This may read like an insensitive post given that the world is in the throes of a global pandemic. It’s not my intent to be insensitive but at the same time, I don’t apologize for the post. it’s just the lens through which I see stuff.
Let me start with a quick catch up on my progress with Blue Diamond which I can easily dovetail into the discussion I want to have.
I haven’t given up on identifying assets to purchase to make Blue Diamond happen. What I have done is looked at different ways to make it happen like considering the following:
- Is there an existing retail operation that I can buy? I mean stores that I don’t necessarily have to rebuild or do major rehab work on. Those will sell for a higher price than the shit stores I was looking to purchase. I would still look to identify a “bargain” but the historical performance would make my ability to determine what that “discount” might be.
- Is there a way for me to get to a wholesale distribution company without the retail component. This could be the purchase of an existing company or stepping into a contract with a large company or other fleet operator or industrial lubricants user where I could be a supplier. That’s probably a harder route to go but, if you’re not looking for it, you will never find it.
- I’m trying to find smaller groups of operating stores, say 2-3 with common ownership to group into a larger package so I can get to the volume needed for a supplier contract. I’m making a list of store owners before I began my pursuit to see if they can be bought. This is the same approach as before but I’m looking for higher-quality assets with historical financials.
Here’s my broad thought process and why it might seem fucked up or insensitive.
The coronavirus pandemic is creating economic stress but also an economic opportunity. Businesses, large and small, are already closing. Many of the smaller businesses won’t recover. These businesses are not bad businesses with bad business models. Most businesses can’t survive for weeks or even months on end with diminished traffic or business activity. The business owners have some tough choices to make, temporarily close, permanently close, sell the business or try to limp along until the economic recovery happens.
The phrase, ‘cash is king’ probably never meant more than it means now. I wish I had some cash but I’m thinking I might not need much. Let me explain further.
When I talk about businesses, I’m not necessarily talking about the wholesale petroleum products business or the retail convenience store business, I’m speaking of businesses in the broadest sense. I will reference the wholesale petroleum products business simply as a point of reference since I have spent a good part of the past year chasing a deal that has fallen through at this point.
There are gonna be business owners out there that for a bunch of reasons say fuck it, time to exit. It could have operated for 30-40 years and didn’t have a planned exit strategy but this economic downturn is giving them a reason to exit. Selling the business may be as good an option as any. It beats just closing the doors in some respects. These types of transactions probably won’t come at a deep discount. They are just opportunities to purchase and existing.
There will be opportunities where there is distress and you (me) will have an opportunity to buy a business at a deep discount. The owner may simply be out of cash and selling is a way to salvage something, not necessarily the business, but to pocket some cash and get the fuck out, while they can. These are great opportunities and should be of the highest priority to identify.
There will be situations where you will have an opportunity to start, maybe from scratch at a discount. For instance, there will be a lotta restaurant and bar fallout, a blood bath. These restaurants and bars will be vacating what might be an ideal space or great building locations. At the end of this crisis and before the recovery is in full effect, ceasing this space might be a real bargain, an opportunity that might not have existed before.
There might be “market voids” cause by companies or suppliers exiting a business or business unit that you (I) can fill. You have to be looking to find them. They might fall into your lap but that is wishful thinking.
This is the last scenario I’ll mention but there are many more. There will be situations where either large or mid-sized businesses will want to sell a business unit or particular asset or group of assets so they can focus on their “core” business. The assets they shed or are looking to sell might be ideal for you. “Ideal” is something you will have to assess based on what you want or can do
My point is this, the economic stress resulting from the pandemic is going to create some business opportunities. Those that are thinking, being aggressive, looking for something might find it. There is a group of “opportunists” out there looking and I’d like to think I’m one.
Let me say this and I’m not going to spend a lot of time on it but don’t let the lack of cash or resources keep you on the sidelines. Don’t use that as an excuse. If you do, you weren’t gonna do shit anyway because you have been restricting yourself before for that very reason.