Full details on my first acquisition

It’s been a wild year.

Some of the biggest learnings have come over the last few months.

Finding a SMB to acquire has opened my eyes to so many things I didn’t understand about business.

Reading through detailed CIMs (confidential information memorandums) and full P&L’s of businesses across so many industries will teach you more about business than most books out there.

I’ve spent the last 6 months consuming everything I possibly could about SMB acquisition. Podcasts, books, talking with M&A advisors, talking to brokers, friends and other mentors.

And of course, everything Codie Sanchez talks about. She’s a badass.

It seems like everyone follows Codie and wants to do what she talks about… but I didn’t really know anyone doing it.

I’ve been following her for a little over a year and I never thought I’d actually be doing what she talks about…

At the end of the day, I learn by trying stuff.

My favorite quote ever is by Theodore Roosevelt. So much so, it’s getting tattooed on my forearm:

I just want to be in the area.

If I failed, I’ll fail daring greatly.

As I educated myself, I quickly realized how out of place I’ve felt.

I’m not a highly educated, MBA.

I’m not someone who worked at Bain for 15 years analyzing M&A deals or billion dollar acquisitions across multiple industries.

I’d give myself a C- in excel. (the skill I’m most jealous of that MBAs with a consulting background have)

Hell, I barely made it out of high school. I ended up doing 2 semesters of college and quitting altogether when I realized I was a hands on learner, not the classroom type.

It seems like every podcast or book out there was made up of these type. ‘The Harvard MBA that consulted in M&A for 10 years before buying their first business for $8M and $900k EBITDA.”

Of course it sounds amazing.

Very few didn’t start with these high credentials.

I always think to myself ‘of course you bought a $15M business as your first acquisition with $2m of SDE’… who the F wouldn’t want to do that??

Simply, I just didn’t have the confidence to do it.

And I know very few people who do.

My wife and I live pretty damn frugally in our 10 years of marriage.

If we weren’t saving >70% of our monthly income, we were panicked and would trim back expenses.

We’ve carried nearly zero debt for 10 years (minus some mortgages)

So, the thought of taking on multiple millions of debt, on a deal that I would be analyzing myself (with some help of others), to run a business in an industry I know nothing about….

Needless to say, it was daunting.

Everyone doing SMB acquisition says if you’re buying <$500k SDE, it’s not worth it and you’re buying a job.

So, I felt at a crossroads.

Kicking tires on 2-3 deals a day as I was looking.

I can imagine this is where most searchers give up.

I get it, it’s frustrating and overwhelming.

In the end, I decided to do what was comfortable.

There’s risk and reward, but I was willing to hedge my bets knowing if I lost it all, I could chalk it up to learning.

The Deal

Technically, I did 2 deals at once.

Deal 1:

Purchase price: $230,000

Gross Revenue: $127,000

SDE: ~$65,000

Cash deal. No financing.

45 day Due Diligence.

13 vending machines in operation.

Deal 2:

Assets only purchase of 10 machines

Purchase price: $14,500 (plus shipping which was ~$4k from back east).

All in:

Price: ~$250,000

SDE: ~$70,000

Yup, I’ve officially entered the world of vending machines.

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Sourcing the Deal:

I first found this deal on bizbuysell early in the year. It was newly listed and was getting offers left and right per the sellers feedback. No broker.

I didn’t pursue it much as it went under contract quickly and I wasn’t sure I wanted it anyways.

I followed up every 6 weeks or so just in case.

It seemed to always be “under contract”… but never closing. Especially weird for a small deal.

To be clear, I’m figuring one of the best strategies to finding deals is consistently following up, regardless of it being under contract. I have lunch tomorrow with an owner of a much larger deal I missed in March.

In June, I get a text out of the blue from the owner. The deal just fell through again and he was looking for cash buyers.

Turns out, I had just sold a little bit of stock and was needing to re-deploy this exact amount before the end of the year.

We went under LOI 2 days after the owner text me.

As my wife and I discussed, here’s some of the main reasons we bought this:

1. Building a business that my kids can be involved in the day to day sounded really fun. They are always asking for ways to earn money. We love being able to help them learn how their efforts can directly impact their bank accounts. They are 9,8,5,4.
   
   Nowadays, they get to stock buckets, count inventory, order inventory and are learning how run a basic consumer packaged goods business. My older boys have even joined in on some meetings we’ve had with facilities leaders at our locations to discuss expansion across locations. I honestly couldn’t think of a better way to teach them the basics of human interactions and business.
   
   It’s the coolest job they love to tell their friends about. These are stories they’ll tell the rest of their lives.
   
   *Pro tip - we make the kids save 50% of every dollar they earn. We have no problem paying them $10 / hour but they know that $5 will go directly into index funds. We use the Greenlight app. Life changer. (not sponsored but Greenlight should totally sponsor this)
   
2. Turns out there’s a ton of roll ups of vending operations. PEs and the bigger players in the space scale through acquisition.
   
   Through my due diligence, I met an operator that have ~150 machines in the NE. He just sold to a PE 2 months ago and has become an incredible mentor. It’s a scale game.
   
3. The bar is low. Competition is using really old machines, little to no tech and most of them don’t even have websites or credit card readers. Service is garbage and many don’t communicate with their customers consistently.
   
4. The existing locations provide significant upside for scale. I have an opportunity in the works already that could 5x the business if it happens. I’m not in a hurry but we’ll take it one week at a time.
   
5. When stabilized, it would only require a few hours a week. We’re 5 weeks in and we’re pretty stable. Machines only need to get filled every 10-12 days right now.
   
6. It’ll be very easy to hire an operator to fill machines and make it 100% passive if wanted. At scale (100 machines) you could run a VERY lean operation with 1 full time employee who could run 90% of the business. It provides options.

Is it a crazy lucrative deal? Nah…

But the way I see it, I just spent $240k to buy a pretty damn consistent $5-$6k a month of net income.

I can spend as much time as I want growing it…

Or I can just let it run, spend a few hours a month and just let it make money.

Regardless of how the economy is doing.

Is my investing philosophy solid? I don’t know.

Not quite as sophisticated as those podcasts I listen to… but we’re 45 days in and it’s working.

And it doesn’t interrupt or take away from consulting and all the other things I’m working on.

In fact, I’m already heads down on sourcing the next deal.

Now that I’ve seen something all the way through, I have way more confidence knowing what to look for.

Now What?

This entire journey for me is about continuing to build wealth and reduce my dependency upon a single source of income. 9 months ago, I had 1 source. Consulting.

And it was the first week of starting consulting. So it was $0.

I now generate income through 5 channels. Most are consulting adjacent. The goal will be to have 5 that are not adjacent to consulting in the next year.

I obviously don’t work for a single employer, but I’ve spent 10 years doing so.

I’ve watched countless friends, family and peers get their single source of income cut overnight as soon as the corporate world decides they don’t need them anymore.

While I haven’t personally experienced this, when LinkedIn shut off my account it felt what I could imagine like my career was shut off in a flash.

I had never felt so exposed financially.

That single experience inspired me to create as many streams of income as I could over the next few years. To acquire and operate a portfolio of SMBs in vast industries that are highly profitable.

To reduce my dependency upon a single employer and single industry.

And I’ll do it all in public so you can learn, be inspired, or laugh at my mistakes

Either way, I’m honored you’re here. Now over 2,200 of you.

More to come…

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