[00:00:00 - 00:07:18]

Will Smith: The business that today's guest bought is not the typical searcher target, but when you hear the numbers, you may wonder if it should be Daniel Batista bought an indoor play center for kids. Imagine 10,000 square feet, a giant mazy play structure, a ball pit, an arcade and a cafe for the parents. This business boasts 50% net margins5.0, which was frankly hard for me to believe, and Daniel and I spent time on the characteristics that make this single location business so profitable. It is an outlier. Daniel believes most place centers are not nearly so successful, but it still makes you wonder if this category is a hidden gem.

This is also fundamentally a retail business, which means that there is a ceiling on the amount of revenue a single location can generate, and so uncapped growth needs to come from a multi unit strategy. We talk about how Daniel envisions building second and third locations de novo finally, listen for Daniel's philosophical point about buying a business. After looking at boring businesses for months, the sweaty tradesy stuff, he just couldn't get excited about the prospect of buying one. So he decided to narrow his target industries to those that did excite him, which meant his deal flow would slow dramatically. But happily for Daniel, the right one did show up.

Here he is Daniel Batista, owner of Candyland Downey Fall conference season is upon us. Kicking things off next weekend, September 5th and 6th is the Southeast Entrepreneurship through Acquisition Conference, aka CETA, this year hosted at Darden Uva's Business School. CETA is in partnership with Georgetown, Duke and unc, so it actually draws people from all over the south and Mid Atlantic region. Also, yours truly will be giving the keynote. I'm so flattered by the opportunity.

Thank you to the CETA organizers. I have many personal connections to uva. So I'm just thrilled at this honor. Then later next month in St. Louis, September 24 through 26 is the buy Then Build Summit, the inaugural conference hosted by Acquisition Lab. The Lab is of course a longtime sponsor and friend of this podcast, and the event will be filled with people from inside and outside the Lab, both current searchers and those already in the ownership seat.

Walker Deibel will be there, as will his co founder Chelsea Wood, who you've seen host many valuable webinars with Acquiring Minds. I'm looking forward to finally meeting Chelsea. Ann Walker in person. Then the McGuire Woods Independent Sponsor Conference is October 14 and 15 in Dallas. This is by far the biggest conference for independent sponsors in the capital providers that serve them like our fund MINDS Capital.

If this path of independent sponsorship interests you, maybe you've been listening to our sister pod, the Mind's Capital podcast. Then McGuire woods is ground zero. Mindz Capital will be there. We'll be meeting sponsors we've invested in already and those we hope to invest in. And we'll be hosting a special off site for our LPs.

You know who you are finally. M&A Launchpad's fall show is October 25th in Chicago. The lineup is full of Acquiring Minds guests Dustin Carrion, Dominic Blue, John Murphy, Sam Rosati, Ryan Sullivan and Reid Pennebaker, who runs ETA Circle in Houston and has introduced us to a bunch of wonderful acquisition entrepreneurs who've then come on Acquiring Minds. M and A Launchpad is a one day packed event that is October 25th in Chicago. Now there are even more shows this fall, but these are the ones I happen to be involved with this year.

Maybe I'll see you at one and if so, please say hello.

Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome. Opportunity for many entrepreneurs and on this podcast I talk to the people who. Do it Looking for an SBA loan to buy a business?

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New owner of a business. Go to pioneerCapitalAdvisory.com or click the link in the notes. Daniel Batista, welcome to Acquiring Minds. Thank you Will. Glad to be here.

Daniel, you bought a business whose product is aimed squarely at me. Parent of little kids, toddlers that I am. So my interest in it is not only from the perspective of buying businesses. But as a consumer of the product. I'm talking about indoor playgrounds and I'm so eager to learn all about your business.

Start us off please, with some background on you. Daniel yeah, yeah. Thanks Will. So I was born in Los Angeles, California, raised by Cuban immigrants, grew up Actually two blocks away from Paramount Pictures. So kind of my entire childhood I saw that water tower and the big Paramount symbol and it just felt very real, like a real career path and potential, you know, place for me to work thereafter.

[00:07:18 - 00:08:24]

Daniel Batista: And so when I went to undergrad at Berkeley, I was in the Haas undergrad program there. Most kids were going into auditing, investment banking, management consulting. And I was like the one guy who said no, I'm going to go back to LA and get into the entertainment business. So I was always a little bit off the beaten path from, from the get, from the get go, but made my way back down la, you know, landed a job at Universal Television in FP and a in finance. That was kind of my way in.

I worked in the studios for about all in eight years. So I went from Universal Television to Warner Brothers International TV to Paramount Pictures International. So I finally did make it to Paramount in the end and, and then from there I moved to London to go launch Universal Pictures International. I was there about a year and a half and then we launched Universal Pictures Mexico. So they transferred me down there to launch that outfit.

So I was end up being down in Mexico for two years. Really great experience. Daniel launching Universal, what did you say? International, and then Universal Mexico. That sounds like a really big deal.

[00:08:24 - 00:08:44]

Will Smith: Is it as, as grandiose as it sounds? Yeah, no, it was a very unique moment in time. There had been a joint venture between Universal and paramount for about 30 years and I happened to be there when they broke up the venture. And so Paramount took over that office in Mexico, so Universal had to start their own similarly in London. Same thing happened there.

[00:08:44 - 00:11:10]

Daniel Batista: And so, so yeah, I was, you know, definitely having living my dream and you know, literally watching movies for a living. It was pretty great. And then, and then I got, and then I just started seeing what's happening in the world of digital and I just felt like I would be trapped in this kind of theatrical distribution like some old model. And so I decided to hit the reset button. I applied to business school and I ended up at Kellogg.

And, and while I was at Kellogg, that's actually when I first encountered the world of eta. And of course I took there with a professor named Steven Rogers. But you know, that's kind of where, you know, things got started there and I learned about it and I was very excited about it and just simply wasn't the right time in my life at that moment. And I'll fast forward to that later. And then from there I went to management consulting.

So I joined a firm Called Lek. Coincidentally enough, one of your other guests, Gabe Perez, was in my intake class for Lek, so that was a really nice coincidence to hear him on your podcast. And, and after Lek, I did, you know, I did all kinds of casework there and strategy consulting across healthcare, consumer products and entertainment. And then from there I jumped into the digital media startup world where that was kind of blowing up. It was like the era of buzzfeed and all those kind of new digital media publishers were coming out.

I joined a firm called MeToo Mitu. It was targeting us born and raised Latinos, millennials at the time. And very unique approach at that time. Unlike Televisa or Univision, it was all Spanish language. This was everything in English.

It was kind of like a Latino BuzzFeed. And so it was there for about three years and then I was ready to start something of my own and I got connected to the actress Zoe Saldana. You know her probably from Guardians of the Galaxy, Avatar. She just won the Oscar this year and her best supporting actress. So her and I launched a startup called bsay.

We, I ran the day to day operations, she ran the creative and I was there for about two years, two and a half years running that, that. That business and really working side by side with Zoe. Absolutely. Yeah. Every day.

Yeah. Well she was actually literally I would go on set to Avatar when she was filming Avatar 2 and I'd be in her trailer and we're kind of going over the business plan for B. It was, it was pretty surreal. It was another kind of a pinch me moment. Like I can't believe this is like the life I'm living right now.

[00:11:10 - 00:11:27]

Will Smith: But, and, and did you have a. Previous relationship with her? She had this idea for a startup that was kind of in the vein of like a vice, but like kind of unscripted documentary style, but focus on more people of color. And, and, and she was looking for a co founder and a president and coo. And so that's.

[00:11:27 - 00:13:07]

Daniel Batista: They eventually they found me and then they connected us and then we hit it off and then off we went to, to go launch this business together. This, this is the, the Hollywood and start from scratch version of buy a business, install an operator. You sir, were the operator. Exactly. And to be fair, it was only a deck at the time.

So there wasn't actually a business. Yeah, but yeah out there. B. Say I went on to do some independent consulting and eventually joined a company called Exile Content. They had just been acquired by Candle Media.

Candle Media is the owner of Moonbug who does Coco Melon. They're also the owner of hello Sunshine, a Reese Witherspoon's company. And so we Exile was focused on the Latin market, film, tv, podcast and digital social content. And so I came on board, became the COO there. Encounter Media was owned by, backed by Blackstone.

So it was kind of a great opportunity to get into something a little bit, had a little bit more infrastructure in place and so I kind of got some good experience there for a couple years. And then after my two year end of my two year run there, I went and got married, went on my honeymoon to South Africa and when I was just trying to figure out what to do next and then this little light bulb kind of came up at the urging of my wife to kind of re explore this whole acquiring a business opportunity. And so, and Daniel, what year we in now? So we're now in 2024. Okay, so this is just last year that you get married and that, that your wife reminds you of eta actually.

[00:13:07 - 00:13:47]

Will Smith: So did she know about ETA because you had been so vocal about your enthusia enthusiasm way back when or did she know about it on her own or, or what? That seems like a random thing to have that she would bring up years after you took that class. Yeah, I think I had mentioned it in passing as kind of a desire mine, but I think where she actually saw like she started seeing influencers pop up on her feed talking about acquiring businesses and I think that's when she sent me some, some of that content and I thought, wow, like this is interesting. I, I, it's really grown a lot since I last looked at this. And sure enough, that's when I dove in and discovered this whole new ETA world and SMB, Twitter.

[00:13:47 - 00:16:11]

Daniel Batista: I discovered your podcast, which I listened to every single day, replacing all other podcasts that I used to listen to for a whole year. The highest compliment. I love it. I push everybody else off your feed. Just me.

You did, you pushed everybody away. Because I was just so focused and I decided I'm definitely going to do it this time. This is the right moment in my life and especially, you know, given the, the instability and the turbulence in the entertainment industry. So yeah, when I started it was exciting. It was like just so much fun.

I was going around the world, you know, I was, you know, international theatrical was blowing up and you know, everything seems so, you know, like the future was bright and then, and then in the last couple years you've seen like a lot of consolidation happening in the media entertainment industry. You had the Writers strike, the actor strike, you have the disruption of AI so there's all kinds of, of turbulence happening that's actually causing a contraction in the media, entertainment industry, especially for the kind of old media, the old guard. And, and so I just could see the writing on the walls and see that, you know, I just had a, I just had a baby boy born in February. Congratulations and thank you. And I just started thinking about the future and that, and that this career I'm in currently, although I've done well, just is not a stable place to be.

And, and then that really kind of terrified me. So do you think if, if the prospects looked rosier for entertainment broadly that you would have stayed in it potentially? If things, if I kept climbing and making the kind of, you know, income that I, I was looking for, it probably would have been, you know, I probably would have put the, kept putting this off, frankly. But you know, I think, you know, this, it's kind of like when one door closes, another one opens. I just saw, I was seeing that door starting to close and so I just thought, okay, I better get ahead of this now.

And so yeah, I, I just started to go deep into this read Buy them, build the HBR guide. I went to the inaugural UCLA ETA conference and just really just kind of started just absorbing newsletters, your podcast and then just going, you know, biz by sell, you know, going real deep into the in A broke what it was a broker led search that I did instead of, I chose not to do proprietary. So tell us about your search, Daniel. What did it look like, your criteria? Because I know that that was something that was, you had that pretty well defined.

[00:16:11 - 00:16:27]

Will Smith: Thank you. Sam Rosati. So maybe start there. What were your kind of criteria as you set out to buy business? Yeah, I decided I wanted to stay in the L A county area in SoCal, ideally within an hour drive or so from where I live in LA.

[00:16:27 - 00:18:27]

Daniel Batista: And I, I wanted something that at least had 750k SDE. I was looking for ideally something at a million, but, but as you know, those are harder and harder to find and they're very, they're very competitive. And so those are my, my key criteria. I left industry agnostic largely because of what the recommendation of Sam Rosadi and, and you know, I just felt okay, like my deal flow is going to be limited if I also lock that in. And so I just commenced my search with a very open mind initially.

And as I was. Months went by and sim after sim after sim across, you know, all these interesting industries, you know, From H vac to plumbing to anodization of metal and, you know, all kinds of interesting, you know, businesses. I. I just wasn't really getting excited about it. And. And then one day I heard Shell Zhang on your podcast who had acquired Nada's Italy, and her whole approach was, let me buy.

I'm gonna, you know, I'm gonna buy something that's fun. And I think the reason I got into entertainment industry, because I was. I always saw it as fun. Like, I'm not really working, and I was obsessed with film and tv. And so I started thinking, you know what?

Screw it. I'm gonna just focus on things that actually really, you know, you really get me pumped up. And so I decided to narrow down to the family entertainment center market. And that's like anything from indoor playgrounds to arcades to kind of trampoline parks, things like that. I really like the space.

It's been growing at 11% CAGR since COVID It's an $11 billion market here in the US and it's just something. It's a subset of the industry I hadn't touched yet. And. But I can get excited about, especially now having a. A baby boy.

So. So that's part of why. And so you saw that as kind of. I mean, what it sells is fun. So it kind of checked the fun box.

[00:18:27 - 00:19:13]

Will Smith: Even if it's targeted at kids, not grown ups. Of course, ultimately it is targeted at grown ups. We're the clients. Yeah, but. But, yeah, okay.

And, you know, it's interesting, Daniel, so you are actually not taken with boring businesses. When you looked at, quote, boring businesses, they bored you. It's in the name. Yeah, exactly. And.

And so despite the fact that you really like the idea of buying an existing business, you were not taken with the idea of just any business. The more boring, the. The more beautiful sort of thing. And so that, That's. That actually differentiates you a little bit.

You. You wanted to feel some interest, some passion, maybe too strong a word in whatever it was that you were going to acquire. Yeah, that was my conclusion. I gave it a shot. You know, I tried it in, like, nine months.

[00:19:13 - 00:20:21]

Daniel Batista: I tried. I was keeping very open mind. And then ultimately I just came to this conclusion that, you know what? I'm just going to focus on things I think are interesting and fun that I can get excited about, get out of bed every morning and want to go work on that business. And then the other sector I was looking at was also a little bit inspired by Shell, was the travel sector, tour operator.

Sector. I'd seen a couple sims come through that really got me excited. So I, so I decided, okay, those are going to be the two places I'm going to focus on in that category. However, I was more open minded to nationwide search because a lot of these companies I found were can be operated remotely. Yeah.

So I, so that's why I did that. Kind of helped open up the funnel a little bit as well when I, when I did that. Did you connect with Shell, by the way? I did, yeah. I had a call with her.

Yeah. Okay. She's great. Yeah, she is. If you ask owners in the ETA and search community which insurance broker provides highest quality work, great outcomes, and has a practice dedicated to searchers and acquisition entrepreneurs, one name comes up again and again.

[00:20:21 - 00:23:30]

Will Smith: Oberle. Oberle Risk Strategies has worked with hundreds of searchers over nearly a decade and is in fact led by a two time successful searcher, August Felker. Which makes Oberle a specialty insurance brokerage for searchers by a former searcher. And if you've got a business under Loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. An easy, no risk way to get.

To know August and the team at Oberle. To take advantage, check out oberly-risk.com that's O B E R L E hyphen risk.com link in the notes. Let's talk about the funnel there for a second. And we both referred back to Sam Rosati and why we did that is because of course been on the podcast, has done a number of webinars, people will recognize his name, teaches searchers and one of the, one of his concepts is this big three, little two concept that he talks about where the big three are, your industry, your geography in your size and the, and, and it's based on the reality that there's just not a lot of businesses out there that you'd want to buy, despite the fact that social media would tell you that there's 10,000 boomers retiring a day. As, as any regular listener of Acquiring Minds knows, it's very hard to find a good business.

Okay, so the big three are going to be your geogr, the size of the business and the industry. And if you are dead set on one of those like geography, like you want to buy a business in your home market, you got to relax the other two, otherwise your deal flow is just going to, there's just not going to be enough deal flow. So you pick one and then you got to relax the other two. That's the big three little two concept. Now Interesting Daniel, as I just heard you go through the progression, you actually didn't do that.

You, you were like I'm going to do it in LA or within an hour radius of where I live. And I guess initially you, you, you widened the aperture to anything, you know, the metal finishing and H vac, but later you narrowed it back down pretty tight to, to indoor entertainment and travel. So the Venn diagram of, of two industrial is, you know that's a, that's a sliver of an overlap there. Not to mention that you wanted to buy 750. Now I, I assume you relax that because that, that would have just been.

Then you would have been looking for a unicorn. What did you ever relax your, your size criteria down to something below 750? You know, I entertained a few things that are in the 500 range, but I, but I was very much more dead set on something that was, that was higher than that, ideally in the 750 and above range. So I recognize fully that the funnel like you know, came to a trickle, you know, but, but you know how I just, it just came in, it just, it was something like I, I literally it's the same thing I, I discovered in, in undergrad when I was a senior. I couldn't get excited about anything everyone else is doing.

[00:23:30 - 00:24:01]

Daniel Batista: I'm like I want to go in the movie business, you know, and that's what excites me. And, and so kind of felt found myself now 20 plus years later having been having a career in entertainment. I kind of came, came back again and I realized it's just my nature, it's just who I am and I just can't help it. And so yeah, I recognize that it would make the search longer, there'd be lower deal flow. However, I did have a lot of consulting gigs going so I was able to kind of keep myself going as a self funded searcher and I could be patient.

[00:24:01 - 00:24:13]

Will Smith: Yeah. Yeah. Well there's a key bit and a key qualification I guess that we should make to Sam's big three little two. A lot of that. You can be looser if you have a longer Runway, which you did.

[00:24:13 - 00:24:31]

Daniel Batista: Yeah. And here you sit, you found as we're about to hear, which is, which is amazing. Okay, so you were looking at biz buy sell. So is brokerage search. Does that mean essentially just looking at the websites or were you also, you know, forming relationships with local brokers?

[00:24:31 - 00:24:49]

Will Smith: Anything else to say about the mechanics of your search? Yeah, I, I definitely as I discovered brokers on Biz by Sell and BizQuest and these other sites. I would know, make contact with them and then get on their, get on their, their mailing list. And so I, you know, and I would have conversations with them. So you know what you see a lot of folks do in the space.

[00:24:50 - 00:25:11]

Daniel Batista: I did all that. Ultimately the opportunity was I found on Biz by Sell which also you hear a lot as well. You know, you sift through all, you know a lot of the kind of noise there and sometimes some, a little gem appears. So it's, you know, it's, I, I, I gotta, I gotta tip my hat to Biz Bicel. It's, it's really a great platform.

[00:25:11 - 00:25:46]

Will Smith: I love it. It really is. Well, before we turn our attention to the business you bought, is there anything to say about any other businesses that you looked at or anything or shall we hear about Candyland? You know, I, I think you know what made me feel like what I was looking at was viable is I did see a few indoor playgrounds listed in the past that just didn't quite. One I looked at closely, had five locations and, and it was privately owned and but the books didn't match the, the, the, their tax returns and it just was very kind of like very messy.

[00:25:46 - 00:26:25]

Daniel Batista: So what I passed on it and I had also found a really great listing through one of the brokers for a, a what was it? Trekking through the Swiss Alps and it was like making 7, nearly 750Ksdsd and I thought wow, so this does exist. It was operated remotely and I was doing really well and it was like I could see myself being in the Swiss Alps every summer, you know, so yeah, so, so, so those are the things that kind of just get, at least encouraged me that it's possible that this can, this can surface and I could potentially find something. Great, great. Okay.

[00:26:25 - 00:26:56]

Will Smith: And, but you find Candyland and you find it on Biz by Sell and what do you find? Tell us about the business and what you saw there. Yeah, so Candyland, as I mentioned, founded on Biz by cell. It was based in Downey, California which is within LA County. Within the hour drive that I, that I was looking for, it was making 900k SDE in a single location which was really impressive because others I'd seen they weren't, you know, they weren't making half that much and in a single location.

[00:26:57 - 00:29:44]

Daniel Batista: And as I reached out and connected the broker and I started getting, doing the kind of like the pre due diligence, I also discovered it was incredibly clean. The, the tax returns matched one for one to the PNLs. Eventually as I, you know, once I had my LOI, I was accepted. I and I brought in, it brought on a QV provider. Same thing like proof of cash.

Came out clean. Everything was very, very, you know, very kosher. So gave me a lot of confidence. They had done a really, you know, it was, it was only a three year old business as well. So you know.

Yeah, typically, you know, you, you people, I know most are looking for something at least five years old. That's kind of the standard. But they had hit 900k SD in 2024 and they hit it in 2023 as well. So it was like, it was clearly like they had, it was gonna, it was consistent, it was stable and, and they had, you know, and it was, you know, everything was pretty new in the location, like the equipment, everything. It wasn't like super run down or anything.

And, and I really like the owner and the founder, a guy named Peter. He, he founded Canyon land in 2019 right before the pandemic. And then he, he survived, you know, because one of the things that, you know, I think this space is probably its biggest Achilles heel is, is a black swan event like a pandemic. Sure. That's what really, really could kill a business like this.

I've gotten comfortable with that possibility between just the scene, kind of how the government reacted to support businesses from going out of business, from, you know, seeing how the banks reacted, putting moratoriums on loans. And so I think you can survive and especially if you have sufficient working capital in place. I kind of got comfortable with it and I also got comfortable with the idea that we hadn't seen a pandemic in about a century. And so if one were come up again in the near future, we at least now know we should have a much better response this time around. Yeah, maybe things won't be shut down as long as they were before, but, but that's always going to be a looming risk for.

No, no question. And Daniel, when you say he survived though, we, we have to assume he survived with a lot of help from tpp, landlord relief, etc, because I assume not a soul, not a child went through his businesses for six months. Right. So zero revenue we assume dropped to absolute zero there for a while. Right.

Oh, I'm sure he had to have done that. There's, that would have been very difficult otherwise, but, but yeah. And then after he, he got through that, he opened up the second location which is Downey and Then he opened up one in Riverside and, and now he's got several and they're, they're popping up all around SoCal. There's one that he's licensing. It's a licensing model.

[00:29:44 - 00:30:20]

Will Smith: Yeah, yeah. What is this model? I don't, I don't follow. You bought a single location, but he's got multiple. Is it so licensing versus franchisor franchisee.

Explain this to us. Yeah, he, you know, in speaking to him, he had told me he had gone, he had explored both paths like licensing the brand Candyland versus a franchise model. And he came to the conclusion he preferred the license model. And I can't really speak to the why, but that was kind of what he basically communicated to me and he decided to go more on a fixed fee model. So when you open up a new one, he charges like a fixed fee.

[00:30:20 - 00:30:33]

Daniel Batista: He helps you launch it. He helps you source all the materials and equipment you need. He helps you kind of get it all set up and then it's kind of like it's yours. And then there's no subsequent license fee paid thereafter. There are no license.

[00:30:33 - 00:30:40]

Will Smith: A one time licensing fee. Yeah, that's right. Yeah. Of how much he's charged historically? 100.

[00:30:40 - 00:31:05]

Daniel Batista: $100,000. 100,000. But you know, he, I think he's. Because he's opened so many locations now, he's now actually kind of closing that off and he's just now keeping it within existing licenses. So thankfully, by, by virtue of acquiring the daming location, I am now kind of in this inner circle with him where you know, he, he would help me launch a new location if I so choose to.

[00:31:05 - 00:31:55]

Will Smith: I see. And so. But you bought with your acquisition of Downey Candyland Downey, you bought. Included in your acquisition was the rights to this brand that you never have to pay for again because your seller, which who is him, you bought it directly from him, the founder. Right.

Was included in the package. What an interesting model. I'm not sure. Of course we hear about licensing in other industries. Of course your, your previous industries, huge in content, but I'm not familiar with this model in kind of a, in kind of a brick and mortar or retail environment.

So. Interesting. Yeah. And interesting that he would just do that. He would just charge a one time fee as opposed to recurring, which is why franchisors such a great model.

[00:31:55 - 00:32:13]

Daniel Batista: I wasn't going to convince otherwise, Will. I was gonna. Hey, you know, really things trying to. Digest here and, and just as we're talking name though, Candyland doesn't that isn't there like a. I mean isn't that the name of the famous board game? Oh, it's Candyland with two E's.

[00:32:13 - 00:32:34]

Will Smith: And, and so that, that's makes it okay. Candyland with 2E and it's Candyland kids is the actual full, full name of the, of the, of the brand. Okay. Okay. And so if he, the founder was building these locations and sounds like he's continuing to build locations, why was he selling this one individual location?

[00:32:34 - 00:33:43]

Daniel Batista: Yeah, that's a great question. He had to launch the second location with his brother in law and the sister in law and they, and they, they had come over from the east coast to, to launch this with him and they were the operators. So they ran the day to day of this specific location. And there was, after three years in, they wanted to return to the east coast and, and be close to their family there. And you know, his mother in law's mother was ill, dealing with like the implied cancer.

So it just, they felt was time for them. They were ready to kind of move back home and so they decided to sell it. And from, from Peter's perspective, the, the valuation of it or he would have to pay vis a vis what it would just cost him to open a new one was so significant that he just, he decided not to buy him out and he decided let's just go and sell it and, and then, you know, have a, have a bit of an exit there. It was the very first location he's ever sold. But the owners, he was a part owner and the brother in law and sister in law were majority owners.

No, they were 50. 50? Yeah. Okay. Okay.

[00:33:43 - 00:33:56]

Will Smith: Interesting.

Really interesting. Okay, so, and then, so what do these look like, Daniel? Get like what, what is the actual place? What is the experience of walking through the front door? Yeah, they're, it's a, it's a pretty large space.

[00:33:56 - 00:34:44]

Daniel Batista: It's. This particular location is 10,000 square feet. They're typically at least that size. You, when you enter Candyland, you know, you see a lot of colors and you know, bright colors and a lot of candy and, and you see on the, on your, on your left you see little land that's for the five and under kids. And on the right you see a really huge structure, like a soft play structure with slides and obstacle courses and stairs.

And it just, you know, it's, it's kind of a little kid's dream to like just kind of run around through. There and it's, it's like a maze, right? And it kind of has. And it kind of with all these like entry points and it's kind of modular. You can tell that it's kind of been assembled in cubes and the kids run through.

[00:34:44 - 00:35:10]

Will Smith: There's the punching bags, the nets, the. All the stuff. All the, Every kind of, you know, every kind of four foot by four foot little section is another thing for them to be stimulated by. And then there's. Yeah, there's slides when you get to the top.

Right. I'm. I'm saying this from, from my local one, not because I've been to Candyland. Yeah, no, they're very, they're, they're, you know, they're obviously it's a similar, they're very similar to each other. Even your playgrounds and.

[00:35:10 - 00:36:28]

Daniel Batista: Yeah, and the little land has a ball pit and it has like a little carousel that kids could, you know, jump on. Like a lollipop that they kind of go in circle. It's, it's, you know, it's just something that, you know, I'm there like I've been there every, oh, nearly every day for the last month and it's pretty great. All you hear is screaming. Like, you hear constant screaming.

It's like. But it's a good scream, right? It's a good screen. And, and you could tell the parents are relieved, right, because they, they come in there and they're like. And they just sit down.

Yeah, you know, they're like, you know, we have massage chairs. You often see the parents just kind of relaxing and massage there while their kids kind of run around. And then there's a cafe in the middle. So we, it's a, that's another revenue line. In addition to the admissions, it's, you know, we sell candy, snacks, drinks, coffee, nachos, that sort of thing.

And, and then that's kind of like. And, and then on the back end, on the side, there's an arcade. So we have a number of arcade machines there as well, in addition to the massage chairs. So that's kind of in a nutshell, what it looks like. And when you enter on the left, there's all these cubbies where, you know, all the parents put their shoes, all the kids put their shoes.

Then they go through a turnstile. You know, they, they pay for admission, they go in. And then we do it on a 1 hour and 2 hour model. I know some of them do an unlimited. We only offer unlimited for memberships.

[00:36:29 - 00:37:27]

Will Smith: Ah, okay. Interesting. Well, my own experience with these types of things is from, as I, as I referred to a local one here there's two locations and when we moved back to the DC area and discovered it, it was like, you know, it was an immediate hit with us because, because it was an immediate. With our daughter and. Yeah, and for non parents, they might not appreciate just how valuable it is to have a great reliable place where you can take your kids.

And you know, playgrounds have come a long way since I was a kid, so. So it really is pretty impressive. At least mine is. And I imagine you're describing something very similar to mine one year locally. The.

Because the core feature is that the padded kind of labyrinthine giant thing that's like the core thing there that they run, all the kids run around and they're pretty impressive. I mean they're really elaborate. Right. Kind of cushiony, maze fun things. Pretty cool.

[00:37:27 - 00:40:03]

Daniel Batista: Absolutely. And one thing I forgot to mention about when I was looking at Candyland, what I really liked about it was one their Google ratings, the up ratings are fantastic. They're like a 4.7 rating with thousands of reviews. So as you know that's just a great moat when you already have that kind of, that already set up. And then the other thing I thought was really interesting, unique and also tied in my background was that the founder had chosen to open these up in predominantly Hispanic neighborhoods in, in Southern California.

And so if you know LA county, it alone is like 50% Hispanic. Right. And then you know, in California is broadly I think 40 or something. But he, he choses these markets because the, these, you know, and I don't know if he knew the stats at the time or was intuitive but, but you know, I've spent the last decade targeting, you know, serving this consumer, this, this segment, targeting through TV shows, their film, through social content, through merch, through all kinds of things. And, and so I've learned a lot of like the stats and you know, and you know so well for one that 20% of the population today is, is of U.

The US is Hispanic. But, but if you look at population growth, they're making up 70% of US population growth. Right? So whereas the average net birth rate in the United States is 1.62 which is not enough to the replacement level is 2.1. So that's why we're seeing a population decline.

And you can see a lot of folks are kind of banging the drums like hey, this is a real, real issue. Look at Japan, you know, look, it's a, it's a really old population. Population growth is a, is a key function of GDP growth. And so, so whereas their average birth rate is 2.1, so it is meeting the replacement rate. And so it's so.

So this whole business is predicated on people having kids. The whole business is like people having kids. And so, so by placing these, opening these in predominantly Hispanic neighborhoods, he's guaranteeing, he's like future proofing like this business, you know, for, for one. And then if you look at the just spending power of this, this segment, it's $2.7 trillion in the United States growing annually like nearly 9% versus the average of 5 and a half percent. So it's just, there's a ton of economic output.

They spend a lot of money, they have a lot of kids. So it's just like a perfect demographic to target. And I would say like anything that of this, you know, and generally speaking, any business where that's like a key consumer is, is probably a really good, really good business. Great. That was a great macro observation, Daniel.

[00:40:03 - 00:40:56]

Will Smith: And let's, let's actually talk about the performance of this business. You've already told us what SDE was, so 900, you know, just shy of a million, which, as we joked about earlier, you were looking for indoor Entertainment, preferably over 750 in the LA area. And boy, you found it. Bullseye. But I. Bullseye.

But I, I, you know, never would think that one of these businesses, in fact my local one, that I have sat in, as I now often do when I interact with small businesses, because of my day job doing this podcast, I think I try to do some napkin math on what kind of, you know, what the business might look like, revenue and margins. And I did that. I'm sure I sat and did the same for my local one. I'm sure I didn't come up with almost a million bucks of sde. What is the revenue to get to that level of SDE for from a single location, indoor playground?

[00:40:56 - 00:41:42]

Daniel Batista: So this particular location was the best performing location in the entire network of cany lands up until the point I acquired it. And it was it. It had made consistently last two years $1.9 million of top line. And, and so that works out to about a 50% EITA margin, which is another reason that I was kind of blown away by this opportunity. Just, I, I had never seen it, but it margins that high at, at that level.

And so, and I know like the, you know, I know there's a little disbelief on your, on your part, Will. Yeah, yeah. But I mean, Daniel, margins that high. Are just unheard of in, in, in. Small business, land and corporate alike, in software even.

[00:41:42 - 00:42:21]

Will Smith: I mean, 50% net margins are just one of those things where matter of fact I, from my interview yesterday, the red flag on a business that they bought was that the margins were too high. It was like wait, it can't be this high. And sure enough it ended up being a problem. But you've also talked about just how clean their books were, aligned perfectly with their tax returns. You said you worked with a diligence provider, third party diligence provider and it all checked out.

Yeah, but I, I just, you just. It'S just 50, 50% net margins are just unheard of. I know, it's, it's incredible. And you know we look obviously you look at the bank statements, you see all the cash coming in. It's, it's real.

[00:42:24 - 00:44:44]

Daniel Batista: A big part of the reason why is the, the cost base structure of a business like this is largely fixed. It's, it's your, you know, you're kind of consistent in your, on your employee salaries, you have your lease payment and, and once you cover that, cover that obviously I now have a debt service as well. But from the owner's perspective, once you've covered those two key things, there's very little variable. The insurance is fixed, everything's fixed. So every incremental addition, incremental admission you get come in is nearly 100% profit.

So given what a high performer this location is, it's generating such a high EBITDA margin because it's sailing past that fixed cost with very, very little variable cost. That's really what, what it comes down to. But I don't think, I wouldn't say that this is the standard for, for most, I'm sure if we did, we calculated it and we cut the revenue down by 10%. We see the EBITDA go down significantly as well. And so I think it's, this is clearly an outlier amongst indoor playgrounds.

But, but you know, they've done a fantastic job, picked a fantastic location. It's within a mall. Another low hanging fruit opportunity that we saw. They invested near $0 in marketing. So this, there, there's, there's an opportunity there.

My wife ran, has run, you know, ran a digital marketing agency for over a decade. She's has a lot of experience doing this. She's really good at social media. So the social media was very inactive, wasn't consistent. So there was just an opportunity there to make, to improve that.

And then you know, at some point we'll activate some, some paid digital media as well. But you know, we're doing partnerships with influencers now so we have an influencer having a birthday party next month who's going to do like a set number of posts and stories and reels to, you know, which, which you know, you know, should. Then you know, it's basically, it's just, you know, marketing in exchange for a free party room, you know, and so that's, that's basically kind of the exchange and, and then additionally trade we're having. Because that party, that party room doesn't cost you anything. I assume it was unsold inventory on your part.

[00:44:44 - 00:45:04]

Will Smith: Correct? Right, Correct. Yeah. Beautiful. Good.

Nice. I didn't offer Saturday because Saturday is like our is like usually fully booked but, but you know, that's another, another kind of thing we're experimenting with. We're also having the Labubus come this Friday. So I don't know if you've heard of the Boo Boo. It's like this craze.

[00:45:04 - 00:45:42]

Daniel Batista: You should just Google it. But it's these like kind of these, these dolls and you know, they can come dressed up in these costumes and, and like you have, you know, they just did it over in the Victorville location a couple weeks ago and there was like a line around the block for people to come see the Labubus. So that's something that we're also going to be seeing how this goes. And then if it goes really well, let's bring other characters as well, like Paw Patrol or Bluey or other characters that little kids love and that brings in, you know, a ton of more emissions that day. Running payroll, paying your bills, closing your books and producing financials.

[00:45:43 - 00:47:02]

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So whether you own your business already or have one under LOI, talk to System 6 about how they can give you time back and improve your financial operations. Mention acquiring minds and they'll provide a free review of your books and financial ops. A $500 value. Check out system6.com, link in the show notes or email helloystems6.com Daniel, what you're. Saying is despite this being the highest performer in the network, despite it already doing almost $2 million in revenue, there's still excess capacity to be, to be monetized, to be sold.

[00:47:02 - 00:47:10]

Daniel Batista: Absolutely. Wow. So, so you could get this business to. Who knows? Well, I, you know, call it two and a half, three million in revenue.

[00:47:10 - 00:47:37]

Will Smith: You think there's kind of that much excess? Maybe not, you know, I don't know if it's that much. I think that, that, you know, I don't know if it's going to get there. But I mean if you think about if I can, if I can add just a few hundred grand to the top line, it's pretty meaningful because of the gross margin on that. And so I think that, you know, for instance I'm, I'm bringing in a whole new arcade that I fully own and because currently we work with a third party vendor on a, you know, and so this, where it's a revenue split.

[00:47:37 - 00:48:46]

Daniel Batista: So now with my own arcade, I'm hopeful to see a bump there because these are going to be machines that are very much oriented towards the, call it three to eight year old demo, which is like the sweet spot of Canyonland. That's the predominant age you see there. And so hopefully we'll see a bump there. I'm also going to be, there's opportunities for price increases. They hadn't raised prices in three years and so you know, parties were barely, they had, you know, there was very like modest profit in the actual rental, the party room.

And so I just recently raised those prices as well. I'm probably going to wait on the admissions prices until I have the arcade. And you know, I'm also like going to just reinvest a little bit just to rejuvenate the playground bit, replace some parts that are more worn and then, you know, just, and then with the marketing I feel like I could kind of max it out like to what it could potentially get to for that location. So it's a business with a bunch of different revenue centers. As you said, the arcade entrance fees, party rental rooms, the cafe for, you know, mom and dad.

[00:48:46 - 00:49:02]

Will Smith: So how does that. We assume that the admission ticket is the biggest slug of revenue. But how does that all break down? Not, you know, not exactly, but give us a sense of the kind of pie chart there. Yeah, admissions is the bulk.

[00:49:02 - 00:50:22]

Daniel Batista: It's nearly three quarters. It's exactly 72% year to date. Okay. Then it's the Cafe at like 15% revenue and then it's parties at 7% and then the memberships at 5%. And my feeling also when I was looking at this was there's an opportunity in the parties specifically, not just with the price increases but the add ons what we offer right now, it's really just kind of bare bones.

There isn't like, you know, do you want to have a princess in costume? You know, add on, you know, Elsa comes. Yeah, exactly, right, yeah. Like, so there's, there's, I think there's an opportunity to upsell within the parties and to make that a bigger part of the, of the pie. I also think the memberships, they haven't really been actively advertised and pushed and I think there's ways to make the membership value prop more significant where it makes it more attractive.

And I, and I also think there's opportunity to increase the price of those memberships and so that, so that's, so that's like the last bucket. But I think both those two parties and memberships have an opportunity to increase and then on missions by doing the things that we're doing just you know, in terms of marketing, I think we can increase that as well. What a business. I never would have guessed that indoor playground. Now you had mentioned that you actually looked at a five location indoor playground business that you didn't go with.

[00:50:23 - 00:51:05]

Will Smith: So, so now that you have all this wisdom and you're inside like do you feel like you could have gone, you could buy that five location business totally hypothetical. Not that you're actually considering doing this and like flipped some levers and, and, and made an underperformer, a performer? You know, I guess, and I guess to reframe the question, is this category filled with a lot of potential for business buyers who are coming in with a real analytical eye that are operators? I do, I, I think so. I think a lot of the folks who, who've opened these that aren't like there aren't, aren't necessarily like coming from a sophisticated operating background.

[00:51:05 - 00:52:16]

Daniel Batista: And, and, and I think these are more mom and poppy. There's, there's like a couple out there that exist that are big chains that you know, they're more professionally running. In the case, in the case of the one that I was looking at, that one I don't think would work because the SBA loan, the lenders are only going to lend against the tax returns. They're not going to lend against the P and L. And so if they're so the P, L is off, the tax returns are off by like 50%, 40% of what the P and L is telling you. The seller wants to sell it at the P and L level which is the actual money that the Seller's generating and so then I can't get the loan I need and then I got to put way more equity in to make that deal work.

And then, and then, so then the return goes down when, the moment I, you know, so because I'm, I'm, I'm less levered. So I don't think it could work if it's like something of that nature unless the seller's willing to cut the price significantly and bring it down to like the tax return level on a multiple of that and that then I think, yes, then I think that could work. That was great Daniel. But that was also all about basically the deal, the, the price that it was being sold at and how you would structure that. But just what about what you saw of like revenue and margins of that business?

[00:52:16 - 00:53:27]

Will Smith: Was it, was it, you know, these five locations not performing anything like the business that you bought, I assume? Yeah, they were, if I recall correctly, they were closer to the 35 to 40% range. Still amazing, still pretty great for, for this world. But they weren't performing at the same level of top line as this location. So that's why the margin wasn't as high as what you see in my location.

Wow.

A bunch of just follow up questions to ask about the business. Daniel. So, so what of Capex? So you know, you get all of this wonderful capital expenditure with the acquisition. This whole thing is already built out but with kids running around it all the time, that, that stuff gets beat up, we imagine of course it's, it's durable, it's meant to last.

But just, just talk to us about what it looks like to, to, to, to maintain the Capex. You know, I was actually quite surprised of how modest the maintenance capex was in the prior few years. Granted, it's a new, it was a new playground. Yeah. But I mean they weren't spending more than like five grand a year on maintenance capex on the playground.

[00:53:27 - 00:54:28]

Daniel Batista: And so just super reasonable and modest. You know, it likely will increase a little bit as the playground gets older and just gets more beat up and worn. However, the, this business, this type of business is very Capex upfront heavy. It's the initial Capex is what's really costly. The, you know, the, on the low end to open up a new location like this, you're looking at like 1.2 million and, and up to like one and a half million all in construction equipment, everything and so in the license.

But, but you know, once you've done that, made that investment, it comes back down to what I was mentioning, like, it's the lease payment, it's your, your payroll, and then like your insurance payment, like, which are the primarily pri. The primary fixed costs that are large. Everything else is kind of also pretty very predictable. And on a monthly basis, it's pretty consistent. If you can get that top line up where, you know, to a certain level, you can start to see some significant EBITDA margins, the million bucks that.

[00:54:28 - 00:55:15]

Will Smith: Goes into building one of these out from scratch, at some point, your equipment won't just need to be maintained. It'll probably be obsolete. Now that could be a whole decade from now. But, you know, playgrounds, like, you know, outdoor playgrounds at schools get refreshed completely every. I don't know how long, maybe 15 years.

I just know that my childhood playground doesn't look anything like it did back then. So do you expect when that time comes, that you can kind of do it incrementally? Kind of. Because. Because I.

As I mentioned earlier, these systems are kind of modular in this interesting way, or do you have to wholesale knock it out and install an entirely new system basically and spend a million bucks to do so? It's the former. It's exactly what you described. It's modular. So they.

[00:55:15 - 00:58:02]

Daniel Batista: The way these things are designed is that there's a. There's like hundreds of pieces that go into these things. And so when one gets worn, because it's got beat up a lot, you literally just need to buy that one little kind of rubber cylindrical piece, you know, and you order from the vendor and you're talking about a few hundred bucks to replace that. That specific piece. Yeah.

So I think that's also one of the things I really liked about it as well. You don't have to do a full rehaul. That being said, I'm seeing what the new locations are building in. As mentioned, the Downey location is the second oldest. And I'm seeing there's a Ninja obstacle course that they've started to include in some of these things and different elements.

So what I'm looking probably do maybe next year is add some new playground features versus replace. That's probably more likely what I'll end up doing. And to that point, this, this arcade that you put in, that sounds like a big capital expenditure. You know, it wasn't as bad as I thought it would be. You know, we.

I bought it from the founder, had sourced it from. From a manufacturer in China. And, and you know, this. I mean, these machines are like coming straight from the manufacturer over there with. Before you factor in shipping, they're like a thousand bucks each machine.

So you know, they're not as, it's not as bad as, as high as you think it is. But I, you know, once you. 15 or 20 machines. Yeah, I ordered about 15 machines and so those, so those will be arriving on a boat like at the end of September. But, but you know, these are, I'm hopeful that they're going to be significant revenue generators once they come in.

And, and I'll keep 100 of it. And so the kids, there's like a token system or a card system. It's a little, it's kind of a, kind of a little bit more old school style where like. But I like it better this way because it's a centralized, you know, change machine. So where he pumps out the tokens when you put money or credit card in.

So it just makes it easier in terms of like right now I had to go to every arcade machine and you know, put a bit of key in, take out a piece, like pull out the cash, pop it back in, you know, and I have to do that for like 10 machines and then I have to do that for all the massage chairs too. So it's, you know, it'll be nice when I had the newer kid because I won't really have to do that. I only have to go to the one change machine and then just, you know, take it out there. So that'll be, that'll be nice. But, but good that you kept the tokens because I imagine like 5 year olds love tokens and putting in tokens.

And they're branded Candyland tokens. And you know, and so, you know, it's nice too because like if you have some left over, it's incentive for them to come back too. Yeah, right, because I got to go spend my Candyland tokens. Yeah, right. Like my casino chips that are always telling me to go back to.

[00:58:03 - 00:58:48]

Will Smith: Great. Now we'll, we'll move off the internals of this business here in a minute. For, for people who are listening and don't have kids in this, in this age range, they're probably dying of boredom. But the labor peace. Talk to us about that.

When I go to places for my kids, kind of playground type places, the one that I keep referring to in others, the staff all seems to be like teenagers. You know, I'm never, it's never quite the highest quality in the world.

So what can you say about labor here? You know, it's a job. It's a mall job. Right, Your classic job. In a mall where, you know you're junior senior in high school or you're recent high school grad.

[00:58:49 - 01:00:15]

Daniel Batista: It it's these are minimum wage jobs and they're not necessarily particularly difficult jobs or jobs that require a lot of, you know, unique skill like, like a plumbing might or electrician might or anything else. It doesn't require going to a trade school. And so these are typically minimum wage roles with the exception of the management and, and the, you know, these are kind of roles. One of the nice things about it is it's pretty easy to replace. So somebody quits.

I could literally have someone in tomorrow who can fill that slot. And so that's one of the, one of the advantages of that. And I would say one, you know, I mentioned the biggest risk, this type of business is a black swan event. But I would say the second largest risk is minimum wage increases that can increase the cost base. And in California that's certainly an issue.

And it's consistently, you know they consistently raise it versus other markets probably not as much of an issue. So that's really the makeup of the, of, of the, of the staff. And I think you're okay. What if you paid more and could you get kind of better, you know, like more, I don't know, better educated, whatever. You know, how you want to describe it.

I, I, I then question would that be a job that's interesting for that person? So even if they're being paid better, is it a job that's challenging enough for them? Is it a job that they actually want to do? And so I think you kind of have to find your, so that's why you kind of, I think you revert back to the minimum wage kind of approach to, to staffing. Yeah.

[01:00:16 - 01:00:41]

Will Smith: And you mentioned managers, you mentioned how the previous owners, this brother in law and sister in law of the founder of all of Candyland were in it sounds like they were owner operators. Yes. So, so what is the entire kind of of a single center to, to operate it? What does the entire org chart look like? How many minimum wage at the bottom and then go up the, up the chain?

[01:00:41 - 01:01:50]

Daniel Batista: Yeah, we, during the, if you, when the calculation of the SD of these businesses they had included a kind of like a negative add back for, for a second manager being cognizant that any buyer would have to replace what the owner was doing. Yeah so that's something I, I also really appreciated when we're, we're coming down like the valuation of the business. And and so what I, I came in, I hired there's one manager ready in place. I hired a second manager. And then, and then I'm going to have likely.

I think what I'm going to have to have is an assistant manager who could kind of backfill because I need the two managers to cover all hours operation. It's a Monday to Sunday operation and. But if one calls in sick or one goes on vacation or one quits or. I like having this assistant manager who's been there for a while now to backfill those roles. And then there's about 12 staff total.

They're effectively all part time. I think the most hours any of them work are 35 hours a week. And some only work on the weekends. Like classic. Like if they're a senior in high school, they're only working Saturdays and Sundays, for instance.

[01:01:50 - 01:02:04]

Will Smith: Yeah. And so, okay, so two managers, an assistant manager and 12 staff. But not all of those people present in the business at any given moment. You need two managers and what, like six to eight? Six to eight of the other folks?

[01:02:04 - 01:02:16]

Daniel Batista: Yeah. And on any given shift there's typically at least six staff members in addition to the managers. Yeah. One thing I meant to ask at the top, that would seem to be kind of a reason why you might stay away from a business like this. Liability.

[01:02:17 - 01:02:52]

Will Smith: On the other hand, as a consumer of these businesses or as a patron, whenever you go in, you have to sign a waiver, often on like an iPad, a tablet. So, you know, assume they're indemnifying themselves right then and there and it's as easy as that. So maybe that's the answer. But still, talk to us about like kids running around jungle gym. There's bound to be some, some ugly, unfortunate accidents.

And how does the business deal with that? Yeah. So you're right. The first layer of defense is that waiver. So no one can enter the playground without having signed it.

[01:02:53 - 01:04:09]

Daniel Batista: That includes adults. And that's usually your first layer of defense. And it's kind of, you know, effectively, yes, the indemnification, release of liability and all that. In addition to that, you have to carry liability insurance. And what typically happens when I reviewed the, you know, during due diligence, I reviewed the insurance record and they hadn't had any incidences that where someone try to file a claim against the business.

But they were pretty diligent about reporting incidents to their insurance company. It's baked into that 50% EBITDA margin that we've been talking about. And it did go up a little bit when, you know, one of the things I always I was most fearful of is when you do. I did an asset sale and you know, then you have to form a new entity and they get insurance. And the way insurance often treats new entities is as if, you know, even if it's an existing business, could be there 20 years, they'll treat you like you're brand new, and then they'll hit you with higher rates.

So it definitely came in higher. Not enough to be like, oh my God, I can't believe I did this. But, you know, it was, but it was kind of what I anticipated it and you know, but it's. It's something that we can manage. So.

[01:04:10 - 01:04:35]

Will Smith: But otherwise, is that to say that it could, it could decline, it could kind of float down as you get more years in the business? Probably not. Okay, but the way, I mean, that's a hope, but it's probably like not likely as we, I mean, insurance rates in California have gone up year on year, like 20% plus every year. So it's been really bad in California in particular. But I think nonetheless, you know, it's manageable.

[01:04:35 - 01:06:30]

Daniel Batista: On the P and L. Yeah, you. Mentioned that it's an asset deal. I don't think we heard. Heard about the overall structure of the deal. Can you spell that out for us?

Sure. So the acquisition price was 3.45 million, which worked out to a 3.7x multiple on the 900k ISH SDE. So pretty reasonable multiple on. On. On an.

On the SD of that level. That was another thing I loved. I felt like, you know, I was. Really excited about was it competitive at all? Were other people looking at this business?

It was competitive. It was. I mean, it was a biz by sell and, and it was at 900 KSD. So you can imagine, however, the owner, the seller, particularly the, the founder, he was very particular about who bought the business because that person would have to continue to collaborate with him. Yeah.

As the license. And he. So he's been very selective about the people take over the business, what value add they bring. One of the things he told me was, you know, all the different owners because he. There's something he owns and there's others that he just licensed to.

To a separate owner. And he said they're very collaborative with each other. When someone discovers something they share with the other. So all the, all. All the others benefit.

And he just wanted to bring someone in who can, who could bring value to that group. And I think with me, my, he. My media entertainment background was appealing to him. My experience with Latino markets was appealing to him and, and also my wife, you know, being a digital marketer was also really appealing to him. And so I think we just, you know, presented a competitive offer.

It was like they listed a 3.4. It came above 3, 4, 5. And I think that in combination with, you know, my background and I think the confidence that I could do, I can get the SBA loan was where the. What was the combo that, you know, got me to. To winning the deal?

[01:06:32 - 01:06:44]

Will Smith: Great. And I think I interrupted you. Was there anything more to say about the structure? Yes. So I ended up going 80% SBA, 5% seller note and 15% equity.

[01:06:45 - 01:07:44]

Daniel Batista: That was the structure of the deal. And the 15% equity was out of your pocket. Did you raise money? I raised money for this. So I gave up about 20% equity to raise about a little over a half a million dollars.

And I was primarily, you know, friends and family, either for people I've known for many, many years, or worked with some in the media, entertainment sector, senior level executives, others from business school. But, but it was, you know, it was pretty easy to raise, to be honest with you. It was one of those things where anyone who has kids and once, like, I put together like materials for this and put a deck. It was kind of like an instant, like, oh, yeah, I get this. Yeah, I'm in.

You know, and there was even someone, I was like, who took like nearly half of the raise, who I didn't expect to. To do so. And I was like, holy. I'm like, wow, Like I was only asking for 50, you know. Yeah.

It's like he has two kids. He's like, oh, I know what this is. This, these economics are great. I'm in. You know.

[01:07:44 - 01:09:18]

Will Smith: Well, that, that, that. And that's exactly why I've been so enthusiastic. It was like the product market fit. I understand intuitively or as a customer. And then when you back that up with the economics of the business, it's like, holy crap.

I mean, the product sells itself. But is it a good business behind all of that or the economics of this thing. Good. And when you see what they are, it's like, wow. So totally.

That's great, Daniel. I think we're wrapping up here. Let's talk about growth. We've talked about growing. What do they call it?

The four walls? The four walls. Revenue. Yeah. So, so growing the, the revenue of this particular location.

But that has a ceiling to it. Which, by the way, as we talked about on the pre call, that would be another quote, unquote, weakness of the business. If you will. I mean, there's a, there's a, there's a ceiling here. It can't grow forever, unlike a, you know, an H VAC business or a services business where you just, it can just kind of expand indefinitely.

But you solve that problem by opening new locations. So how do you think about, you know, growth above and beyond this single location? I think you, you definitely nailed it. There is a ceiling after. Once I've optimized for this location and I hit that, that top line, like that certain type top line, which might be a few hundred grand more, I'm not sure what it's going to be, but once I do hit that, yes, I'm like, I'm now my growth is capped and the only way I can grow from there is if I open another location or acquire another location.

[01:09:18 - 01:12:19]

Daniel Batista: So one of the things I'm planning on doing is opening a new location. I've come to learn that the process can take up to a year, even up to 18 months, depending on the location, on where you open it. But factoring just at least a year time from the moment you identify location to, you open up your doors. And so I'm already starting to look at locations and where, where I would want to open up the second one. I think as I still have some capacity in the SBA loan, I still have like a couple million dollars currently.

I could use some of that for expansion loans. So I could use some of that to open up new locations kind of de novo or I could, you know, potentially acquire other indoor playgrounds or other family entertainment centers, you know, in the area that, you know, opportunity as those opportunities arise. And I think that ultimately is what's going to definitely be what also attracted the investors as well as opening up a new locations. I raised more capital than I needed. So because I wanted to have some, one I want to have cushion for, you know, in case there is a, another pandemic or, you know, any, any, any, any other, you know, things that could potentially happen.

And I also wanted to have it there for when I'm ready to open up the second one. I just have the capital ready. I don't need to go raise more capital. It's there. And I think everyone was on board with the idea and they recognized like, yes, once I open up a second location, it's going to significantly open up cash flow because of the debt service on that will be way lower.

So even if I, you know, and if I could get that to the optimal level, even if it's not as high as Downing, let's say, let's say it's a little bit of that. But the debt service is significantly lower. It's going to be, it's going to be a high cash flow location. The debt service will be so much less because you paid three and a half million for this business, whereas De Novo will cost you a million to a million and a half. So the loan is a third the size.

And oftentimes you can get a ti capital from the, from the, the landlord. Right. So say more about that. So oftentimes, you know, if you're, this is on a case by case basis, however, say a mall owner really wants to have your business in their mall. And, and this particular type of business in these indoor playgrounds have become, you know, known as mall savers, where there's a lot of decline in retail stores, your classic retail.

You see any mall, these, anything that's more experiential is actually doing really well for these malls bringing more foot traffic in which then helps the retail locations that are in there. So malls love, they really love this model, these types of these strip malls. To be clear, or, or also traditional shopping malls. So currently Candyland is only in traditional shopping malls here in California. I believe the ones in Colorado are in shopping centers like outdoor shopping centers.

But the founder K Lan, he took the approach, he liked the mall, the going the mall strategy. Just because there's already preexisting foot traffic coming there for the mall, the one. I'm comparing you to constantly. The parking is an issue. It's in, it's in sort of an industrial area.

[01:12:19 - 01:13:16]

Will Smith: It's in an industrial space with other industrial businesses around. So the parking lot is always a, a challenge because it's not. There isn't parking capacity for something like this where you might have 50, 100 families trying, trying to get into a single business there in a mall. Of course. And that's a good point because there's like infinite parking at the mall that at my location, yeah, it seems like it's endless parking.

I didn't realize. So it's in a mall. Mall. Okay. I was going to say finding 10,000 square feet in a mall seems really difficult.

But yeah, I mean wouldn't it be? Because most, the footprint of most stores and malls is much, much less than that except for the anchors. And you're not going to be the anchor of an entire mall. Yeah, you're right. What they typically do is they, they'll try to move a few retail stores to other locations of the mall and get maybe Four, locate three, four stores that are side by side and then they'll tear down the walls and so that's how they'll create it.

[01:13:17 - 01:14:29]

Daniel Batista: You know, they'll do that for, for, for a concept that they really want in, in the mall. Great. Fascinating. And so back to TI stands for tenant improvements. You might be able to get some of the, the capital provided by the landlord actually.

Correct. Nearly half the cost of launching new one is construction cost. And so, you know, you can offset a lot of that expense by getting by you know, negotiating significant tenant improvements from the, from the mall owner. Malls tend to give more, they have more, more more money, more funds versus like shopping centers apparently don't give as much to do that sort of thing. But okay, but that's basically, you know, that could significantly reduce the, the cost and therefore reduce the amount of loan SBA loan I need to take out.

And that'll keep my capacity as well, you know, keep more capacity available. Yeah, of course, of course. Yeah. I mean that, that actually it's, it's an important point because talking about the ceiling of growth here in your single location, so you do a second location, but at some point your SBA funds are the cap to doing a fourth and fifth and sixth location. Then you'd have to go beyond sba.

[01:14:29 - 01:15:46]

Will Smith: Of course it's very doable and there's plenty of loan products out there for that sort of expansion, but not with your current 7A loan. Right. And I think, you know, if, when, if I, when I do find myself in that, in that position where I don't know, let's say I, it was able to take me to four locations. The SBA program, the, the consult like the aggregate IIDA or SD for these businesses should be now at a level that's attractive for conventional to do kind of a refi for it, especially if it includes refi those in baked rolled in with the acquisition of another location. And what of like stepping on each other's toes, you and the founder, because the very locations that you'd want to launch in locally, wouldn't he as well?

Because he's basically local to you. You guys are in the same market. Is that not going to be a conflict at some point? He we're talking LA. LA's enormous, right?

So maybe that's the answer. There's just a lot of ground to cover in la. He's, he's kind of getting close I think to tapping out where he, what he could expand to. He's, he's opened several locations in the last year or two. So I think it's really more of a, hey, I'm thinking about this location and then it's like kind of okay, sounds great.

[01:15:46 - 01:16:16]

Daniel Batista: I'll, I'll, I kind of respect that. That's the location you're, you're going for now. I'm not going to try to step on your toes. And I think a lot of instances he just doesn't have the bandwidth or the time to go, especially because they're starting to get more remote. Like he opened up one in Victorville and that's like on the way to Vegas, you know, that's like, it's pretty far.

And I think just being able to him. And then he also often works with an operating partner who, when he launches these. And so if he doesn't have somebody in the local area, that's also less attractive to him. Great. Daniel.

[01:16:16 - 01:16:45]

Will Smith: And then share with us a little bit about how you're paying yourself here because you mentioned at the top you were doing really well in your career in the entertainment industry. So we imagine that you left a lot of money or a lot of kind of salary to go off and do this. How are you thinking about your personal finances with respect to this project? I'm currently working probably, I would say half time. Well, I mean for this first month of ownership, I've been working full time.

[01:16:45 - 01:18:35]

Daniel Batista: I've been going down there five to six times a week while I'm. And, and there's been a lot of, you know, just more of the transitionary, transitioning the operations, the, the knowledge transfer and more of that, but in a steady state. I anticipate it'd be more of a halftime requirement. My managers will manage the day to day operations. I'm, I'm available.

I'll be kind of shifting more to working on the business, to looking to open a second location. However, it does open me up to be able to do, continue to do consulting, which I've been doing for the last few years. So that's how I'm able to make the, the economics work. So you're not taking much, you're not paying yourself much. I'm pay, I'm paying myself.

So there's, you know, when you raise capital for, and there's you, you're now kind of up against market standards of what the expectations are for the searcher to take on as a salary vis a vis, you know, like what, you know, in, in relation to the, the return of the capital to the investors. So there's always kind of, historically it's been like 150 cap. I think with inflation, everything that's been happening, it's probably more like 175 cap. And so that's kind of where I was able to land without it becoming, you know, perceived as a bit maybe egregious. And so I think, and you know, once I return the capital to all the investors, I'll, I'll start doing distributions and which I then that will significantly bump up my take home.

But in the interim, until that happens, until I pay back everybody I am, I'm going to be taking that kind of a, what is it? Reduced salary for myself but complemented by my consulting revenue, which kind of makes me whole. Yeah, yeah, that was great. Daniel. Let me just underline a couple things there.

[01:18:35 - 01:19:14]

Will Smith: So when you raise money for a business acquisition from investors, they want to see what you will be paying yourself as operator of this business and there and they want to see that be a market number. And as you said, often in this world it's kind of 150 that may have floated up now to 175 with inflation. So you can't go to your investors and be like I'm going to pay myself $300,000 a year because effectively what you're doing is taking cash out of the, that should be going to paying them back their, their equity. Exactly. Or, or, or be, or being reinvested into the business maybe actually, or, or.

[01:19:14 - 01:19:48]

Daniel Batista: Just simply, you know, you're reducing the cash flow that could potentially be distributed to them. So they're going to want to see you pay yourself market wage and not much more. But once they have their capital back then it becomes much looser because you can now start taking distributions. Right. And then that would be on a pro rata basis.

So I have, you know, nearly 80% share of equity and so I would be taking, you know, $8 out of every $10 of distributions. Exactly, exactly. Good stuff. Daniel. Thank you for sharing that piece.

[01:19:50 - 01:20:03]

Will Smith: Last question for you was just the. Diversity of your background and experience. This is something you'd mentioned to me in your pre call as something you thought was. Has served you well. Say more about that.

[01:20:04 - 01:22:01]

Daniel Batista: Yeah, I, I think that you know, as people think about becoming a searcher and being able to operate a business, I do think there's a lot of value in having worked in a variety of functional areas during your career post college. And you know that could be, be you know like in my case I started in Finance, FP&A. I then transitioned to sales and distribution. I then transitioned to strategy consulting and I then shifted to business development partnerships and then I went to later on to operations as a COO and oversee marketing. So a lot of exposure to the marketing side.

So I kind of hit all the key functional areas of the variety of different businesses. Even though it's within. They were all within the entertainment sector, the function itself is transferable to any other sectors. So I think that is probably a great way to become an operator of a business you acquire is if you at least have done a few different stints versus, like, imagine somebody who all they did was FPA for 15, 20 years and nothing else. I think they'd be probably more at a disadvantage.

Clearly getting an MBA is also valuable just because you get so much exposure to so many different cases. So you start to kind of, kind of think that way. But. But yeah, I think that's serving me well. And now.

And I'm kind of like a bit of a Swiss army knife and able to kind of wear a lot of different hats. So I think it's, it's definitely very valuable. And I think anyone who's thinking about going into ETA should consider that as a way to prep. I know there's a lot of folks who it's. I'm saying it's not required.

Supposed to do investment banking, private equity, mba, private equity, and they go straight into this. But that's all. But, you know, it's a different, different skill set that they have all together. But, but I think from. For those who aren't, you know, in that world or that space, you could do this by just simply just doing different functional jobs in whatever industry you currently work in.

[01:22:01 - 01:22:12]

Will Smith: Great message, Daniel. Thank you for that. Anything else that we didn't get to. I think we, we hit everything that I had in mind, but. So I think we're.

[01:22:12 - 01:22:59]

Daniel Batista: I'm good. I, I could, you know, if you mind, give me a. Me giving a shout out to my loan broker. Yeah, please shout them out. Yeah.

So I was helped. My loan broker was SBA loan broker was Drew Ekman. He's actually partners with Sam Rosati and SMB Loan Support. And he was great and got connected, connected me like I, you know, ended up having a fantastic lender who gave me the best terms I could have possibly had. So I, I do also recommend folks just go through a SBA loan broker.

It doesn't seem there's no downside to it because you don't pay them any money. They get their money from the lender. So. And there's nothing better than a competitive marketplace for terms So I think that's a smart approach. Well, and, and they save you time because they kind of shop your shop your deal around.

[01:23:00 - 01:24:05]

Will Smith: They know good ones will know the credit box or the buy box of the various banks and, and who is right kind of which bank or which SBA lender is right for your deal. So there's a lot of kind of institutional knowledge that they can bring to bear on, on the process rather than you having to go up that learning curve yourself and probably just not do it as well as that as they do, since they are doing it all the time. And as you said, you pay, you don't pay for it. The, the bank pays them the commission. So it's a pretty good model.

Great. Daniel Batista well, thank you for sharing this business story, this business acquisition story with us, telling us so much about the business, which I am so enthusiastic. I can't wait to take my daughter back over to our local one here and look at it with new eyes. We'll include a link to your LinkedIn and to Candyland Downey. Yeah, that's it in the show notes.

Good stuff. All right, sir, thank you very much. And will, I just want a final word. Just say thank you for all the podcasts I listen to and your webinars. They it was instrumental in my, my education and getting familiar with the space.

[01:24:05 - 01:24:15]

Daniel Batista: So I'm really, you know, really grateful for what you're doing here. Appreciate you saying that. Thank you, Daniel. Hope you enjoyed that interview. Don't forget to subscribe to the Acquiring Minds newsletter.

[01:24:16 - 01:24:58]

Will Smith: We send an email for every episode with an introduction to the interview, a link to the video version on YouTube, and soon, key takeaways, ways, numbers and more essentials from the interview. For those of you who don't have time to listen or watch it, subscribe at acquiringminds Co. You'll also find all. Our webinars there on the website, both. Those we have coming up and recordings of past webinars. At this point, There are over 30 webinar recordings, a wealth of information on all the technical nitty gritty of buying a business.

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