The Business Inquirer #122
In this week's issue, we highlight 4 listings including a landscaping business, a SaaS in the transportation industry, a ChatGPT browser extension, and more.
Hello Friends!
In this week’s issue:
☁️ SaaS - 3 listings
🏡 Main Street, Offline, Other - 1 listing
⚒️ Tools & Resources
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☁️ SaaS
Transport Management (QuietLight) - Open to Offers
Launched in 2020
23 clients; 100% client retention; $40k CLTV;
Revenue: $1.2M
Profit: $709k
Margin: 58%
Multiple: N/A
💬 My Comments
The founder and 4 employees want to stay on with the business. I bet there can be some creative deal structures here. With just 23 clients, there may be too much concentration risk for an SBA loan.
Have to be careful with these types of businesses that see 350% Y/Y growth in revenue. There most likely will be a large disconnect between what the founder is asking and what the right valuation is.
✅ Pros
Rapid Growth: The business has seen exceptional growth, exceeding $1M in ARR within 24 months of its launch, indicating a well-received product in a growing market.
High Customer Retention: The business maintains full customer retention since its launch, which shows customer satisfaction and the software's value proposition.
Committed Team: The business is managed by a dedicated team of employees and a full-stack developer, all of whom wish to stay with the business.
High Profit Margins: The business enjoys strong margins of 60%, providing significant cash flow to invest in growth opportunities.
❓ Concerns
Relatively New Business: The business has only been operational since 2020, which may be a concern in terms of long-term stability and predictability.
Limited Customer Base: With 23 customers, the business has a relatively small customer base, which could present risks if any significant customers were lost.
💸 Valuation
The business has a gross revenue of $1,182,480 and income of $709,488, translating to a profit margin of 60%. Given the high growth rate, strong customer retention, and high profit margins, a valuation of 5-6x EBITDA seems reasonable. This aligns with industry standards for high growth, profitable SaaS businesses. The specific price would depend on the exact EBITDA, which is not given.
🏭 Industry Overview
High Demand Sector: The Transport Management Software industry is on the rise, primarily driven by the global expansion of e-commerce and the increasing need for efficient supply chain solutions. In addition, the industry is experiencing growth due to the increasing importance of reducing operational costs and enhancing customer service.
Market Size and Forecast: According to a report by Grand View Research, the global transport management system market size was valued at $57.8 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 16.2% from 2021 to 2028.
Future Trends: Trends such as the increasing adoption of cloud-based solutions, the Internet of Things (IoT) in logistics, and AI-driven predictive analytics are expected to shape the future of the industry. Companies that can innovate and adapt to these trends are likely to succeed in the long term.
💼 Due Diligence Questions
What are the specific roles of the owner and how will these be transitioned to new management?
How diversified is the customer base? What is the dependency on the largest customers?
What are the specific growth strategies planned for sales, growing the freight network, and expanding marketing activities?
How does the business attract new customers, and what are the costs associated with customer acquisition?
How robust is the technology infrastructure and what future development plans are in place?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted independent professionals and boutique firms that specialize in finance, tech, legal, and other key areas of M&A diligence and advisory.
🚀 Growth
Leverage AI and Analytics: Continue to develop and promote the AI and analytics capabilities of the software to stay competitive.
Partnership and Alliances: Form strategic partnerships with logistics and freight companies to enhance service offerings.
Increase Marketing Efforts: Invest in marketing to increase brand awareness and customer acquisition.
🙋🏻♂️ The Buyer
A strategic buyer who already operates in the logistics or SaaS space and can leverage synergies.
An individual or firm with experience in software development, AI, and logistics.
An entrepreneur with an understanding of the transportation and logistics sector and SaaS model.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
AI-Powered Cold E-Mail (Acquire) - $240k
Launched in 2021
Revenue: $124k
Profit: $54k
Margin: 44%
Multiple: 4.44x
💬 My Comments
The business has solid fundamentals and it’s positioned in a growing, evergreen niche. Valuation isn’t crazy but there isn’t a lot of operating history. Be careful with revenue from LTD. Limited-time deals are OK, lifetime deals are tricky. The seller keeps revenue while the new owner takes on the work.
✅ Pros
High Profitability: The business has high-profit margins, with a TTM profit of $59,000 from $136,000 revenue, indicating a strong business model.
Limited Owner Involvement: The business operates with less than 10 hours per month of owner time, suggesting efficient operations and potential for further automation.
Unused Customer List: With a large, underutilized customer list, there is potential for increased revenue through targeted marketing efforts.
❓ Concerns
Limited Marketing Efforts: The business currently generates consistent monthly revenue without any marketing, which could indicate a lack of brand awareness or untapped potential.
Over-Reliance on LTDs: The current business model relies heavily on Limited Time Deals (LTDs) for revenue. This could be a potential risk if regular pricing fails to attract customers.
💸 Valuation
The asking price is approximately 4 times the business’s net profit, which seems reasonable in the SaaS industry, where multiples range from 3x to 5x net profit. However, further analysis should be performed considering growth rates, churn rates, and the total addressable market.
🏭 Industry Overview
Increasing Demand for AI in Marketing: AI in marketing is expected to reach $76.4 billion by 2025, according to Markets and Markets. AI-powered email marketing tools are part of this growth, which is good news for this business.
Need for Personalization: The demand for personalized marketing continues to increase. Studies show that personalized emails can deliver six times higher transaction rates. The business’s core offering of personalizing cold emails at scale falls squarely in this high-demand area.
Lack of Market Dominance: In the cold email marketing industry, no one company dominates the market. This lack of market concentration provides ample opportunities for growth and success.
💼 Due Diligence Questions
What marketing strategies were implemented so far? Which channels proved to be the most effective?
How is the company acquiring new customers currently?
What is the customer churn rate?
Is there a technical roadmap for the product? What new features are planned?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted independent professionals and boutique firms that specialize in finance, tech, legal, and other key areas of M&A diligence and advisory.
🚀 Growth
Implement a robust marketing strategy to engage the existing customer base and attract new customers.
Optimize pricing strategies and perhaps reduce reliance on LTDs for more stable revenue.
Expand product features to cater to the evolving needs of customers, potentially increasing customer retention and attracting new customers.
🙋🏻♂️ The Buyer
An individual or company with experience in the SaaS industry, ideally with knowledge of marketing and AI.
A buyer with the resources to implement a strong marketing strategy and has the ability to manage and grow a customer base.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
ChatGPT Browser Extension (Microns) - $19k
Launched in 2023
23,000 users
Revenue: $890
Profit: $266
Margin: 30%
Multiple: 69.5x
💬 My Comments
The large number of users is intriguing. Moving away from a sponsorship business model and turning this into a SaaS may be the way to go. Have to do a lot of tech diligence to make sure this thing actually works. Look at reviews and retention. Tons of competition in this space. Figuring out the right valuation can be tricky. Very risky acquisition but might be interesting for the right person.
✅ Pros
Large Customer Base: The business has a strong base of 67,000 customers, a significant number for a browser extension. This presents opportunities for upselling, cross-selling, or introducing new features.
High Potential Target Audience: The target audience is ChatGPT users, who are typically technologically savvy and open to adopting new tools that enhance productivity.
Unique Offering: The browser extension uniquely combines the capabilities of ChatGPT with Google search, providing a service that could increase user productivity.
❓ Concerns
Low Revenue: The business currently generates only $890 in annual revenue, which is quite low considering the number of users.
Sponsorship Dependency: The business model relies on sponsorships for revenue generation. This might be unstable, particularly if sponsors pull out or if there are changes in sponsorship policies.
Limited Financial Information: The financial details provided are minimal, raising questions about costs, profitability, and sustainability of the business.
Platform Risk: Relying on ChatGTP is a risk. They may change pricing or access. Similar thing happened to Twitter and Reddit APIs. Took down a lot of small businesses.
💸 Valuation
The asking price of $18,500 is obviously very elevated considering the business only generates $266 in profit annually. This business is valued based on the large number of users. Further due diligence is necessary to justify this price.
🏭 Industry Overview
High Demand: Extensions that enhance productivity are in high demand, given the increasing importance of productivity in both personal and professional settings.
Competitive Space: The industry is highly competitive, with countless extensions available. Unique value propositions and continuous innovation are critical for success.
💼 Due Diligence Questions
What are the key operating costs of the business, and what is the potential for scaling the business?
How stable are the sponsorships, and what are the terms of the sponsorship agreements?
How engaged are the 67,000 customers? What is the average usage rate of the extension?
Are there any potential legal or intellectual property issues related to the extension?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted independent professionals and boutique firms that specialize in finance, tech, legal, and other key areas of M&A diligence and advisory.
🚀 Growth
Explore alternative revenue models, such as premium features or a subscription model, to augment sponsorship income.
Invest in marketing to increase visibility and attract more users.
Constantly innovate and update the extension to ensure it remains relevant and useful to users.
🙋🏻♂️ The Buyer
A buyer with experience in browser extension development or the tech industry, ideally with a background in AI technology.
An individual or organization that can negotiate and maintain strong relationships with sponsors.
A buyer with resources and expertise to explore and implement alternative revenue models.
🏡 Main Street, Offline, Other
Commercial/Residential Landscaping (BizBuySell) - $2.1M
Launched in 2010
Based in Outer Banks, NC
Revenue: $2.8M
Profit: $544k
Margin: 19%
Multiple: 3.86x
💬 My Comments
Absentee-operated business. There are worse places to live than the Outer Banks of NC. Large number of clients but would prefer to see more maintenance revenue (40%) compared to new installs (60%).
✅ Pros
Recurring Revenue: Over 40% of the revenue comes from recurring maintenance contracts which provide some financial stability.
Long-Term Customers: With nearly two decades in business, the company has built up a client base of over 500, including high-end homeowners and commercial property owners.
Limited Competition: The company holds a strong position in its local market.
Management Team: The established and longstanding management team allows the owner to operate the business remotely, suggesting smooth operations and established procedures.
❓ Concerns
Unclear Details on Expenditure: More information is needed to understand whether all operational costs have been considered in the cash flow statement.
💸 Valuation
The business is priced at approximately 3.85 times the annual cash flow. While the multiple seems on par for well-established businesses in this industry, further scrutiny of financials is recommended to ensure profitability.
🏭 Industry Overview
Landscape maintenance is a consistent industry with demand from both residential and commercial sectors.
The industry can be resilient to economic downturns, particularly in high-end and tourist areas where property maintenance remains a priority.
The trend towards outsourcing maintenance work continues to drive growth in the industry.
💼 Due Diligence Questions
How are the business' customer relationships managed and how secure are the contracts?
What are the specific roles and responsibilities of the management team?
What kind of equipment is in use and what is the expected lifespan and maintenance costs?
What are the terms for the lease or sale of the real estate property?
DueDilio can help you assemble your M&A deal team including due diligence service providers. Our marketplace has over 250 highly vetted independent professionals and boutique firms that specialize in finance, tech, legal, and other key areas of M&A diligence and advisory.
🚀 Growth
Upsell or cross-sell additional services to the existing client base.
Leverage digital marketing to expand the customer base within the local area.
Diversify services to cover more aspects of landscape design, construction, and maintenance.
Buy out the competition
🙋🏻♂️ The Buyer
An individual or a company already in the landscaping industry looking to expand their service area or customer base.
An investor who values businesses with stable recurring revenue and an established brand.
A buyer capable of managing a large customer base and maintaining high levels of service quality.
⚒️Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these are paid sponsors of the newsletter.
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.
X5 Deals - Proprietary deal sourcing. They do the outreach and send you relevant, actionable deals directly into your inbox.
Rejigg - Platform that connects searchers/investors directly with owners of off-market software businesses ($500k - $15m revenue) considering exits. All deals are sourced by the Rejigg team, ~5 added per week.
Scott Oldford - If you're interested in gaining insight into the process of building, scaling, acquiring, and selling online businesses, Scott Oldford can help.
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.
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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