Deal Breakdown: This deal is not what it says it is

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I’ve looked at thousands of businesses for sale and learned to read between the lines. Every issue, we'll take a deeper look at a listing, learn something, throw out a hot take or two, and I'll rate the deal at the end using a nonsensical rating system!

This week’s listing: Sure, it says “Crane Rental Company” at the top. But look closer, and you’ll see it’s a full-service crane contractor — a very different ballgame!

The numbers: $48 million in revenue this year, $9 million in EBITDA, and 5X revenue growth since 2020.

When a broker mislabels a deal, that’s an opportunity. Your competition might dismiss it based on title alone, which gives you an edge. Not a big one, but in a numbers game every edge counts.

Because this isn’t really a rental business — it’s a full-service daily crane contractor. They show up with operators, the crane, transportation, setup, the works. Which means they have staff, permits, maintenance, etc.

I’m not crazy about rental businesses, mostly because they’re often commoditized and require a ton of capex. One rental place can be indistinguishable from the next, which means you’re often competing on price, which sucks. But a well-run full-service business can really stand out. Many big businesses in this space.

Here’s something else I like: based on location (Odessa), I’d bet their clients are oil and gas companies. It’s a cyclical industry, but our economy is doing pretty good at riding the cycles in recent years. I think oil and gas has a lot of good years left.

You need really deep pockets. Two reasons:

First, Riding the ups and downs of oil and gas is only possible if you’ve got enough cash to stay alive during the busts. There are horror stories of PE buying up firms like this at the top and then taking a total bath when the cycle turns downward.

Next, this biz needs major capital expenditure just to be in business. Cranes ain’t cheap to operate, let alone buying and maintaining them. So you need to have the cash to cover when two cranes break at once.

That means the ideal buyer is probably private equity. If you want to grow this business and sell it eventually, it will take serious cash. And that’s not easy for a buyer walking in off the street.

How the heck did they grow so fast? From $11mm in 2021 to nearly $50mm this year? That takes a ton of capital. What’s going on here?

What are the barriers to competition? Who am I up against every day in the market? How do I win against them?

These two sets of questions will tell me what I care about most:

How likely is this revenue growth and profitability to continue? Looking at this listing, my guess is the seller expects the type of price only someone who can grow it a lot can pay.

This one's probably too high on the risk spectrum for me, and I don't know crap about cranes.

But if you're somebody with an appetite (and a bank account) for ups and downs, this is a 4 out of 5. Otherwise, you might be in over your head and, for most all buyers, this is a non-starter.

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