🧐 What I Learned Last Week
Week ending Friday August 5, 2022
What I Learned Last Week curates the most interesting content relating to business acquisitions, operations, entrepreneurship, finance, and more. WILLW is a publication of The Business Inquirer.
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Hello Friends!
This issue of What I Learned Last Week is brought to you by All-In Write-Ups and My First Million Write-Ups newsletters.
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📰 Articles
Akoya Capital writes about the shift in Family Offices pursuing Independent Sponsors instead of Private Equity funds.
As a family office investor, you have three alternatives for direct investing, each requiring distinct resources and skills:
Build an In-house Team
Generate Deal Flow on a One-Off Basis
Partner with Independent Sponsors
Why Family Offices are Choosing Independent Sponsors Over Private Equity Funds
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Being acquired by a strategic buyer is every business owner’s dream come true (read: they pay premium $$$ ). Corporate Finance Associates published an article outlining how strategic buyers think about acquisitions and their process.
As a Strategic Buyer, we were almost always operating in the same industry as the Seller. Our corporate strategy called for "external growth" to complement our "internal growth". As the Corporate M&A Team our goal was to find acquisition targets whose products and services aligned with our corporate strategy and produced "synergies". Our annual performance evaluation and our annual bonus was based upon how well we identified targets and how successful we were in completing transactions.
The Mindset of a Strategic Buyer
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ButcherJoseph & Co published a whitepaper that gives insights into the “Silver Tsunami”. First time I’ve seen that term used. Great read.
Of the approximately 77 million Baby Boomers in the U.S., an estimated 12 million have ownership in privately held businesses. Roughly 10,000 Baby Boomers reach retirement age every day, meaning all members of this generation will reach age 65 by 2030. As the Baby Boomer retirement era continues and ownership stakes are passed to next generation of leadership, an estimated $10 trillion worth of business assets is expected to be transferred. Ultimately, the ~$100 trillion net worth of individuals over age 55 (as of Q4 2021) will be passed on to successors and inheritors. The key result: reduced motivation of inheriting generations to join the workforce.
The “Silver Tsunami” and Its Effect on the M&A Landscape
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Angi recently published their 2022 report on the trends they are seeing in the home services market. It’s a must-read for anyone looking into this industry.
Key Takeaways
The total addressable market for home services is $657.4B
The home improvement market is $475B and grew 26% in the past year.
The size of the market in total project volume is 665.6M projects completed annually, with year over year increases in both improvement projects and emergency projects.
The total home service market serving single family houses is $500.2B
Home equity gains of 7.6 trillion over the past 2 years could pay for 12 years of consumer spending at the 2022 level.
The number of home service pros is 6.1 million people working for approximately 2.5 million businesses.
The total housing stock is continuing to rise to a total of 143 million housing units, including 93.5 million single family homes, which remain Americans most popular way to live. The average age of the housing stock continues to rise, to an average of 47 years.
The ratio of the prior year’s home equity to the current market size is 38:1, a 6% increase from 2021, despite the larger TAM this year, reflecting the role of large home equity gains in fueling home service spending.
The population now has an average age of 39, and the next decade will be marked by Millennials continuing to form families and age into their 40s while Boomers enter their 80s with many opting to age-in-place.
Home equity gains coupled with rising interest rates will increase the competitive position of remodeling vs. moving, as the total cost of buying a new home has nearly doubled since 2020.
The Economy of Everything Home
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Software Equity Group (SEG) released a report on software M&A trends.
A Dive into Software M&A Trends in 2022
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Patrick Dichter attended the recent HoldCo Conference in Cleveland. He published his thoughts on the conference and the takeaways.
Here’s my other big takeaways:
Think bigger. My 5 year goal is $4-5M in revenue. That felt like kid shit after the conference.
Compounding is very real. The first 1-2 businesses were a grind for 5-10 years. Then experience and cash flows allow growth to accelerate very quickly.
I need to create an acquisition integration template. Reg and Josh buy foundries. They know exactly where they expect production to be 60 days in, and exactly how to get any new acquisition there quickly. I need to do the same for accounting firm acquisitions.
People are key. Nobody at the conference talked about financial modeling or access to capital as their winning edge. Everyone is challenged by hiring and see people as the biggest way to win with any of their holding companies.
Get in the game. None of these very successful HoldCos had a linear path to success. But just being in the game and working to get better every month allowed them to take on bigger opportunities and acquisitions.
Are Holding Companies worth it? Takeaways from HoldCo Conf.
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Benedict Evans looks at what happens when Big Tech buys a small tech company.
The headline number is that there were 616 qualifying acquisitions of more than $1m in those 10 years, an average of 12 per company per year. Indeed ‘hundreds of acquisitions’ - but what were they, and what does that tell us?
A first observation: the vast majority of these companies were very small: 40% were bought for less than $10m and 80% for less than $50m, while 55% had less than ten staff and 90% had less than 50 staff.
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Bain PE team published their global midyear update. You can follow the link to read the full report or you can save some time and check out an excellent summary of the report published by bloom equity partners.
At a Glance
Most signs indicate that private equity’s record-setting performance in recent years is about to collide with the end of the business cycle.
Uncertainty around inflation and asset valuations has slowed deal pipelines, and first-half data already shows a sharp decrease in exit and fund-raising activity.
Smart investors aren’t waiting for more clarity; they are already running downturn scenarios against their portfolios and making critical adjustments to their due diligence approach.
Bain: Shifting Gears: Private Equity Report Midyear 2022
Bloom: Mid-Year Market Updates
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Mineola Search Partners has a great post & podcast episode about LOIs.
This blog post attempts to speak to prospective sellers of small or medium-sized businesses about what LOIs are (and more importantly, what they are not), and how experienced buyers may strategically utilize them as tools to further their own objectives, sometimes at the expense of those of the seller.
Strategic Considerations When Evaluating a Letter of Intent to Sell Your Business
🧵 Twitter
Follow along the journey…
An important cautionary tale. A lot of scams out there in the micro-SaaS space…
Kurtis provides a great primer on analyzing the key financial statements…
This is the way…
If you want to learn about SBA loans, this is as good as it gets…
🤔 Thoughts, Events, Other
DueDilio 2Q 2022 Update
Earlier this week I shared an update with all the service providers in the DueDilio network highlighting 2Q 2022 trends. Here are a few details…
+19 new service providers joined the marketplace
+33% increase in new projects vs. 1Q 2022
41% of confirmed projects turned into commercial engagements
Launched new DueDilio website
🛠 Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these may contain affiliate links. This means that I may receive compensation if you sign-up and use them.
Cerebro Capital - Cerebro has a network of 1,500+ lenders who can provide debt financing for your acquisition, refi, etc. $500k minimum.
X5 Deals - Proprietary deal sourcing. They do the outreach and send you relevant, actionable deals directly into your inbox.
Curators - Proprietary deal sourcing. You need targets that fit your investment criteria, and Curators delivers week after week - we even update your personalized database on a daily basis with new information on best-fit targets.
BizNexus - Proprietary deal flow, deal aggregator, and exit prep. Local Boston company and I consider the founder (Adam Ray) a friend.
PrivSource - Deal aggregator for lower and middle-market listings.
Kumo - Find every deal in one complete platform. Spend less time sourcing deals and more time closing them. Kumo aggregates 180K+ business listings into one easy-to-use platform.
ProjectionHub - Access to 50+ CPA-developed financial projection templates. 25% discount using code “duedilio” at checkout.
Logology - Best automated logo & brand identity tool I’ve come across.
DeepBench - Access a cutting-edge expert network. $200 discount.
OpenPhone - The best VoIP phone solution that I have found. I use this for DueDilio. You get a $20 credit if you sign-up.
Eloquens - Knowledge marketplace. I’ve purchased a few templates from them.
Deal Flow Scout - Peer-to-peer deal flow exchange. Free, open, transparent.
Deal Sourcing Guide - A directory I put together of online marketplaces, brokers, DFY deal flow, and more.
That’s all for this issue of What I Learned Last Week!
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Important Disclaimer: This newsletter is provided for informational & educational purposes only, and should not be relied upon as legal, business, investment, or tax advice. This newsletter may link to other websites and certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, it has not been independently verified. The Business Inquirer makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. References to any companies, securities, listings, investments, or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any business, tax, or investment decisions. Content in this newsletter speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.