Buying an Artificial Turf Deal: From $5.5M EBITDA to a $50M Valuation

In this episode Bill D'Alessandro and Heather Endresen delved into an intriguing business opportunity in the artificial turf industry. This is a business with a$5.5M EBITDA and targeting a $50M valuation.

The Listing

We got this one over email, and we couldn't find a link. It was on Sunbelt, but here a pdf version of it

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The Business Overview

Bill introduced the business, noting it was centered around artificial turf, a product increasingly popular in areas where natural grass struggles to thrive. The company, headquartered in a desert region, has experienced substantial growth, driven by the rising demand for artificial turf in residential, commercial, and sports applications.

Financial Snapshot

The company reported impressive financials:

• EBITDA: $5.5 million
• Growth Rate: Substantial, with year-over-year increases
• Valuation Target: $50 million*

*Bill suggested the business could fetch a valuation close to 10 times its EBITDA, given its growth trajectory and market potential.

Market Position and Potential

Heather pointed out that while the artificial turf market is competitive, this company has carved out a significant niche. The business’s founders are industry veterans with deep expertise, contributing to its rapid expansion and robust market presence. The company’s growth is also fueled by increasing consumer awareness and preference for sustainable and low-maintenance landscaping solutions.

The Role of Business Brokers

A critical part of the discussion centered around the business broker managing the sale. Heather noted that while some brokers come from high-end investment banking backgrounds, this particular broker, Ronald, did not. Bill emphasized that this could impact the deal’s visibility to potential buyers, particularly those in private equity who might overlook listings from smaller, independent brokers.

Investment Considerations

Bill and Heather explored several factors that potential buyers should consider:

1. Valuation and Capital Needs: The deal’s $5.5M EBITDA and potential $50M valuation mean buyers will need significant capital. Bill estimated around $20 million in equity, with limited debt to maintain growth flexibility.
2. Management Team: The current owners, industry veterans, wish to stay involved. Heather discussed the challenges and potential pitfalls of bringing in a new CEO while retaining the original founders in key roles.
3. Growth Strategy: With strong growth metrics, the business has room for expansion. However, buyers must assess the sustainability of this growth and identify any dependencies, such as supplier relationships or market fluctuations.

The Ideal Buyer

Heather highlighted that traditionally funded searchers, equipped with deep-pocket investors, could find this deal attractive. The capital requirements and growth potential align well with their investment models. Additionally, private equity firms, often uninterested in smaller broker listings, might miss this opportunity, making it potentially more accessible to searchers.

Potential Red Flags

The hosts underscored the importance of due diligence. Key areas to investigate include:

• Supply Chain Dependencies: Ensuring the company controls its value chain and is not overly reliant on a single supplier.
• Management Dynamics: Evaluating the working relationship between new management and existing founders to avoid conflicts.
• Market Stability: Assessing the long-term demand for artificial turf and potential regulatory or market changes.

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In summary, this artificial turf business presents a compelling investment opportunity with strong financials and significant growth potential. However, potential buyers must conduct thorough due diligence and consider the complexities of integrating new leadership with the existing management team. With the right strategy and investment, this $5.5M EBITDA business could indeed achieve its $50M valuation target.