Four tools from the HighTide desk

What it is

HighTide Capital Group buys owner-operated trade-services companies in Arizona and holds them. On a platform that has not yet closed a deal, most of the operations seat is the diligence desk: every target that passes the screen crosses it before it gets a number.

Each target arrives in a broker's package, and every package sets its own normal. A painting contractor's sheets said a fifth of revenue was what a painter earns; a landscaping contractor's recast counted the owner's retirement plan contributions as earnings; a small painter's listing annualized a strong partial year. None of it was false. The only thing to read a package against was the package, and the same few problems surfaced in week three instead of day one.

What Common Ground did

• Built a cross-trade base-rate tracker from the desk's own screened deals: nine trade businesses with figures across five trades (painting, landscaping, plumbing, remodel and construction management, and pool construction and service), three of them taken all the way to filed tax returns. One row per metric, trade and size band (small under $1 million of revenue, mid to $3 million, large above), with the count and basis beside every band and no seller, broker or town in it. A band moves only on filed returns.
• Wrote a liability-search checklist that runs at the NDA stage, before any package figure enters a model: state and local tax remittance and exemption support, federal returns confirmed as filed through transcripts, liens and titles, claims and licensing complaints, who qualifies the contractor's license, the shareholder list against the returns, premises and payroll obligations. Each item is marked binary or pricing before any deal is in front of the desk, and a clean result is recorded with its source and date so a blank is never read as a pass.
• The reason the checklist comes first: on the first painting contractor the books were clean and the income statements had no line for Arizona's transaction privilege tax at all. New-construction painting is taxed as contracting, and a subcontractor owes nothing only with a certificate from each builder showing the builder pays. There were none in the file. A company that complies and one that does not produce identical financial statements.
• Built one quality-of-earnings bridge with the same lines tested the same way on every deal: start from the filed return, weight three filed years with the most recent heaviest, reconcile owners' pay owner by owner to the return, accept retirement contributions only with the seller's accountant's letter, remove income that does not convey, normalize related-party rent, replace the owner's seat at its loaded market cost, and add the second seat for the fully staffed case.
• Wrote an offer-structure method that prices what might not transfer as terms the seller can choose: a cash path paid for certainty beside a partnership path with a lower fixed price plus a contingent amount earned only if the concentrated customers stay, measured against a revenue-by-customer schedule the seller signs, with a symmetric downside and carve-outs for losses the buyer causes. The holdback is a cash escrow, the key foreman signs a retention agreement, and price is the last thing on the table.
• Set the order: base rates first, liability searches second, the bridge third, the offer structure last, and every deal ends by updating the tracker.

Results

• Small project businesses present about a third of revenue as earnings, because the owner's own labor sits inside them; the mid and large companies cluster near a fifth.
• The businesses taken to filed returns fell from about a fifth or more of revenue to between about a twentieth and an eighth once the owner's seat was paid at market and unsupported add-backs were held out. The landscaping contractor fell furthest, on retirement contributions added back.
• Asks ran from about one and a half to a little over three times presented earnings. On the two painting targets rebuilt to filed returns, asks that read at about 2.3 times presented earnings came out near 3 times the earnings that survived the rebuild: a full price on a smaller number.
• In both painting targets the largest customer group carried two thirds or more of the revenue or contracted work, and both had a year in which revenue fell by almost a quarter to two fifths. The license qualifier was a selling owner every time, and every target had something that conveys with the company missing from its package.
• Deal-ending questions reach the seller's accountant in the week of the NDA instead of week three, and a customer-concentration finding became a term a seller can choose rather than only a reason to cut the price.

Public record

• HighTide Capital Group

At a glance