🧐 What I Learned Last Week
Week ending Friday April 15, 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 The Business Inquirer is brought to you by DueDilio.
DueDilio is an expert network focused on M&A due diligence.
We connect business buyers, sellers, intermediaries, and private investors with quality, pre-vetted due diligence service providers.
Our deep network of independent professionals, boutique and mid-size firms, and subject-matter experts specialize in finance, technology, legal, and other areas of business diligence.
Submit your project. Review qualified proposals. Hire diligence provider.
📰 Articles
The search phase in business acquisitions can be difficult and lonely. Kumo writes about some strategies that searchers can use to improve their mental health during this process.
Six months ago, we closed on our first acquisition. From start to finish, our search process was a grueling 20 months, and there were long stretches of self-doubt, anxiety, stress, and exhaustion.
Since then, we have had several conversations about the many pain points in the searching process, and how we wish there were better tools and structures out there to help alleviate that friction.
3 Strategies to Protect your Mental Health During Your SMB / ETA Search
Also from Kumo: 35 Best Podcasts for Buying and Operating Businesses in 2022
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Business buyers often obsess about valuation. Buy Small Sell High writes that this is misguided. At least for self-funded searchers, valuations are not as important as they may seem. This is a great read.
Buying cheap has been the gospel for investors since the early days of Graham and Buffet. The SMB MBA references a study that found that purchase price was the best predictor for returns and 60% of the returns in private equity deals come from the 25% of companies bought for the lowest multiple. It’s unsurprising that most searchers worry about overpaying and spent excessive amounts of time trying to accurately value potential businesses.
In the next few paragraphs, I will outline why financial performance rather than multiples (aka purchase price) is the key driver of enterprise value for small businesses and how bank requirements and owner alternatives create a relatively tight multiple band (3.0x - 4.5x EBITDA) and therefore searchers should optimize for growth potential and business quality rather than multiple / price.
How Much Should You Bid For Small Businesses?
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MidStreet M&A is an investment bank based in Raleigh, NC. They do a nice job with their blog and I want to share a few of their recent articles.
How to Prepare Your Financials For the Sale of Your Business
What is a Non-Compete in a Business Sale
What to Consider When Selling to a Strategic Buyer
MidStreet’s Business Valuation Process
🧵 Twitter
Marketplace arbitrage exists…
Some great insights from scraping BizBuySell…
This is something different. Haven’t seen much commentary on private prisons as an asset class…
This is a great perspective. Another reminder not to sweat too much about valuation…
Top 8 questions to ask when buying or starting a business…
I may have to rethink my whole business plan…
🤔 Thoughts, Events, Other
PeerComps Discount
I am in the process of sourcing discounts that I can share with subscribers of this newsletter as well as with members of DueDilio.
I’m excited to share one offer with you today - 10% discount on PeerComps. PeerComps was created by certified business appraisers to give valuation professionals, intermediaries, accountants, attorneys, and other business advisors the most reliable information possible on comparable transactions and valuations for small businesses. They tap into their unrivaled comparable database to help subscribers obtain an accurate and reliable business valuation in 15 minutes or less. Their database and small business valuation calculator focus on “main street” businesses with annual revenues between $250,000 and $5 million (average revenue of $1 million).
Please let me know if you’re interested in a 10% discount to PeerComps.
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Deal Data & Metrics
AM&AA is hosting a free webinar on April 20 titled “Deep Dive into Deal Data and Metrics for M&A in 2022.”
When you attend, you will gain valuable insights from new, unpublished data on:
Factors behind price and value from M&A deals closed in 2021 vs. current active deals in 2022
Deal metrics for different company types – Product vs. Service companies, etc.
Outlier deals – how and why they differ from average deal metrics
An example of the impact of Inflation & Interest Rates on the Capital Stack for M&A in 2022
Analysis of deal process efficiency - a breakdown of labor and activity on a typical deal and a review of opportunities to streamline and accelerate them
Register for free here: AM&AA Webinar Series | Dealware (swoogo.com)
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Business Broker Franchise
I’ve been a fan of The Wolf Report which is a free e-mail newsletter analyzing the business of franchises. In the latest issue, they took an unconventional franchise - business brokerage - and broke down the numbers. I couldn’t figure out where this newsletter issue can be found on the web so I copied parts of it below.
Murphy Business Group
Background
Founded in 1994, franchising since 2006
Based in Florida; 131 outlets open at the end of 2021
Business brokerages, business valuations, franchise sales
Fees + Investment
Royalty: 10%
Brand Fund: Not applicable
Franchise Fee: $40,000 - $47,500
Initial Investment: $16,645 - $115,925
Financial Performance
The below table contains financial performance data on 102 franchisees that operated 118 units for the full year 2021
Note: Gross profits means all revenue derived from operating the Murphy Business, less the 10% royalty paid to them
The Wolf's Take 🍟
This is an untraditional franchise compared to what I usually cover. Murphy Business Group is a network of business brokers that help other business owners, both independent and franchised, sell their business to a new buyer.
In exchange for facilitating the transaction, the broker receives a commission based on the total sale price for the business (anywhere from 6%-15%).
I chose this franchise in particular because I made a friend on Twitter who works under a franchisee and seems happy, but also because of what is coming in the next decade...
The Greatest Wealth Transfer
It's estimated that over the next 20-25 years, ~$70 trillion dollars will be transferred from baby boomers to millennials.
Of that $70 trillion, roughly $10 million of value is sitting in small-medium sized business currently owned by baby boomers.
The best part? 65%-75% of those business are expected to be sold to unrelated third parties by 2028.
What this means is there's a rush of owners that will be flooding the market, looking to sell their business for the first time ever. News flash: they're going to need help!
If you have an interest in commission-based sales that includes some financial due diligence on behalf of clients, this could be an interesting franchise to take a look at (and the timing has never been better!).
I highly recommend subscribing to The Wolf Report if this type of analysis is of interest.
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Buy Then Build Discount
Get all 3 Buy Then Build Masterclasses for $600. That is a 60% discount from the full price and I think it’s only good for today (could be wrong on this).
Use code “aprilsixty” at checkout.
🛠 Tools & Resources
These are tools & resources that I personally use or have used. They may contain affiliate links so I’ll get a few pesos if you sign-up.
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.
PrivSource - Deal aggregator for lower and middle-market listings.
Calendly - Leading scheduling platform to easily schedule meetings without the back and forth. I’ve been using it for several years now. Free 14-day trial.
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 business phone solution that I have found. $20 credit.
Eloquens - Knowledge marketplace. I’ve bought a few guides and templates here.
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.