The Business Inquirer #120
In this week's issue, I highlight 5 listings including an IT MSP, a fencing business in Vail, a HARO agency, and more.
Hello Friends!
In this week’s issue:
🛒 eCommerce - 1 listing
💼 Online Service, Media, Marketplace - 2 listings
🏡 Main Street, Offline, Other - 2 listings
⚒️ Tools & Resources
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🛒 eCommerce
Standing Desk Converter - Open to Offers
Launched in 2014
Readydesk is sold DTC and on Amazon
Distressed sale as the business hasn’t been actively managed since 2022
Sold directly by owners
Revenue: $47k
Profit: $3k
Margin: 6%
Multiple: N/A
✅ What I Like
The e-commerce business has some operating history and has shown consistent profitability. Turnkey business with a lot of automation already in place. I think this could be an interesting acquisition at the right price.
Profitable Track Record: Readydesk has demonstrated consistent profitability over its nine-year history, which suggests a proven business model and at least some base level of demand for its products.
Automated Operations: With ~90% of operations automated through Amazon FBA and Shopify MCF, the business requires minimal time commitment (~10 hours per week), making it an efficient operation that could be maintained with a small team or even part-time work.
Product Quality: Readydesk's commitment to manufacturing its products in San Diego, CA, could indicate high product quality and a potential selling point for customers who value locally made goods.
Brand Reputation: The longevity of the business and its track record of profitability suggest a potentially strong brand reputation among its customer base.
Low Overhead Costs: The absence of employees and reliance on contract manufacturing can keep overhead costs low, which may contribute to the business's profitability.
❓ Questions & Concerns
Financials show a lot of variability. Clearly, there was a benefit from COVID and WFH. There’s a lot of competition in this space. I see cheap options on Amazon from overseas suppliers. Small margin doesn’t offer a lot of room for error. Risky acquisition.
Limited Revenue: With a gross revenue of $47,143, the business's size is relatively small, which may limit its growth potential without significant investment or changes to the business model.
Lack of Diversification: The business appears to be focused on a single product type (standing desk converters), which could leave it vulnerable to shifts in market trends or competitive pressures.
Lack of Employee Infrastructure: While the absence of employees keeps costs down, it could also make the business more difficult to scale without the necessary infrastructure in place.
Concentration in Manufacturing: Manufacturing is concentrated in a single shop in San Diego. Any disruptions at this location could severely impact the business.
💸 Valuation
The average annual profit over the last 5-years has been around $47k. The business has been neglected for some time which would justify a lower multiple. If you put a 1.5x to 2.5x multiple on this then a reasonable offer could be $70k to $117k.
💼 Due Diligence
What is the breakdown of sales between Amazon and Shopify? How has this changed over time?
What is the cost structure for manufacturing the products? How stable are these costs?
Can the contract manufacturing arrangement in San Diego be easily scaled up if necessary?
What is the competitive landscape like for standing desk converters? How does Readydesk differentiate itself?
What is the current marketing strategy, and how effective has it been in driving sales?
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
Expand Product Range: Introduce related products to leverage the brand and customer base, such as ergonomic chairs or desk accessories.
Increase Marketing Efforts: Implement a more aggressive marketing strategy, including SEO, content marketing, and social media campaigns.
Pursue Wholesale Opportunities: Explore the potential for selling products in bulk to office spaces, co-working spaces, or educational institutions.
International Expansion: Investigate opportunities to sell the products internationally, leveraging the existing e-commerce platforms.
Improve Website and User Experience: Enhance the online shopping experience to increase conversions and customer loyalty.
🙋🏻♂️ The Buyer
An e-commerce Entrepreneur: An individual or team experienced in e-commerce would be well-suited to leverage the existing platforms and grow the business further.
A Manufacturer or Retailer: A manufacturer or retailer with existing infrastructure in the office furniture market could benefit from adding Readydesk's product to their range.
A Part-Time Operator: Given the minimal time commitment required, the business could be an excellent opportunity for someone looking to manage a business part-time.
A Strategic Buyer: A company in the ergonomic furniture space looking to expand their product offering could leverage Readydesk's brand and profitability.
An Investor with a Growth Mindset: An investor looking for a small but profitable business with potential for significant growth, given the right strategies and investment, could find this an attractive opportunity.
💼 Online Service, Media, Marketplace
AI Tools Directory & Newsletter (Acquire) - $500k
Launched in 2022
Revenue: $140k
Profit: $117k
Margin: 84%
Multiple: 4.27x
✅ What I Like
My two favorite business models are marketplaces and directories. They typically require very little CAPEX, have great margins, easy to start, can be operated remotely, and have a moat once you’re able to scale them. This particular business is in a growing niche and has a very large user base.
Large audience: The business has an impressive user base with 150,000+ newsletter subscribers and between 400,000 to 800,000 monthly visitors, which can be further monetized.
Diverse revenue streams: Revenue is generated from both sponsored placements on the website and the newsletter, as well as affiliate income. This diversification reduces the risk of income loss if one source declines.
Popular niche: The AI tools directory is a trending sector with strong growth prospects as more businesses look to incorporate AI into their operations.
Extensive directory: With a directory of 2500+ AI tools covering various categories, the business offers a comprehensive resource for potential users, increasing its attractiveness.
❓ Questions & Concerns
Not a lot of operating history. I suspect that there will be a lot of new competitors coming into the market. This isn’t a “set it and forget it” type of business at this early stage.
Dependency on traffic: The business is highly dependent on web traffic for revenue, making it vulnerable to changes in search engine algorithms or reductions in organic reach.
Limited information on customer acquisition: There's no information provided on how the business attracts new customers or retains existing ones, which could be a potential risk.
Dependence on affiliate programs: The business is partially dependent on the continuity and success of the affiliate programs it's part of, which it has no direct control over.
Lack of proprietary product: The business does not appear to offer a proprietary product or service, potentially limiting opportunities for differentiation and making it vulnerable to imitation.
💸 Valuation
The asking price of $500,000 for a business with a profit of $116,920 gives a profit multiple of around 4.3x. The typical profit multiple for online businesses ranges from 2.5 to 4.5, making this within the acceptable range but on the higher end.
Given the potential growth in the AI sector, the valuation could be seen as reasonable if the buyer believes in the future growth of the industry and the business's ability to capitalize on it.
💼 Due Diligence
What are the primary sources of traffic and how much do they cost?
How stable and secure are the affiliate programs that generate part of the revenue?
How are new subscribers for the newsletter being acquired and at what cost?
What is the retention rate of the newsletter subscribers and website users?
How engaged is the audience? What’s the open rate and CTR of the newsletter?
What’s the tech stack and how scalable is it?
How susceptible is the business to changes in search engine algorithms and how can this risk be mitigated?
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
Introduce premium features or subscriptions for enhanced access or exclusive content to monetize the existing user base further.
Expand the directory to include more categories and a greater number of AI tools.
Strengthen SEO efforts to increase organic traffic. Programmatic SEO can be very helpful in this.
Run targeted marketing campaigns to grow the newsletter subscriber base and increase website visitors.
Develop partnerships with AI tool providers for sponsored content and promotions.
🙋🏻♂️ The Buyer
Someone with experience in the AI or tech sector who understands the landscape and future trends.
A buyer with existing resources in digital marketing, especially SEO and content marketing, to further drive traffic and user growth.
An individual or company that has experience with monetizing online platforms and can leverage the existing user base.
Someone who has experience or connections in the affiliate marketing space.
A buyer who can invest in product development to differentiate the business and protect against competition.
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HARO Agency (QuietLight) - $212k
Launched in 2021
Revenue: $136k
Profit: $88k
Margin: 65%
Multiple: 2.41x
✅ What I Like
Relatively simple business to operate. Operations can easily be outsourced (and I think they are).
Potential for Upselling: The agency can potentially upsell other marketing services to its existing clients, thereby increasing revenue per client.
❓ Questions & Concerns
I think there’s a lot of competition in this space. Not clear how you differentiate. Performance-based pricing is good for clients but not ideal for the business. I’d look into transitioning into a subscription pricing structure.
Reliance on HARO: The agency is highly dependent on the HARO platform. Changes in HARO's policies or terms could significantly impact the business.
Business Lifespan: The business was launched recently (Sept 2021), so there may not be enough historical data to assess long-term sustainability and performance.
Client Acquisition Strategy: The agency relies on LinkedIn and Upwork for client acquisition. Any changes or issues with these platforms could impact client acquisition.
💸 Valuation
With an asking price of $212,000 and a profit of $88,127, the business is being sold at a multiple of approximately 2.4. This is within the typical range for service businesses, which usually trade at a multiple of 2-3 times profit.
Comparatively, the valuation seems reasonable. However, due to the short lifespan of the business, the valuation should take into account future growth potential and sustainability of profits.
💼 Due Diligence
What is the typical client acquisition cost via LinkedIn and Upwork?
What is the retention rate of clients? How many are repeat customers?
How much time is required to manage the business, and what are the main responsibilities of the owner?
What are the potential risks associated with changes in HARO's policies or terms?
Are there any contracts in place with clients or team members that a new owner should be aware of?
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
Expand Service Offering: Develop additional services around content marketing, SEO, and PR to offer a more comprehensive package to clients.
Develop Strategic Partnerships: Partner with other marketing agencies to offer this service as an add-on, or collaborate with platforms that have a complementary audience.
Increase Marketing Efforts: Invest in marketing and sales efforts to attract more clients, including SEO, content marketing, and social media promotion.
Improve Client Retention: Implement client retention strategies like monthly retainer packages or discounts for long-term contracts.
🙋🏻♂️ The Buyer
Experience in PR or Digital Marketing: An individual or group with a background in PR or digital marketing would likely have the necessary skills and knowledge to run and grow the agency.
Sales and Networking Skills: Given the business model, someone with strong sales and networking skills would be ideal.
Ability to Handle Multiple Clients: The nature of the business requires managing various clients simultaneously, so strong project management skills would be beneficial.
Understanding of SEO and Link Building: Given the service offered, a deep understanding of SEO and the value of backlinks is important.
Vision for Growth: An ideal buyer should have a vision of growth and the ability to implement new strategies to expand the business's client base and service offerings. They should be willing to invest in marketing and client retention initiatives to further grow the business.
🏡 Main Street, Offline, Other
Fence Company in Colorado (BizBuySell) - $1.5M
Launched in 2007
Based in Roaring Fork Valley & Vail Valley, Colorado
Revenue: $1.4M
Profit: $569k
Margin: 41%
Multiple: 2.64x
✅ What I Like
Established Business: With 16 years of operation, the Company has built a reputation and solid customer base in the residential and ranch fencing market in the Roaring Fork and Vail Valleys.
Strong Profitability: The Company's Seller's Discretionary Earnings (SDE) of $568,000 represents a high profit margin on its gross revenue of $1,405,223.
Excess Demand: The statement that there are generally more business opportunities than they can serve suggests strong market demand for the Company's services.
Experienced Team: The Company comes with trained crews and established bookkeeping practices, which can ease the transition for a new owner.
Growing Revenues: The Company's revenues have been increasing, indicating healthy business growth.
❓ Questions & Concerns
Relocation Required: The Company currently operates out of a family-owned property, meaning the new owner will need to find and move operations to a new location. This process could disrupt business operations temporarily.
Limited Marketing: The Company's marketing efforts are currently limited to its website and customer referrals. There may be untapped potential for growth with a more aggressive marketing strategy.
Dependence on Local Market: The Company's customer base is concentrated in the Roaring Fork and Vail Valleys. Any economic downturn or changes in these specific markets could significantly impact the business.
Potential for Seasonality: As a business located in a mountain/resort area, there may be seasonal fluctuations in demand that could impact revenue and cash flow.
No Mention of Contracts: The description does not mention any long-term contracts with customers, which could suggest a lack of recurring revenue and potential instability in future earnings.
💸 Valuation
Given an SDE of $568,000, the asking price of $1,490,000 represents a multiple of approximately 2.6x. This multiple is reasonable and within the typical range for small to medium-sized businesses, which often sell for 2-4x SDE.
However, this valuation should also consider the cost and impact of relocating the business, which could reduce the value to the buyer.
The value of FF&E (Furniture, Fixtures, and Equipment) included in the sale ($150,000) should also be taken into account in the valuation.
Comparing similar businesses in the fencing industry and mountain/resort areas would provide a more comprehensive valuation analysis.
The strong profitability and growth potential of the business could justify a higher valuation multiple, depending on the buyer's growth plans and the perceived potential of the market.
💼 Due Diligence
What is the breakdown of the customer base between residential and ranch customers, and how has this changed over time?
What are the specific geographical areas served by the business, and how might this change with a relocation?
How is the pricing strategy determined, and how does it compare to competitors in the area?
What is the nature of the "more business opportunities than they can serve"? Are these opportunities recurring or one-off?
Are there any long-term contracts with customers or suppliers that would be transferred in the sale?
What are the specific assets included in the FF&E, and what is their condition and expected lifespan?
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
Expand Geographical Reach: Given the excess demand, there may be opportunities to expand into new geographical areas.
Increase Marketing Efforts: Implement a more comprehensive marketing strategy, including local advertising, SEO, and social media.
Pursue Commercial Opportunities: Explore the potential for serving commercial customers in addition to residential and ranch customers.
Increase Capacity: Hire additional crews to take on more of the available business opportunities.
Implement Long-term Contracts: Consider establishing long-term service contracts with customers for regular maintenance or upgrades, providing a more stable and predictable revenue stream.
🙋🏻♂️ The Buyer
Business Development Individual: An individual with business development and field management skills could leverage the existing demand to grow the business further.
Adjacent Business: A business in a related or adjacent service field could benefit from adding the Company's services to their offering, possibly gaining efficiencies in operations and marketing.
Experienced Operator: An individual or team with experience in the fencing industry or a similar trade could leverage their knowledge to maintain and grow the business.
Strategic Buyer: A larger company in the fencing or broader home services industry could leverage the Company's reputation and customer base to expand its market share in the Roaring Fork and Vail Valleys.
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Medical IT MSP (BizBuySell) - $1.3M
Launched in 1988
Revenue: $1.2M
Profit: $346k
Margin: 29%
Multiple: 3.76x
✅ What I Like
Established Business: Operating since 1988, the Company has a long-standing history and reputation in the IT services industry.
Recurring Revenue: Over 75% of the total income in 2022 was recurring, providing a stable and predictable revenue stream.
Specialization in Medical Practices: By focusing on small to medium-sized medical practices, the Company has carved out a specific niche which could provide competitive advantage.
Remote Work Model: The Company has successfully transitioned to a remote work model, which could provide flexibility and cost savings for a new owner.
❓ Questions & Concerns
Lease Obligations: Although the Owner is willing to assume the lease, the existing office lease through October 2024 could complicate the transaction.
Dependence on Small Medical Practices: The Company's focus on offices with 1-20 physicians could limit growth opportunities and make the business susceptible to changes in this specific market.
Unclear Differentiation: Without more information, it's unclear what distinguishes this Company's services from other IT and cloud service providers.
No Mention of Contracts: The description does not mention any long-term contracts with clients, which could suggest potential instability in future recurring revenues.
💸 Valuation
Based on industry data from 2023, IT services companies typically have higher valuation multiples due to unique technical expertise and a growing industry1.
The asking price of $1,320,000 based on a profit of $346,152 represents a multiple of approximately 3.8x, which is within the typical range for similar IT services businesses, often valued at 3-5x profit.
The high percentage of recurring revenue could justify a higher valuation multiple, as this tends to increase business stability and predictability.
The valuation should also consider the potential cost savings from the remote work model.
The valuation should be compared with similar businesses in the IT services industry, particularly those serving medical practices.
💼 Due Diligence
What is the breakdown of the customer base in terms of practice size and specialty?
What specific software does the Company provide and install for clients, and what are the terms of these software licenses?
How is the Company's pricing structure determined, and how does it compare to competitors?
What is the nature of the recurring revenue? Are these tied to long-term contracts or subscription-based services?
How many employees are currently in the Company and what is their level of expertise and experience?
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
Expand Customer Base: Explore opportunities to serve larger medical practices, hospitals, or other healthcare facilities.
Diversify Services: Consider expanding services to other areas of IT or technology consulting.
Market Expansion: Expand marketing efforts to reach new geographical markets or medical specialties.
Invest in Technology: Continue to update and invest in the latest software and technologies to stay competitive.
Develop Partnerships: Form strategic partnerships with software providers or other healthcare service providers to expand offerings and reach.
🙋🏻♂️ The Buyer
Managed Service Provider: An existing MSP could leverage this Company to expand into the medical/healthcare market.
IT Professional: An IT professional with experience in the healthcare industry could leverage their expertise to grow the business.
Strategic Buyer: A larger IT services company looking to expand into medical practices or increase its recurring revenue.
⚒️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.