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In this episode of Owned and Operated, the hosts discuss the business model of water trucking, specifically potable water delivery services. They investigate the difficulties and the costs that are associated with it, such as complying with the regulations and the high costs of equipment and tires. Even though there are problems, they emphasize how profitable the business is. For example, one interviewee said that each truck was making between $500,000 and $600,000 per year. Jack and John show interest in the industry because they think it could be profitable and help them build long-term customer relationships. These and many more topics will be discussed as you listen to the episode!
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John Wilson: @WilsonCompanies on Twitter
Jack Carr: @TheHVACJack on Twitter
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Owned and Operated Episode 54 Transcript
Brandon Niro: Welcome back to owned and operated where we dive deep into the businesses we own, the businesses we are acquiring, and we also bring on guests to talk about their operating struggles. If you like what you hear today, follow John and Brandon on Twitter. That's John at Wilson companies and Brandon at Brandon Nairo.
Brandon Niro: Also check out our weekly newsletter. Transcripts provided by Transcription Outsourcing, LLC. Or by visiting owned and operated. com that's owned and operated. com. Check it out.
John Wilson: Welcome back to owned and operated. What's up Jack? Hey, how's it going, man? Good. Ready to get into it. Talk deals, talk businesses. But first off, how'd your week go? What'd you get into?
Jack Carr: I was actually late to this call today. I was originally late and then you beat me.
Jack Carr: Yes, I was perfect Yeah, I had a employee today, you know have the good old HVAC step through the ceiling. Oh my gosh Yeah, we're dealing with that. Luckily, he didn't fall all the way through, we we're okay. Yeah, we're okay, but definitely a little flustered.
John Wilson: Yeah, I had one of those happen six or seven years ago, and he dislocated, I think, both shoulders.
John Wilson: It
Jack Carr: was like, it was wild. There's a reason that insurance is so hot for us.
John Wilson: Yeah, it was wild. It was wild. Yeah, those are rough.
Jack Carr: But he's okay. The ceiling's okay. And luckily drywall isn't overly expensive. So we'll get it fixed up and on to the next one. But besides that, it's been pretty good. We're just same as last week.
Jack Carr: We're prepping for new hires. We have. Two new employees coming on next week starting to ramp up for summer and getting really excited.
John Wilson: Yeah, that's awesome.
Jack Carr: Yeah,
John Wilson: my week we started the build out in our new headquarters, so we got access to it. I think eight days ago, we had work starting this Wednesday.
John Wilson: So two days ago we're taking down ceiling towels. We're prepping for paint. We're going through the permitting process. So we're moving fast cause we're trying to, we're trying to be done in 90 days. So we have to, we have a lot of money to spend in 90 days. But yeah, that was the big thing besides that a little bit of a cold snap and HVAC took off.
John Wilson: So that was great. I'm bumped up. Oh, that's awesome. Yeah.
Jack Carr: Yeah. Are you using your own crew? Do you have new construction crew to be able to work in house on that, pay yourself?
John Wilson: We have, we're doing parts of the project. So the total project is about a quarter of a million dollars and we're doing like 50 grand of it.
Jack Carr: Okay.
John Wilson: Yeah. So still a decent amount. Yeah. It's okay. For the most part, I'd rather just use my guys on profit producing work. That's going to pay for the building. Yeah. I'll let somebody else do the low margin work.
Jack Carr: There you go. Yeah. Awesome. I think we have some fun ones today. I'm really excited.
Jack Carr: Yeah. Yeah. Me too. Especially for yours. Yeah.
John Wilson: I'm
Jack Carr: honestly excited for yours. This would be good. All right. So this week I brought in the business model is water trucking. And essentially there's, it's a big category and what I'm going to focus on today is potable water delivery services specifically for residential and some commercial this is a huge category and it goes into construction.
Jack Carr: They do a little bit of on the west coast, they do some firefighter work. So when fires happen in California, they'll set up camps for the firefighters and the crews and everything. And so they'll bring water to them as well. But today we're just going to focus on specifically potable water delivery for like wineries, homeowners, kind of country people living on the country.
Jack Carr: Situations like that. So pretty neat stuff. I have some history there. Obviously I used to work in winery, so I used to be the one calling those in emergency situations. We had three or four wells on property, but every once in a while, a fired next California fired rule through burn up everything we have to get deliveries in.
Jack Carr: So. So, as mentioned, it's really specifically B2B, B2C mostly focused on business to consumer, business to the individual.
John Wilson: So this is like homes with cisterns, or like, is it pools? You said potable, so that's probably not pools.
Jack Carr: Yeah, so they'll do pools because the difference between potable water and non potable water is realistically, they're taking like recycled or reclaimed water.
Jack Carr: Or they're taking a city water and it's a great business model. I absolutely love these businesses. The people I interviewed are a father son duo who run two trucks and that's all they do and they've been doing it for the dad's been doing it for the last 30 years and absolutely loves the business, but it definitely comes with some of its hardships.
John Wilson: What are the hardships in this business? Cause like we have water delivered to one of our facilities and. It just seems like gravy. Like it's absolutely ridiculous. It's absolutely ridiculous.
Jack Carr: Yeah, I think it depends on where you're located, right? And so on the west coast, they, one of the big things that he complained about was they just had to get rid of both of their trucks.
Jack Carr: Like they had four year old trucks, brand new, beautiful big old diesels. And they said regulation came through. They had to change out their trucks to new ones to meet regulations from the EPA and specifically California regulations.
John Wilson: Okay. That's insane. That's
Jack Carr: insane.
John Wilson: Just another I'm not opening a business in California.
John Wilson: Got it.
Jack Carr: There's a reason that I don't live in California for that reason. I just, there, it's not to get political, but the owning businesses is really difficult. There's a lot of regulation and this is tried and true right here. He just had to get rid of two trucks.
John Wilson: That's crazy
Jack Carr: that yeah, and so there's that there's just costs general costs He was talking about he has to spend 80, 000 on tires per year Whoa to get new rubber on there that's
John Wilson: how many miles a year is he?
John Wilson: Is he I don't even understand how that works.
Jack Carr: I mean he said those trucks were million mile trucks and that's probably what they put on them in maybe 10 years 8 to 10 years. So I would assume 100 120 150 50, 000 miles a year, but you have to think they're hauling water, right? So they have they're dually, but maybe two sets of rear tires and a single set of three axles, total, but two tires on each side on the back axle.
Jack Carr: Yeah. So I could see it. And then on top of it, a lot of these individuals live off and they're going, you're going up country roads. He was telling me that he used to get calls and just the sketchiest roads, driving around a multiple ton truck, carrying water. That's washing back and forth while he's riding on this edge of a cliff on some sketchy roads.
Jack Carr: But that's part of it. And, like septic companies and everything else you're dealing with, there's huge initial costs that come with that, 350, 000 for a new truck. You have all the fittings, the hoses, everything like that, which is an extra maybe 20, 000.
John Wilson: So when I've seen this business and we have we're a customer for one locally and I freaking love it.
John Wilson: Like I think it's insane. I don't know. You pay 500 bucks and they fill our cistern because we have a facility in like the country and I, there, I think there's different layers of how you can start with this because I think I'm looking at the website that you put in here and these are some fancy trucks, but the trucks that deliver for us are like, it's like a flatbed with a giant clear plastic tank on the back.
John Wilson: Yeah. So that's 150 grand. So I'm like maybe there's like a budget way to get into this. If you want to get into it, you don't have to go the whole 400, 000 route. You can do one of these like lower cost. It probably has less capacity. Cause I think the one I'm looking at here that this looks like a 4, 000 gallon truck.
John Wilson: Whereas I think the one that ours drives around is like two.
Jack Carr: Yeah. That makes sense. That's the same in the septic world, right? Yeah. Is you can get, you can outfit a F four 50 with a smaller tank. Yeah. Like
John Wilson: Usually people don't, but yeah, you can go get a pickup truck and put a pumping system on there.
John Wilson: But the problem is you can only get up to 1500 or 2000 gallons and then that's basically one septic tank. That's one pump. So then you're taking that one pump to the dump to get rid of it. And it's just not very efficient. So you might only be able to do three runs a day, but if that's all you're doing, then you can probably do that for 120 grand versus the trucks that I buy, because we're doing like, like we have to get the 4, 000 gallon trucks because we're driving all over the place where we're running routes.
John Wilson: And we only want to stop at a dump twice a day. Cause we dump about 8, 000 gallons per truck per day. So we couldn't go smaller, but some guys do, or porta potty businesses, we should do one of those. Those have those yeah, 1, 000, 1, 500 gallon trucks. That's
Jack Carr: what I was thinking about.
Jack Carr: Yeah. And so I assume the water industry is somewhat the same. You could probably get away with a smaller truck doing smaller situations smaller tanks, smaller systems. But. Either way, the money on it is beautiful just in terms of just discussing with him the cost per gallon and the cost per tank to sell he gets charged 40 to fill it for a municipality.
Jack Carr: They drive up to a fire hydrant, they freaking hooked up and dump water and like crazy and then that he turns around and drives that out 15 miles or so and they offloads most of it and it's 350 bucks a tank. Oh my God. So for the average household that, one tank, 000 gallons is probably enough for a couple of weeks.
Jack Carr: But I know that some of the larger wineries were, that, they have 20, 000 gallon tanks, 30, 000 gallon tanks. And so if you think about that's 10 tanks they could probably do. He said he can do about 8 to 10 a day. That he's walking away with 3, 500 gross just from driving 30 minutes back and forth all day long.
John Wilson: Yeah.
Jack Carr: And probably a tank of diesel, there's some other costs associated. I'm sure, I remember he has to get lab tests done once a month Like of the inside of his truck to make sure that it's like clean. Yeah, exactly.
John Wilson: Yeah. Yeah. Do they have to do any chemical washing or anything like that?
John Wilson: Like what happens if they find a fungus in the tank?
Jack Carr: Yeah, they have to go through and disinfect the entire thing, on, on that smaller scale, it's not as big of a deal because they don't have right. If you were to have it on a coliform issue on your tanks or something like that, or in a municipality, you have to go through all of the pipes, all that PVC on every single it's not outlet, but every single run in your house that the flush it all there, you just, you have a tank and some hoses that you take care of.
Jack Carr: Oh my
John Wilson: gosh. I'm a fan. I really want to buy the one that delivers water to us. Like I, I always thought that'd be fun. Yeah, they're just churning and burning. What a great business.
Jack Carr: All right. Yeah. And so they say they do half a million dollars a year, give or take between, depending on how bad the fire season is taking out the fire season, just per truck per year, about half a million to 600, 000. So pretty good business. You can see the margins between, 350 a tank and buying it for 40. They buy it for pennies. It's really, it looks like to me, what it really is you're not, it's not a water purchasing service. It's more of a water delivery service.
John Wilson: Yeah. Yeah. With like less cogs too.
John Wilson: Cause I've seen those other water delivery services where they deliver like the jugs for your, Office or something like that, but there's maybe that's the same because they're holding the jugs or maybe they could charge a lease fee But either way I'm super into it. The thing I always liked was it seemed sticky Like really like when you find somebody that's delivering the water for your house, you're probably going to keep calling that guy.
John Wilson: Cause you need water for your house. There's not much of an option here. So it seemed like you can build just a crazy route and just super robust.
Jack Carr: Yeah. And not to mention it's fairly recession proof, right? Cause people aren't going to turn their water off and yeah, that water, it's a necessity.
John Wilson: Yeah. I liked it. I liked it more than. I almost hesitate to say this because this is my baby, but I think I like it more than septic pumping because you can like, I know but you, it's clean. It doesn't smell. I don't even mind the smell, but it's more like, yeah, I can't say that, which would be a problem.
John Wilson: But yeah, exactly that. You need water. You need water every two weeks, whereas some people you're supposed to pump every three years. Some people have not pumped in 20 years. And it's a journey when you get there. And the only thing forcing it to happen more and more is usually a home sale or like municipalities forcing it to happen.
John Wilson: Otherwise, people aren't very good at remembering to do it.
Jack Carr: Yeah. I think it's, there's a huge opportunity in the future too, moving forward. I know across the United States, like I said, I don't say this probably every episode until you review one. Yeah. Is I love well drilling companies. Oh yeah. Drilling companies.
Jack Carr: It's one of my favorite and, um, drilling regulations are getting stricter and stricter and stricter. And so as that happens, these companies that have these really, they've come in, years ago, they're 20, 30 years old and they have these contracts with municipalities.
Jack Carr: That's not something that I think is going to be more common in the future. They're not going to give out more and more contracts. They're just going to keep its status quo on one side and on the other side, slowly regulate drilling even more. And so if you buy out in the country and you don't have a well, you don't really have an option.
John Wilson: Yeah. Yeah. Yeah. That's a crazy business. I'm a big fan. So I just want to run through this again to make sure I understand all the highlights here. So it's a water delivery business. Mainly B2C, average tickets like 350 or so, revenue you're getting like half a million or more per truck, so per head, which is sweet.
John Wilson: You can run this as a one man show, sounds like. You just need to learn how to source clients. EBITDA's probably high? I have no idea. Did you get an EBITDA?
Jack Carr: Yeah. So they said their EBITDA it's, the, not to talk bad about the people that were running it, father, son duo weren't going to sell, they didn't really care.
Jack Carr: It was well, enough to support his family and his son's family. And so he said on a good year, they're taking home about 150 to 200, 000 each. That's crazy. So that's good. I would expect, yeah, like 20, 20%, 25 percent net margins on that. Yeah.
John Wilson: Yeah. That's great.
Jack Carr: And then, it's without saying their financials, it's hard to tell because who knows how much they're putting aside for like capital expenditures of a new truck and.
Jack Carr: Issues of that nature. Yeah.
John Wilson: All right and starting up this business. Did you get an idea of it? It was four hundred thousand a truck. You thought yeah
Jack Carr: So 3. 75 per truck. You gotta get your cdl license which When I was looking at septic at one point, I think that comes in that same range, right?
John Wilson: Septic trucks are, we just bought one for two 25. Okay. Yeah. It's a little cheaper. Yeah. There are some that are like you could spend a million dollars on a pumping truck if you want. I went to a company the other day that they had like an 800, 000 truck, but that's like municipality stuff.
John Wilson: You're dealing with a whole different situation.
Jack Carr: Yeah. I wonder if it's also, that extra a hundred thousand is California specific with, all the yeah, the emission standards and everything else that has to run on it So that wouldn't surprise me but that 200 to 300 a thousand dollar range probably for entry level sounds about right
John Wilson: All right.
John Wilson: I googled it. So i'm starting to look at these tiny trucks. So i've got one. It's a 2015 It's 69 000 bucks But it looks small. That's a tiny tank. Let's see if I can lose the money. Not buying it, John. Yeah. Yeah. I'm basically in the same boat. Okay. How, yeah. How much, how many gallons does this thing have?
John Wilson: All right. Doesn't have the details in it. I'll find out. But yeah, I would love to own a water delivery company. It, for me, it checks all my boxes. Recession proof, like forever proof, like people are always going to need water. And in the north, water always has to be underground because of freezing.
John Wilson: So you can't just it's not like Florida where you could just potentially run water to anybody. Some places you just can never get it. So yeah, big need. Resistant need, recession proof. This is all the stuff I like. And it's dirty ish,
Jack Carr: right?
John Wilson: A
Jack Carr: little tradesy. It's definitely boring.
Jack Carr: It's a lot of driving and it's a lot of sitting there, waiting, watching pump and go, just water pumping in, water pumping out. But that's what's nice about it is I never found the space, this Particular B to C space overly saturated. There was, as you start getting into like construction water and some of these other areas, you start to find a few more companies, but at this size and kind of the scope, pretty light field, there's not too much competition.
John Wilson: Yeah, it feels like it's a lot like probably what I'm going to talk about in mine, where he, who has the equipment. Does this does the deals, right? It's drilling or septic pumping or anything where the barrier to entry is a couple hundred grand of equipment. It's easy to get in and there's always work there.
John Wilson: Like who was I talking to? I was talking to someone the other day where they have a two week lead time to even come look at your project. And then once they come look at your project, there's like a monthly time to start. And people don't have much of a choice because they're one of three people in the area that has the asset to do this type of work.
John Wilson: Like it, it just is what it is. They're the ones that spent a half a million dollars. So they're the ones that people are going to call. So it was wild.
Jack Carr: Speaking of well, drilling, that was like, there's this animal product. You got to do it next time. Well, doctors, we'll do it next time.
Jack Carr: Three monthly time, just three months on
John Wilson: Like average ticket, 10 grand or something wild. And they do it day after day.
Jack Carr: Yeah,
John Wilson: no, that's a great. Okay. So
Jack Carr: difficulty rating one to 10 on how difficult to build this business or buy this business and run it.
John Wilson: My thought with this one seems easy to me.
John Wilson: And I think I'm fast. I want to know what is the difference between the 70, 000 truck that I'm seeing and like the 375, 000 truck you're seeing, like what's the benefit? What's the need? Maybe their routes are so big that they need four or 5, 000 gallons to keep it going. The biggest, Barrier is like cost to get in.
John Wilson: So if I could get in for 70 grand and start procuring customers, that feels pretty good. I like that. I think sourcing customers would be interesting. Probably like a postcard driven even door knocking because you want it to be route based, you want to go to the same neighborhood every time.
John Wilson: So maybe you start postcard drilling or even cold calling homes and businesses that are like, Within five miles of wherever you pick up water. That way you can keep a tight radius. Cause you have a small truck. We just spent 70 grand, right? So this doesn't feel too bad to me. I think the customer procurements would be like the challenge, but I think you can hit that pretty hard with just some gorilla door to door.
John Wilson: Sales tactics.
Jack Carr: Yeah. The hard part to me, agreed. It seems to be finding that geo location of, Hey, this is who doesn't have water or who has trouble getting water. And then you supplement in and then.
John Wilson: That part isn't too bad because governments require who has a septic, who has a well, and who has a cistern is public record.
John Wilson: So you can find that information out. They track all that stuff. So you can call your health department. I think, some health departments, you can just log in and take a look at all addresses with. But that's public records. So that part, I think you can find.
Jack Carr: Yeah. And then like I was saying, just geo what is it called?
Jack Carr: Geofencing. Yeah. And do all your SEO and add targeting directly towards those neighborhoods. Yeah. That's where I'd start. Yeah. So one out of 10. I think five. That's where I was going with right. Dead center five. Yeah. Getting the financing and then the customers is decently difficult.
Jack Carr: But hopefully, if there's not too many competition in your area, they would come to you idealistically. Yeah. No. All right.
John Wilson: Yeah. That's a good one. I liked that a lot. I still I'm just noting this like one day, I'm going to own one of those like one day that would be. That'd be a dream come true.
John Wilson: Okay. In the spirit of drains this will be my last drain business for a little while, I promise. I wanted to do like last time we talked about zoom, mainly a residential drain business, like a franchise model. All right. So this is the tail end of the drain spectrum. So this is municipality drain scoping and cleaning.
John Wilson: Fascinating business. It's a mix between B2B. So you're like working for contractors. Maybe they're putting in a new main sewer cause they're going to a new development. Maybe they're like replacing old sewers. Maybe a building's going up maybe the city contracted you because they need to check, the EPA requires cities to do constant inspections of their sewers to make sure that they're like safe and still flowing.
John Wilson: But 60 to 70 percent of your work is going to come in from contractors doing builds. So an example would be like, I'm going to go build a school and or a neighborhood, either one of those, but a fairly large development, I'm going to Excavate, we're going to drop pipe, but before you can drop pipe and before you can test and do all that stuff, that sewer has to be visibly inspected and recorded.
John Wilson: So what you do Is you drop what is basically a very expensive RV car. It's like a remote control car into the sewer. And you drive this thing around and it's this thing's 60, 000. It's crazy. So you drive this thing around and you're going back and forth. You're recording to, and from, and if there's an issue.
John Wilson: Then you'll you'll flush it out. So it takes two vehicles to do this to do this work.
Jack Carr: So what specifically are they looking for? Are they looking just for cracks or just where it doesn't join up properly? What's the fun? It depends.
John Wilson: So sometimes you just need to record, Hey, I'm a developer.
John Wilson: I want to tap into your sewer. Before I can tap into that sewer, we have to inspect the sewer to make sure that the sewers are clean. Safe that there's no gaping holes that it's like relatively clean, flushed out because we're talking about eight foot pipes. That's the size of pipe that this thing's going into.
John Wilson: So it's going into a massive pipe and what they need to do is they need to inspect the whole thing and this thing also comes with a laser. Pipe inspection on the side of the camera. So the whole time it's recording and doing all that it's inspecting the thickness of the walls of the sewer to make sure that there's no, like, you're not about to have a collapse because these things can collapse an eight foot pipe.
John Wilson: That's a, you're going to lose a car in that thing. So yeah, usually it's new build. Someone's tying in. Or the EPA requires cities to do this on a somewhat regular basis. I don't know how regular it is, but I know they've been doing it. Like the EPA crackdown on Akron, Ohio, maybe a couple of years ago, because the sewage plant here was not able to keep up with the amount of people and there was too much dumpage going into a body of water local to us.
John Wilson: So the EPA, five years ago, put us on notice. And they've had to spend like a billion dollars on this new sewer system throughout the city, and they've been constantly inspecting, but it's really any city where there's a ton of growth. So it doesn't just have to have an EPA problem. You could be Phoenix where they're throwing up a new development around every block and someone is having this service being done because the city's going to require it.
Jack Carr: Okay. And so what What is the typical kind of range of the business, like their service area look like, or is it pretty small to do a lot of these companies stay within a singular city and just own Philadelphia or is it like, like a utility repair companies, they, when machine companies, they work just everywhere.
John Wilson: These guys are going to travel. I don't think you're going to go very far. I think you're probably gonna stay within an hour and a half of your home base. But it's it really depends on probably where you are because the businesses. The business is either going to get work because the EPA requires it or because people are doing new builds.
John Wilson: So where are you that's happening? So if you're in a, if you're in a city that there's a lot of construction activity, then you can have a tight radius. If you're in Akron, Ohio. Where there's like a reasonable amount of construction activity, then it can be somewhat tight. But if you're in the middle of absolutely nowhere, then you're probably going to drive.
Jack Carr: Yeah. That's for most businesses, right? Most services. So that makes sense. Yeah. And so tell me more about, I'm more interested in this R, C. Okay. So what is it? How big is this thing? What does it look like? This thing's crazy. I imagine like toy story, though, the little thing with two eyes is driving through and it's basically, it is basically
John Wilson: that.
John Wilson: Yeah. So it's it was, it's about two feet long and it's just this giant silver thing and it's two feet long, but it's only maybe six inches tall. So it's not very big and it has eight wheels, I think, to just prevent it from getting stuck on stuff. And it's connected to a cable. So it's got some.
John Wilson: Horsepower, because it has to haul a cable like a long way. I think that cord was like a thousand feet. So this it's, even though it's small and only has six wheels it can really haul some weight, which I thought was fascinating. So that's the rough profile. Then there was a camera on the back and the front, and then there's a laser on the front that is constantly examining the structural integrity of the sewer.
Jack Carr: Okay, and how is it controlled?
John Wilson: Oh yeah, like you already know. It's that picture I sent you. So it's like a literal PS4 controller. Is how this I took a picture,
Jack Carr: I took a picture of this thing. I don't even think it's a PS4, it's like PS2. I don't even know. It's OG. I know. It looks like a freaking Nintendo controller.
Jack Carr: I don't know how they're driving that, trusting. I
John Wilson: thought it was awesome, like I'm sitting there you've got a, you have a really unique way to recruit into the trades by putting 19 year old gamers hey man. Okay. At Mario cart, come on in.
Jack Carr: That's exactly what I was thinking. Mario cart.
Jack Carr: You got to find host a tournament to do a recruiting session.
John Wilson: Yeah. Like these gamers are going to make 20, 30 bucks an hour sitting in a truck running a car back and forth inside a pipe. Yeah,
Jack Carr: the key is just not to crash it. That's the one I was driving. I didn't ask how fast it went, but that would be fun to know.
John Wilson: That'd be fun to
Jack Carr: know. But yeah, speaking of truck, what is the requirement? So like I've done, Sewer inspections with a camera, right? What's the, what else is required to do this company? You have your truck, you have your nerdy gamer guy.
John Wilson: What else is there?
John Wilson: I'm going to start with, I think there's two ways to do this. A lot like what we just got into with The water delivery. There's like a budget way to start this. And then there's a big boy way to start this. I was looking at the big boy way to start this. So I was looking at about 800, 000 of total equipment value.
John Wilson: When I was checking. So the camera truck, all that stuff was 400 and then the flusher truck was another four. You don't have, I don't think you need that. I think it's mainly a capacity thing. I think it's how they're. They just do so much volume, it's easier, which makes sense. If I was starting this thing off, I would be spending you can get a jet truck for a hundred thousand dollars and the camera truck that they upgraded from was about two, so it's still a lot of money.
John Wilson: But the new ones like the Cadillac.
Jack Carr: Yeah. So is the vacuuming as part of their service is
John Wilson: that, so usually you, you're flushing it. In this scenario, because if they're like before a sewer goes live, you have to do an inspection. So let's say I'm developing a neighborhood. We dropped this, all this stuff into place.
John Wilson: You either have to flush or back it out. It depends on what you got going on. But if there's a bunch of dirt from construction, which is going to happen on almost every time they're putting stuff together. Dirt's flying all over the place. That stuff has to be Okay. Gotten out of the system.
John Wilson: So it's the camera truck to inspect and then the removal truck for whatever you find. And that's either the jet truck or a back truck, but you can rent that stuff too. So like you could start with the camera truck and have somebody come in and flush her back.
Jack Carr: And so what does the cost to the contractor look like?
Jack Carr: What's, what does this pricing model look like?
John Wilson: So they run anywhere from three to 5, 000 a day. And you have. Two, two drivers cause they're CDLs and then a helper. So you have 70 bucks of labor like per hour on site and you're getting somewhere between three and 5, 000 a day. And it's a service based model.
John Wilson: It's a, Hey, I need this. If this isn't construction you're inside construction, but this is like a COD. You can expect a credit card unless you're doing a ton of work for somebody. But this is a service, Hey, I'm going to come out, I'm going to inspect it. I'll flush it if there's something and.
John Wilson: Swipe and what's the upsell full jet. I, yeah, I guess I don't think there's much of an upsell cause you're already at three to five grand just to sit there, but it's a, it's an interesting business. I think you end up having to put both pieces of equipment on cause you want in case there is something you just deal with it and then you charge four to 600 an hour.
Jack Carr: And
Jack Carr: ha I was half joking about the upsell, but what does the backlog look like? Are these guys just jam packed Monday, Tuesday, Wednesday, Thursday, Friday out?
John Wilson: It's construction activity and you got to think like it takes time to set up, so you might be on one new bill job for three days.
John Wilson: Or like a school. If you've got a couple thousand feet to scope, that's going to take you like a good portion of the day. You're going to be running slow. You're looking for problems. You're looking for issues. You're checking structural integrity of the pipe. This isn't like a wham, bam, let me race this car down and back.
John Wilson: You're taking your time cause you have to. So yeah, I didn't, yeah, I didn't get a metric on. How many feet a day they can scope? Cause I think that'd be interesting. What's a price per foot. But I think that's my impression is like they'll go in and they'll handle a job for a couple of days at a time.
John Wilson: Some of it's one off, like the city will say, Hey, I have to inspect the sewer on this street. And we need to flush them back, whatever we have. So you'll get some of that stuff.
Jack Carr: And so what's the customer look like in this, in terms of acquiring them? So I can't imagine there's a ton of competition in this space.
Jack Carr: Yeah. I feel like if you've been that guy you're. The only guy for pretty much can't imagine there's a ton of companies out there
John Wilson: locally here. There's two and that's it and but it makes sense. There's a, you need almost a million dollars of stuff to do it at the scale.
John Wilson: They're doing it like you could start smaller, but you need a lot of stuff. And this is, just back to equipment being a moat. These guys are getting the work because they've got the stuff to do it. So locally, there's 2 here and the customers again, it's like a 60 to 70 percent b2b.
John Wilson: So you're dealing with large contractors that are either doing new builds or opening up roads. They said a lot of the work that they were doing recently was they had to do road repairs for a local city and Someone had to, before and after they did the road repairs, they had to inspect the sewer to make sure nothing got down there.
John Wilson: And they had to make sure that the sewer was okay, because I guess the sewer was right under where they were doing repairs. So that was a twofer on the same project, and that was just, some contractor got awarded a job by the city to repair some roads, and this was a part of the requirements.
John Wilson: That's a,
Jack Carr: that's a neat idea. It's one of those extremely niche. Yeah. Businesses that you just the average person would never think of. I love it.
John Wilson: Yeah, it's out of the blue. It's like a And it's still drains. It's still, I really like equipment based and like the water truck and the gum busters.
John Wilson: I like this equipment based stuff. It gives you this. Yeah. It gives you a mode. It gives you like access to this work. That's already out there and you can just tap in. And I liked that this is the opposite end of the drain side, like a side that I don't often deal with, but this is Hey, in, in drains, you can go from that, 200 drain cleaning to inspecting muni pipes, and it's still be a service based business.
Jack Carr: And so with that heavy moat on equipment, is there any moat? Do you need any kind of licensing? Inspector,
John Wilson: I think they have online tests. Yeah I think it was, I think there was a licensing, but I, it wasn't like five years of engineering or anything like that.
John Wilson: It wasn't a plumbing license. I think it was a certificate that sounded relatively easy to get ahold of.
Jack Carr: And I love this
John Wilson: business.
Jack Carr: Yeah. I'm gonna Google and see which ones are here now. Yeah. . But, I don't the question is why would anyone sell this? It sounds like a cash cow.
John Wilson: Yeah, it's a cash cow. And I think it would be hard to sell too. It, that's, that is the one downside of equipment based businesses is like sometimes it's what are you buying and how much you have to pay for it. Anytime we've bought an equipment heavy business, the. The like earnings to price, it's a high multiple.
John Wilson: Just if you're looking at it off the rip, like maybe it's like a five or a six on a subscale business, but I don't know how else you're going to do it. If they're doing like 2 million of revenue, they have 1. 3 in assets and they do 500 in earnings. You got to add the assets and you got to do something for earnings.
John Wilson: Like it just is what it is. If I was starting this from scratch, I would still have to go buy 1. 3 million of assets and this one gives me EBITDA they're tough to buy, like I'm working on a couple of septic companies and they're tough. Because the trucks are 200 grand, and on top of that there has to be something to reflect earnings, otherwise nobody will sell.
Jack Carr: Yeah, it doesn't make sense, unless they're trying to, unless they're too small to exit, but that doesn't sound anything like these guys. Yeah,
John Wilson: because, there's a certain point. Like what I usually find is three, two and a half, three times EBITDA, like where we all like this, the sale to be, that's usually about what they have in assets.
John Wilson: And at that point, like they have other options. They can just auction their stuff off. Like they can just that's asset value. They can just boop. Go to an auction house, sell it all off. Get 1. 3 and they don't have to deal with you. And then, so there has to be upside above, above that, where you tack on the value of the business itself.
John Wilson: So what I usually find, like we, we are somewhere between 0. 8 and one times of revenue. Is the average purchase price that we submit for equipment heavy businesses?
Jack Carr: Okay. So with this business in particular, Difficulty rating high. I think this I think
John Wilson: this one's I think this is high I think you need a good infrastructure Like I think this would be a good add on for me With the septic business, but if somebody, if someone's doing a couple of million bucks in drains and they're already dealing with CDL drivers, then this does feel like a pretty solid addition.
Jack Carr: Yeah. Or if you already have one of those large back trucks, this is a definitely a great add on, but to just go out and say, tomorrow I'm going to. Startup a million dollar asset business seems like a pretty big risk. Yeah,
John Wilson: This one's definitely a lift. I better add on if you're already doing some type of commercial plumbing, some type of CDL based driving company.
John Wilson: Cause the drivers have to be CDL CDLA big trucks.
Jack Carr: Yeah. I'm putting this somewhere. 8. 5. Yeah. I think it's pretty difficult.
John Wilson: Yeah, it is. Yeah I agree. I think it, it's difficult. But interesting.
Jack Carr: Yeah. Not to mention has a low head count, right? So you have. A CDL driver, two CAL drivers and a gamer boy in yourself.
Jack Carr: If you lose any of those people right out the gate on, on a sale or on it, something like that, it's not extremely easy to hire, a specific vac truck operator or a small robotic training camera operator. That's something you have to train and have the training program just ready to go. I would assume they would have to do it cause you don't want to. Break that would be a huge, week one loss.
John Wilson: Yeah. I think the staffing and retaining would be tough revenue per head count. It looks like it's about what the water delivery company was. It's like that four to 500 bridge water company was higher.
John Wilson: So that's interesting and water company had less than assets. So I get between the two of them, water companies, my vote, it easier to start easier to pick her customers, potentially a lot cheaper. If you can like. If there's a good reason to select the cheaper truck and that doesn't like harm total gross revenue, that feels like a solid one and you, and it doesn't need to be a tuck in, like it can just be its own thing.
Jack Carr: Yeah. Agreed. And on top of there's no The training is just a CDL, right? To be able to turn the pump on and turn the pump off when the tank is empty. It's
John Wilson: extremely easy. You could hire literally anybody with CDL. Yeah. Whereas it, it takes us like 60 days to train a new septic driver. Cause you have to learn all the nuance of all this stuff.
John Wilson: Yeah, they can drive, but they have to learn all the mechanicals on what they're pumping. Cause you could really damage something.
Jack Carr: Yeah, I would assume that it's. Something similar. Maybe not turn on and turn off, but something closer to that, but not as intense, but you're still doing, I would the septic in the water seems very similar, right?
Jack Carr: It's a suction pump. I guess it's not even a suction pump because you're just using the municipality pressure to push it in. So yeah, maybe a little bit easier.
John Wilson: Yeah. Sweet. All right. Yeah. So today we went over water delivery and we went over municipality sewer scoping. Our vote is definitely on on water delivery.
Jack Carr: And we have a new segment today.
John Wilson: Yeah. Bad deal of the week.
Jack Carr: Bad deal. Bad deal of the week. So the background on this is I brought a deal to John to talk about for me personally, meme that says, This deal sucks.
John Wilson: That was a great name. I'm still holding on to that.
Jack Carr: It was timing. Timing was great. It was a good meme too.
Jack Carr: I admit. And so that one gave me a good chuckle. And this last week I've been looking for something worse than the deal that I brought to the table so that I feel better about myself. We're all looking for HVAC companies and everything. It's a, HVAC jack. It's as well as it's easier to tuck in and expand.
Jack Carr: So just cruising on biz by cell and I came upon this bad deal of the week. And let me see. So this is the bad deal of the week. HVAC electric company for sale in. Georgia, South Georgia. So good spot. First off 40 years. That's a decently long lasting company with mostly residential looks like, even though it says client servicing, don't know what, if that means Business or residential commercial residential, but I'm going to go with it's business, but I'm calling it out as the bad deal of the week.
Jack Carr: It has a seven employees. It's only doing an EBIT of 345, 000 and they want a nice 6. 5 multiple at 2. 2 million without real estate. Yeah. So 3 million with. 8,000 square feet of real estate. I guess I'm, what do you think, John?
John Wilson: I'm mainly confused. I'm just gonna run through the numbers here. 'cause I don't think you hit gross revenue.
John Wilson: So this thing's doing a million bucks in revenue with seven employees, and I'm sitting here like seven employees. How do you even do that? The last two we looked at, we're doing a million with two or three. So I just am not sure what everybody's doing. So what I feel like they did.
John Wilson: Is I feel like they're counting owners, it's probably like a husband and wife, they're counting owners inside employees. And then they added their salaries back to EBITDA, and the owner's probably like the salesperson or something like that. But a million bucks is that's kinda hard to do with seven people, like you should be doing like two.
Jack Carr: Easily. And so if you, even if you cut that down and say, okay, seven, six, five and you say the ad back was a hundred thousand or five employees
John Wilson: doing a million, yeah, that's
Jack Carr: doing a million dollars with five employees. You should, yeah,
John Wilson: that was good in the nineties.
Jack Carr: And then to ask for a six multiple, this is one of those companies that, you might tuck in at.
Jack Carr: 300, 000 if it's making 300, 000. I just don't, I don't know how you'd make that work.
John Wilson: No, you definitely wouldn't. Did it give a breakdown? By no to go beyond this, I would
Jack Carr: need to, okay. And it's a six and a half multiple, by
John Wilson: the way, it's a six and a half multiple. Okay. So these guys are asking a six and a half multiple for a business that's like hyper unproductive.
John Wilson: I love it,
Jack Carr: but they've been in business for 40 years. So maybe they're just. Charging almost nothing.
John Wilson: Yeah. Yeah.
Jack Carr: That's how they've been able to keep clients. Yeah. We
John Wilson: charge 30 bucks an hour or something like that. That sounds about right. Great. That was a great, terrible deal of the week. I'll see if I can, I'll see if I can bring one
Jack Carr: next week you have to talk.
Jack Carr: Yeah.
John Wilson: Yeah. All right. This, yeah, this was a great show. I'm looking forward to next week and seeing what you bring. Do you have any teasers for us?
Jack Carr: Next week is going to be somewhere in the property maintenance realm. Nice.
John Wilson: So I'm bringing a mobile oil change B2B service. I think that one's going to be really interesting.
John Wilson: So that'll be neat. Stay tuned.
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