Lightning striking twice.

Gray received two phone calls this week within a few hours of each other from family members. The first was an extended family member who is an emergency room doctor in Indiana. The second was from his brother who is an emergency room physician in Maine. Ironically, both were asking if we could build the same product – an internet open sourced design for a box to protect doctors while intubating patients. Fast forward – we re-designed it, built cut files and are now selling them on our web store: . For a second time in two weeks, we find ourselves designing, building and mass shipping a brand-new product.

Intubation boxes aside, the reality of this situation from the small business front lines is that very little remains certain, and the business environment is getting worse. While the government’s effort to disburse emergency funds is commendable, the early execution has struggled. According to a variety of reports we’ve seen, small businesses account for a solid chunk of U.S. GDP and have about a month of cash available to fund expenses. That is a problem since deteriorating market conditions of this extent make small business problems become big business problems pretty quickly. Take for example, some of the comments we’ve received from various recent conversations with friends, contacts and partners:

  • “We are anticipating a decline in rent rolls between 40% and 70%,” – friend from a retail REIT
  • “Oh yes… the message [from the banks] early in the week was ‘we want to be constructive.’ Now any new credit pretty much needs Jamie Dimon’s sign-off,” – friend from an alternative asset management firm, when asked about margin calls
  • “[expletive] no. Gates are closed. No money in, no money out, every cent counts.” – friend from a real estate credit fund, when asked if they were having refinancing conversations with their borrowers

In our corner of the economy – commercial sign manufacturing – we are seeing a troubling development from herd mentality – preemptive mass layoffs. The avalanche of government emergency funding programs (payroll tax credits under FMLA extension, SBA 7(a) loans, SBA Payroll Protection Program loans and SBA Economic Injury Disaster Loans to name a few) are the Fed’s way of saying ‘we’ll take the check’. With the project cycles and backlogs that our industry runs with, this swift action is surprising. Without employees, a sign company can’t answer the call to build relevant products in this environment.

Quick background on IAP:

We’ve built our sign company through four acquisitions with capital from 10 private investors. Our investment focus resides firmly on what we call the lower middle market – companies with <$3mm in EBITDA. It is worth noting that most of these companies and their brokers don’t know what EBITDA is – the lower middle market is a strange place that the institutional investment community pays little attention to. However, for investors willing to roll up their sleeves, these companies can present enormous value. Additionally, the COVID-19 outbreak and related government efforts have shined a bright spotlight on businesses with less than 500 employees. Amid the turmoil, we are scratching and clawing to find opportunities.