miami? Are you in a dying area? you know in the Northeast or the upper Midwest, you know, ah that matters. ah You know, what what potential niche do you bring to the table? Are you doing something that we can add into our product line that we're missing on our product line? Is there a group of customers that you have that are
Speaker: desirable to the acquire that, you know, maybe they're doing some some big events with certain companies and those same companies also do business down in their their trade area. You know, what what are the synergies of this thing?
Speaker: So, you know, there's a lot of factors that, you know, I call it check in the boxes. I sold one a couple of years in Nashville a couple of years ago. Growing market, growing revenues,
Speaker: fantastic hundred thousand square foot facility believe it or not that one had a tornado that hit nashville and i think 21 please be seat there please it leveled their warehouse and and uh you know so they had a brand new warehouse so all new equipment you know uh you know Their customer base was the the who's who of Nashville. So you know they're checking all the boxes. So that one, you know they're therere over 10 million in revenue. So that one, their EBITDA was good.
Speaker: So that one checked all the boxes. you know So you're getting a bigger... you know now Now, take that and say, well, you got one in Nashville, but you know hey, they've lost a few accounts. Their their warehouse is old and and not really suitable. you know They don't really have a very good management team. ah you know Their equipment's getting older.
Speaker: You know, that's a whole different multiple, you know. um So it it all depends on that color and where it could potentially staircase up on that multiple scales.
Speaker: You know, it one one thing, i get a lot of calls, you know, honestly, like up in the Northeast, it seems like there's a lot of tent rental companies up in the Northeast. A million of them, Gary.
Speaker: They're all doing two to three million a year. Yeah. You know, yeah and there's really there's really no differentiator, you know? I mean- You know, what are you doing different than this guy or this guy or this guy? Well, you got your set little customers here. And honestly, they're not that different from his customers. They're just different. Our product line's not different from this guy's. It's just, ah you know, <unk>re we're both doing three million a year and we're both stuck at three million a year, you know. So those kind of businesses that don't have any differentiator that turns out to be more of a commodity, you know, that's going to get a lower multiple.
Speaker: Yeah. So when do you think then, um you know, these owners ah that are starting to phase out and sell, when do you think they should start preparing and what are kind of the biggest mistakes that they make before they try to sell?
Speaker: So, you know, everybody always wants to think that there's something magic that you do two or three years in advance. But what I would tell you is a lot of times it's the basics.
Speaker: Okay. I can't tell you how many times somebody calls me and they don't have current financial statements or you get their financial statements and there's all these anomalies in it. Well, you know, we had you know two years ago, Brenda was doing all the coding and she coded that over here. And then then ah you know Joe came in and he took over and he's coding it different. And you know you like to have, just like you have to like to have that predictable revenue trend, you like to be able to put your financial side by side, year by year, and be able to say, all right, if I've got $5 million dollars of revenue, i can expect this trend of expenses below that.
Speaker: Uh, so having that in, or having your financials in order, having a good equipment list at the end of the day, you know, they are buying the assets of your company and that's, you know, that's the, you know, they're buying goodwill, you know, your customer base, but, but your assets are a very important part of that. And you gotta be able to quantify that, you know, how many of these do you have? How many of these, you know, uh, you know, how much did you invest by year? So that's a very important one.
Speaker: I've seen back to that analogy of having equipment and tools. You know, I've seen a lot of companies that are 80 percent party and 20 percent tool, but their financials are just all thrown together.
Speaker: You know, ah you know, I like to see separate financial statements. If you got different sources of revenue, you got to have a financial statement for that for that segment.
Speaker: ah The other thing that trips people up is your, excuse me, legal entity status. ah So if you're a C Corp.
Speaker: ah If you try to sell, you you sell for $10 million. Well, your corporation's got to pay tax on that $10 million. And then you've got to pay that tax personally when you're taking the $10 million out.
Speaker: So it's it's called double taxation. So a lot of lot of people don't realize that. And they realize, hey, you know, if I sell this for 10 million, the end of the day, I'm only getting like 2 million, you know, because of all of this taxation. So that that could be a a trip up. Another trip up is what I call it's not all about you.
Speaker: lot of these owners, they want to touch everything. Everything goes through them. I was waiting for you to bring that up, Gary. so They got one the customer relationships. You know, i had ah I had a client in Dallas, and this is years ago. He got to $3 million. dollars He couldn't get over that $3 million mark. Because he had to touch everything. He couldn't delegate.
Speaker: So you've you've got to have, you know, like good people, you know, maybe you've got a sales manager, maybe you got an operations manager, maybe you've got a warehouse manager. You know, and it's just like baseball. You know, you you have a farm team. That's your farm team. You know, at some point you need to you need to have, you know, you know, your your your key pitcher goes out in the major leagues. You got a guy you can call from the minor leagues, you know, and and he steps right in. You got to have that management depth.
Speaker: So, you know, I would say that a lot of the things are, you know, it's not like, hey, go do a sales splits today or, you know, go do this. The other thing is, is, I mean, honestly, if you're not doing 20% EBITDA, you got to figure out What you're doing wrong? Are you pricing things wrong? You got too much payroll? um You know, what is it that's causing your lower margins? Because honestly, if if you're under 20%, the marketability the company goes way down.
Speaker: Right. Right. No, that makes total sense. um So now looking at it, anybody out there that's kind of listening, that's looking to acquire, you know, younger listeners, things like that, what kind of is going to make a good acquisition for them? And and as a first time buyer?
Speaker: So, you know, it's it's got to add something to your to your operations. I mean, is it adding is it adding a product line that you don't have? Is it adding, you know, a key group of people that you can really use? Is it getting you into a new geography? Is it getting you into a different type of customer base? you know Listening to Ian on on his ah you know podcast, ah you know he talks about some of those things you know and says, you know hey, these these things really made a lot of sense and they you know they really fit with our operation. Yeah. And, ah you know, you just got to go in and and you got to ah evaluate all of those things and and, you know, try to put yourself in the place of, you know, how is this going to fit in our operation? And and, you know, I've seen times where, you know, they ah you know, they think that somebody that's in that organization is going to make a big impact on their operation. And then day one, they quit, you know, after the acquisition.
Speaker: So, you know, you got to, you know, at some point and it can be a little bit problematic with the, with the owner, you know, if it's his general manager, you know,
Speaker: ah talking to them before the deal closes, but you got to wrap up. you know Sometimes you can make the deal contention upon getting an employment agreement with this guy. But you know you really just got to look at the at the product line, the customer base, and and look at the revenue. Like I say, the revenue, the key is here, you know these private equities, they want to see predictable recurring revenue streams.
Speaker: And that's what you're looking for. And beware of the the hockey sticks or beware. you know, another one to beware of is a company that's losing revenue. I use the analogy of a guy jumping off the Empire State Building, you know, jumped off and he went splat on the ground. And, you know, the police were there interviewing people after this happened. And there was a guy on the 50th floor and and they said, yeah, i saw him come by here and he looked fine when he went by here. But he splatted on the ground.
Speaker: So if a company's in in a declining revenue situation, you've got to figure out, hey, is this is a company that's going down and going to splat on the ground or are they going to hit a canopy on the 25th floor and bounce back up and be just fine? You know, so those are the things that you that you really got to evaluate. and You got to get into it all and you got to look at the equipment. You know, I had a client, you know, asked me to help him with ah with an acquisition here recently. And he walked into the place and he said, he said, you know how old moldy vinyl smells?
Speaker: He says, I walked in the door and that that smell just overwhelmed me. And immediately he was just turned off, you know, walked right back out. Yep.
Speaker: So gall what trends in M&A do you see coming to our industry in the next few years? It seems like private equity is calling around again and looking to get back in. um I've heard that from a few different people. Do you think private equity is going to come and take another bite of the apple and start consolidating again?
Speaker: So i think the most effective private equity strategy, you know, we we all saw the the failure of classic and, and you know, and honestly, you know,
Speaker: It seems like Brat's kind of going down that same road. You said it, not me. yeah I don't know. Maybe a lot of the guys were involved in that. So, you know, maybe they got it figured out. You know, it's like, please, please give me another chance.
Speaker: I think that we're going to see ah some major regional companies that are owned by private equity, you know, ah you know, like somebody, you know, that originally like what Eventworks tried to do, you know, hey, they they were in Atlanta.
Speaker: They were in Charleston. They were in Nashville. You know, try to build kind of a a regional type hub, which seems to work the best. And I think it was James, you know, brought up this kind of, you know, central processing. And I don't know if you guys have ever seen what ah Party Rental Limited does up in New Jersey there. I mean, it's pretty damn and impressive, you know. And, you know,
Speaker: You know, I think we're going to see some more things like that. And, you know, you got to have something like a ah Florida where that works. Maybe it works in Atlanta.
Speaker: Maybe it works, you know, in Austin. You know, I mean, there's certain areas where where you can place one of those and you got you got enough stuff within a, you know, three or four hour radius where you can do that. Now, i think we're going to see more of that. I don't think, you know, bright aside, I don't think we're going to see United Rentals party rental where, you know, it's it's nationwide. I mean, there's just, you know, it's hard to share the equipment. Different geographies have different preferences. You know, it is a relationship business at the end of the day, but you can make the same you know argument about construction equipment. But ah I just think it it needs to be a regional, and I think we're going to see the private equity ah accomplishing that.
Speaker: all right. That makes sense. And what is one thing every rental company owner should do after listening to this episode this year to increase their value? So know your numbers.
Speaker: Okay. So i like to track revenues on ah on a daily basis. You know, what's my revenue? So today's the 21st. All right.
Speaker: So what's my revenue through the 21st of July? What was my revenue through the 21st of June? What was my revenue through the 21st of July last year? What's my year-to-date revenue so far this year? Well, is it compared to last year? That's kind of the early warning sign.
Speaker: I like to track payroll, every payroll period as a percent of revenue. I like to see total payroll everything, be it contract labor, payroll taxes, insurance taxes, all of that, be somewhere between 40 and 45 percent of revenue. And I like to, and that's annual. So if you're very seasonable seasonal, maybe in July, you're at 27%, maybe in December you're at 60%. But you got to know what those numbers are. you know don't Don't panic if you're doing 60% in December because, you know hey, that's where we need to be in December. to you know I've seen companies up in the Northeast, they're years depending on how big a hole they dig in January, February, and March. So know those numbers, payroll, revenue, EBITDA,
Speaker: track those and know them as second nature. ah I use the analogy. I had a client in the construction business. His name was Jay Ray, and he's here in Texas. He's a real cowboy. And you look at him, you think this is an unsophisticated hick.
Speaker: That guy would be going down the freeway at 70 miles an hour talking to me, and he would be spouting off those numbers in his truck. He's not sitting on his computer going, oh, well, let me see. Oh, let me pull up that file. I mean, it's second nature to him.
Speaker: You know, he knows exactly where he's at at any point in time. So, you know, I think that that's the big trend, if you will, that you've got to track metrics in this business. I guarantee you the private equities are.
Speaker: perfect Well, Gary, we appreciate you coming on today and just a little bit of your insight and knowledge. I mean, this is a huge pivotal time. It seems like in our industry right now with the changing of the tide and, you know, just these PE firms coming in, but just also employees and, you know, groups buying out um other owners at this point. But this gives us ah a great insight, knowledge and what people can think about and see, you know, in case they are approached. So i love to hear that. So thank you for coming on today.
Speaker: And if Gary, lily if people want to reach you, where's the best place to get in touch with you? Gary at the Stansberry firm.com or I'm always available on my cell. 817-233-0922. Awesome.
Speaker: awesome Well, Gary, this has been another great episode of Under the Vinyl and would love to get you back on at some point. As he's ah as we know, there's going to be a lot of more mergers and acquisitions coming about and love to get your opinion. So thank you. god ah And this has been another episode of Under the Vinyl, mental management media podcast.
