Michael Dey·September 3, 2024

Leaving Corporate to Buy a $4m Manufacturer | Michael Dey Interview

Michael Dey is a former Boeing aerospace engineer and corporate strategist who spent ~20 years in the aviation industry before discovering ETA through an MBA program at Rice University's Jones School in his mid-40s. He bought American Spray Technologies (AST), a Seattle-area manufacturer of large industrial spray rigs used primarily by drywall contractors in new home construction, for a total of ~$4.8m ($2m for the business, $2.8m for the real estate) using an SBA 7(a) loan and equity from a condo sale. The deal nearly collapsed twice — first when his original lender dropped out after 2.5 months, and second when a seller note standby clause caused a late retrade that was resolved by replacing the note with a consulting agreement. The business had ~$500k SDE on ~$3m revenue at acquisition with 16 employees and a GM already running day-to-day operations. Revenue grew sharply to nearly $5m during COVID tailwinds before flattening in 2023 as new home starts declined. The real estate component was central to Michael's risk framework — providing a worst-case backstop — but the SBA variable rate caused debt service to spike over $100k above plan at peak rates before he refinanced to a conventional fixed-rate loan. Michael also teaches ETA at Rice as a lecturer and emphasizes a 'risk buildup' valuation methodology over simple multiples.

Deal facts

purchase price: $4.8m total ($2m business + $2.8m real estate)
multiple: ~4x EBITDA (business portion only)
sde ebitda: SDE ~$500k
revenue: ~$3m at acquisition; grew to $4.2m (year 1) and ~$5m (year 2)
financing structure: SBA 7(a) loan (~80%) bundled with real estate, equity from condo sale proceeds, seller note eliminated at closing (replaced with consulting agreement); variable rate started at ~6.25%, peaked at 11.25% before refinancing to conventional
notes: Real estate value exceeded 50% of total deal, enabling 25-year amortization. Seller note originally planned at ~12% of deal but eliminated due to standby clause dispute; replaced with declining consulting agreement. Later refinanced real estate to conventional fixed-rate loan.

Why this business

Michael was drawn to manufacturing because of his aerospace engineering background and love of physical, mechanical products. He wanted something he could brand as 'made in America' and that he could genuinely understand and contribute to technically. American Spray Technologies appealed because it had been around since the mid-1960s, had a management layer already in place, was in the geographic range he wanted (Seattle metro), had a stable and somewhat boring end-market (drywall texture for new construction), included real estate that fit his investment thesis, and the seller had already digitized operations and implemented business-grade systems.

What's working

Existing GM running day-to-day operations, enabling Michael to work on the business rather than constantly in it
Seller had already professionalized operations: digitized machine drawings, implemented accounting systems, established processes — reducing the turnaround work required
Large installed base of machines nationwide creating a recurring parts and service revenue tail
Niche market with very few competitors (only three US manufacturers of large spray rigs), limited threat from offshoring due to machine size
Real estate bundled in the deal appreciated in value, enabling later refinancing to a fixed-rate conventional loan and reducing debt service
Strong COVID tailwinds boosted revenue from ~$3m to $4.2m in year 1 and nearly $5m in year 2
Engineering background enabled Michael to contribute meaningfully to new product development
Hired Cultivate Advisors coach, which helped implement a CRM, improve sales process, and build cash flow forecasting

What's hard

Single-industry concentration in home construction: revenue declined ~10-12% in 2023 as new home starts fell due to high interest rates
SBA 7(a) variable rate loan on the real estate caused debt service to rise by over $100,000 annually as rates peaked at 11.25% — a significant unplanned cost
Original lender dropped the deal after 2.5 months with no warning, nearly killing the transaction and extending close from ~3 months to ~6 months
Seller note standby clause caused a near-fatal late retrade; had to eliminate the seller note and replace it with a consulting agreement to save the deal
Closing was delayed two weeks because the seller's building lender only accepted payoffs in the first 15 days of a month — an obscure requirement nobody in the deal had encountered
J-curve trough: added health insurance, raised wages, and invested in new product development during a period of flat revenue
Stress of cash flow management and payroll responsibility was greater than anticipated, causing sleepless nights despite Michael's generally relaxed temperament

Notable quotes

When I heard about ETA it would just a spark, you know, it just completely grabbed my attention.

I see myself almost as a steward — because it's been around for 55 years, I don't want to be the guy that destroys it. I want to steward it as long as I can or as long as makes sense for me, onto the next person.

The stress and responsibility was something I didn't foresee. In other words, you understand this is all on your shoulders, but when you actually day-to-day looking at your bank accounts, looking at your receivables, cash flow, payrolls coming, the bank payments coming — that really is more stressful than I realized it would be.

The front-facing folks at banks who are out there with the SBA loans and saying that they can give you a loan are salespeople. Nothing wrong with that, but they are bringing in deals; they're not the underwriters who are going to be really crunching the numbers.