Opportunities
Sewer Pipeline Inspections & Flow Monitoring Services in Honolulu
With nearly $2M in assets and 5-year average profit margin of 42%!
Specifications
With nearly $2M in assets and 5-year average profit margin of 42%, this sewer pipeline inspection company in Honolulu has seen year-over-year growth in sales for 3 years! Specializing in CCTV inspections of pipelines, their top-notch equipment and vehicles allow their well-trained PACP-certified staff to meet the needs of their client base, 90% of which consists of engineers for construction companies, municipalities, or consulting engineers. They also provide manhole/corrosion inspections, smoke testing, flow monitoring, and sewer/pipeline cleaning. Over $1M worth of vehicles including 3 CCTV trucks, 3 cleaning combo trucks, and 4 pickup trucks are part of the nearly $2M in business assets, as well $500k worth of generators, hand tools, computer equipment, and camera equipment, making the bank loan over 50% collateralized. The team consists of 10 full-time employees, including 1 Director of Operations, 1 Quality Control Supervisor, 1 Salesperson, and high skilled CCTV and Vactor Operators and field technicians. The owner currently manages business development, accounting, operations, administration, and IT and is willing to stay on for 2-3 years post-sale to ensure a smooth transition.
The company’s average sale size is approximately $20k, with an average of 10 work orders per month. Currently, the business has $478k worth of work in their pipeline. The company was deemed essential during COVID, allowing them to increase their rates due to the increase in the need for PPE gear and adding trucks to accommodate social distancing guidelines.
Priced at $3,700,000, a 12.5% down payment of $462,500 returns $485,634 in the first year after debt payments – a 105% return on investment! With a well-established reputation already in place, a new owner could easily boost sales by pursuing other areas in the general industry, such as construction and storm sewer system services.
Business Highlights
Year Established: 2005
Location: Honolulu, Hawaii
Service Area: 100% local
Services: CCTV Inspections, line cleaning, manhole/corrosion inspections, flow monitoring, smoke testing
Clients: Primarily engineers for construction companies, municipalities, consulting engineers
Certifications: NASSCO PACP certified
Lease: 4,000 sq. ft. facility; 80% warehouse, 20% office
Reason for Selling: Approaching retirement
Personnel: 12: 10 FT, 2 PT; 1 Owner + 1 Director of Operations, 1 Quality Control Supervisor, 1 Salesperson, along with CCTV and Vactor operators and field technicians
Seller Training Period: 2-3 years
Growth Opportunities: Pursue more projects in the construction industry, expand services to include storm sewer systems and pipeline repairs/rehabilitation
Current Owners’ Responsibilities: Business development, accounting, operations, administration, IT
Employees
- 1 Owner
- 1 Director of Operations
- 1 Quality Control Supervisor
- Field Supervisor
- CCTV Operators
- Vactor Operators
- Field Technicians
Operations
- Average Sale Size: $20k
- Average number of work orders per month: 10
- Value of recurring monthly revenue: $30k
- Value of work in the pipeline: $478k
- Value of backlog: $680k
Profit Margin
Average Profit Margin: 42%
Financial Highlights
- List Price: $3,700,000
- 5-Year Average Cash Flow: $958,801
- A/R: $389,990
- A/P: $13,000
- Working Capital: $376,990
Assets of Business
- Assets: $1,561,720
- Equipment: $496,529: Generators, hand tools, computer equipment, camera equipment
- Vehicles: $1,042,916: 2 CCTV trucks, 3 cleaning combo trucks, 4 pickup trucks
- Furniture & Fixtures: $22,275
- Intangible: Well-established in the industry, long-standing client base
* Over 50% Collateralized *
Cash Flow Analysis
| Description of Financial Statement | P&L Statement July 2020-January 2021 - Accrual | Tax Return July 2019-June 2020 - Accrual | Tax Return July 2018-June 2019 - Accrual | Tax Return July 2017-June 2018 - Accrual | Tax Return July 2016-June 2017 - Accrual | Notes |
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| GROSS SALES | $1,699,785 | $2,360,891 | $2,230,416 | $3,005,813 | $2,182,201 | |
| Annualized | $2,913,917 | |||||
| Net Income Shown on Financial Statement | $741,330 | $24,890 | $13,557 | $43,489 | $73,632 | |
| ADDBACKS | ||||||
| Compensation to Owner | $304,615 | $507,692 | $571,846 | $524,308 | $516,923 | Owner |
| Other unrelated salaries | $83,076 | $224,615 | $224,615 | $120,000 | $120,000 | Owner's wife: office admin |
| 11% Tax on total W2 Salaries | $42,646 | $55,846 | $87,611 | $70,874 | $70,062 | |
| Depreciation | $0 | $11,725 | $431 | $528,137 | $49,081 | |
| Interest | $938 | $10,433 | $14,854 | $2,583 | $0 | |
| Contributions/Donations | $0 | $2,766 | $0 | $250 | $40 | |
| Cell Phone | $2,100 | $3,600 | $3,600 | $3,600 | $3,600 | $300/month |
| Pension & Profit Sharing | $0 | $158,138 | $122,656 | $118,746 | $127,649 | 97% Personal |
| Meals | $0 | $1,305 | $1,981 | $0 | $0 | |
| Replacement 1 | $-23,333 | $-40,000 | $-40,000 | $-40,000 | $-40,000 | |
| Replacement 2 | $-52,500 | $-90,000 | $-90,000 | $-90,000 | $-90,000 | |
| PPP Loan | $-200,000 | $0 | $0 | $0 | $0 | |
| TOTAL ADDBACKS | $157,542 | $846,120 | $897,594 | $1,238,498 | $757,355 | |
| Seller's Cash Flow = Total Addbacks + Net Income | $898,872 | $871,010 | $911,151 | $1,281,987 | $830,987 | |
| Annualized | ||||||
| Profit Margin | 52.88 % | 36.89 % | 40.85 % | 42.65 % | 38.07 % |
Valuation
The Firm Advisors used a cash flow valuation methodology to determine the purchase price of the business.
Cash flow is the sum of business net income plus any owner perks and any non-onward expenses. Then we prescribe a multiple based on 20 parameter which valuate the health of the business. For this valuation, we used the 5-year average cash flow making the business price much more favorable to the buyer.
The formula used is as follows:
Cash Flow x Prescribed Multiple = Fair Market Value
With this information, the computation is as follows:
$958,801 x 3.9 = $3,739,324
Funding Example
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: 5-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: 5-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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