INTELLISYS CAPTIAL LLC Prospectus Document · PDF fileIntroduction [2] December Intellisys Capital, LLC (“Intellisys”) was founded for the purpose of managing a portfolio of...

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Sanitary Waste Business

INTELLISYS CAPTIAL LLCProspectus Document January 2017

Introduction

[2] December

Intellisys Capital, LLC (“Intellisys”) was founded for the purpose of managing a portfolio of companies that

have high-growth opportunities through acquisition. Intellisys has identified a sanitary waste company

(“Company”) for the first purchase within the portfolio, which will become the foundation for the first series

of transactions.

The Company is a Michigan-based company that has built a solid foundation for over 20 years based on

the team of people, financial stability, strong market share, and the development of critical policies and

procedures. Over time, the Company has significantly grown its base of operations. Initially, the company

was highly focused on a single-county market, but through organic growth and acquisitions, the company

has expanded its operational territory to include seven counties. The solid foundation provides a significant

opportunity to roll new acquisitions into the company with relatively little disruption to the overall operations

of the business.

The sanitary waste industry has remained relatively untouched by larger private equity and institutional

investors, so the opportunity for consolidation is significant to the business acquisition plan. The typical

sanitary waste company is a small husband and wife business with 2-3 trucks that manage 2-3 million

gallons of waste on an annual basis. In order to grow through acquisition, the focus will be on smaller

companies that are looking for ownership transition and have key competitive advantages in the market,

which include:

1. Access/ownership of private storage tanks

2. Existing land applications for agricultural recycling

3. Strong market share

The goal for the acquisition rollup strategy is to acquire 3 – 5 companies every quarter with an overall goal

to have 25% of the market share in Michigan over the next five years. Over 20 companies have been

identified for acquisition in the next 6-9 months, with as many as five that will be eligible for closing in early

2017, which will immediately double the sales and EBITDA within the first 6 months. In addition, there

will be automatic 7.5% price increases to all services due to the consolidation that will occur as a result of

the acquisitions, which will increase cash flow after debt service by approximately 15%. As the company

reaches saturation in Michigan, the focus will shift to markets in Indiana, Ohio, Wisconsin, and Minnesota.

Company History

[3] Intellisys Prospectus

The Company began operations in the early 1980’s by the father of the current owner. Like many businesses

in the sanitary waste industry, the company started with very modest expectations and a single pumper truck in

a small single-county geographic region.

After 10 years of operation, the business was sold to the current owner, who for many years worked alongside

his father servicing waste systems. Since taking over the business, the owner has built a wildly successful

enterprise. He has lead the company to significant growth in product and service offerings. He has grown the

company in clients and geographies by employing a fleet of pumping trucks and providing ancillary services.

As with many similar companies in this industry, the owner made a strategic decision to diversify by adding

the rental of portable restrooms to supply a variety of clients. The rental of portable restrooms became a

significant compliment to the sanitary services already provided by the Company. As of today, the Company is

the largest sanitary services business in its service area and the second largest provider of portable restrooms.

It is obvious to see that the portable restroom business is a great compliment to the sanitary and drain services

that have been the mainstay source of revenue for the business.

The Company’s explosive growth in both septic pumping and portable restrooms came through organic growth

and by acquisition. The Company is positioned exceptionally well to continue growth organically, plus op-

portunistically acquiring selective companies to expand market share throughout the state. Another advantage

for the Company has been the Owner’s involvement with the industry association and significant influence in

drafting recent legislation passed in Michigan to the benefit of sanitary system companies. The Company has

another significant advantage; it owns a storage tank, which enables the Company to avoid disposal fees at

certain municipal facilities. The exemption held by the Company is an avenue that allows it to operate in other

areas in Michigan with a competitive advantage.

Growth of the pumping services is supported by construction activity in their current markets that requires

septic systems rather than hooking up to existing infrastructure. In short, most new building in the

seven-county area requires the installation of sanitary systems as a city sewer system is not widely available.

All of these new sanitary systems will require the kind of services currently provided by the Company, not to

mention the need for Portable Restrooms required for nearly every construction site or community events.

Management &Employees

[ 4 ] December

The Owner has been an active manager and leader within the Company, but has been grooming a

key of individuals to assume management responsibilities so that he can spend more time on strategic

planning for growing the company. These individuals have been making significant progress and expect

them to be prepared for their leadership positions in time for the 2016 peak season.

The following is an organizational chart of the Company:

[ 5 ] Intellisys Prospectus

The Owner is recognized as a leader in this industry, including industry associations and state regulatory

involvement. His involvement in the various trade associations was focused on improving the profes-

sionalism of the septic industry and securing passage of Michigan House Bill 4578 passed March 2012

and Michigan House Bill 4874 passed April 2015, both amendments to Part 117. This bill protects

septage haulers from government regulation related to septage disposal and forces accountability by

local municipalities.

The Company has developed a very diversified client list including residential homeowners, commercial

enterprises, resorts, restaurants, builders, excavators, home inspectors and event planners. The

company has strategically positioned its customer acquisition methods to avoid a concentration of any

one group of clients thereby creating a barrier to any significant disruption in revenue(s). In fact, the

Company’s top 30 customers only represent approximately 10% of total annual revenues. This strategy

of customer diversification continues to serve the company well while all but ensuring a stable future of

revenue growth.

The Owner has built a customer base of more than 16,500 contacts, with a majority of company’s

revenue come from repeat customers. This customer base has been developed through a very effective

branding and marketing plan, consisting of direct mail, networking, referrals, trade show participation

and advertising in business magazines and newspapers.

Industry Involvement,Affiliations & Customers

Industry Information

[ 6 ] December

The Portable Toilet Rental and Sanitary Waste industry provides services including portable toilet rental,

septic tank maintenance and various drain and sewer services such as cesspool pumping and cleaning.

Portable toilet rental comprises the largest product segment for the industry, accounting for an estimated

38.9% of industry revenue. The remainder of industry revenue is composed of septic tank maintenance

(24.2%), drain and sewer cleaning services (16.0%) and other nonhazardous waste management

services (20.9%).

Construction companies in downstream residential, commercial and industrial building markets use

the industry’s portable toilet rental to provide workers with onsite restroom facilities. During the past

five years, industry growth has been fueled by the broad economic recovery and subsequent uptick

in construction activity. As the economy recovered from the temporary downturn in building activity,

construction companies broke more ground, fueling demand for industry services. Both the value of

private nonresidential construction and residential construction returned to growth in 2011 and boomed

in 2012, fueling industry growth of 3.7% and 3.5% respectively. Consequently, industry revenue is

expected to expand significantly over the five years to 2015, rising at an annualized rate of 4.3% to $5.2

billion, including growth of 4.1% in 2015.

Additionally, industry growth has been supported by steady demand from government for waste- holding

and drain-cleaning services. Because waste-holding and drain facilities are necessary expenses for

government, there was some stability in demand from this sector, providing a stable revenue source

during the recession and throughout the current five year period. Moreover, demand from entertainment

events at large venues has been strong during the past five years as consumers selectively spent

money on activities such as concerts, despite slow disposable income growth.

Demand for industry services is expected to continue unabated during the next five years. Underpinned

by gains in the broader economy, construction activity is expected to increase substantially with the

value of private nonresidential construction and residential construction in the next five years expected

to grow at annualized rates of 5.2% and 7.3%, respectively. Consequently, IBISWorld expects industry

revenue to grow at an average annual rate of 3.6% to $6.3 billion during the five years to 2020.

[ 7 ] Intellisys Prospectus

Comparing the Company to the industry competition, mentioned previously, the Company has

capitalized on all fronts. In the market serviced by the Company, the Company is the largest septic

pumping operator and second largest portable restroom provider. In both areas, they see tremendous

opportunity to grow their business organically and through acquisition.

There are eighteen (18) identified competitors in the counties served by the Company, which are all

identified targets for acquisitions. All the competitors have been in business for 20 or more years.

During this period, there have been a couple of new businesses that attempted to break into these

markets, but failed after a couple of years of operation.

A vast majority of the competitors are very small businesses, with only one or two pumper trucks that

are quite old, as compared to the Company’s fleet of trucks; moreover, many of these businesses are

home based. The equipment used by these companies is left exposed to harsh elements in the winter

months, which attributes to more mechanical failures impacting customer service and damaging the

company’s brand.

There is one major competitor that competes directly with the Company. This firm has a larger portable

restroom business, but trails the Company in pumping operations. From a statewide perspective, The

Company is in the Top 10% of the largest firms in this industry, out of 375 companies.

Competitive Factors:

• The Company pumped 6 million gallons, whereas the closest competitors did only 2 to 3

million gallons.

• The Company has 570 portable toilets and the closest competitor has 1,400.

• The pumping business is focused on a market within a 30-mile radius.

• Portable restrooms serve a much broader area than the pumping business.

• There is very little competition in the portable restroom business.

• The septic pumping business is more competitive than the portable restroom business.

• There are 3 local competitors in the pumping business that are anticipated to be

purchased after the initial transaction, giving the Company a lock on the market.

Competitive Position

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Prepared by: Vanbex GroupDate: January 2017