Opportunities
Architecture Firm for High-End Hospitality & Residential
$10.3M in the pipeline with over 40 different clients over the next 3 years!
Specifications
This niche architecture firm in Ontario, Canada has $10.3M in the pipeline with over 40 different clients over the next 3 years! With 95% of all business coming from referrals, this firm is well-established in the Greater Toronto Area and has a profit margin of 38%. Their highly experienced team works out of a 7,500 sq. ft. leased space and includes 1 CFO, plus 2 registered architects on staff and 10 architectural technologists, all exceptionally skilled in the technical side of the full design process. Their projects range in size from small boutique hotels to grand golf course clubhouses throughout Canada, each one customized to fit their clients’ vision. The residential work includes high-end custom estate type homes up to $40M in value. The owners are willing to stay on for 2 to 3 years to assist in the transition and will finance or roll equity of 25% as a sign of faith and vested interest.
The firm is renowned for their work at private public clubhouses and boutique hotels. Their comprehensive services include conceptual and schematic design, design development and construction documentation, permits and approvals, contractor bidding and/or negotiating, and construction contract administration. They have fixed fees for their clients, which helps bring in a tremendous number of commercial projects. One owner does large-scale project management and financials, while the other does small-scale project management. Both are accounted for in the cash flow analysis.
Priced at $5,325,000, growth potential is substantial. This business has seen steady growth in sales and profitability in the past 4 years; increasing marketing and promotional materials, focusing on high-end small boutique hotels throughout Canada, and expanding current client relationships would certainly lead to continued growth. The company’s owner and 2 on staff are members of the Ontario Association of Architects, and the owner holds licenses with British Columbia and Nova Scotia, as well as NCARB licensing in New York and Arizona.
Business Highlights
- Year Established: 1980
- Location: Ontario, Canada
- Services: Full-service architectural and interior design for golf courses across Canada, hospitality, multi-family, commercial and boutique hotels
- Clients: Multi-unit residential, commercial, & golf courses across Canada, as well as a large number of corporate clients
- Lease: 7,500 sq. ft. space (part of a 15,000 sq. ft. building)
- Reason for Selling: Retirement planning
- Personnel: 28: 14 staff, including 2 registered architects, 10 architectural technologists, 1 CFO/Personal Assistant, and 1 PT secretary
- Seller Training Period: 2-3 years
- Growth Opportunities: Increase marketing/promotional efforts, focus on high-end small boutique hotels, expand current client relationships
- Current Owners' Responsibilities: Owner 1: Large-scale project management, financials; Owner 2: Small-scale project management. Both owners are accounted for in the cash flow analysis
Financial Highlights
- List Price: $5,325,000 CAD
- The business has seen steady growth in sales and profitability in the last 4 years
- 4-year average cash Flow: $1,471,366
*amounts may vary
Cash Flow Analysis
| Description of Financial Statement | P&L Statement October 2019-August 2020 | P&L Statement | P&L Statement | P&L Statement | P&L Statement | Notes |
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
| GROSS SALES | $3,248,896 | $4,103,743 | $3,787,453 | $3,820,702 | $2,998,211 | |
| Annualized | $3,544,250 | |||||
| Net Income Shown on Financial Statement | $983,831 | $486,152 | $480,273 | $481,422 | $479,932 | |
| ADDBACKS | ||||||
| Amortization | $0 | $15,876 | $13,041 | $16,726 | $9,418 | |
| Travel & Vehicle | $9,684 | $68,746 | $61,532 | $29,819 | $46,508 | 100% Personal |
| Management Salary | $444,690 | $1,310,806 | $1,002,292 | $1,228,735 | $720,777 | |
| Retain/Replace | $-201,666 | $-220,000 | $-220,000 | $-220,000 | $-220,000 | 2 owners (110k each) |
| Donations | $1,000 | $0 | $0 | $0 | $0 | |
| TOTAL ADDBACKS | $253,708 | $1,175,428 | $856,865 | $1,055,280 | $556,703 | |
| Seller's Cash Flow = Total Addbacks + Net Income | $1,237,539 | $1,661,580 | $1,337,138 | $1,536,702 | $1,036,635 | |
| Annualized | ||||||
| Profit Margin | 38.09 % | 40.49 % | 35.30 % | 40.22 % | 34.58 % |
- Profit Margin 2019: 40%
Clients
- Hotels, Bars, Spas, and Golf Courses
- Clubhouses
- Homeowners
- Few select residential (homes valued between 2 and 15 million)
- Multi-unit residential
Specific information regarding clients is available upon the receipt of a signed Non-Disclosure Agreement.
Services
- Conceptual & schematic design
- Ex: hotels on a lake, condo towers, a private hockey arena, an airplane hanger
- Design development & construction documentation
- Permits & approvals
- Contractor bidding and/or negotiating
- Construction contract administration
- Fees are higher than competition, but fair
Personnel
- 2 owners
- Owner 1: Large-scale project management, financial/promotional management
- Owner 2: Single-family residential/small scale project management
- 2 Registered Architects
- 1 CFO/Personal Assistant
- 10 Architectural Technologists
- 1 PT Secretary
Growth Opportunities
- Increase marketing/promotional efforts
- Expand on current client relationships
- Focus on high-end small boutique hotels throughout Canada
Valuation Details
The Firm used a cash flow valuation methodology to determine the purchase price of the business.
The formula used is as follows:
Cash Flow x Prescribed Multiple = Fair Market Value
Cash flow is the sum of business net income plus any owner perks and any non-onward going expenses.
A prescribed multiple is determined by a 20 question, 100-point parameter ranking system that is used to analyze the current business health. Each question is based on a scale from 1 to 5: 1 being low, 2 below average, 3 average, 4 above average, 5 high. The average of the responses sum is the business’ prescribed multiplier.
For this business, a 4-year average Cash Flow was used with a prescribed multiple of 3.6. With this information, the computation is as follows:
C
Cash Flow x Prescribed Multiple = Fair Market Value
With this information, the computation is as follows:
$1,471,366 x 3.65 = $5,370,486
The fair market value found above positions the business list price at $5,325,000 CAD.
Funding Example
Purchase Price: $5,325,000 CAD
| 25%Buyer Down Payment | $1,331,250 | Must be unborrowed funds |
| 25%Seller Financing or Equity | $1,331,250 | 5-year term at a rate of 4.50% = a monthly loan payment of $24,819 |
| 50%Bank Loan | $2,662,500 | 8-year term at a rate of 6% = a monthly loan payment of $34,989 |
- Cash Flow: $1,471,366
- Annual Payment:
- To Seller: $297,822
- To Bank: $419,869
- Net Profit (after expenses and loan payment): $753,675
Funding Details
Business:
Offer Price: $
% Buyer Cash Down at Closing: $
% Seller Carry Back via Promissory Note: $
year term at a rate of %
% of Purchase Price secured by Buyer and Seller
Total Bank Loan Need: $
% of Purchase Price
Desired Loan Type:
Desired Bank Terms: year term at a rate of %
Total Business Assets, Inventory, and A/R: $
Total Undercollateralized Loan: $
Loan Payments
| Monthly Payment to Bank: | $ |
| Yearly Payment to Bank: | $ |
| Monthly Payment to Seller: | $ |
| Yearly Payment to Seller: | $ |
| Total Monthly Debt Service: | $ |
| Total Yearly Debt Service: | $ |
Conclusions
Fixed Charge Coverage Ratio
The bank will require a minimum ratio of 1.5 to be lendable.
|
Cash Flow: 4-year average cash flow |
$ |
| Annual Debt Service: | $ |
| RATIO: |
Buyer's Net Operating Income (NOI)
The amount of money the Buyer will retain as profit.
|
Cash Flow: 4-year average cash flow |
$ |
| Annual Debt Service: | -$ |
| NOI: |
Buyer's Return on Investment (ROI)
The rate of return on the Buyer's down payment.
| Down Payment: | $ |
| NOI: | |
| ROI: | % |
Attachments
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