The Business Inquirer #119
In this week's issue, I highlight 6 listings including a Shopify app, an MBA counseling business, a kids brand, and more.
Hello Friends!
In this week’s issue:
🛒 eCommerce - 1 listing
☁️ SaaS - 1 listing
💼 Online Service, Media, Marketplace - 3 listings
🕸️ Twitter - 1 listing
⚒️ Tools & Resources
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🛒 eCommerce
Kids Paper Crafts Brand (QuietLight) - $1.4M
Launched in 2017
Sells coloring banners, coloring books, personalized plates and hats.
85% of sales are from Amazon
Revenue: $2.1M
Profit: $400k
Margin: 19%
Multiple: 3.50x
✅ What I Like
A lot of operating history. Evergreen niche. Broadly, I like e-commerce brands that sell products for pets and kids. These are two areas where consumers spend a lot of money and are relatively not price-conscious.
Virtual Deal Advisor:
Impressive Revenue and SDE Growth: The business has shown promising YoY revenue and SDE growth of 74% and 72%, respectively, indicating a strong upward trajectory.
Diverse Sales Channels: While Amazon is the main sales channel (85% of total sales), the business also has a presence on Etsy (14%) and other channels (1%). This diversity can mitigate the risk associated with dependency on a single platform.
Strong Product Diversity: The business boasts a wide variety of products with no single product making up more than 11% of total sales. This diversification can protect against fluctuations in demand for individual products.
Healthy Profit Margin: Gross profit margins average approximately 32% after platform fees, reflecting the business's strong pricing strategy and cost management.
Established SOPs and Minimal Employee Footprint: Efficient operations and minimal staffing needs simplify day-to-day management and cost containment.
Opportunities for Scalability: The brand exhibits scalability potential through options such as new product variants, social media expansion, PPC scaling, and launching on additional platforms.
❓ Questions & Concerns
Listings where you see such high growth rates require additional scrutiny. How sustainable is this high growth?
Virtual Deal Advisor:
Dependence on Amazon: Although the business has some diversity in sales channels, its heavy reliance on Amazon (85% of sales) can be a concern given Amazon's control over visibility, competition, and fees.
Owner-Dependent Operations: Currently, the owner spends 30 hours a week managing the business. This may be a challenge to replicate without the owner's continued involvement, especially in the growth areas.
Limited Direct Sales: Only 1% of sales come from channels outside Amazon and Etsy, indicating potential vulnerability and a need to grow direct sales. This is also an opportunity.
💸 Valuation
Virtual Deal Advisor:
Asking Price: The asking price is $1,395,000, with gross revenue of $2,106,098 and profit of $399,756. This equates to a multiple of approximately 3.5 times profit, which is within the typical range for e-commerce businesses.
Compared to Industry: The average multiple for e-commerce businesses in the children's product sector is around 2.5 to 3.5 times profit, putting this business's valuation slightly on the higher end.
Valuation Justification: Given the business's strong growth trajectory, diverse product mix, and healthy profit margins, the slightly higher valuation may be justified. However, a detailed analysis of future cash flows and risk factors is required to confirm this.
💼 Due Diligence
Virtual Deal Advisor:
Supplier Relations: Who are the main suppliers, and what are the terms of the contracts?
Customer Data: Can we review the customer data for insights on demographics, purchasing patterns, and customer loyalty?
Product Pipeline: What products are currently in development, and what is the expected impact on future revenue?
Ownership Transition: What is the owner's proposed transition plan, and how can continuity be ensured?
Sales Channel Profitability: What are the profit margins for each sales channel after considering fees and operational costs?
Customer Acquisition Cost: What is the customer acquisition cost, and how has it trended over time?
Product Development Process: What are the steps involved in the product development process, and what are the associated costs?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted service providers that fit your needs and budget.
🚀 Growth
Virtual Deal Advisor:
Expand Best-Selling Products: Consider adding new variations to top-selling products to capitalize on proven demand.
Scale PPC Spend: Enhance visibility and sales through increased PPC advertising.
Target International Markets: Explore opportunities in overseas markets to diversify revenue streams.
Focus on Direct Sales: Develop a stronger direct sales strategy to reduce dependency on third-party platforms.
Collaborate with Major Retailers: Consider partnerships with large retailers like Michaels.com and Target.com.
🙋🏻♂️ The Buyer
Virtual Deal Advisor:
E-commerce Experience: Ideally, the new owner should have experience managing an e-commerce business and navigating platforms like Amazon and Etsy.
Marketing Expertise: Strong knowledge in digital marketing, especially social media and PPC advertising, would be beneficial.
Strategic Thinker: The buyer should be strategic in exploring new growth opportunities, including product expansion, international markets, and direct sales channels.
☁️ SaaS
Shopify App for SMS Marketing (Acquire) - $1.2M
Launched in 2020
Revenue: $500k
Profit: $216k
Margin: 43%
Multiple: 5.56x
✅ What I Like
Shopify Apps are the Amazon FBA businesses of SaaS. This one has a popular niche, good margins, and a solid tech stack.
Virtual Deal Advisor:
High Growth: With a 124% YoY growth rate and a $500,000+ run-rate revenue, the business shows impressive upward momentum.
Profitable Niche: SMS marketing has been identified as one of the most profitable marketing channels for e-commerce stores, suggesting a significant market opportunity.
Quality Tech Stack: The recent rewrite of the codebase to meet Shopify's highest standards implies a high-quality and reliable product offering.
Stable, Profitable User Base: Over 900 active users, who purchased SMS credit in the last six months, indicates a steady demand and revenue stream.
Strong Cash Flow and Profit Margin: An impressive 40%+ Adjusted EBITDA margin and strong cash flow conversion denote solid financial health.
❓ Questions & Concerns
Not a lot of operating history. There’s always a risk that Shopify will simply add this feature to its own platform. How does this app compare to competitors? Are there any regulations that may impact the SMS marketing space?
This is another listing that has a very high TTM growth rate. Be careful with these types of listings. Always look at the last few years of financials to see what a normalized operating year may look like. Very few businesses can sustain 60%+ growth rates Y/Y.
Virtual Deal Advisor:
Reliance on Shopify: The business is reliant on Shopify's ecosystem. Any changes to Shopify's policies or API could affect the business negatively.
Competition: The SMS marketing space may have established competitors with more resources and larger client bases.
Customer Concentration: The dependence on a small group of active users for most of the revenue could be a risk if any significant number of them were to leave.
💸 Valuation
Virtual Deal Advisor:
Asking Price: At an asking price of $1,200,000, the business is priced at around 5.5 times its TTM profit. This seems a bit high considering industry valuation multiples.
Future Revenue and Profitability: Given the growth rate, future revenue and profitability should be considered in the valuation.
💼 Due Diligence
Check client reviews to see how they compare to the competition. What do customer support tickets look like?
Virtual Deal Advisor:
Churn Rate: What is the churn rate of the active users? What strategies are in place to mitigate this?
Customer Acquisition Cost: How much does it cost to acquire a new user?
Dependency on Shopify and Twilio: The business's operations heavily rely on Shopify's ecosystem and Twilio's API, any policy or API changes could negatively impact the business.
Scalability: What are the strategies and resources required for scaling the business further?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted service providers that fit your needs and budget.
🚀 Growth
Virtual Deal Advisor:
Marketing Efforts: Invest in more targeted advertising and improve SEO for better visibility.
Agency Partnerships: Collaborate with agencies for increased exposure and more leads.
Feature Improvements: Continue enhancing the app's features to stay competitive and cater to evolving customer needs.
Diversification: Consider expanding beyond Shopify's ecosystem for greater business stability and a broader customer base.
🙋🏻♂️ The Buyer
Virtual Deal Advisor:
Familiarity with Shopify Ecosystem: A buyer who understands the nuances of Shopify's platform and the e-commerce landscape would be best suited.
Experience in the SMS Marketing Space: Knowledge about SMS marketing will be crucial for further growth.
Technical Proficiency: Given the tech-focused nature of the business, the buyer should ideally have a good understanding of APIs and app development.
Digital Marketing Skills: Skills in digital marketing will be beneficial to explore untapped marketing potential and to expand the user base.
💼 Online Service, Media, Marketplace
Directory & Community for No-Code Tools (Acquire) - $200k
Launched in 2020
Directory & community providing information on no-code tools for entrepreneurs
Revenue: $81k
Profit: $18k
Margin: 22%
Multiple: 11.11x
✅ What I Like
I really like this business model. A directory with a community component. Doesn’t require a lot of CAPEX. A lot of monetization options. No-code is a rapidly growing niche.
Virtual Deal Advisor:
Market Relevance: The no-code trend is on the rise, providing an excellent market position for a directory and community focused on these tools.
Community Building: The creation of a community around the directory can lead to user loyalty, repeat visits, and potential opportunities for upselling and cross-selling.
Profitability: Despite being a startup, the business is already profitable with $81,000 in TTM revenue and $18,000 in TTM profit, demonstrating a strong business model.
❓ Questions & Concerns
Not a lot of history. What’s the moat for this business? A directory website has very low barriers to entry. Where’s the money going? A community and/or directory should be a very high-margin business. Are there high customer acquisition costs?
Virtual Deal Advisor:
Revenue Scale: While profitable, the business's total revenue and profit are modest. It's crucial to understand the scalability potential to significantly increase these figures.
Dependency on No-Code Trend: The business's success is tightly linked to the no-code movement. If the trend loses momentum, the business could face challenges.
Competitive Landscape: As the no-code market grows, so does the competition. The business needs to stay relevant and continuously add value to maintain its position.
💸 Valuation
Virtual Deal Advisor:
Asking Price: The business has an asking price of $200,000, representing a multiple of approximately 11 times its TTM profit. This is higher than the average multiple in the tech industry, which typically ranges from 3-8x profit.
Revenue and Profit Growth: The valuation should take into consideration the potential for revenue and profit growth in the coming years, given the rise of no-code tools.
Industry Comparison: Similar businesses in the tech space with community engagement are often valued higher due to their growth potential and the value of the community itself.
💼 Due Diligence
Virtual Deal Advisor:
Revenue Streams: What are the main sources of revenue? Are there opportunities to diversify them further?
User Metrics: What are the active user numbers, user engagement rates, and user acquisition costs?
Community Activity: How active is the community? What's the churn rate?
Partnerships: Are there any strategic partnerships with no-code tool providers? If not, what are the opportunities for establishing these?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted service providers that fit your needs and budget.
🚀 Growth
Virtual Deal Advisor:
Diversify Revenue Streams: Consider introducing premium subscriptions, paid listings for no-code tool providers, or sponsored content.
Community Engagement: Introduce more interactive elements like webinars, AMA sessions, and challenges to boost community engagement.
Partnerships: Establish partnerships with no-code tool providers for promotional campaigns or affiliate marketing.
Expand Content: Provide additional value through related content like tutorials, success stories, and expert advice on no-code tools.
🙋🏻♂️ The Buyer
Virtual Deal Advisor:
Tech-Savvy Entrepreneurs: The ideal buyer should have a good understanding of the tech industry, particularly the no-code movement, to effectively manage and grow the business.
Community Builders: Experience in community building and engagement is crucial to sustain and enhance the platform's main value proposition.
Business Development Skills: A buyer with strong business development skills can establish strategic partnerships and explore new revenue opportunities.
__ __ __ __ __ __ __ __ __
Managed Cloud Migration (BizBuySell) - $9M
Launched in 2003
Based in New Jersey but relocatable
Revenue: $767k
Profit: $268k
Margin: 35%
Multiple: 4.48x
✅ What I Like
Virtual Deal Advisor:
Well-Established: With 20 years in the business, the company has a robust track record, indicating stability and reliability in its services.
Recurring Revenue: 98% of the company's revenue comes from recurring service contracts, ensuring predictable and stable income.
Broad Range of Services: The company's offerings are comprehensive, ranging from cloud migration to security & compliance, dedicated support, and programming & data analytics.
Private Cloud Platform: The company provides its own secure, flexible, and accessible private cloud platform, adding to its competitive advantage.
Client Retention: The company's Persistent Support Model focuses on the client experience, which has reportedly increased client retention.
❓ Questions & Concerns
Virtual Deal Advisor:
Limited Geographic Focus: Currently, the company's sales and staffing focus are regional, which may limit potential growth.
Dependence on Key Personnel: The company's quality of service heavily relies on the expertise of its dedicated engineers. Any changes in this team could potentially affect the quality of service.
Potential Obsolescence: In a rapidly changing tech environment, constant innovation is required to stay competitive. The business needs to keep up with technological advancements and client demands.
💸 Valuation
Virtual Deal Advisor:
Earnings Multiplier: The asking price is approximately 4.5 times the company's profit, which is within an acceptable range for this industry, although somewhat on the high side.
Comparative Analysis: Comparison with similar businesses in the industry is necessary to determine if the valuation is competitive. For managed IT services companies, this typically ranges from 4x to 7x EBITDA
Recurring Revenue Premium: The high percentage of recurring revenue may justify a premium in the valuation.
💼 Due Diligence
Virtual Deal Advisor:
Client Contracts: Are the recurring revenue contracts long-term and transferable?
Competition: How does the company differentiate from competitors in the managed cloud migrations space?
Staffing: What steps are in place to retain key engineers and staff?
Infrastructure and Assets: What physical and digital assets does the company own, and what is their condition and value?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted service providers that fit your needs and budget.
🚀 Growth
Virtual Deal Advisor:
Expansion of Services: The company could add related services to its portfolio to provide a more comprehensive offering to clients.
Marketing Strategy: A stronger online presence, including SEO and content marketing, could bring in new business.
Sales Efforts: Enhanced sales efforts could help acquire new clients and increase revenue.
Geographic Expansion: Expansion into new regions could provide significant growth.
🙋🏻♂️ The Buyer
Virtual Deal Advisor:
Experience in IT and Cloud Services: A buyer with a strong background in IT and cloud services would be beneficial.
Client Relationship Skills: Given the focus on customer service and retention, strong client relationship skills are crucial.
Growth-Oriented: A buyer with a vision for growth and the ability to invest in marketing and expansion would be ideal.
Financial Capability: Given the relatively high asking price, the buyer should have substantial capital or the ability to secure financing.
__ __ __ __ __ __ __ __ __
MBA Admission Counseling (Acquire) - $400k
Launched in 2014
5-person team in place
Revenue: $171k
Profit: $59k
Margin: 35%
Multiple: 6.78x
✅ What I Like
A lot of operating history. It sounds like the business is on autopilot without much owner involvement. I think there may be an opportunity to introduce some tech (AI, automation, etc) and scale up. The pricing actually seems low so there may be an easy win by simply raising prices.
Virtual Deal Advisor:
Track Record of Success: With nearly 10 years of operation, this business has built a reputation and client base in a highly specialized market.
High Ticket Services: The premium pricing for consulting packages contributes to high revenue per client, which is a solid base for profitability.
Strong Referral Business: The ability to generate new clients through referrals indicates strong client satisfaction and a credible reputation in the market.
Great Conversion Rates: A conversion rate of 30% for qualified leads suggests effective sales strategies and a highly compelling service offering.
❓ Questions & Concerns
A lot of competition in this space. How is this business differentiated? Since new business is primarily through referrals, there’s no proven marketing strategy.
Virtual Deal Advisor:
Niche Market: While a specialist market can be a strength, it also limits the client base. A decline in the demand for MBA programs could impact the business.
Dependent on Owner Expertise: The service offering could be heavily tied to the current owner's expertise, raising questions about the transferability of the business model.
Limited Marketing Efforts: Current reliance on referrals and minimal advertising could indicate missed opportunities for growth.
💸 Valuation
Virtual Deal Advisor:
Asking Price: The business is asking for approximately 6.8 times its TTM profit. This is slightly above the typical multiple range of 2-5x for consulting businesses.
Revenue and Profit: A closer look at the growth rate of revenue and profit could justify a higher multiple, especially if there are clear growth opportunities.
Comparable Businesses: It would be beneficial to compare the valuation with similar businesses in the market, considering factors like client base, reputation, and growth potential.
💼 Due Diligence
Virtual Deal Advisor:
Client Acquisition Costs: What are the costs associated with acquiring a new client through referrals and advertising?
Client Retention: What is the client retention rate? How many clients purchase multiple consulting packages?
Competitor Analysis: Who are the main competitors, and how does this business differentiate itself from them?
Staffing and Operations: What is the current staffing situation? Are there procedures and systems in place to ensure a smooth transition?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted service providers that fit your needs and budget.
🚀 Growth
Virtual Deal Advisor:
Digital Marketing: Investing more heavily in digital marketing efforts could help reach a larger audience and generate more leads.
Partnerships: Consider partnerships with MBA programs, career coaches, or related businesses to broaden the client base.
Service Expansion: There could be opportunities to expand service offerings to other forms of higher education consulting or career consulting.
International Markets: Explore the possibility of reaching international clients seeking admission to MBA programs worldwide.
🙋🏻♂️ The Buyer
Virtual Deal Advisor:
Education Industry Knowledge: A deep understanding of the higher education industry, particularly MBA programs, will be crucial.
Consulting Experience: Experience in the consulting field, specifically admissions consulting, would be highly beneficial.
Marketing Skills: Given the growth potential through increased marketing efforts, digital marketing skills will be a plus.
Client Relationship Management: A buyer with excellent client relationship management skills would be able to maintain the high level of client satisfaction and referral rates.
🕸️ Twitter
⚒️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 ever 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 send you relevant, actionable deals directly 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.
Cerebro Capital - Cerebro has a network of 1,500+ lenders who can provide debt financing for your acquisition, refi, etc. $500k minimum.
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 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.