Buying a vending route to add to current one, thoughts...?

[CapitalCityVendingLLC]

In the last couple of weeks, my business partner and I have been looking at a potential addition to our company/route.  Like any/every route, there are a ton of variables to consider, but after crunching numbers every which way we can think of, I think we are going to take the plunge.  

The original asking price was for 24k, which was supposedly the last years worth of profit (before the individual paid himself).  After digging into his numbers, this number was much much lower than he thought.  Last year his route produced 71k in revenue, and profited (before he paid himself) 16k.  If his revenue stays the same this coming year as it was the past year, we expect the profit from 1 year will be around 16k.  We are meeting with him in a couple days to hopefully change the sale price closer to this number as we all originally agreed that 1 year's profit was a far sale price. 

The main reasons for the sale price being that low is the equipment is much older than your average machine, and the average revenue/machine or revenue/account isn't all that great.  In the coming years, we would have to replace almost half of his equipment as some of them are on their last leg.  The good thing is that we have a good bit of snack machines ready to be placed, so swapping them out won't be that hard.  The drink machines will be a bigger hurdle to jump over however.  He has about 5-8 old old old DN single priced drink machines that look like they are one vend away from dying.  That being said, we have some older DN machines on our route that look just as dire but have been cranking out drinks for decades.  I guess we'll just keep our fingers crossed.  That is ultimately our biggest gripe/fear/issue is that with the older equipment (and some of them are reeeeaaaallllly old) we know there will be aggravation with service calls, repairs, etc.  Some/most of the older snack machines we are not that familiar with so there will be a slight learning curve as well and that always comes with a certain level of aggravation.  

Pros are that we are going to increase his margins drastically as we will raise prices a substantial amount going forward.  His prices per item are anywhere from 5-25 cents lower than our normal pricing.  We kind of feared we might lose an account or two due to raising the price, but we haven't lost one account on our route over the years due to raising prices so hopefully that will carry over to his as well.  He had a lot of fixed overhead like insurance, warehouse, phone bill, etc. that we already have in place so that will also help with the profit margin numbers.  His route did 71k last year which if added to ours route/company would increase our yearly revenue by around 38%.  His margins were God awful as his prices were crazy low and he wasn't big enough yet to make his fixed overhead % smaller.  Even raising the prices like we plan on doing, we expect to retain all/most of the accounts due to a very low level of competition in the area.  Also, almost all of the accounts are independent of one another so if we randomly lost one, we wouldn't lose a couple others that were tied into that one account.  We think, if the new revenue stays near 70k, we should profit around 24k.  Our normal profit margin (before payroll) is 40% so if we can get the new 70k in revenue up to 35% profit that would be 24k in year one which would cover the 16k investment.  His better machines hold some value but the way we look at it is that that is nullified by the other terribly old machines that he has.  His nicer machines could probably sell for 10k total, but on the flip side, in the first 5ish years, I see us putting 10-20k worth of better equipment in these accounts.  If his equipment was much nicer then that money would be going to him, but since the equipment isn't, it isn't.  We think he is going to let us stretch the payments over a 1-2 year span which is nice.  We will have to pay an additional amount for the inventory in the machines and the $ in the changers also.  Of course when it comes time to make the deal, we are going to go to our lawyer and type up a detailed contract.  

I know there is a ton of more info that ya'll don't know as of now but am I missing anything?  Big picture, the price we think is definitely reasonable, but the machines are going to be aggravating.  Like I said, we are probably going to go through with it but I wanted to check on here to make sure we weren't blind to any glaring thing.  This would be the first purchase like this we will have ever done so anything ya'll can think of that I need to do or not do, feel free to let me know if you don't mind.  If you have any other questions let me know.  

 

Thanks...

[AngryChris]

One thing I am very curious about is what model machines these are.  Sure, "really really really old" sounds pretty darn old, but there are people that think that a DN 501E live display is old because it has been in a VERY dirty facility for 5 years.  Being "old" is subjective, so it's important to be more specific if you are actually looking for feedback (IF you are...).  I will point out that, although they look pretty old and crappy, single price 501T's will seemingly last forever or until parts can no longer be had, which will probably happen after we're all dead... because there are so many of them out there.  The reason there are so many is because they WORK.  HOWEVER, there is no sense in leaving old, dated equipment in high volume locations or decent locations where a competitor can simply offer slightly newer models and get the account from you.  I still have single price machines out there, but only about 14 with one that I will be getting rid of soon, and another that is a DN 501E without a control board.  Of those places, the majority of them generate around $1,000/year in can sales.  There simply isn't a valid reason to upgrade them due to low income, and they generate enough to not be worth cancelling either.  It's just a weird situation where they don't make enough to upgrade but make too much to cancel.  I just don't want to put these single price machines somewhere else.  When they come off location, they get sold off or scrapped.  Snack machines are the same way but obviously it's not an issue of being "single price" or not.. it's more of an issue of things like... are they too old to make look new again?  Is the cabinet and door in good shape?  Can these machines be upgraded to work like new AND look like new?  Is it worth the upgrade?  Etc..

As for the price increases... I think you should expect to lose more than a couple but that really depends on the service they were getting.  With prices being low, I would expect service to be poor, but I could be very wrong on that.  When I acquired a new cluster of accounts recently (indirectly, through another vendor), the estimated income was about $12,500 from 9 accounts.  When I took it over, it would have been generating closer to $15,000 but I had to cancel 3 accounts for different reasons, which reduced my numbers back down to $12,000 from 6 accounts.  One account had a Lektrovend snack and a bottle machine with a fried board.  I canceled that because it wasn't worth fixing or replacing on location, and I gave the snack machine away.  Another account was canceled mutually between me and the location.  They complained because I didn't put the stuff they wanted.  I complained that sales were low and I couldn't put what they wanted because they wouldn't even buy what was there because they only had about 7 employees.  The guy insisted it would do more if I put the right stuff and I insisted that it wouldn't change the fact that I was losing money trying to service it, so I just set up a date to uninstall.  The third account was lost because I wanted to raise bottle prices from $1.25 to $1.40.  They just told me to take the machines out and that they would "get the old company back" but looked dumbfounded when I explained that I acquired them because THEY sold out to a bigger company and the bigger company wouldn't take this customer.  For about $500, I got a 276E and an AP 7600, so I was fine with removing the equipment.  Aside from that, and a few other locations where I increased prices, most people gripe a bit when you have a substantial increase but they were okay with it when they realized that I had to raise prices to maintain my level of service, which they agreed was better than the former company.  So.. if you are going to raise prices, allow them at least time to realize that you will be offering better service.  The exception is when the equipment is way too nice for the location and the location isn't worth fighting over anyway... in that event, just raise prices whenever you want to because it's kind of a win-win to lose a slow account and get nice equipment to use elsewhere.

The only thing I will say is that he sounds honest if he was able to go back and correct his estimated guess of $24k DOWN to $16k.  Liars don't go down like that... so he sounds like he can be trusted.  This sounds like a decent acquisition if the numbers work for you, but expect a few things... Firstly, expect to have to cut some slow locations.  If anything just isn't worth servicing, cancel it.  Don't put YOUR company name on something that isn't going to make you money.  My BIGGEST complainers are slow locations.  They complain about prices being too high, not having what they want, and various other things.  My busier locations don't complain!!!  And as most people know, the only time people USUALLY talk about a vending company is when they aren't happy with it.  So.. if a location is a turd, just cancel it.  That way, should you find a related location or a contact later that worked at the canceled location, they aren't going to remember you as the last name that was put on the machines before they got the same "crappy" service and machines pulled.  Instead, just cancel it right away so they don't know who you are and keep your reputation in tact.   Aside from that, if you plan on upgrading a location, I would explain to them that you will be upgrading equipment AND raising prices as a means to provide better service through better equipment.  People seem to take price increases much better when they get "new" machines.

 

[Snickers]

If you can make your investment back in 1 year than it's a no brainer. Sounds like it won't even take that long. Buy it. 

[CapitalCityVendingLLC]

AngryChris, 

A couple things.  We know the guy going back 20ish years off and on and your correct, he's a pretty good dude.  He is just retiring and wants out.  He knows that he neglected his route when it came to keeping his equipment up to date.  The one weird thing (and it could possibly backfire) is that this guy gave amazing service from what it seems like.  Like world class service.  We pride ourselves on really going out of our way to taking care of our customers but this guy would put anyone on here, me included, to shame.  Slower accounts that we would go to every 4-5 week, he's going to weekly.  We see it as a slight issue as to the fact that we might lose an account or two but we looked at our books and saw 2 things.  One, in the 7 years of our companies existence, we haven't lost 1 account due to it being our fault.  We've lost a couple due to various reasons that were out of our control, and we decided to pick up a couple due to slow sales, etc.  But we have never lost one due to something we did wrong.  Two, similar to the first thing, we haven't lost a single account because we went up on prices.  If anyone ever brought it up, we have been able to explain our way through the price increase.  Only once have we had to back track after a price increase at a rent controlled place.  So there is a chance that we might lose an account or two, but even if that happens, Hopefully the ROI would still fall around the year mark.  As you said, if it happens in a slower account, no lost sleep.  The bigger accounts, we would likely be doing it while upgrading the equipment which helps ease the pain.

As for the "old old old machines", he has a couple crane, rowe, and AP's, and as previously mentioned, DN single price machines that look like they are way older than me.  Hopefully you are right about some of these being work horses (and we do see them out there online for sale and in other accounts).  I guess our biggest concern with them is our unfamiliarity with them if something breaks.  Most of our snack machines are USI 3013A, 3014A, and 3015A, as well as about 12 new AMS machines.  We love our USI machines just because they are just smooth, easy, reliable machines.  We know them like the back of our hands and luckily we have a lot of spare parts to them.  The next guy may hate them, but they are what we know and like.  That being said, we don't have any cranes, rowes, or AP's.  The potential frustration that comes with this "older equipment" is what worries us the most.  About half of the AP's looked decent and were fairly presentable.  The other have pretty darn old looking.  The handful of rowes and cranes were ancient looking to the outsider standing in front of them.  Some of the slower accounts we would just let them go until someone says something.  The better accounts, we would try and upgrade one by one.  As for the drink machines, a lot of the refrigeration decks looked beat to hell and rusted up.  I guess we would just cross our fingers on a couple of them and hope the deck lasts as long as possible.  I know some of ya'll probably do it all the time but we just hate changing out decks.

And he didn't go back and correct his estimated guess from 24k to 16k, I did.  I asked to see his books (as anyone buying a route would) and found out that his 24k profit was actually 16k.  We haven't meet back up with him to show him this so we don't know how he is going to respond when we show him.  Not sure if he'll stay hard at the 24k asking or if he'll realize he only cleared 16k and that is "one year's worth of profit".  He is pretty motivated as a seller though, and we are pretty sure that we are the only people standing in the "looking to buy this route" line.  

Thanks for the feedback/thoughts...

 

I think ultimately the driving force behind us going forward with it is the increase in revenue/work.  There are some slow weeks when we take a day or two off and are just halfway wishing there were more machines out there to be worked.  We realize the frustration and work that might come our way, but look forward to not having the "I wish we had a busier week this week" feeling.

[AngryChris]

I misunderstood who discovered the 16k number but it's good that that information is there to look at.

Just to note...the 3015 series is old old old lol.  I'm scrapping some when i can.

[Poplady1]

If you plan on increasing the prices be very careful because one of the biggest reasons a company like Blue Moose gets calls is price increase.  The client feels like a price increase means better equipment and cc readers and commission and on and on.  Talk to each account and feel them out before bumping up the price. You really don't want to try to relocate old equipment in todays market. My two cents