Deal Alert - Pool Maintenance Biz in Florida for $1.5m

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Now, onto today’s deal.

This is a pool maintenance business based in Orlando, FL that was initially listed a few months ago. It’s now back on the market after a failed process with another buyer, whom the broker claims got cold feet when he realized he couldn’t run it on an absentee basis.

I love pool maintenance businesses for their recurring revenue, high margins, strong customer retention, and growth potential. We did a recent case study on one, which you can read about here.

This seems like a solid deal worth exploring.  

Key Facts

• Location: Orlando, FL

• Established: N/A

• Asking Price: $1.5m (3.6x SDE / Adjusted EBITDA)

• Annual Service Revenue: $1.3m (excludes repair income)

• SDE / Adjusted Net Income: $417k (includes repair income)

• Customer Base: 715 residential customers

• Team: 14 technicians (service and repair) + 1 supervisor who is retiring

Deal Rationale

• Fragmented market – pool maintenance is an $8bn industry and highly fragmented (90k+ operators). Florida is the largest market with 1.6m out of the ~10m residential pools across the US. I like the fragmentation as it presents an opportunity to drive growth and scale through add-on acquisitions

• Recurring revenue – customers pay on a monthly basis for service 1x per week. There is also revenue from one-off repairs which carry a higher margin

• Customer retention – the average customer has been with the business for 24 years, which is super sticky. Also, the average monthly revenue per customer is $148, which tells me these are affluent customers with low price sensitivity. On top of that, 85% of pools are screened in, which are quicker to service and higher margin

• Strong margins – a little hard to tell for sure from the data presented, but if I had to guess, it’s at least 25% net margins

• Growth opportunities – expand into higher fee commercial accounts (currently only residential), expand relationships with property managers, realtors, and pool builders for new leads, invest in paid ads, tech enable lead gen and conversion, and pursue add-on acquisitions

• Attractive valuation – listed at 3.6x SDE which is attractive in of itself, but there is probably an opportunity to get it at an even better price since it’s a re-listing after a failed process

Areas to Dig Deeper

This is not an exhaustive list but some of the areas that I think are important.

• Revenue mix – how does the total revenue break down between service and repairs?

• Billing – what percentage of customers are on autopay (and billed in advance) vs. check and cash?

• Key person risk – how critical is the supervisor to the day to day operations, and can he/she be easily replaced, or can this role be played by the new owner?

• Employee retention – how long have the employees been with the business? How easy has it been to hire new techs for expansion?

• Equipment – the business is listed with equipment and vehicles but I’d want to know about their age and quality to understand potential replacement costs post-acquisition

• Process – given it is a failed process, I’d go in extra cautious and gut check whether or not the broker’s explanation is sound

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Disclaimer: I don’t have a vested interest in this deal, nor do I earn any fees or commissions for sharing it in this newsletter.