Anonymous from INSEAD - Tagging a few Searchfunders who have commented on various water related businesses in the past and might be able to provide insight on water pipe/sewage pipe maintenance here:

^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌, ^[redacted]‌ , ^[redacted]‌

‌Also, ^[redacted]‌ & ^[redacted]‌ (neither are active on Searchfunder) acquired a wastewater treatment plant back in 2012 and might be worth reaching out on LinkedIN.

To our friends with knowledge and/or opinions on water related businesses, THANK YOU for helping to make Searchfunder a collaborative community! Be sure to take full advantage of your UNLIMITED access to IBISWorld (Searchers only) & BVR Deal Stats, now available under the INDUSTRIES & VALUATIONS tabs at the top of this screen. Here are the direct links:

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With Best Wishes, ^[redacted]‌

Would love to hear more. Have looked at a number of businesses in the space, feel free to reach out [redacted]

Franchises are regulated in the US and some states. They are required to make disclosures to potential franchisees. The best thing to do is go through their funnel and see if you are a fit, and then get the FDD to start due diligence.

For all of the SBA lenders who responded, how does a sellers note affect the D/E ratio the SBA requires?

I don't have specific experience with this industry. But coming from a relatively flat engineering firm with[redacted]employees, you are spot on with your red flag for management. You need to be thinking about order winning criteria - if the firm wins work because the CEO/COO have built relationships and trust with key clients you need to have a solid plan for transition. As part of developing that plan, I would look at resumes and external relationships of the employees to see who can potentially carry this torch. For the asset light, I would look at the balance sheet history to make sure they haven't recently changed their business model in preparation for the sale (eg a leaseback).

Something to consider is how you get bonding (meaning surety bonds... not transaction financing).... I've had a couple of broker conversations in adjacent spaces and this has come up as a potential roadblock for buyers. without experience in the space.

I’m in the space in the US, although more on industrial purification services vs. municipal maintenance. From what I understand, that can be a good business (massive market, constant need for maintenance), but municipal work also tends to be competitive since they usually often post bids publicly to bid out. Asset light is pretty normal, since you can include all the leasing/contracting costs in your cost estimates to generate your bids. One thing to keep an eye out for—if there is minimal middle management, there is a good chance that the CEO/COO do a lot of the day to day legwork and have a lot of business-specific expertise. You probably want them both to stick around for a while after if possible. Or just really dig into how much of the expertise sits with them in your diligence.

Don’t mean to sound like a Debbie Downer (and this is merely my amateur two cents). As a searcher without significant industry experience, I would be extremely leery of buying ANY business where the 3 senior-most people are all leaving (COO staying for 9 months doesn’t change that). Having weak middle management is very common. Even MM PE firms run into that problem all the time, let alone small founder- or family-owned businesses that searchers tend to look at. I honestly don’t think I’ve ever met a single small business for which I came out thinking “oh wow they have a really strong and deep bench of middle management layer”. (I mean, if I had that for my business I would never sell; I’d just promote someone and go enjoy the cash flow as a passive/absentee owner.) So your conservative assumption going in has to be that you’ll have to replace all three of those people somehow. That’s really hard to do, and no matter how well you plan that out, even if you have candidates identified to come in with you, it’ll still be a major risk that you can’t “bound” because of your lack industry experience and expertise, especially given this is an (at least somewhat) technical business. For a typical highly levered search deal, this situation scares the heck out of me. Too many unknowns that can go wrong. Again, hate to pour cold water on your deal, but rather speak bluntly to be helpful.

Feel free to DM me if you’d like to hear about my own experiences or chat further. Best of luck!

Oops, just realized you meant the top 2 are leaving not 3. So that’s not quite as extreme, though my suggestion of general caution remains. Make sure you have a thoughtful plan on how to replace two full-time owner-operators while you’re learning a new business, and make sure you have a back-up plan in case plan A fails. Certainly try to structure you deal with as much seller note / contingent payments as possible. Spend a lot of time in DD focusing on what the CEO and COO and everybody else do exactly, and map out who will lead/manage/assist with which functions. Just like the other posters suggested. Also think about retention plan for the other employees (weak of not, you can’t afford to immediately lose the middle management post closing). Lastly, I wouldn’t worry too much about the business being asset light, it could actually be a good thing, as long as there’s some sustainable barriers to entry. Best of luck.