An Inside Look at a Four Pillars Deal Review

Issue #50

Welcome back to the Mid Market Insider!

This week, we’re sharing an investment memo we recently did of a custom machining and fabrication firm.

I want to pull back the curtain on how our team evaluates deals… so you can see how we preliminarily review an opportunity.

Instead of advice or tactical tips, I want to share the actual criteria and trade-offs we think through when reviewing deals… and what goes into a “move forward” call.

Let’s dive in:

Overview

The company runs a high‑mix, job‑to‑job model across machining, welding/fabrication, hydraulics, and field services.

Typical work includes rebuilding industrial machines, manufacturing obsolete parts, and deploying field teams for on‑site repairs.

Customers & Go‑to‑Market

The company serves a diversified base: manufacturers, infrastructure providers, municipalities, chemical plants, amusement parks, and regional OEMs.

Ninety‑six percent of 2024 revenue came from repeat customers. Outbound sales are minimal (a five‑person team), and there’s effectively no online presence, an immediate upside lever.

Financial Highlights

These numbers were indexed to 2021 revenue to protect the target. 2021 revenues were actually greater than $10M.

Metric

2021

2022

2023

2024

Q1 2025

Revenue

$1M

$1.32M

$1.53M

$1.81M

$0.48M

Adjusted EBITDA

$20.6k

$163.4k

$269.8k

$515.8k

$180.4k

EBITDA Margin

2.1%

12.3%

17.5%

28.4%

37.6%

Averages (2022-2024)

Metric

2022-2024 Avg

Revenue

$1.56M

EBITDA

$316.4k

EBITDA Margin

19.4%

Strengths/Green Flags

  • Margin profile above typical industry ranges, indicating operational discipline and pricing power.

  • Skilled, stable workforce supporting fast turnarounds and complex, high‑mix work.

  • Durable repeat revenue with many 10–20‑year accounts.

Weaknesses/Red Flags

  • Project-based revenues.

  • Under-built commercial function and team (limited outbound; no digital presence).

  • Step‑up in 2024/Q1’25 margins warrants normalization (one‑offs, allocation changes, seasonality).

Growth Opportunities

  • Explore opportunities for maintenance contracts or similar to go after some amount of recurring revenue.

  • Expand their service area to absorb overflow and penetrate demand.

  • Professionalize sales/marketing: build a credible web presence and outbound process.

  • Explore government/defense contracting where capabilities align.

Reason for Sale

Not disclosed. Owner holds a limited strategic role and is willing to support a transition.

Key Diligence Questions

  • Valuation expectations, desired timeline, and seller motivations.

  • Backlog size, coverage, and cycle times; forward projections.

  • Customer concentration by account and sector; retention and share‑of‑wallet trends.

  • Supplier arrangements and raw‑material cost exposure; pass‑through mechanics.

  • Drivers of 2024/Q1’25 margin expansion; sustainability and normalization adjustments.

  • Expansion constraints (permits, labor, demand) and timing.

Verdict: Move Forward

The business combines resilient, repeat revenue with premium margins, a skilled and stable workforce, and clear, capital‑efficient levers to scale.

With focused diligence on margin normalization and concentration, we see a credible path to expand their current operations, and professionalize GTM, thereby enhancing predictability and valuation without heavy capex.

Valuation remains a concern. Project-based businesses trade for less even with significant repeat business.

Reader Question of The Week

For context, this is a recent section I’ve decided to add. After receiving many questions in my day-to-day as the co-founder of Four Pillars, I wanted to share the most common ones in my newsletter in hopes that it’s valuable to you in some way.

If you have a question you want answered in a future newsletter, please reply directly to this email and I’ll do my best to answer it. Now, onto this week’s question:👇

Q: “How do I transition key client relationships off me without losing accounts?”

If I only had one word: slowly. In my experience, customers are accepting of changing supplier contracts but abrupt change is more likely to raise eyebrows.

Additionally, much of the concern is around being able to get the same level of service and price since they are no longer dealing with the owner.

📺 What to Watch This Week

Watch one of our recent videos on YouTube…

Buying a Business? The Risks No One Talks About

Click the link below and check it out:

That’s all for today’s newsletter! Thanks for reading!

📅 Next Week:

Next week, I’ll be diving into why most deals that fall apart often have nothing to do with price. I’ll share the 3 most common deal-killers I’ve seen in nearly 20 years of M&A.

Keep building,
Nick

P.S. 

If you want to discuss your business goals in greater detail, book a discovery call: