Starting in Sub $2M Deals, Opportunity for Long Term Scalability?
July 14, 2024
by a searcher from North Dakota State University in Fargo, ND, USA
Is there some truth in starting small in the acquisition space?
It feels like just yesterday (9 Months ago) that buying a company seemed out of reach. I've since pursued multiple $1M+ purchase price deals with net projections for my own personal benefit in the $250K+, left my full time job, and focused the last 10 weeks on growing my network and taking actionable steps to making an acquisition happen.
To clarify, I don't have a problem with thinking small, but there has to be some truth in starting small to "earn your stripes" going from employed to a business owner never owning a business. I plan to utilize multiple sub $2M in revenue companies that provide support for each other.
My "starting small" 5 year plan currently looks like this:
Starting with a $850K revenue residential service plumbing company. Growing revenue by adding additional plumbers, adding HVAC techs, and potentially scaling with an electrical division. Then buying a small sub $1M revenue parking lot maintenance company to do concrete, asphalt, etc. Then pairing that with a $1.75M excavation, septic, and aggregate company (which happens to be a family business I'll have an option to take over in the next 5 years).
Starting small in the sub $2M revenue range allows me to get into these deals without big financial partners requiring me to give away equity. Instead, working these deals to be no money out of pocket utilizing the SBA and 10%+ seller carries. They're less desirable to most, but it's my full intention to take each small business and double revenue while targeting 30%+ margins, establishing systems, processes, and great teams.
I feel like I have a pretty good plan in place, but would love to get perspective from seasoned acquisition investors who have had experience in this space. Thank you in advance!
from North Dakota State University in Fargo, ND, USA
There are quite a few synergies with these three companies in my opinion.
The excavation company does quite a few septics per year with many more that go unbid outside of our small 20 mile work radius as well as frequent underground utility jobs for the city. Installing septic systems and utility projects require a master plumbing/pipe layers license.
Residential plumbing service also frequently does underground sewer/water in both new construction and existing neighborhoods where an excavation contractor is required to dig the hole. There is substantial growth in this space by doing bigger new construction jobs that require more below grade work.
As for the parking lot maintenance company. My grandpas brother has a separate excavating company that does 3-4x the revenue of our smaller sub $2m company doing the same type of work, but adding road construction. The company I have in mind for acquisition has both an asphalt and concrete division as well as a repair, sealcoating, and striping aspect.
To address the middle management. These companies are typically 20+ years old that have operated with no middle management. However, they've been extremely profitable within the comfort of the existing owner. I believe there is more value in the training from the owner than blue sky.
In my opinion, learning how to market for one company is directly applicable to the other two. The parking lot maintenance business shares more with the excavation. However, I know of a few companies that specialize with these industries.
Finding the right operators will be challenging, but in my opinion that has more to do with culture and showing what value your company has to offer them than the inverse. Based on my age, risk tolerance, passion for leadership, etc. my value is in curating the end result.
from University of North Dakota in Loveland, CO, USA
You may find more traction and momentum going horizontal or vertical with your 2nd and ongoing acquisitions to create some economies of scale, pricing power, product extensions, market extensions, supply chain control...etc. Just a thought.
You may have already thought of this but since these businesses are so small they more than likely don't have middle management in place so the majority of your time will be hands on operations unless you bring in an operator right out of the gate. Finding the right operator may take you a while and comes with some pain and suffering along the way.
Targeting growth is always the plan so along with your margin, system, process and team building efforts I would lean heavily into learning how to market for each of these industries.
I was born and raised in the Fargo area. If you ever want to throw some ideas around feel free to DM me.