The Business Inquirer #117
In this week's issue, I highlight a programmatic SEO SaaS, a commercial laundromat, and an IT MSP.
Hello Friends!
In this week’s issue:
☁️ SaaS - 1 listing
💼 Online Service, Media, Marketplace - 1 listing
🏡 Main Street, Offline, Other - 1 listing
⚒️ Tools & Resources
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☁️ SaaS
AI-Powered Local Landing Page Builder (Acquire) - $1.2M
Launched in 2018
Allows SMBs to systematically create local landing pages for SEO and ranking purposes
You can see this business here: Top4
Revenue: $560k
Profit: $390k
Margin: 70%
Multiple: 3.08x
✅ What I Like
A really interesting business that’s in the programmatic SEO space. Large client base and great margins. Key channel partners in place. As SEO grows in importance, this business could be very well positioned to benefit. Valuation looks very reasonable at first glance.
❓ Questions & Concerns
Very reliant on Google. SEO is an ever-changing industry. A possible change in the Google algorithm could have a very negative impact on this business. The listing is a bit confusing regarding the # of clients they have.
Could this entire business be easily disrupted by new AI tools? Is that why the owner is selling?
Here are some basic questions to think about:
Customer Analysis: What is the breakdown of the customer base? Are there key accounts that contribute a significant portion of revenue? Are there key channel partners? How does client feedback look like?
Technology Evaluation: Can we get a detailed understanding of the AI technology used? How difficult would it be to hire a dev team?
Competitive Analysis: Who are the main competitors? How does the business differentiate itself?
💼 Due Diligence
Technology
You want to hire someone to analyze the complete tech stack. How scalable is it? How stable is it?
The costs could range from $15k to $30k for a full audit.
Finance
Financial DD is typically straightforward for a SaaS business.
Using DueDilio, you can expect to receive proposals in the range of $8k to $15k for this type of project.
🚀 Growth
Expand Market Reach: Target new industries or geographies to expand the customer base. Attend industry events.
Product Development: Continue to improve the AI technology and introduce new features to meet evolving customer needs.
Partnerships: Form strategic partnerships with complementary businesses to reach a wider audience. Form a referral program.
Customer Retention: Implement strategies to reduce churn rate and improve customer loyalty.
🙋🏻♂️ The Buyer
The ideal buyer would have a strong understanding of both the SaaS business model and the SEO market and have the resources to continue developing the platform's AI technology.
Digital Marketing Agencies: Agencies could integrate this service into their existing solutions, adding value to their clients and creating an additional revenue stream.
Tech Entrepreneurs: Tech-focused entrepreneurs might see this as an opportunity to leverage their skills in a profitable and growing business.
Strategic Buyer: A larger company in a related field might be interested in acquiring the technology to enhance their own offerings.
💼 Online Service, Media, Marketplace
Managed IT Services (BizBuySell) - $275k
Founded in 1983
Offers tech support, cloud, cybersecurity, and project work
Founder passed away and wife is selling the business
5 employees
Revenue: $1.6M
Profit: $135k
Margin: 8%
Multiple: 2.04x
✅ What I Like
Seems like a distressed sale which may be an interesting opportunity. A lot of operating history. A wide menu of services. Safe to assume there was underinvestment in the business which can create easy wins for a new owner. Valuation is reasonable at first glance.
❓ Questions & Concerns
Not a lot of detail in the listing. Low margin is a big concern. Are the 5 employees staying on with the business? Is there any key-person risk? How do the client contracts look and when do they renew?
Here are a few questions to think about when looking at an IT MSP:
Client Agreements: What types of contracts are in place with clients? Are they month-to-month, annual, or multi-year agreements? How much recurring revenue is generated from these contracts?
Service Level Agreements (SLAs): What are the terms of the SLAs with clients? Is the business meeting these SLAs consistently?
Client Satisfaction: How is client satisfaction measured, and what are the results? Are there any client complaints or issues that haven't been resolved?
Revenue Breakdown: What percentage of revenue comes from each service (hardware/software sales, managed services, technical support, cloud computing, cybersecurity, project work)?
Vendor Relationships: Who are the key vendors for hardware and software? What are the terms of those relationships? Are there any exclusive agreements or volume discounts in place?
Employee Certifications and Skills: What qualifications, certifications, and skills do the technical staff hold? How are they keeping up with the latest IT trends and technologies?
Cybersecurity Measures: What cybersecurity measures does the company have in place for its own IT infrastructure? How are they ensuring the security of client data?
Technology Stack: What technologies does the company rely on for delivering its services? Are there any proprietary systems or technologies?
Disaster Recovery and Business Continuity: What disaster recovery and business continuity plans are in place? Have they been tested, and how effective are they?
Growth and Churn: What is the client acquisition and churn rate? What strategies are in place for client retention and acquisition?
💼 Due Diligence
This is a relatively small transaction so you want to keep DD costs under control.
Finance
Basic financial verification to make sure there are no red flags. I’d hire a low-cost service provider for this type of project.
DueDilio can present you with 4 to 6 proposals from pre-vetted independent professionals. The fee estimates would range from $2,500 to $5,000.
Legal
An M&A attorney can review the contracts and help with legal diligence. Legal fees for a transaction of this size can be $8k to $12k.
DueDilio can help you hire a value-priced attorney.
Operations
You may want to bring in an independent subject-matter expert (SME) to review the operations of this business. This expert would have deep-expertise in the IT MSP space.
At DueDilio, we have several SMEs with knowledge of this space. They charge anywhere from $90 to $250 per hour.
🚀 Growth
Service Expansion: Offering additional services can attract a wider range of clients. Consider expanding into areas like AI, IoT, data analytics, digital transformation consulting, or other high-demand IT services.
Cross-Selling and Upselling: Leverage your existing customer relationships to sell additional services. This could involve moving clients from a basic package to a more comprehensive one, or offering new services that complement their current ones.
Target New Markets: If your services are concentrated in specific industries, consider expanding into new ones. Similarly, if your client base is predominantly small businesses, you might target medium-sized businesses.
Geographic Expansion: If your business is currently local or regional, consider expanding your services to a wider geographic area, even nationwide or internationally if feasible.
Strategic Partnerships: Partner with other businesses that offer complementary services. This can help you reach a larger client base and offer more comprehensive solutions.
Improve Client Retention: Providing excellent customer service and regular communication can help to keep your existing clients. Happy clients are likely to refer others to your service.
Marketing and Branding: Invest in online and offline marketing strategies to increase brand visibility. This could include SEO, content marketing, social media, and attending industry events.
Acquisitions: Acquiring another IT service provider can be a fast way to grow. This could provide access to new clients, new geographic areas, or specific skills and services.
Invest in Technology: Ensure you are using the latest technologies to deliver efficient and competitive services. This could involve investing in new hardware, software, or training for your team.
Training and Development: Regularly upskill your team to ensure they can provide the most relevant and up-to-date services. This not only improves your service quality but can also be a selling point for potential clients.
🙋🏻♂️ The Buyer
The best buyer would be someone who understands the IT managed services industry and its challenges, has the financial resources to invest in growth and evolving technology trends, and can leverage existing customer relationships while also building new ones. They should also be able to retain and effectively manage the current team, especially given the importance of talent in the IT industry.
Strategic Buyer: A strategic buyer, such as a larger MSP, software, or IT consulting firm, may look to acquire a smaller MSP to expand their client base, geographic reach, or service offerings. They may also be interested in any unique technologies, processes, or industry expertise that the smaller MSP possesses.
Owner-Operator: An individual with industry experience might be interested in purchasing the business to run it themselves. This could be an IT professional or entrepreneur looking to own a business in a growing industry.
Synergistic Buyer: A company in a related field might see the MSP as a way to enhance their current offerings. For instance, a telecom company might acquire an MSP to offer bundled or integrated services.
Tech Companies: Larger tech companies might look to acquire an MSP to integrate their products more deeply into the services offered by the MSP. This could help them gain a stronger position in certain markets or with certain types of clients.
🏡 Main Street, Offline, Other
Commercial Laundromat in Miami (BizBuySell) - $2M
Founded in 1997
160 customers; Hotels, restaurants, event planning;
13 washers, 12 dryers, 2 trucks, and 1 van included;
10 employees
Revenue: $1.6M
Profit: $525k
Margin: 33%
Multiple: 3.81x
✅ What I Like
A lot of operating history. A relatively simple business that’s always in demand. Miami-Dade County is very fast growing with new hotels and restaurants opening up. There are a good number of diversified clients. Nice margins. Sounds like there is a team in place for day-to-day operations. Valuation looks reasonable especially if the included assets and equipment are in good working order.
❓ Questions & Concerns
This is a relatively asset-heavy business that will incur heavy maintenance expenses at some point. The business is also geographically limited.
Is all revenue recorded or are there certain cash transactions? Do the utility bills make sense compared to the stated volumes? Is there any key-person risk? How do the client contracts look? Is there any seasonality? What are the growth opportunities for this business? When do the client contracts come up for renewal?
Here are some basic questions to think about when acquiring a commercial laundromat:
Client Breakdown: What is the revenue breakdown per client? Are there any clients that contribute to a significant portion of the revenue?
Equipment Condition: What is the condition and expected lifespan of the current equipment? Are there any upcoming equipment replacement needs?
Staffing: What are the details around staff compensation, benefits, and contracts? Is there any risk of staff turnover? Are all staff W-2 employees?
Contracts and Agreements: Are there any long-term contracts with clients or suppliers? Are there any potential issues or liabilities associated with these contracts? When do they come up for renewal?
Regulatory Compliance: Is the business in compliance with all necessary environmental and safety regulations related to commercial laundry operations?
Competition: Who are the major competitors in the area, and how does this business differentiate itself?
💼 Due Diligence
Finance
For a transaction of this size, you’d want to order a full-scope Quality of Earnings Report. Make sure to include a thorough analysis of NWC.
At DueDilio, we have many service providers who have experience with this type of business. You can expect to see proposals in the range of $13k to $25k.
Legal
You’re looking at legal costs of $15k to $25k for this type of transaction.
Environmental
You want to engage an environmental consultant to examine the location. Make sure there are no issues.
A basic environmental site assessment can cost anywhere from $3k to $10k.
🚀 Growth
Service Expansion: Consider offering additional services, such as dry cleaning or specialized cleaning for sensitive materials.
Geographic Expansion: Expand the service area beyond the current counties, possibly including additional counties or even statewide.
Marketing and Sales Efforts: Increase marketing efforts to raise brand awareness and attract new clients. Sales efforts could be expanded to target new industries or larger businesses.
Partnerships and Contracts: Secure long-term contracts or partnerships with hotels, hospitals, restaurants, or other businesses that regularly need laundry services.
🙋🏻♂️ The Buyer
The best buyer would be someone who understands the commercial laundry industry and its challenges, has the financial resources to invest in growth and maintenance of equipment, and can leverage existing customer relationships while also building new ones. A good buyer should also be able to retain and manage the current team effectively.
Strategic Buyer: A strategic buyer already operates in a related field and is looking to expand their service offerings, geographic reach, or customer base. This could be another commercial laundry business looking to increase market share, a dry-cleaning business wanting to diversify its services, or a larger hospitality service company seeking to bring laundry services in-house.
Owner-Operator: An individual with experience in the industry or a similar industry might be interested in purchasing the business to run it themselves. This could be someone with a background in hospitality, facilities management, or commercial cleaning services.
Family Office or High Net Worth Individual: Some wealthy families or individuals invest in businesses directly. A commercial laundry business could appeal to them as a steady cash-generating asset, especially if they have other hospitality investments where synergies might be realized.
⚒️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.
DueDilio - #1 marketplace to hire highly vetted M&A due diligence service providers. Your source for finance, legal, tech, and other key areas of due diligence. Submit your project, review proposals, and hire.
PrivSource - PrivSource helps you source deals and connect with transaction partners without paying a success fee.
BizNexus - Marketplace + off-market origination in one platform. The marketplace averages about 10k active listings & pre-CIM opportunities, and the off-market origination focuses on data & multi-channel. Local Boston company and I consider the founder (Adam Ray) a friend.
X5 Deals - Proprietary deal sourcing. They do the outreach and directly send relevant, actionable deals into your inbox.
Import Dojo - a newsletter that sends eCommerce and Amazon FBA businesses for sale to your email inbox. They send deals each Wednesday at 9:00 AM CST.
Scott Oldford - If you're interested in gaining insight into the process of building, scaling, acquiring, and selling online businesses, Scott Oldford can help.
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.
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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, 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 solely for informational purposes and should not be relied upon when making 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.