00:00:00:00 - 00:00:35:03
Unknown
Welcome to The Amazing The show for acquisition entrepreneurs Search Funders and how co builders across the UK and Europe. Each week we dive into the real world strategies, stories and challenges behind buying and building small businesses. So whether you're searching for your first deal or already running a growing group of companies, this is the place to be. We are back this week with another by side breakdown.

00:00:35:06 - 00:00:55:28
Unknown
A couple of things to touch on first. So we recently celebrated the ECI Awards, kindly sponsored by Gerard Edelman and among others, including our good selves. Come on. Well, yes. Yes, they are the lead sponsor. It's the second year we sponsored, right? I think second year sponsor. Third year that they've run this event. It was brilliant. Really, really great.

00:00:55:29 - 00:01:21:10
Unknown
Now, another nice evening out on landing 42 in Ludlow Street. Some additional awards this year. More international winners as well. Some European winners. It's good. I think the team put on an excellent event, as always. And we upon the 42nd floor to as a kind of parallel of the dizzying heights that ECI is climbing to in the in the UK.

00:01:21:13 - 00:01:45:25
Unknown
Apparently so yeah nothing to do with it. Hitchhiker's Guide to the Galaxy. It looked like a like a really awesome event and some well-deserved winners in that. So yeah, anyone that missed it this time, keep an eye out for it for next year. About the same time every year, right? Early November. Yep. Yep it is. And I think the cycle opens relatively soon for inviting applicants for the next cycle of awards.

00:01:45:25 - 00:02:07:12
Unknown
So. Yeah. Okay. Well, keep an eye out. Never place early. Keep an eye on our socials because I do try and repost their stuff whenever they share it. So if they open the registration soon, I'm sure it'll be on our LinkedIn page. We are in snowy frosty Britain in the middle of November already. It's really turned. Yeah. Yeah.

00:02:07:12 - 00:02:32:05
Unknown
It hit minus four in Manchester, which somebody just moved into a Victorian house has been quite well. It is cold here and it seems everybody else lives in Dubai or Spain or Florida, so. yes, I'm very jealous. On social media recently, it certainly hit home as I woke up to the snow all over the cars this morning right at the school run.

00:02:32:08 - 00:03:01:19
Unknown
That's that's that kind of now I can see even more reasons beyond the capital gains tax to to head for the sunnier climes so well yeah on that lovely segway so it's UK budget next week it is wonder what's in store. There's been a bit of flip flopping from the Labor government. And I'm Rachel Reeves. So yeah, I'm not quite sure what to expect and whether they're going to sort of backpedal on some of their plans or they're going to hit as hard as they think.

00:03:01:22 - 00:03:21:30
Unknown
I really don't know. I don't know. I feel like one of those hanging steaks that gets beaten about by a hammer, you know, the sort of like the softening or the tenderizing. I feel like we've been tenderized over the last few weeks where we've been hit with all of the hammer of the potential, like, you know, bad news, only to find now that actually it's not quite so bad.

00:03:21:30 - 00:03:46:31
Unknown
And I think she's trying to go for an element of relief in the budget and, you know, kind of that unblocking for you, it's must be really difficult for her in all fairness. And a lot of people are giving her a bashing in the sort of entrepreneurial space. But, you know, yes, she came in with the best of intentions, arguably to stick to some ironclad rules and then consequently, I think, misjudged it with the way she went about taxing jobs.

00:03:47:00 - 00:04:11:04
Unknown
And that's obviously caused the cost of borrowing to go up higher than Liz Truss. Liz Truss managed to make it and and now she's you know, the 22 billion that she came with is now a further 25 billion on top. So difficult and how do you do that while still keeping your manifesto promises? I don't know. It's a difficult boxing in that she'd achieve for herself, but I hope that she manages to walk the tightrope.

00:04:11:04 - 00:04:29:26
Unknown
Well, it's it's a it's a tough one. And I know people from various walks of life that have struggled under some of the new rules that labor brought in. I mean, especially in national insurance stuff. I've got a lot friends at work in construction, for example, that really felt the pinch with that. And then all the way up until friends that employ and run sort of multinational companies that are also feeling the strain of that.

00:04:29:26 - 00:04:47:09
Unknown
And I feel like there's a lot of disgruntled parties, but it wasn't an easy job to come into, right? It's not like they were left to a golden chalice that they've somehow poisoned. They know it didn't they didn't start out with a with a good stead. So no, no in the desk this time saying sorry, there's no money.

00:04:47:12 - 00:05:12:03
Unknown
But no, but they could have been might as well have, you know, I mean I just I think it's slightly odd that a qualified economists didn't realize that taxing jobs was going to drive up inflation. But they're yeah, we we live in London. So hopefully things are going to come under control and are going to have a brighter outlook for 2026 and lead to more enthusiasm, an appetite for deals, better lending conditions, you know, more more activity overall.

00:05:12:03 - 00:05:38:02
Unknown
So, yes, in the next episode of the M&A thing, we're going to be sat here evangelizing about Rachel Reeves and what a great job she's done. I owe you. I'm not. Yeah, we've got Keir Starmer. You may not still be around either. Anyway, so let's get into the the by site breakdown that we've got lined up. So what we're looking at this week, yes, this is much more in your wheelhouse.

00:05:38:02 - 00:05:57:21
Unknown
The last by site breakdown. We think we look to a vinyl printing company and it's something I've got a bit of experience in. But the government says that when you cut your teeth and we're looking at a long established 30 year old CMC machining business with around £2.4 million a year in turnover, I'm salivating at the prospect of a CMC machining business.

00:05:57:21 - 00:06:28:05
Unknown
I love precision engineering, particularly love kind of asset heavy service businesses like that where you know, you've got you've got skills, you've got artisanal craft, you've got CAD Cam. Yeah, it's, you know, it's opportunity when done well and when you know the order books are full and the full capacity of the machines are filled, you know, they could be really profitable little entities with some great customer loyalty because, you know, the quality of the work normally means that they come back time and time again for additional production run.

00:06:28:05 - 00:06:52:17
Unknown
So yeah, I like them loving a 30 year old one, particularly in that sort of level, you know, above 2 million in revenue. I think what we liked about this one was also the profitability, right? This seems to make some decent money. Yeah. Which is interesting because you touched on something there, which was sort of asset heavy asset rich.

00:06:52:20 - 00:07:17:25
Unknown
And I mean, the figures just don't really add up for me on that point because they say they've got 700 K sitting in the bank. But we're looking at just over 800 K in the assets. So, you know, this is something I don't have much experience in life. Could it be possible for them to be turning over 2.4 million a year in this kind of market with only one case worth a kid?

00:07:17:27 - 00:07:40:02
Unknown
All right. So let's caveat this. First and foremost, we've come up with the idea that if it's the company we think it is, it's sitting on a pot of cash and they're listing in fairness to. Right. There's this this particular opportunity on both right base and businesses for sale as being an international precision engineering and manufacturing company based in the east of England.

00:07:40:04 - 00:08:08:09
Unknown
If if it's the one we've identified based on turnover, location and keywords, then yeah, the last five accounts do suggest that there's a good 700 case at on the balance sheet, but only a 800 K net asset value and very little in by way of fixed assets. And this is the thing that I think we are sort of puzzling over is where are the fixed assets for a business that should be quite heavy.

00:08:08:12 - 00:08:28:18
Unknown
Thoughts on that. I mean, I'm I'm confused that there's a couple of possibles that it could be. I mean, one thing the that we discussed is it could be leased equipment, but then surely that would be buying into that profit margin. I'd be surprised if they had a 30% profit margin and and they were leasing all that kit.

00:08:28:21 - 00:08:55:20
Unknown
Yeah. So the listing does indicate that there's a 30% EBITDA adjusted there or thereabouts. But even if it was unadjusted, you know, even before the adjustments and maybe it's sort of like mid twenties, that's a healthy net profit margin for for a company like this. But yes, you'd right. If there was a hefty amount of leasing of the capital equipment going through it rather than it being sat on the balance sheet, then you'd expect that to the profits and obviously isn't.

00:08:55:20 - 00:09:26:33
Unknown
So the alternative, they've just written down some pretty old equipment. Yeah. The implication of which being whoever comes in and buys this firm has potentially got the costs, the CapEx of a refresh. Yeah. So it's a retiring owner sale and the kit might be as old as the owner. Well, then 30 years, there's been a lot of advancements in C and C, you know, C and sees probably 20 years realistically in the in the mainstream and you're probably on the second iteration of that.

00:09:26:33 - 00:09:46:29
Unknown
I guess if it's outside of its normal warranty. But but let's assume they've written it down straight line over a five year, you know, 20% a year that would you would probably infer from this that the K is at least outside of warranty at five years old. And at that point, you know, can you still get software updates for it.

00:09:46:32 - 00:10:07:02
Unknown
What about buying replacement tooling? Yeah I would I would think you need to price in an expectation that you're going to do some maintenance and some refreshing of the hardware. Well, and is this a kind of domino effect thing where if you replacing something you have to replace something else because I'm imagining all pieces of kit and software all kind of talk to each other, right?

00:10:07:02 - 00:10:31:20
Unknown
So it's not like you can come in to replace a few laptops and a couple of machines here and there. I'd imagine that once one thing changes, everything else has to go with it. Well, thankfully, the standards and the protocols for like DWP files and the the tool setting and like those are pretty tried and true and actually haven't haven't necessarily evolved a lot.

00:10:31:23 - 00:10:56:32
Unknown
Certainly there's there's often backward compatibility. So I don't think you end up, you know, creating orphaned kit or you know, creating an obligation to upgrade the entire amount in day one. I think you can do it piecemeal over a series of subsequent years. It's going to be more about where you're calling out maintenance, where you're having to shell out more, you know, cost to repair because the kit is passed.

00:10:56:32 - 00:11:19:32
Unknown
It's typical service life. You would normally see people sweating these assets between five and ten years. But yeah, either changing them because they become beyond economic viability or out of date by way of the tech, as you rightly say, or just new advancements have come along that make it more efficient to buy more a more recent kit. So could be any one of those.

00:11:19:32 - 00:11:40:27
Unknown
But I think reading from the balance sheet and going that there's 100 K fixed assets here, they've been written down. So I'd be looking at some of that seven 700 keys worth of cash and going, Well, I probably want to build that into working capital adjustments as a earmarked fund for CapEx because you've had all the value out of this kit.

00:11:40:30 - 00:12:08:20
Unknown
Mr. Sailor And now we're going to have to dig into our pockets. We'd much rather dig into yours. Well, yeah, I can imagine this interest. Do you think it makes a big difference which particular sectors they're serving? I mean, is this something that you specialize in? So would you be a kind of generalized seeing as the machining company or would you be within aerospace, automotive, medical devices?

00:12:08:22 - 00:12:49:00
Unknown
Is it typical to specialize? Depends on the the materials that you're accustomed to working with. Right. So is it is it C and C, standard metals? Is it Advanced Materials? Is it plastics? What are they actually milling and turning and routing and finishing and polishing, etc.? What are they actually doing with those C and Zs? If it's just regular steel, some stainless steel, maybe some aluminum, then yeah, you've got quite a broad set of market verticals that you would be able to serve, you know, everything from automotive through to aerospace through to medical, you know, MRI, lots of stuff like that.

00:12:49:02 - 00:13:11:28
Unknown
However, on the tail end of that, you've got you into some of the specials like Duplex and Titanium and some of these advanced metals that are used in higher value applications, you know, higher strength to weight ratio typically. And those are known normally attract better margins because you're going into markets where people are charging a premium for the end product.

00:13:12:01 - 00:13:41:17
Unknown
So you're ending up charging a premium for the work you're doing. I would want to know the verticals that they serve in order to maybe understand, you know, where the growth potential is. If you were buying into a business that was just doing the regular stuff and hadn't tapped into the vein of the high value stuff, great. But looking at the margins, you know, if they're doing 30% EBITDA or just, you know, mid twenties unadjusted, probably already doing something a bit clever, probably doing some some higher value work.

00:13:41:19 - 00:14:09:15
Unknown
And I would guess, you know, you'd perhaps prefer a spread of vertical so you can, you know, avoid any potential headwinds. You know if automotive with transitioning towards EVs and you know, have medical things changed post-COVID? You know, I'm not entirely sure, but maybe that kind of spread would see a bit better, I assume. Yeah. I mean, the sweet spot in this kind of business is you want high volume because CAC is all about, you know, large production runs.

00:14:09:15 - 00:14:28:33
Unknown
Really, you make your money on being able to do it again and again and again and again if you can have it tended by machines rather than night shifts, you could end up with the thing running 24 seven, knocking out parts whilst the robot puts new bar in and lifts steel edges out at the end. I mean that's the Holy Grail.

00:14:29:05 - 00:15:00:31
Unknown
But to do that with high value, high margin parts, high value, high margin segments, that's the sweet spot. So if you can get into some of the titanium's and the duplexes and the, you know, the high grade aluminums and be doing that work. 20 473, six, five happy days. Interesting. So is that where you see growth opportunities in this market or is it like everything else and, you know, there's some gains to be made from bringing in air And I mean, I'm guessing with the kind of CAD cam stuff, they could be a lot more copilot thing happening now.

00:15:00:31 - 00:15:26:23
Unknown
I mean, that's something I have no knowledge in. But is there room for growth there too? Massively. Massively. So you know, speaking to there also is the skills shortage. Right. So CAD operators, CAD programmers, CAD designers, they are becoming rarer really good paying. Well, we had an episode, an interview with John Mark began a couple of months ago and he was speaking to exactly this.

00:15:26:23 - 00:16:07:32
Unknown
So he's bought a few precision engineering fancy fabrication companies and getting the skilled trades is hard and getting particularly CAD designers and can CMC operators, you know, we're paying ever more for those so that the way to be able to improve your profitability is through injecting more tech and we are kind of at this exciting moment with AI coming into more of the investing software and the design software so that you can not be as trained and as sophisticated a designer, but have some of the co piloting do the heavy lifting for you on some of the advanced design.

00:16:08:01 - 00:16:25:25
Unknown
So much like Dev, you know where you might have needed a couple of senior engineers, maybe you need one senior, you know, CAD person. Then you could have a couple of juniors that a copilot in with some guy and looking up to you senior to sign off on. You could certainly get more through a CAD department without having to hire more people.

00:16:25:28 - 00:16:52:11
Unknown
As the software continues to improve. And similarly I mentioned like cobots there, you know, now you can be buying collaborative robots from Universal Robotics and Kuka and people like that for 20 grand A through the you know, it's like potentially, you know, return on investments maybe in a year because or less because, you know, you're not paying staff to stand there and tend machinery.

00:16:52:14 - 00:17:11:28
Unknown
You actually might be able to just get the robots to do the tending. So I mean, I look at precision engineering of the future and there'll be, you know, a few of these kind of like, you know, logistic robots running around moving spillages to or from the factory floor, a few bots picking things up and sticking them in the back of the CMC.

00:17:11:31 - 00:17:33:00
Unknown
Hopper That's, you know, that's, that excites me, that sort of stuff because there are already some examples, maybe less of them in the UK where people are running entirely dark and by dark I mean lights off 24 seven with, with robots tending the machines. Wow, that's so interesting. Touching on the point said sort of less so in the UK.

00:17:33:00 - 00:17:56:17
Unknown
Do you think that we're going to see a bit of a renaissance of this and some more investment in this space? Because I know that there are some sort of reshoring tailwinds going on, right? So the UK has had some serious competition from, you know, lower cost economies over time, but supply chain concerns, ESG pressures, geopolitical tensions. There is a lot more manufacturing coming back to the UK.

00:17:56:17 - 00:18:19:01
Unknown
And you see this is a space that's kind of ripe for benefit from that. totally. I mean, UK manufacturing was I want to use the word decimated, but that might be a little bit of an exaggeration, but it was certainly heavily undermined by the rush to offshore things from kind of like the early 2000 through to the COVID era.

00:18:19:03 - 00:18:52:33
Unknown
You know, there was everybody was pushing stuff out to the east, you know, China, Vietnam, India and some of the BRIC nations. You know, you've got a lot of work went overseas. But that was fine while we were in a progressive globalized economy where, you know, we could get stuff guaranteed on the water, you know, for weeks, door to door, portable and, you know, it wasn't volatility and exchange rates or tariffs or, you know, any of the things that interrupt, you know, commercial trade.

00:18:53:02 - 00:19:19:15
Unknown
Now it's a different world entirely. Right. You know, we've got just this morning, China is being accused of spying on us every day. And, you know, this is sort of a change in tone, I think, towards the east. We've got more parochialism coming with the governments. We're stuck here in the UK between trying to appease the Yanks and trying to appease the Chinese and it's it's a difficult, you know, geopolitical environment.

00:19:19:18 - 00:19:42:09
Unknown
So I think, you know, nations are pushing towards this kind of like self-sufficiency. Let's reduce our lead times, let's improve our, our kind of self reliance. But that comes at a cost because you know, those guys can do it cheaper. But if we can do it automated, then it's a different story. Well, yeah, and I suppose there's different fronts to compete on, right?

00:19:42:09 - 00:20:01:13
Unknown
So you're going to try and compete on price with China. That's dangerous. But if you want to compete on, you know, precision service, quick turnaround, you've got some space to compete there, right? There's certain industries, I guess, where cost isn't the number one factor. The, you know, having it on your doorstep is probably worth a hell of a lot to someone working with some of these more exotic materials that need things there.

00:20:01:13 - 00:20:35:02
Unknown
And then, yeah, that was the promise of 3D printing, right. And the sort of advanced manufacturing of being able to do smaller ones just in time as you need them without necessarily having to pay a huge premium for per part to, you know, for the smaller volume. And I think this kind of fits that straddles this line, you know, C and C should be a cost effective way of being able to produce things and in smaller batches so that you're not having to tie up loads of working capital in parts.

00:20:35:05 - 00:20:55:27
Unknown
So yes, I do see this as an opportunity to benefit from those tailwinds as the progressive global kind of environment that was fueling trade for the last two decades kind of comes to a bit of a hiatus. I hope it comes back. I hope that, you know, we're all working as a one global village again in the not too distant future.

00:20:55:27 - 00:21:14:18
Unknown
But in the meantime, yeah, it's a boon for reshoring. I was going to say hiatus is a nice, positive way to look at. I hope this was a hiatus. We can go back to the halcyon days of the early 2000 where everything felt global and friendly. It's just me being old and thinking everything's a cycle. Well, I mean, it kind of is, actually.

00:21:14:18 - 00:21:33:07
Unknown
So we totally touch on two different things, which was, one, the talent issues and the globalization stuff and stuff being pushed out to the east. You think those two things are tied? You think as so the manufacturing moved offshore. We start to see fewer and fewer people being trained in working in these fields. In the UK, of course, and now it's come back to bite us.

00:21:33:10 - 00:21:56:18
Unknown
Yeah, I mean, I spent a lot of my time in industry being a strong advocate for artisanal skills, vocational skills training, invested a lot of money in, you know, working with colleges to set up fabrication training centers. This was at the time that the apprenticeship levy was coming out and, you know, everybody was being encouraged to look at skills and skills pipeline lining.

00:21:56:20 - 00:22:22:04
Unknown
I think here we are, fast forward maybe ten years from when that began, and I think we're much further forward. I think health and safety is going crazy and, you know, you've got tales of people who are apprentices on work where the college won't actually allow them to use the tools that they're being trained on for fear and the fear of self harm, which is just madness.

00:22:22:08 - 00:22:55:05
Unknown
But you have got like as you say, if it's if we don't have a proliferation of places to go to train these people, then we're going to lose the ability to to create the skills talent pool. And therefore it's just kind of a managed decline, a spiral of of talent. So it's a problem for every skilled industry. You know, you look at construction, you mentioned there and engineering like finding talented artisanal, skilled trades is increasingly difficult.

00:22:55:07 - 00:23:25:00
Unknown
And you look at this CFC space, it's of a vintage like a lot of these markets where the owners in the eighties and nineties were starting these businesses and there was, you know, there was a fair amount of labor, but certainly it is a fraction of what it was. But automation is apparently here to save us. And, you know, we hopefully find a kind of a fair accommodation and balance whereby we've got some good emerging skills, but we've also got a more automated set of options.

00:23:25:02 - 00:23:44:21
Unknown
It might be one of those markets where actually the proliferation of automation solutions might mean that there are more jobs actually for humans in these spaces. That becomes more manufacturing comes back to the UK. Yeah, definitely. But we need to be training for it. And yeah, I hear more stories about colleges getting that wrong than I do about them nailing it.

00:23:44:23 - 00:24:06:06
Unknown
So that's a shame. Yeah, it's a shame. And you know, we need masters in order to train apprentices. You know, if we if we've been losing them over the last ten, 20 years, then that becomes tougher and tougher. So hopefully that can be turned around maybe in the light of, you know, a bit of that manufactured reshoring that we spoke about, hopefully things will start to go in the right direction.

00:24:06:09 - 00:24:20:14
Unknown
Colleges can loosen up a little bit. I mean, look, health and safety, we want to make sure everybody's safe at work. But there has to be a limit where if you're working in something, you know, manual, physical, there is going to be some risk. And I think that has to kind of be accepted. Yeah, Yeah, very, very true.

00:24:20:14 - 00:24:49:19
Unknown
I think we need to get back to some common sense. You know, there was good sort hundred and 50 years of British industrialization where, you know, people were safely working and their skills were valued and they were earning good money. Yeah, that's that's the optimum. In any case, let's I hope that this all becomes, again, cyclical cyclically. It comes at a as a resurgence in this based on bullish on domestic fabrication and manufacturing.

00:24:49:19 - 00:25:12:21
Unknown
I think we're going to we're going to need it particularly right now. We've got this sort of defense bounce again, a consequence of the receding from globalism. We now have this kind of like rising GDP commitment to to spend on defense, defense uses a lot of machining and precision engineering. So expect more components to be produced at home.

00:25:12:24 - 00:25:32:29
Unknown
So, you know, I'd be looking at this kind of an opportunity thinking buy it now and ride that wave for the next five years. Super interesting. Well, let's get back to the deal at hand. Yeah, you know what kind of person do you think is looking at buying this company? Who are you competing with? Yeah, I mean, you've got to get your trade bias.

00:25:32:29 - 00:26:03:07
Unknown
You're going to get some folks doing consolidation in this space, realizing that it's quite fragmented. You've got lots of companies that are this size or smaller. You know that if they're doing somewhere between one and two and a half mil, serving a small pool of customers within a particular region, they may be specialized in a certain element. So, you know, if you can pick up four or five of those nationally, you can start to drive a bit more profitability out of it because you're you know, you're owning a substantial amount of the market and you're getting some economies of scale.

00:26:03:07 - 00:26:22:23
Unknown
So I do think that there's ready trade buyers and it's just as we've seen with the plastic vacuum manufacturers or plastic injection molding companies, you have people going out and buying a few of them and smashing them together or gracefully integrating them. sorry, Steve. I was trying to think of a melting joke there, but I guess melting them together.

00:26:22:23 - 00:26:46:14
Unknown
Very good. Very good. Thank you. Yeah. I missed an opportunity for a panel. Unlike you, we should have scripted this one. But, yeah, I think there's this trade. I also think self-funded searches. You know, I think the savvy, self-funded searches are going to look at deals like this, maybe ones with more fixed assets, because I think you could typically come into these kind of deals leveraging the sale and leaseback or whatever.

00:26:46:21 - 00:27:07:02
Unknown
Yeah, you know, if it's fully depreciated, there's no value to wring out there unfortunately, in this particular deal. But you do see some sell for research is coming in and levering up the the kit for some of the consideration. Do you think it's something that you think you'd want to have a bit of background in? Yeah. Don't buy this business if you've not worked in engineering.

00:27:07:04 - 00:27:24:21
Unknown
Okay. 100% is interesting because I spoke to one of Bitcoin's users, actually user who was an engineer for a long time, and he said that when he was going to these meetings and talking to business owners, he said that was a real big plus in his books because he said otherwise you wouldn't get to have the conversations in the first place.

00:27:24:21 - 00:27:46:07
Unknown
And he says to sit down at the table, if you didn't know what you're talking about, you know, if you're just coming at this from a spreadsheet and, you know, the ability to raise finance and that's great, that would get you the deal. Probably probably get you to the table at least. But we're going to do that. Once you've got it, you need to be able to speak the same language as your staff and your customers.

00:27:46:09 - 00:28:21:13
Unknown
You need to very quickly understand the levers and pulleys that make this business tick and know where to look inside the business to extract the value and dodge the landmines or defuze them at least. So yeah, I don't think you can come into this without a background in engineering, particularly if you are leveraging the acquisition. If you've taken on the term loan or whatever, which this business would look like, it would just about qualify for, you know, certainly under the growth guarantee scheme, I guess looking at the size of the sort of deal value, you're going to come in, you're going to have a PPG in every invariably you're going to have a personal guarantee

00:28:21:13 - 00:28:41:23
Unknown
to have to service on this deal. So you don't want to do it if you're going to be out of your depth. I think that's a very wise position to take. And and given what we know and what we think we know from the company, we think it is, what would you be you know, where would you be placing your bets on valuation?

00:28:41:23 - 00:29:05:23
Unknown
Was it this is you finding this deal. You know you've got that experience. You could come to the table and know what you're talking about. What do you think? Yeah, I think there's this two areas that would anchor the valuable little bit for me. One is potential customer concentration issues. So how many customers do they have regularly? Regular customers?

00:29:05:23 - 00:29:27:07
Unknown
I don't think many of these business is going to be hugely diversified in that customer base. You'll find, you know, one or two customers accounting for 50% plus of the of the end of the income probably growth. So that's one to try and mitigate for in the deal structure. I've said it before, you show me the valuation, I'll show you the deal structure.

00:29:27:10 - 00:30:01:28
Unknown
This this would probably be expected to go for three times EBITA adjusted plus net cash, less typical working capital adjustment. So that would be my gut feel. So, you know, possibly 1.2, which is a 50% premium on the net asset value. So feels about right. But I would see that deal structure having some conditions attached, some debt, some deferred consideration, probably 40%.

00:30:01:31 - 00:30:25:33
Unknown
That's how you make this deal work, I think, from a debt service ability. So I don't see it being traded at five X unless it's flow to a particular strategic trade acquirer that sees an immediate, you know, upside from from maybe they compete for the customers and they're going to get it back through additional margin because they're not going to have to be pricing against the person that they've now bought.

00:30:26:02 - 00:31:01:11
Unknown
So if there's regionally ACNC company, similar size or bigger similar profitability, they might pay four or five times for it because they'll see a clear path to a return on investment. But if you're coming in code to this, you're going to want to mitigate for some of the risk. I think that the sell is leaving. You've got a refreshed market and there's a customer concentration potential challenge three for me, well, these are well, and these are all points where having some or depth of experience in this field will make a big difference because you know upfront immediately what Kit needs to be replacing more older and what kind of costs that would come with.

00:31:01:19 - 00:31:22:25
Unknown
And also I suppose that customer concentration thing like for me immediately, if I saw one or two customers making up 40 or 50% of revenue, that would be a massive red flag for me. Whereas if that's quite standard for these kinds of companies, I guess it would turn you off a little less if you go into it, kind of knowing that's how companies of this size and in this sector kind of operate, then it's less scary.

00:31:22:28 - 00:31:40:10
Unknown
Yeah. And how long they had the guys, the customer for like have they had it for ten years in which case it's not like this year we acquired that customer. In next year we got going to find a replacement. Sure. And do they have contracts? Do they have patent? Do they have the they have the drawings? Are they the only ones that can do this?

00:31:40:13 - 00:32:00:23
Unknown
You know, you probably find that there's ways to get comfort around that. Challenge notwithstanding, it's still a challenge. You know, when the owner leaves, if the owner's got that relationship and it becomes a sort of moment by which, you know this, the customer goes, well, Frank's not in charge anymore. I'll I'll, you know, go and see what's out there.

00:32:00:26 - 00:32:19:25
Unknown
Then there is an there's a natural risk. But if you keep on doing what you do well with that business and you don't look to scalp the customer or suddenly make massive mistakes with their orders, then why should you lose it? I mean, I guess this is not a huge world, right? I'm guessing that the kind of main players in those around the size would know each other.

00:32:19:25 - 00:32:41:16
Unknown
Do you think it's common in those moments where Frank believes that the kind of shark starts to circle and the other companies that can fulfill those orders here about this and start to send pitches in and stop trying to, you know, wine and dine? Yeah. I mean, inevitably, that's why so many business owners keep this under their hat.

00:32:41:16 - 00:33:12:12
Unknown
They run confidential processes because the last thing they want before or even after, if they're in deferred consideration or earnout type situation is the cat getting out the bag. The customers start to shop around, you know that confidentiality is everything in this game. So you definitely want to make sure that it's not so, you know, public knowledge, I guess, until it until it is and then it's on the buyer to kind of manage that just for a name change to preserve the innocent.

00:33:12:20 - 00:33:38:14
Unknown
There is no frank in this business. Okay, So look, this is so this is a company that you're considering and we haven't we haven't voted on this yet. We excited to do that soon. You get into the stage of due diligence. What are your priorities? Where are the red flags? Where do you start with this? Yeah, so I mentioned customer concentration.

00:33:38:14 - 00:34:08:08
Unknown
I'd want to be getting into that and looking at length of tenure with those customers. I'd want to understand your typical quality of earnings here. You know, how are they accounting for things? Are the margins really the margins? You know, because you can you can make things look good, like, say, for example, they've been pre-paid for something and it's sort of been incorrectly accounted for and it's written up the the profitability for the year would actually it should be attributed to next you know, things like that games people play.

00:34:08:11 - 00:34:36:27
Unknown
Okay. So I'll be looking at that. I'd definitely be looking at the kit, I'd be getting someone like Ian or one of these firms that can go and do a fitness for service assessment. So they can, they can come and assess the kit, look at its maintenance records and identify whether it's going to stand you in. As with significant liability, I would also want to, you know, as part of that audit myself, I'd want to make sure that the owner can speak to how well maintained preventatively this kit has been, how problematic it may have been.

00:34:36:27 - 00:34:52:22
Unknown
You know, what the outages may have looked like, what the contingency plan is when they have an outage. You know, does that just mean, sorry, we're going to be delayed by two weeks delivering your goods? Or is it like actually we got birth or over here that we fire up when Samson, you know, needs a service breakdown or whatever?

00:34:52:22 - 00:35:15:12
Unknown
Yeah, you can tell. I worked on the shop floor for too long. I loved the names. And what's. Is there anything that would be a deal breaker for you? You know, what's the if it's going a deal breaker in a sort of potential mitigation? Yeah. I mean, it's funny, isn't it, Because you don't really get to to do the full due diligence until you own the business.

00:35:15:12 - 00:35:41:10
Unknown
Arguably, but certainly until you got the thing under offer. So, you know, I might be inclined to see opportunities if there are some member flags in terms of, you know, risk mitigator is through debt, through deal structure modification, retraining a little bit. So I think once I've got comfort to make an offer, I'd probably probably take quite a bit to dissuade me from seeing that offer through.

00:35:41:12 - 00:36:06:10
Unknown
But if it turned out that actually, you know, those orders say, for example, that customer had already served notice or the kit was definitely on its last legs and they've actually been secretly subbing this out to someone else and, you know, in the last six months as they try to limp through to a sale or there has been some kind of massive accounting error that's, you know, been that's led to this artificially high.

00:36:06:13 - 00:36:28:29
Unknown
I mean, I don't looking at this business, I don't see any of that. I think it's a really clean, modern, well-run operation. I think it's it looks exciting. I mean, we're going to get to the vote in a minute. But spoilers, I'm bullish. So yeah, I mean, that was one of my next question is, you know, do you think there's anything hidden in this or do you think it is just a particularly well run?

00:36:28:29 - 00:37:00:29
Unknown
Maybe there might be something going on that's explain that 30% or they've just done a really good job and maybe it's just slightly odd and that's the only thing that you've got to really look out for when you when you first show up there. That's my hope. I'm trying not to get emotionally attached, But yeah, I'd certainly that that would I'd go in with that sort of lens and expectation and anything that kind of dragged me below that norm, that level would, would probably impede my appetite in terms of deal multiple.

00:37:00:29 - 00:37:26:20
Unknown
I'd want to mitigate for that in the multiple or in the in the structure. So it's like yeah, you can have your three and a half, but I want, I want that over five years or something in terms of, you know, a healthy percentage of it, half of it maybe on death count. So yeah, I think there's ways of mitigating for it and setting some expectations in the spa, some, some kind of warranties in the SBA.

00:37:26:22 - 00:37:56:24
Unknown
So I don't know. That doesn't look like there's anything in this business that I couldn't overcome, he said. Only, I mean, look, it looks super interesting. I think maybe this is a good segway into us voting on this. I think I can already guess guess your vote. But I, I don't take that away from you. So yeah, I'll keep you a mysterious vote till after this is this definitely appeals.

00:37:56:24 - 00:38:25:10
Unknown
Feels like the right size, location, age, shape and style of business in the sector that I like. So yeah, if I can get a deal that enables me to have enough cash to refresh the CapEx, the capital plan, then I'm I'm open. So it's a thumbs up for me. I think that for the right operator, it could be a really solid buy, but I think I would be sell out of my debt for this is really not my my wheelhouse.

00:38:25:10 - 00:38:43:28
Unknown
So if you wanted to buy it and you need some help with the marketing and the gross stuff, then then you can bring me in. But it's going to have to be a no for me because I do not know my titanium from my tungsten. So no, I'm afraid not. Very good. Thank you. I also that was really interesting.

00:38:43:28 - 00:39:06:16
Unknown
I love one of my favorite things about these bison break dances, you know, explore in an industry, in a sector that I probably wouldn't otherwise look at. And I'm sure that's probably the same for everybody sitting alone. So as always, please do post your guys on Nice. If anyone has got experience of the sincere machining world and wants to give that to Prince, we always welcome it.

00:39:06:19 - 00:39:47:30
Unknown
Have you got any sign off for us this week guys, before we let the good people go and continue on with that cold week? No, no, Parrish news. Just wrap up warm and and think about those You can and I think there's the wrap up to warm up coming along which I think I would strongly advocate people find some spare coats and don't give them to charity but yeah stay warm stay doing deals that matter and keep on crunching keep on crunching.