The challenge here is the zero growth unless additional capital is provided. So there are three options:
A) Sell to a strategic (another pest company). It’s well established in this industry that these companies can be had for $1.5x ARR so in this case ~$15 M
B) They could not sell, in which case I think @guessworkinvest makes a pretty compelling case below that the business is worth ~$30 M if they just sat and harvested the cash flow.
C) EVERYONE (or close to it) in the industry takes the third option. Guys like me will lend into the contract value of the existing contracts (my max is 50% of ARR).
They then use this money to grow rapidly - I’m involved in one that has grown from $10 M to $70 M in 3 years
C Continued) The debt option is terrific for me (see thread below), and the equity value increases exponentially whether you believe in A or B above ...
Final) The real reason that these aren’t valued as an EBITDA multiple is so many players have chosen the growth path rather than the “harvest” path that their EBITDA is crap (remember CAC is 100% 1st year revenue) to the % of ARR is the higher number.
It’s time for another edition of “Value that company!”
Today, Pest Control - NW US!
$10 M ARR (24k customers at $100/q plus a little one-time)
95+% Customers are on cc autopay.
80% GM
$1.5 M SG&A
20% attrition in customer contracts can be replaced with part of SG&A
What does a monk, a maverick, the Illuminati, and a “cereal killer” have to do with mezzanine finance?
Time for a thread!
Late 1950’s : Dad is attending West High in SLC. Classmates include (soon to be) Gail and Larry Miller (below) who would go on to be long-time owners of the Utah Jazz.
More importantly, the woman who would become my mother was the year behind Dad in school.
60’s: Dad attends Columbia College in New York eventually earning a bachelors and PHD in Economics (no Masters)...
Why did I start a new, different job shortly after starting my mezz fund?
Related: Why am I biased against specialty retail?
Given the $SPG / $TCO news, it’s time for a mezz thread...
Today, the beginning of my mezz fund...
2012: I was helping my parents with their investments, and had developed the idea for what would become Mountain Mezzanine.
We’d do a traditional mezz fund, but go downstream in terms of check size, etc.
I loved this plan and was having the time of my life getting started.
Meanwhile, Dad was mostly retired but had taken a controlling position in a small specialty retailer (80-100 stores). They were struggling. Dad called one day:
You’ve voted! Now relax and enjoy another mezz thread!
Today’s topic is intercreditor agreements (You’ll understand the pic later)...
A few years ago, a small local PE shop calls. They had previously bought a small building products company and financed part of the deal with an out of state mezz group.
The company was trying to roll-out beyond their historical base, but things weren’t going well.
The mezz group was trying to run the old “lend to own” play...