Deal Breakdown: $47 million for scrap metal??

How revenue can be a misleading indicator.
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I’ve looked at thousands of businesses for sale and learned to read between the lines. For every issue, we'll take a deeper look at a listing, learn something, and I'll rate the deal at the end! 

This week’s listing: A scrap metal brokerage that never has to touch scrap metal. 

The numbers: This business shows how revenue can be a really misleading indicator of a business's size. These folks are making $47M in revenue but only $2M in profit

Not a bad way to keep your hands clean.

Green flags

I love the way this business works. They’re like a real estate broker, connecting scrap metal sellers with scrap metal buyers. So you’re not maintaining any inventory yourself — which means you never really take any risk. 

The next thing that’s great here: super consistent revenue and profit. Every year they make $45M and take $2M in profit. This kind of business is awesome: if it does the same thing every year, it’s probably going to keep doing that for a long time.

Some of the customers have recurring contracts with fixed prices, so you're not having to work very hard for those. 

The metal recycling industry is only going to grow. This is a good business to be in.

Red flags

We discussed this deal on Acquisitions Anonymous and realized that there are probably only 3 or 4 employees for this whole business. If it hasn’t grown over the last 20 years, why are you going to be the perfect person to grow it? That means it’s going to be tough to grow.

Another thing is that a business like this is often owner-dependent. The owner has to work in the business to build and maintain the relationships. So, when the owner leaves, you run a big risk that some of your big customers go with them.

It’s also a tough size for financing. It’s probably about $15M. That’s too big for an SBA loan, but probably too small for most people to buy without bringing investors onboard and diluting their ownership. Investors are probably looking for a bigger deal. You’re squeezed on both sides.

What I’d ask

First off, the classic question: why am I the lucky buyer?

Because this seems like a ripe target for a strategic buyer, rolling up these types of brokerages.

Next, how do they run day to day operations? 

From the looks of it, they haven’t automated the business. You want to know how much manual spreadsheet filling—or worse, piles of paper—you’re walking into.

My rating

Heather estimates this will cost $12-15M. So if you can afford that, you can buy yourself a great job here. 

This is the dream for someone: talking to people, building relationships, taking people out to nice dinners, and swapping metal around.

If I was young, and wanted to do this, I would consider finding someone who owns a business like this and offering to apprentice with them. Work to buy them out over time as you grow the business with them. 

All in all, exciting deal. I’m not looking for a job right now, so I’ll give this 3.5 tons of scrap metal out of 5. (Or, if you’re buying through the brokerage, 3.51 tons!)

My podcast Acquisitions Anonymous did an episode on this deal — give it a listen!

What do you think of this deal? Hit reply and let me know!


P.S. This deal is from Axial, so you’ll have to sign up if you want more details!