Seller Financing Available
Event Rental, Denver, 2.1M Rev, 392K Adj EBITDA, Absentee owner
CO Party Rental, $1.5M Current Value Inventory/Equip, SP $1.35M
As of July 31, 2014, the trailing 12 month earnings were $392K which are up 18%. The 2013 earnings were $323,327 on $2,023,979 in Revenues.
The owner is absentee, has not been hands on, and didn’t have commission based incentives for sales! The company has a custom facility, top of the line equipment and inventory, and an excellent reputation. The new owner needs to add a commission based sales force and sales manager. He believes they should be doing over $5MM in sales and have the equipment, inventory, and infrastructure already in place to do so. The market for their business is fantastic and expected to continue to grow long term based on the improving economy and increasing population of Denver. The company just needs a more proactive sales oriented management and sales.
The sales price is $1.35MM which is estimated to be below its liquidation value(auction value) of at least $1.45MM. This is not a guess, a bank hired a 3rd party appraisal company to value just the inventory and equipment which came back at $1,455,860 for “auction value” and $1,978,250 for “orderly sale value” several years ago and they have “net” added both inventory and equipment including some very large and expensive items since then. The $1.45MM is actually below what the expected auction value of equipment and inventory will be at the closing plus the buyer will benefit from an additional $1.3MM in build out and leasehold improvements customized for this business. If you include the benefits from the custom build out specifically for this business, you get $2.75MM in the total value of both upon the transfer of the business and the lease.
The lease is below the market rate and the landlord will allow a choice between a one year lease or a long term lease giving the buyer a chance to move the business if they choose to.
They have many well-known and long-standing customers from a diversified customer base that send them business every single year creating a strong base through this recurring revenue.
This is a “Fun” Business to own that is growing slowly and the owner has identified several ways for the new owner to grow it much faster. See his interview in the data room in the full sales package.
The sales price has recently been lowered to $1.35MM. This will be an “asset sale” and the owner will be keeping his cash, AR, and AP which are not large balances and transferring the business debt free. Recurring revenue equipment rental companies with a large value of the inventory and equipment always sell for a high premium to earnings and I believe this is priced just below the market for two reasons: The potential to change the sales from reactive to proactive and the leasehold improvements are an enormous bonus that can’t be recreated by a new owner anywhere else. Equipment rental companies sell for between 4.5X and 6X and this is priced at the very low end of that scale.
Brief Overview and Deal Points:
The owner states: “All the business needs is a new owner to come in and drive sales, the equipment and infrastructure is already in place at great expense to be able to fulfill whatever orders the new sales team brings in.” The bottom line is that there is nothing wrong with the demand for their services, their reputation, quality or quantity of equipment, and the employees that all make it happen. The problem is that while the economy and their competitors grew, they didn’t have a sales force that was proactive. The new owner recently added commission based incentives but believes management needs to be restructured with an emphasis on proactive sales.
The Assets include an estimated current value of between $1.5MM and $1.9MM in equipment and inventory. You must send in the NDA to see the video walkthrough to appreciate the quality and amount of their equipment and inventory. Keep in mind that the estimated $1.5MM in equipment and inventory is valued at almost half of what it cost new. In addition, the landlord spent $1.3MM customizing a building for this business which includes a special floor, conference room, showroom, 5 offices, new electrical, energy efficient lighting, etc. The company spent over $10,000 in addition to the build out in leasehold improvements to further perfect the space. For example: the electrical was completely redone to 800 AMPS, 277/480 Volts, and 3 phase. You couldn’t come close to starting this company for the sale price. It would cost close to twice the sales price just to buy the equipment and inventory ignoring the $1.3MM in build out/leasehold improvements. They also have a very large quantity of high quality rental items including event tents and canvas that lasts forever and will maintain its used value for a long time. If you include leasehold improvements, you get over $2.75MM in hard assets and value to the new owner upon the transfer of the business and the lease. Plus, they add new equipment and inventory as needed in the offseason and just ordered another $48,500 worth of inventory including a new dance floor to help keep up with demand.
They have been given several awards, been voted the 2nd best rental company in all of Colorado, and have many letters from happy customers and people that refer them business. They have a perfect reputation for fair dealings and have an A+ rating with the BBB. The company is an LLC. The seller will agree to full Reps and Warranties to a solid legal and business standing. They invoice approximately 70% of their sales with less than a 1% default rate. The rest is credit cards or cash. They also have an automatic 8% damage waiver that very few clients reject. Most big rentals require a 50% payment up front dramatically reducing their risk of non-payment which helps even our their cash flow.
The owner bought the business in 2006 and moved it to its current location in 2012 at great expense. He is selling because he is a large commercial real estate developer and he has never owned a business like this and wants to focus on his primary real estate business. He will sign a non-compete. Current management will help transition the business and stay on for as long as the new owner would like them to.
They are full service with a full line of products from the very highest end to the low end and everything in between. They also triple check all orders before they are delivered to a client. Once you get me the non-disclosure agreement, you will see the full list of services they provide and a video walkthrough of the equipment, facility, and inventory. I promise that it will exceed your expectations. “We have been very aggressive in maintaining our rental equipment. Great care and attention is given to each piece of inventory and equipment after it is returned from a rental. We learned that the better your equipment looks and works... the better our customers treat it and the more likely they are to recommend us and come back themselves. Our facility is the nicest in our market to accomplish this with many special features custom built to accommodate this philosophy”
The business will transfer debt free with all liabilities on the balance sheet paid at or before the closing. The seller will be keeping the accounts receivables and cash.
We have 8 salaried managers including a CFO making $50K from this business. We also have a part time sales rep(20 hours per week) at $16/hr, and up to 8 drivers at $10-$14/hr as needed, along with between 8 to 30 helpers as needed, and 7 to 11 kitchen staff as needed. The staff has proven to be trustworthy, competent, and reliable employees. The owner assumes that there will be changes made to upper management based on the need to be more sales oriented with substantial savings of fixed salaries.
The company is located in a 51,000 Sq. foot facility of which they occupy 43,777 fully customized sq. feet that was moved into April 1, 2012 with a build out to an existing warehouse of approximately $1.3MM. It has ample parking, a spacious carpeted showroom with even the showroom ceiling painted, customer pick up area, reception area, private offices, conference room, 4 ADA approved bathrooms including 2 for guests, sprinkler system, 5 front 12’ bays, energy efficient lighting set to motion sensors, custom floors, and the best infrastructure available. The lease is below market for the area and there may be some flexibility to the term.
Growth and Expansion: The new owner just needs to focus on new sales. This could be done various ways and with little additional fixed cost by adding a couple of commission based sales people. Also, they could improve their online presence by add landing pages for people searching for their type of equipment in their area. They currently have only a single webpage that is not properly optimized.
Jeff Chapman Eisnaugle
Company Broker Group, LLC.
Mergers, Acquisitions, and Exit Planning Professionals
999 18th St Ste 3000
Denver, CO 80216