CAPEX Heavy Event Rental Biz

searcher profile

February 17, 2024

by a searcher from University of Pennsylvania - The Wharton School in Nashville, TN, USA

Hello all,

I am starting to evaluate a Nashville-based event rental business. I have not received financials yet, but from conversations with the owner I have learned quite a bit.

one item that concerns me is the heavy CAPEX spending. The owner recently upgraded his equipment and took on several million in debt to pay for it. Additionally, he’s told me that to hit a strong growth trajectory he expects a few more million in CAPEX in the next couple of years.

i don’t think this is a deal killer, yet, and wondering if anyone has experience investing/operating with a capex heavy company. Bonus if you’ve worked in event rentals.

Appreciate any advice/insight. Please DM!

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Great questions. First off, we have done lending for other event related businesses and with other CAPEX related companies in the past. When you do any acquisition of a company that has CAPEX needs it is important to build future CAPEX spend into the historical and future cash flow analysis. So long as the cash flow still supports operations after adjusting for future CAPEX needs, the deals are very doable.

The biggest issue we sometimes run into is that some sellers with CAPEX heavy businesses are looking for a multiple based on adjusted EBITDA without adjusting for historical or future CAPEX needs. In these cases it can make it very hard to finance the business because the seller is not being realistic. The adjusted EBTIDA needs to take into account future CAPEX needs. If we can prove the seller had one-time higher CAPEX expenses because they upgraded equipment and the future CAPEX would be less, we can definitely use projected CAPEX going forward as an adjustment.

I would be more than happy to help you analyze this opportunity and see how we can assist you. You can reach me here or directly at redacted Good luck with your negotiations on this one.
commentor profile
Reply by a searcher
from University of Pennsylvania in Jersey City, NJ, USA
Understand the true cashflow profile of the business over your operating period
Looking at your cashflow statement:

Understand your cashflow from operating the business (the actual cash you receive)

Factor in your Investment and maintenance capex needs (you will need to include both) - be a stickler on timing here - your cashflow generation needs to be in sync with your capex spend (i.e., if a critical, high cost machine fails, confirm that you have sufficient cash to replace it, while meeting your debt obligations)
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