Capital Provisions will combine a proven roll-up strategy with next-generation technology to transform mid-market vending companies into an industry-leading provider of vending, micro-markets, coffee, and office supplies. Our initial focus will be Los Angeles, with a plan for expansion throughout California and the Western States, including Arizona, Nevada, Washington, and/or Oregon.
The mid-market is highly fragmented, and is largely comprised of retirement-aged owners looking to sell the businesses they, their parents and grandparents built, but that their children cannot or do not want to run. Many of the rest also seek to exit the business because they see technology transforming the industry but lack the resources or will to implement change.
As a result, while vending technology is nothing new, it has barely penetrated the mid-market, creating a unique opportunity to dramatically improve margins and generate tremendous returns. Capital Provisions’ experienced team, using Vagabond Vending’s cutting-edge technology and vīv payments platform, is uniquely positioned to seize that opportunity.
The plan will be executed in two stages, an initial “platform” stage and a later “growth” stage, with the ultimate goal of creating a $100 million+ company in five years.
Capital Provisions is the second company founded by Legend Capital Holdings, LLC, a private equity firm started by Rich Boone and Michael Lovett to take advantage of opportunities in the vending industry that had previously gone untapped.
Legend Capital initially focused on relatively low risk financing transactions aimed at helping small and mid-market vending operators grow their businesses. As noted, technology is transforming the industry but very few of these operators have the will to change. The rest simply lack the capital necessary to deploy new technology across hundreds or thousands of machines.
Legend Capital stepped in, launching two funds that purchase equipment and lease it to operators through Vagabond Vending LLC’s “One Rate” program. This enabled the operators to implement Vagabond’s technology and pay for it from sales. The funds are on track to return a 10% IRR to investors over 5 years.
In the process, Legend Capital recognized an opportunity in the mid-market to purchase companies and reap substantial profits by combining them into a larger, more profitable operator. That opportunity became Legend Foods, which is rapidly expanding and will be a $30 million company by September. Legend Capital, in partnership with a larger PE firm, provided the seed money for Legend Foods.
Legend Foods is strong, growing, and on its way to becoming a major player in the industry. However, it is is currently focusing only on the New England and Mid-Atlantic regions. Accordingly, Legend Capital is planning a second company focused on the West Coast, Capital Provisions. That company will build on the lessons learned with Legend Foods, but will also employ its own unique strategies detailed herein.
One of those strategies involves raising money in two stages. Stage I, the “platform” phase, is aimed at raising adequate capital to establish a platform company in Los Angeles by joining together two operators who are currently under LOI and tucking in additional companies until we reach 1,250 machines. The combined operation will then be transformed into a model for further growth, with a valuation much higher than could be achieved when viewing the acquired companies separately.
As a result, initial investors should see greater benefits when we enter Stage II, the “growth” phase, for which we will raise sufficient capital to allow us to build out Los Angeles and, later, to acquire enough operators in other markets to grow to our $100 million revenue goal, when we will seek an exit. Our models show a 35.6% IRR over five years from the Los Angeles buildout alone, and we would expect even higher returns as we expand into other markets.
Capital Provison’s two stage approach is particularly appropriate now, given the impact that COVID-19 has had on the market. We have developed a strategy to address these impacts in the Stage I “platform” phase, so that the company is in a prime position to enter the Stage II “growth” phase when the crisis abates.
At the height of the shutdown, the vending industry saw a 60-70% decrease in gross revenues. Despite this, operators such as Legend Foods were able to maintain healthy profit margins because staffing and other costs proved to be highly variable. Nevertheless, there is greater potential risk in the market due to the threat of future shutdowns. However, there is also greater opportunity, because vending is an industry that traditionally values businesses based on revenues. Accordingly, we expect to see steep discounts on acquisition prices in the short-term.
To address the COVID-19 crisis, the Capital Provisions team developed an acquisition strategy that combines past with future sales. This strategy has been very well received by our Stage I acquisition targets, as it promises them the best possible price for their businesses in the current climate. We also believe that strategy should effectively insulate Capital Provisions from any additional shutdowns, as any decreases in revenues will also decrease our ultimate purchase price. Meanwhile, the company will establish a foothold in the market despite the current crisis, and be ready for Stage II when the market returns to normal.
Contact: Woody Kassin, CEO