Opportunities
Directional Drilling for Wireless Carriers and Utilities in Phoenix
90% of the work is for major communication carriers!
Specifications
With an average profit margin of 33% over the last 5 years, the client base for this directional drilling company consists of major communication carriers and utility companies in the Phoenix area. This business is recession proof, as wireless carriers and utilities are essential. Nearly 90% of the work is done for a wide range of major communication carriers, and most work is completed by their highly skilled in-house team of eight people; subcontractors are hired as needed for larger concrete or asphalt restoration projects. Approximately 90% of work completed is directional drilling and laying fiber optic cables. Work is typically steady throughout the year and most projects are completed in the Phoenix valley area and within a 50-mile radius of the office. The current owner does no labor and provides bids and oversight. He is willing to stay on for up to one year to assist with the transition.
The business operates from a leased quarter-acre property that has plenty of room for the mobile office as well as storing equipment. Assets include 5 trailers, 1 mini excavator, 1 Subsite TKD Locator, 2 Ditch Witch Vacuums, 2 Ditch Witch Drills, plus all of the necessary tools and equipment, along with $112,500 worth of vehicles.
Priced at $2,300,000, this company has a solid foundation, positive long-term relationships with primary contractors, low overhead, and many potential paths for growth. First, a new owner could capitalize on current resources that allow the team to take on larger or additional contracts throughout the year. Second, increased focus could be paid to building upon current work for gas utilities as this company receives many inquiries about availability for this specialization. A third area would be to expand the restoration of concrete and asphalt associated with the current drilling contracts. With a reasonable investment, this could be a large area for potential growth.
Business Highlights
Year Established: 2013
Location: Phoenix, Arizona
Service Area: Primarily in the Phoenix valley area (95%) and within a 50-mile radius of the office
Services: Directional drilling and trenching for underground dry and wet utilities, restoration
Clients: Major communications carriers and their primary contractors
Lease: Mobile office, water/power/ telephone, storage for equipment
Reason for Selling: Focus on family
Employees: 8: 1 Supervisor, 1 drill operator, 1 drill locator, 1 excavator, 1 CDL, 1 office staff, plus laborers
Seller Training Period: 1-2 years
Growth Opportunities: Take on additional gas work, contracts, or increase restoration work
Current Owner’s Responsibilities: Oversight/bidding; No LaborFinancial Highlights
- List Price: $2,300,000
- 2020 Annualized Cash Flow: $636,230
Assets of Business
- Assets: $630,179
- Equipment: $517,679
- 5 Trailers: $24,500
- 1 Mini Excavator: $41,967
- 1 Subsite TKD Locator: $17,000
- 2 Ditch Witch Vacuums: $60,000
- 2 Ditch Witch Drills: $343,816
- Various tools, equipment, and office furniture & equipment: $27,852
- Vehicles: $112,500
- 2 International Trucks: $52,000
- 1 2013 Dodge Ram 2500: $25,000
- 1 2007 Dodge 3500: $15,000
- 1 2007 Dodge Ram: $11,500
- 1 2000 International Dump Truck: $9,000
- Intangible: Long-term clients, positive relationships with primary contractors within wide radius of location, low overhead, many potential paths for growth
Cash Flow Analysis
| Description of Financial Statement | P&L Statement Jan-Oct 2020 - Cash | Tax Return Cash | Tax Return Cash | Tax Return Cash | Tax Return Cash | Notes |
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
| GROSS SALES | $1,798,042 | $1,404,602 | $1,091,921 | $1,488,434 | $1,565,085 | |
| Annualized | $2,157,267 | |||||
| Net Income Shown on Financial Statement | $461,267 | $125,266 | $158,348 | $265,891 | $346,386 | |
| ADDBACKS | ||||||
| Cell Phone | $4,000 | $4,800 | $4,800 | $4,800 | $4,800 | $400/month |
| Auto | $52,977 | $52,219 | $50,218 | $42,914 | $40,289 | 50% Personal |
| Travel | $2,491 | $1,685 | $5,582 | $2,174 | $5,560 | 50% Personal |
| Depreciation | $0 | $245,264 | $146,205 | $30,987 | $43,591 | |
| Interest | $0 | $82,701 | $57,554 | $63,719 | $40,874 | |
| Meals & Entertainment | $8,635 | $6,142 | $5,152 | $6,283 | $6,311 | |
| Medical | $50 | $1,908 | $0 | $0 | $0 | |
| Donations | $772 | $0 | $0 | $0 | $0 | |
| TOTAL ADDBACKS | $68,925 | $394,719 | $269,511 | $150,877 | $141,425 | |
| Seller's Cash Flow = Total Addbacks + Net Income | $530,192 | $519,985 | $427,859 | $416,768 | $487,811 | |
| Annualized | ||||||
| Profit Margin | 29.49 % | 37.02 % | 39.18 % | 28.00 % | 31.17 % |
- Profit margin 2019: 39%
- The drop in revenue from 2016-2018 is due to restructuring. They had 3 drills and got rid of one. Work was solid, but they needed more office equipment and better infrastructure, then decided to downsize. The owner was dedicating his time building his own home and wasn’t doing as many bids.
Typical Clients and Services
Clients:
- Major communications carriers
- Primary contractors
- Long-term clients
Services:
- Directional drilling
- Trenching
- Fiber optic cables (905)
- Underground utilities
- Dry utilities
- Wet utilities
- Restoration: concrete and asphalt
Specific information regarding clients is available upon the receipt of a signed Non-Disclosure Agreement.
Employees
Total Employees: 8
- 1 Supervisor
- 1 Drill operator
- 1 Drill locator
- 1 Excavator
- 1 CDL
- 1 Office (PT)
- 2+ Laborers as needed
Growth Opportunities
- Expand resources to
- Take on additional gas work
- Additional contracts
- Additional restoration work
Valuation Details
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 2020 Annualized Cash Flow value 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:
$636,230 x 3.6 = $2,290,428
Funding Example
Purchase Price: $2,300,000
| 12.5%Buyer Down Payment | $287,500 | Must be unborrowed funds |
| 12.5%Seller Financing or Equity | $287,500 | 5-year term at a rate of 4.50% = a monthly loan payment of $5,360 |
| 75%Bank Loan | $1,725,000 | 10-year term at a rate of 6% = a monthly loan payment of $19,151 |
- Cash Flow: $636,230
- Annual Payment:
- To Seller: $64,318
- To Bank: $229,812
- Net Profit (after expenses and loan payment): $342,099
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: 2020 Annualized Cash Flow |
$ |
| Annual Debt Service: | $ |
| RATIO: |
Buyer's Net Operating Income (NOI)
The amount of money the Buyer will retain as profit.
|
Cash Flow: 2020 Annualized 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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210 N 78th St. 2nd FloorOmaha, NE 68114
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