The Business Inquirer #121
In this week's issue, we share 5 listings including an SEO SaaS, a commercial landscaping business, a real estate marketplace, and more.
Hello Friends!
Today at 3pm ET: Hosted by Pipeline Prep, I’m doing a live webinar and Q&A on the topic of due diligence. I’ll be sharing insights and observations from DueDilio around costs and key areas to focus on. RSVP 👉 https://lu.ma/ClosetheDeal
In this week’s issue:
☁️ SaaS - 1 listing
💼 Online Service, Media, Marketplace - 1 listing
🏡 Main Street, Offline, Other - 2 listings
🕸️ Twitter - 1 listing
⚒️ Tools & Resources
This issue of the newsletter is brought to you by Scott Oldford.
Want to see behind the scenes of building, scaling, buying, and selling online businesses?
Scott Oldford has helped over 200 Entrepreneurs scale 7+ figure businesses and is one of the top business advisors and mentors.
Scott just launched a newsletter dedicated to sharing his journey in managing his portfolio of online businesses.
It’s FREE to sign-up and you can join here.
☁️ SaaS
SEO Tracking & Reporting (FE Intl) - Open to Offers
Launched in 2014
Available online and mobile app
$75k MRR; $2.6k CLTV; 3% churn;
Revenue: $897k
Profit: N/A
Margin: N/A
Multiple: N/A
✅ What I Like
A lot of operating history. I like the SEO niche as it’s becoming more important for driving sales and brand awareness. The operating metrics that are provided appear solid. I assume the business serves B2B clients but I could be wrong.
Virtual M&A Advisor:
Established Business: The business has a track record of nearly a decade. Such a long-standing business usually has a strong customer base and is well-versed in its niche.
Strong SaaS Metrics: A Monthly Recurring Revenue (MRR) of $75K and a Life Time Value (LTV) of $2.6K coupled with a low customer churn rate of 3% over the LTM indicates a healthy business with loyal customers.
Multi-Language Support: With support for 13 languages, the product has wide accessibility which can reach a global audience and thereby expand the market.
Specialized Software: The proprietary algorithm and agency grade reporting features make the software unique and potentially more effective than competitors.
❓ Questions & Concerns
How is this product going to be impacted by AI? The listing doesn’t provide a lot of detail. A lot of unknowns here. SEO space is very competitive with many available tools.
Virtual M&A Advisor:
Unknown Profit Margin: Without knowledge of the net profit, it's difficult to judge the financial health and the operational efficiency of the business.
Potential Technical Debt: Given that the software was launched in 2014, there may be underlying technical debt, which can be costly and time-consuming to address.
Unexploited Growth Channels: While it's an opportunity for growth, the fact that there are "numerous untapped growth channels" could indicate a lack of innovative or aggressive marketing strategy.
Unclear Market Positioning: We lack information on how the business positions itself against its competitors in the SEO tool market.
💸 Valuation
It's challenging to provide a definitive valuation for the business without knowing the net profit.
However, given the robust revenue and healthy SaaS metrics, offering a rough estimate is possible. Generally, private SaaS businesses are valued at a 5 to 10x multiple of their SDE or profit.
Further reading: 2023 Private SaaS Company Valuations
💼 Due Diligence
What are the business's operational costs? This will help us understand the net profit and operational efficiency.
What is the technical state of the software? This will help assess if there are any technical debts or costly software updates required.
Who are the main competitors and how does this business differentiate itself?
What has been the historical growth rate?
How has the business been impacted by SEO changes and how prepared are they for future updates?
How has AI impacted this business?
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
Exploit Untapped Growth Channels: Identify these channels and devise a strategic marketing plan to capture these opportunities.
Partnerships: Form strategic partnerships with digital marketing agencies to widen the reach.
Upselling/Cross-selling: Identify opportunities within the existing customer base for upselling or cross-selling.
🙋🏻♂️ The Buyer
A strategic buyer who already operates in the digital marketing or SEO industry and can leverage synergies.
A financial buyer with experience in SaaS businesses and the ability to capitalize on the existing SaaS metrics.
An individual or company with a solid understanding of SEO, as they would appreciate the value proposition of this software.
💼 Online Service, Media, Marketplace
Real Estate Rental Marketplace (Acquire) - $1.9M
Launched in 2014
904k page views/month; 235k listings; 172k user accounts;
Revenue: $372k
Profit: $365k
Margin: 98%
Multiple: 5.21x
✅ What I Like
A lot of operating history. A high-margin marketplace model. Operations are automated and don’t require a lot of owner involvement.
Virtual M&A Advisor:
High Profit Margin: The business boasts a high net profit of $364,901 from gross revenue of $371,386. This suggests an efficient operational model with low costs.
Diversified Revenue Stream: The business receives revenue from advertising (60%) and affiliate relationships (40%), offering some resilience against fluctuations in a single income source.
High Traffic and User Engagement: With 215K+ sessions, 904K+ page views, and 172K+ user accounts in the last month, the business shows strong customer engagement and traffic flow.
Extensive Listing Base: The platform has 235K+ rental listings, providing a comprehensive service to users and a competitive edge over new entrants.
❓ Questions & Concerns
I would want to really understand the user and listing acquisition process. How is this marketplace positioned relative to the competition? Why is the owner selling?
Virtual M&A Advisor:
Dependence on Partners: The business relies on affiliate relationships for 40% of its revenue, which might be risky if these relationships aren't stable.
Lack of Diversification: While it covers all 50 US states, the business does not seem to have a presence outside of the US.
Potential Seasonality: The real estate market can be seasonal, potentially causing fluctuations in revenues.
No Mention of Competitive Advantage: The description doesn't highlight any proprietary technology or unique selling proposition (USP).
💸 Valuation
The business has been listed for sale at $1.9M. Given its high net profit margin and TTM profit of $364,901, it implies a profit multiple of roughly 5.2x, which falls within the standard range for online businesses (3x-7x). However, the higher end of this range is typically for businesses with a clear competitive advantage or rapid growth, which we cannot confirm at this stage.
💼 Due Diligence
How stable are the affiliate and advertising relationships that constitute the primary revenue sources?
Are there any significant fluctuations in revenue and profits due to seasonality?
How do you differentiate from competitors in the marketplace?
Can you provide details about your key industry partnerships and how these relationships contribute to the business?
What are the major risks facing the business and how have they been mitigated?
How stable is the tech stack? Is there any technical debt?
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
Market Expansion: Consider expanding into international markets or diversifying into related sectors like real estate sales or commercial rentals.
Improve SEO and Online Marketing: Optimize the website for SEO to attract more organic traffic and implement online marketing strategies.
Develop Proprietary Technology: Create or acquire unique technology or data to provide a competitive advantage.
Leverage Partnerships: Further leverage existing industry partnerships and seek additional strategic alliances to drive growth.
🙋🏻♂️ The Buyer
A strategic buyer in the real estate or online marketplace industry could realize synergies and add this to their portfolio.
A real estate professional looking to diversify into the online space.
An international company looking to gain access to the US real estate rental market.
An individual or firm with experience in online marketing and SEO could enhance the business's online presence and visibility.
🏡 Main Street, Offline, Other
Home-Based Adult Care (BizBuySell) - $2.1M
Launched in 2002
Based in Greensboro, NC;
150 employees; Owner retiring;
Revenue: $3.9M
Profit: $547k
Margin: 14%
Multiple: 3.84x
✅ What I Like
Established business with a lot of operating history. Evergreen niche with growing demand. Sounds like this business is fully staffed with management and employees in place.
Further reading: Future demand for elderly care services like assisted living & in-home care are rife for digital disruption
Virtual M&A Advisor:
Trusted Brand: With 20+ years of operation, the business has established a strong brand in the home care industry. Brand trust is particularly crucial in this sector.
Strong Referral Network: New clients primarily come from recurring referrals within the healthcare community, indicating a strong professional network and positive industry reputation.
Diverse Client Base: The company services both self-paying clients and Veterans Affairs, ensuring revenue sources are diversified.
Skilled and Large Workforce: The business employs over 140 trained caregivers, providing capacity to serve a large number of clients.
❓ Questions & Concerns
I’d want to understand the P&L to figure out why the margin is so low (14%) compared to the industry average (35%). What’s the TAM for this business in Greensboro, NC?
Further reading: What Makes Non-Medical Home Care Businesses Profitable?
Virtual M&A Advisor:
Owner Retirement: With the current owners seeking retirement, there might be a gap in leadership and relationships with clients and partners. Is there any key-person risk?
Geographic Limitations: Being based only in Greensboro, NC might limit the client base and expansion possibilities.
Staff Turnover: The industry generally suffers from high turnover rates among caregivers, which could affect service continuity and increase training costs.
Dependent on Individual Payments: A substantial portion of revenue comes from out-of-pocket payments and Long-Term Care insurance, which may be sensitive to economic downturns or policy changes.
💸 Valuation
With a cash flow of $547,042, the asking price of $2,150,000 implies a cash flow multiple of around 3.93. This falls within a typical range for this industry (2.5x to 5x). Given the business's strong brand, diverse clientele, and robust referral network, the asking price may be justified. Having said that, with today’s higher cost of capital, this valuation may be considered elevated.
💼 Due Diligence
How is the transition plan structured to ensure continuity in leadership and client relationships?
What is the turnover rate among caregivers, and what processes are in place for training new caregivers?
Are there any legal or regulatory challenges, especially given the sensitivity of the sector?
How diverse are the client payments? What percentage of revenue comes from Veterans Affairs compared to out-of-pocket payments?
What potential is there for geographic expansion, either within NC or into neighboring states?
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
Geographic Expansion: Consider expanding the service area beyond Greensboro, NC.
Franchise Model: Evaluate the feasibility of a franchise model to scale the business.
Digital Marketing: Invest in digital marketing to increase brand visibility and attract new clients.
Partnership Development: Develop partnerships with healthcare providers for increased referrals.
Diversify Services: Explore offering additional services such as specialized care for dementia patients, rehab services, etc.
🙋🏻♂️ The Buyer
A strategic buyer in the healthcare industry, such as a larger home care company or a hospital chain, could leverage synergies.
An individual or group with experience in the home care or broader healthcare sector would be well-suited.
A veteran-focused organization might see this as an opportunity given the company's established relationship with Veterans Affairs.
A local investor or entrepreneur with strong ties to the Greensboro community and an interest in healthcare.
A 'servant leader' as per the current owner's preference, someone who values employees and can maintain the business's strong reputation.
__ __ __ __ __ __ __ __ __
Commercial Landscaping (BizBuySell) - $1.8M
Launched in 1993
Based in Gloucester County, NJ
Revenue: $2.1M
Profit: $500k
Margin: 24%
Multiple: 3.60x
✅ What I Like
Virtual M&A Advisor:
Longstanding and Reputable: The business has been operational since 1993, suggesting stability and experience in the industry.
Diversified Services: With a wide range of services, the company is less dependent on a single revenue source.
Strong Customer Base: With over 60 accounts including major chains and banks, the company boasts a robust and diverse client base.
Included Assets: The business includes $500,000 worth of equipment necessary to run the business.
❓ Questions & Concerns
I’d want to understand the client contracts and the state of the equipment. How has the downturn in the commercial real estate market impacted this business?
Further reading: The Morning After: Due Diligence In Acquisitions
Virtual M&A Advisor:
Owner Involvement: The owner currently does estimation work, indicating that there might be operational dependency on the current owner.
Lease Expiration: With the lease expiring in 2030, the buyer needs to consider the potential for relocation or negotiate lease renewal terms.
Limited Information: The description does not provide enough details about the industry's growth rate, competitive landscape, or the company's unique selling proposition.
Single Geographic Market: There's no mention of the business's presence beyond its current location, which might limit the growth prospects.
💸 Valuation
The asking price is $1,800,000 with a cash flow of $500,000, translating to a cash flow multiple of approximately 3.6x. This would be reasonable in a low-interest rate environment. At today’s cost of capital, this valuation may be considered elevated.
💼 Due Diligence
How critical is the owner's role in the daily operations and customer relationships? What's the plan for transitioning these responsibilities?
What's the competitive landscape like, and how does this business differentiate itself?
What are the terms and conditions of the current lease, and are there any options for renewal or extension beyond 2030?
How stable are the commercial accounts? Do they have long-term contracts, and what's the client retention rate?
How does the company manage seasonality in its revenue streams, such as snow removal services?
How is the downturn in the commercial real estate market impacting this business?
Age and status of the equipment?
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
Geographic Expansion: Consider expanding services to nearby towns or counties to increase the client base.
Digital Marketing: Enhance online presence to attract more clients through SEO and local search ads.
Offer Additional Services: Explore offering related services such as outdoor lighting, hardscaping, or tree services.
Build Relationships: Foster strong relationships with current commercial accounts and seek opportunities for referrals or expanded contracts.
Streamline Operations: Implement software solutions for more efficient scheduling, client management, and billing.
🙋🏻♂️ The Buyer
A strategic buyer already operating in the landscaping or property management industry could leverage synergies.
A financial buyer, such as a private equity group, looking for businesses with steady cash flows and growth potential.
A competitor aiming to expand their geographic presence or customer base.
🕸️ 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.
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.
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.
Deal Flow Scout - Peer-to-peer deal flow exchange. Free, open, transparent. One of my side projects.
Deal Sourcing Guide - A directory I put together of online marketplaces, brokers, DFY deal flow, and more.
🚀 Interested in partnering or advertising with us? Get in touch here.
How did you like this issue of the newsletter?
If you enjoyed reading this newsletter, why not share it or subscribe?
Let’s connect: LinkedIn, Twitter