Diligence brief — Northwind Fire & Safety, Inc. (synthetic) delivered

Northwind operates in a structurally attractive niche: code-mandated fire and life-safety inspection services that customers cannot legally defer. Roughly 78% of revenue is recurring and contractually bound, the business has grown revenue at a 10.3% three-year CAGR, gross margins have held steady at 46%, and the Company carries zero funded debt. The Pacific Northwest ITM market is fragmented, creating credible tuck-in acquisition opportunities. These characteristics make Northwind a reasonable platform candidate for a search fund or independent sponsor, provided the material risks described below can be adequately mitigated.

Northwind Fire & Safety, Inc. was founded in 2004 by Raymond Holt and operates from a 14,000 square foot facility in Tualatin, Oregon. It employs 61 full-time staff, of whom 38 are licensed inspection technicians, and runs a fleet of 22 service vehicles. The Company is licensed by the Oregon State Fire Marshal and holds NICET Level II and III certifications across its senior technical staff.

Services break into four lines: fire alarm inspection and testing (42% of revenue under NFPA 72), fire sprinkler and standpipe ITM (29% under NFPA 25), fire extinguisher and suppression-system service (16% under NFPA 10 and NFPA 17A), and repairs, deficiency correction, and small installation work (13%, higher-margin but variable).

The Company serves approximately 1,150 active customer sites spanning healthcare systems, school districts, municipal buildings, commercial property managers, and industrial facilities. The top ten customers together represent approximately 48% of revenue.

Revenue and growth: TTM revenue (FY2025) was $8.4 million, up from $7.6 million in FY2024 and $6.9 million in FY2023, a three-year CAGR of approximately 10.3%. Note: the FY2025 federal tax return reports gross receipts of $8.10 million, a $300,000 discrepancy versus the $8.4 million in the CIM and financial statements that requires explanation.

Margins: Gross margin has been stable at 46.0% across all three years. Reported EBITDA for TTM FY2025 was $1.20 million (14.3% margin on CIM revenue).

Adjustments: Management presents seller-adjusted EBITDA of $1.60 million after five add-backs totaling $400,000: a $90,000 one-time legal settlement, $40,000 of owner personal vehicle and travel expense, $120,000 of owner compensation above market, $60,000 of normalization and miscellaneous adjustments, and $90,000 of non-recurring software-implementation cost. The gap between reported ($1.20M) and adjusted ($1.60M) EBITDA is 33%, which is large relative to the base and warrants scrutiny on each item.

Free cash flow: The Company converts roughly 70% of EBITDA to free cash flow after maintenance capital expenditure. However, management has deferred approximately $240,000 of fleet replacement, which is a near-term cash requirement that is not reflected in the maintenance capex run-rate.

Balance sheet: The Company is debt-free, holds $410,000 of cash, $1.34 million of accounts receivable (of which $310,000 is aged over 90 days), $185,000 of inventory, and $980,000 of net fixed assets. Deferred revenue was $420,000.

1. Customer concentration: CIM misrepresents the largest customer. The CIM states explicitly that 'NO SINGLE CUSTOMER ACCOUNTS FOR MORE THAN 15% OF REVENUE.' The customer schedule in the same document then discloses that Cascadia Regional Health System represented $1.76 million, or approximately 21%, of TTM revenue. The founder confirmed this 21% figure on the management call. This is a direct factual contradiction within the offering documents and raises questions about the reliability of other representations.

2. Key-man and license risk. Founder Raymond Holt holds the master inspector license under which several of the Company's certifications are maintained. He has stated he wants to be fully retired within 18 months and has not yet identified a successor license-holder internally. Loss of the master license before a qualified successor is in place could impair the Company's ability to operate legally.

3. Revenue discrepancy between CIM and tax return. CIM and financial statements report TTM FY2025 revenue of $8.4 million. The federal Form 1120 reports gross receipts of $8.10 million, a $300,000 gap. This must be reconciled; it may reflect deferred revenue timing or billing adjustments, but it cannot be left unexplained.

4. Add-back quality. The $400,000 in total add-backs (33% of reported EBITDA) is large. The $60,000 'normalization and miscellaneous' add-back is not itemized. The $90,000 legal settlement add-back should be verified with underlying documentation; the nature of the dispute matters. The software implementation cost should be confirmed as truly non-recurring given the Company's stated uncertainty about whether its legacy system's data is even exportable.

5. Lost revenue and growth narrative. The Company lost the Metro Transit facilities contract earlier in 2025, representing roughly $300,000 of annual revenue, to a national competitor on price. The founder framed the CIM's growth narrative as dependent on winning back that kind of work and on hiring a salesperson, which has never been done. This loss, if not reflected in TTM revenue, may overstate the run-rate.

6. Deferred capital expenditure. Fleet replacement of approximately $240,000 to $250,000 has been deferred and is required in the near term. This is a buyer liability that reduces effective purchase price capacity and is not captured in the stated maintenance capex conversion rate.

7. Systems and data portability. The Company's customer and scheduling data resides in a legacy field-service application. Management has not confirmed whether the data is exportable to a successor system, creating integration and operational continuity risk post-close.

8. Lease counterparty. The operating facility is leased from Holt Properties LLC, an entity controlled by the founder, at $11,500 per month through 2027. While management describes this as approximately market, the lease must be confirmed as assignable or replaceable on acceptable terms as part of the transaction.

The following items must be resolved before an LOI is signed or before proceeding to definitive agreement:

1. Reconcile the revenue discrepancy. Obtain a detailed bridge between the $8.4 million reported in the CIM and the $8.10 million reported on the federal tax return. If TTM revenue is effectively $8.1 million, adjusted EBITDA margins and purchase price should be recalculated accordingly.

1. Resolve the customer-concentration misrepresentation. The CIM's claim that no single customer exceeds 15% of revenue is directly contradicted by the Cascadia Regional Health System disclosure at 21%. Seller must provide a full customer revenue schedule for the TTM, and the buyer must assess concentration risk with Cascadia at the corrected figure. Obtain a copy of the Cascadia master service agreement and confirm its transferability and term.

1. Master inspector license succession plan. Identify and confirm a qualified internal or external candidate to hold the master inspector license before or promptly after close. Confirm which specific certifications are tied to Mr. Holt personally and what the Oregon State Fire Marshal's process is for transferring or requalifying them. Structure an earnout or escrow holdback tied to successful license transfer.

1. Validate each add-back with documentation. Require support for all five add-back items: legal settlement resolution documents and confirmation no ongoing liability exists; owner personal expense reimbursement records; a market-rate compensation benchmark for the replacement CEO role; full itemization of the $60,000 normalization bucket; and invoices confirming the software implementation cost is complete and non-recurring.

1. Confirm Metro Transit revenue treatment. Determine whether the $300,000 Metro Transit contract was included in TTM revenue and, if so, confirm it has been excluded from any forward-looking run-rate used in valuation.

1. Fleet capex plan. Negotiate a purchase price adjustment or escrow for the approximately $240,000 to $250,000 of deferred fleet replacement. Do not allow this to be absorbed into the buyer's post-close operating budget without a corresponding price reduction.

1. Data portability assessment. Engage the field-service software vendor directly to confirm whether a full data export is feasible and at what cost, before close. If migration is not possible, assess whether the legacy system can be licensed to the buyer on reasonable terms.

1. Facility lease assignment. Confirm the lease with Holt Properties LLC is assignable to the buyer on current terms through 2027 and obtain an option to extend at a market rate, or identify an acceptable alternative facility.