Pawel Kosicki·March 27, 2023

How to Buy a $2m Home Theater Business in 6 Months | Pawel Kosicki

Pawel Kosicki, a Polish-Canadian engineer-turned-corporate-strategist, discovered ETA through a Twitter thread in July 2022 and closed on Oakville Sight and Sound — a high-end home theater and smart home design/installation company outside Toronto — just six months later in January 2023. The business was acquired for roughly $2-3M at 2.5x the average SDE from the trailing three years (a favorable valuation because 2020 depressed the average), financed 76% through RBC after BMO went dark for weeks; the remainder came from personal savings, a friend/partner, and family. The seller, a serial entrepreneur who had run the business for 20 years, stayed on as GM and proved an excellent character fit — Pawel spent much of his diligence verifying the seller's integrity through podcast interviews, community involvement, and conversations with buyers of the seller's prior businesses. The business blends project-based revenue from custom home theater and whole-home automation installs with a growing recurring revenue stream via service plans and security monitoring, serving primarily affluent clients in the Oakville-Toronto corridor. Key opportunities Pawel is pursuing include pulling more sales into the Toronto market, adding an electrician license to eliminate subcontractor dependency, building forecasting systems for technician utilization, and expanding recurring revenue through security monitoring contracts.

Deal facts

purchase price: ~$2-3M (described as 'somewhere between two and three million')
multiple: 2.5x SDE (average of trailing 3 years)
sde ebitda: EBITDA mid-to-upper six figures
revenue: lower mid seven figures
financing structure: 76% bank loan (RBC), remainder from personal savings, family, and one partner (Aretha/Rita) pro-rata equity; no seller financing
notes: Seller (Jamie) owned 80%; junior partner (salesperson) owned 20% and stayed on as employee. Working capital adjustment on top of purchase price; side loan from seller for WC was arranged but not needed. Closed January 9, 2023.

Why this business

Pawel stumbled onto ETA via a Twitter thread by Seva Kaczynski in July 2022, logged on to BizBuySell the next day mostly to prove it couldn't work, and found Oakville Sight and Sound within weeks. He was drawn to the seller's integrity and complementary skill set — the seller was a strong leader and deal-maker who lacked systems thinking, exactly what Pawel as an engineer/MBA could provide. He also saw strong industry tailwinds as home automation moves downmarket and recurring revenue potential from service contracts and security monitoring.

What's working

Business ran itself from day one — seller remained as GM and the transition was smooth with no customer or employee disruption
Seller stayed on as general manager, providing continuity while deferring ownership decisions to Pawel
High customer loyalty and long recurrence cycles (8-10 years per client); recurring revenue growing through service plans and security monitoring
Strong rapport with seller accelerated diligence and deal closing despite compressed timeline
Industry tailwinds: home automation expected to move downmarket, expanding the total addressable market
Geographic expansion opportunity pulling more business toward Toronto proper from the Oakville base
Junior partner (key salesperson) stayed on as employee, reducing key-man risk

What's hard

Bank financing was a major bottleneck — BMO went dark for weeks; had to restart with RBC in early December under a tight Christmas deadline
No Canadian equivalent to the SBA; BDC (crown corporation) would not adequately fund the goodwill portion of the purchase
Sole-sourced financing initially on seller's recommendation, losing critical weeks; lesson: pursue multiple lenders in parallel
Project-based business model (not recurring) made forecasting technician utilization 3-6 months out difficult — operating on gut feel
Seller's 20-year presence means employees still see him as the authority; Pawel navigating how to establish his own leadership without undermining seller
Finding technicians with the eclectic skill mix required (construction, electrical, programming, networking) is a key growth constraint
Did not commission a quality of earnings report — auditing expenses was difficult; Pawel acknowledges he would be more meticulous in a future deal
Partner salary add-back was questionable since that person is required headcount Pawel still needed to retain

Notable quotes

I logged on to Biz by sell to prove Twitter wrong and I ended up proving Twitter right and myself wrong fortuitously.

I put together an LOI and it was a good heartfelt nice letter that I sent him on Monday to which response thank you for the LOI it's very beautiful have your broker put a formal standard LOI together.

Taking risks where if you're right you come off really well you become wealthy if you're wrong you don't go to zero — I think we had that go to zero portion addressed through sort of the backup plan of having a W-2 in case the company goes to zero.

The biggest one is a way of seeing what the company position is going to be three six months into the future — we're playing it by gut feel of do we need to hire another technician — but we don't have a way of saying we're really going to be slow in the summer.