The Business Inquirer #125
In this week's issue, I highlight 6 listings including a password manager, a legal case management SaaS, a landscaping service, and more.
Hello Friends!
In this week’s issue:
🛒 eCommerce - 1 listing
☁️ SaaS - 3 listings
🏡 Main Street, Offline, Other - 2 listings
⚒️ Tools & Resources
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🛒 eCommerce
Wedding Stationary (QuietLight) - $200k
Launched in 2012
Revenue: $295k
Profit: $76k
Margin: 26%
Multiple: 2.63x
💬 Quick Take
Weddings and funerals are great niches as people open up their wallets. There’s a lot to like about this business including the dropshipping model, US supply chain, paid and organic acquisition channels, high AOV, and decent margins.
✅ What I Like
Strong Brand Identity: The business has a lot of operating history and established a robust reputation in the wedding industry.
Impressive Digital Footprint: Over half the company's traffic comes from direct, organic, and referral channels, demonstrating the effectiveness of its SEO investment. Its strong social media presence, particularly on Instagram, serves as an effective organic customer acquisition channel. Paid advertising accounts for close to 50% of customer acquisition so there’s a playbook.
High Average Order Value (AOV): With an AOV of $1,200 and 100% of sales coming through the website, the company demonstrates strong online conversion capabilities and a potentially affluent customer base.
No Inventory Requirement: The business model focused on creating digital artwork, outsources physical product creation and fulfillment, keeping the inventory needs minimal, which reduces overhead costs and operational complexity.
❓ Concerns
Heavy Dependence on Top Packages: 90% of sales are derived from the top three packages. Such heavy reliance may expose the business to significant risk if demand for these packages were to decline.
Owner's Lifestyle Business: As the business is currently more of a lifestyle enterprise for the seller, it's unclear how much effort and resources have been invested to grow the business and whether the business model can sustain a more aggressive growth strategy.
Limited Eligibility for Financing: The business is not eligible for SBA or Boopos financing. Buyers will need alternative financing methods, which could limit the pool of potential buyers.
Reliance on Third-party Printers: The business model's reliance on outsourced printing services for manufacturing and fulfillment could lead to potential disruptions, should these third-party services encounter operational issues.
💸 Valuation
The business is being offered at roughly 2.6x its annual cash flow, which is in line with industry averages for e-commerce businesses. However, its higher AOV, strong brand, and robust digital presence may warrant a higher multiple.
💼 Due Diligence Questions
Customer Acquisition Costs: What are the current customer acquisition costs, especially for those acquired through paid ads?
Revenue Consistency: How consistent is the revenue throughout the year, considering the seasonality of weddings?
Customer Retention: What strategies are in place for customer retention and referral business?
Supplier Agreements: What are the terms and conditions of current supplier agreements? Are there any existing disputes or potential risks?
Competitive Landscape: Who are the main competitors and what strategies are employed to maintain a competitive edge?
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 Levers
Targeted Marketing Campaigns: Invest in targeted social media campaigns, focusing on engaged couples.
Cost: Medium. Impact: High.Expanding Product Range: Diversify the product offering to mitigate risk associated with the top three packages.
Cost: Medium. Impact: Medium.Partnerships with Wedding Planners: Form strategic alliances with wedding planners to reach a wider customer base.
Cost: Low. Impact: High.Implement Customer Retention Strategies: Develop strategies such as referral programs or rewards.
Cost: Low. Impact: Medium.
🙋🏻♂️ The Buyer
Experience in E-commerce: A buyer with experience in e-commerce and digital marketing can leverage the company's online strengths and enhance growth strategies.
Understanding of the Wedding Industry: A buyer familiar with the wedding industry's nuances would better navigate industry trends and customer preferences.
Creative Vision: Given the business's focus on custom-designed illustrations, a buyer with a creative vision or background in design would add value.
Financial Resources: Given the lack of eligibility for SBA or Boopos financing, a buyer with sufficient financial resources or alternative financing capabilities would be ideal.
☁️ SaaS
Password Manager (Rejigg) - $2M
Launched in 2015
20k+ paid subscribers
Revenue: $800k
Profit: $250k
Margin: 31%
Multiple: 8.00x
💬 Quick Take
Attractive acquisition opportunity with a stable revenue stream from its subscription-based password management services. It has a considerable customer base, high switching costs, and strong financial performance. Lack of investment in marketing and sales is a concern.
✅ What I Like
Stable Revenue Stream: The business has a subscription-based model that generates consistent revenues. This model ensures a steady income, provided the retention rates remain high.
Large Customer Base: With over 20,000 paid subscribers, there’s a considerable user base that offers the potential for cross-selling or upselling other services.
High Switching Costs: Switching costs for clients of this type of business are relatively high. Recreating all passwords on a different platform takes considerable time and effort.
Untapped Growth Potential: The company hasn't yet invested in marketing and sales. There may be easy wins to boost the business's reach and revenue.
❓ Concerns
Dependence on Owner: The business may be significantly dependent on the owner who brings his unique insights and expertise. The impact of his departure needs to be assessed.
Competition: The password management market is competitive. Staying ahead requires constant innovation and customer engagement.
Unexplored B2B Market: They sold their B2B business in 2020 to focus on B2C. Evaluating whether re-entering the B2B segment would be beneficial.
Sales & Marketing: Testing out various sales & marketing strategies can be expensive and lower profitability. There’s no indication of what the CAC could be.
💸 Valuation
SaaS businesses with < $5M in revenue are typically valued on the SDE or profit with a 3x to 6x multiple. At an 8x multiple, this business valuation is very elevated but may be justified considering the sticky client base, consistent revenues, and the potential for future growth.
💼 Due Diligence Questions
Customer Acquisition: What is the current cost of customer acquisition, and what are the primary channels?
Retention Rates: What are the customer retention rates, and what strategies are in place to maintain or improve these?
Employee Structure: How is the current team structured, and what are their key responsibilities?
Owner Involvement: How involved is the seller in the day-to-day operations of the business?
Technology Evaluation: Is the current technology stack up-to-date and scalable for future growth?
Competition Analysis: Who are the main competitors, and how does this business differentiate itself from them?
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 Levers
Invest in Marketing and Sales: Develop and implement a strategic marketing plan to reach a larger audience.
Cost: High; Impact: High.Leverage Customer Base for Upselling: Introduce higher-tier plans or additional services to existing customers.
Cost: Medium; Impact: High.Expand into B2B Segment: Reconsider entering the B2B market with a targeted solution.
Cost: High; Impact: High.Implement Referral Programs: Encourage user growth through referral programs.
Cost: Low; Impact: Medium.
🙋🏻♂️ The Buyer
Tech-savvy Entrepreneur: Someone with a strong understanding of technology and the SaaS business model.
Marketing and Sales Expertise: An individual or team with a strong background in marketing and sales to fully unlock the business's potential.
Strategic Acquirer: A larger company that could leverage the existing customer base and technology to add to its current offering.
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Quality Management Solutions (BizBuySell) - $4.5M
Launched in 1992
1 employee; Owner retiring;
Revenue: $864k
Profit: $685k
Margin: 79%
Multiple: 6.57x
💬 Quick Take
With its cloud-based Quality Management Solutions Software, the company has built a strong reputation, customer retention metrics, and has no major client concentration issues. Given that the business has grown organically and through referrals, there are significant growth opportunities with strategic initiatives. However, the relatively high asking price and the sector's nuances require careful consideration.
✅ What I Like
Specialized Software: The software has been entirely rewritten to cater specifically to the quality assurance and compliance needs of government organizations. This customization and refinement over time may provide a competitive edge.
Client Spread: With no major client concentration, the business is not overly reliant on a single client, which can reduce risk and provide more stability.
Strong Customer Retention: The business has strong customer retention metrics, indicating a high level of client satisfaction and a steady revenue base.
Opportunity for Growth: The company has grown organically and through referrals, suggesting that there are significant growth opportunities if more proactive marketing strategies were implemented.
❓ Concerns
Dependence on Government Contracts: Government contracts can be subject to changes in policy, budget allocations, and competitive bidding, which might affect the business's stability.
Need for Subject Matter Expertise: The company suggests partnering with a Subject Matter Expert to drive growth, implying the potential need for additional skills or resources.
High Asking Price: The asking price is approximately 6.5 times the annual cash flow, which is relatively high compared to industry averages.
💸 Valuation
With a 6.5x multiple, this SaaS valuation is very elevated compared to industry benchmarks. The robustness of the software, its client base, and its potential for growth may warrant the higher multiple, but thorough market comparisons should be undertaken to validate the asking price.
💼 Due Diligence Questions
Contractual Agreements: Are there any long-term agreements in place with the current government clients, and what are the terms?
Software Intellectual Property: Who owns the intellectual property rights to the software, and are they transferable?
Employee Turnover: What is the turnover rate among employees, particularly those involved in software development and customer service?
Growth Metrics: How have the growth metrics trended over the past five years?
Competitive Landscape: Who are the main competitors, and what differentiates this business from them?
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 Levers
Strategic Marketing Initiatives: Implement a focused marketing strategy to reach out to more potential government clients. Cost: Medium. Impact: High.
Partnership with SME: Partner with a subject matter expert to help enhance the product offering and grow the business. Cost: High. Impact: High.
Expand Product Portfolio: Develop additional features or services based on client feedback and needs. Cost: High. Impact: Medium.
International Expansion: Explore opportunities in other countries with similar governmental structures. Cost: High. Impact: High.
🙋🏻♂️ The Buyer
SaaS Expertise: A buyer with experience in managing and growing SaaS businesses could capitalize on this company's potential.
Understanding of Government Sector: A buyer with a solid understanding of the nuances of working with government agencies would be at an advantage.
Strategic Partnerships: A buyer with existing contacts or partnerships in the government sector could leverage those for business growth.
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Legal Case Management (BusinessesForSale) - $1.4M
Launched 1999
Absentee operated; Owner retiring;
Revenue: $898k
Profit: $224k
Margin: 25%
Multiple: 6.25x
💬 Quick Take
An interesting opportunity in B2B SaaS. This 24-year-old, semi-absentee-operated SaaS Company in the legal case management space has demonstrated consistent profitability, with 85%-90% recurring revenues. Despite being operated on limited capacity due to the owner's health issues, the company has proven resilience. Someone with a B2B marketing skillset may be a good fit for this acquisition.
✅ What I Like
Stable Recurring Revenue: The company exhibits strong financial health with 85%-90% recurring revenue. This provides a reliable income stream and indicates customer satisfaction and loyalty.
Proven Track Record: With a 24-year history and consistent profitability, the company demonstrates sustainability and resilience.
Remote Operational Model: The company has effectively employed a remote work model since the start of the COVID-19 pandemic. This offers flexibility and potential for cost savings on office space.
Skilled and Experienced Workforce: The company's workforce is tenured and highly skilled, providing a strong foundation for continued success.
High Client Retention: The business enjoys high customer retention, indicative of its value proposition and service quality.
❓ Concerns
Legal Industry: As a failed LegalTech startup founder, I know first-hand that this industry is brutal. Very long sales cycles, a lot of competition, and implementation costs. Not an easy industry to serve.
Owner Dependence: The current owner has been operating the company on a semi-absentee basis due to health issues. There may be potential operational risks if the owner's contributions were understated.
Lack of Marketing and Sales Initiatives: The company has not invested significantly in advertising or sales personnel, potentially limiting its growth and customer outreach.
💸 Valuation
Given the financials, with a gross revenue of $897,070 and cash flow of $223,627, the asking price of $1.4M represents a multiple of 6.3 on cash flow, which is in line with average SaaS company valuations according to data from SaaS Capital. Considering its stable recurring revenue, this asking price seems reasonable. However, due diligence should include a comprehensive market comparison.
💼 Due Diligence Questions
What roles and responsibilities did the owner fulfill? It's crucial to understand the owner's involvement to assess potential gaps upon transition.
What is the company's customer acquisition strategy? Given the lack of investment in advertising and sales, understanding the current strategy will aid future marketing decisions.
Can you provide a detailed breakdown of the recurring vs. one-time revenues? Detailed information can better assess the stability of the revenue.
Who are the biggest competitors, and what differentiates this company from them? Understanding the competitive landscape is important for strategic planning.
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 Levers
Invest in Marketing and Sales: Given the minimal investment in these areas so far, increased marketing and sales efforts could boost customer acquisition.
Cost: High, Impact: High.Expand Product Offerings: Developing new features or related services could tap into additional revenue streams.
Cost: Medium, Impact: High.Strategic Partnerships: Establishing partnerships within the legal sector could drive user growth.
Cost: Low, Impact: Medium.Improve Customer Service: Enhancing customer support can increase retention and upselling opportunities.
Cost: Medium, Impact: Medium.
🙋🏻♂️ The Buyer
Experience in SaaS Space: The buyer should ideally understand the SaaS business model, including recurring revenue, customer acquisition, and retention strategies.
Familiarity with Legal Sector: Knowledge of the legal sector can aid in understanding the customer base and potential growth areas.
Ability to Operate Remotely: As the business operates on a work-from-home model, experience with managing remote teams would be advantageous.
Capability for Strategic Investments: Given the potential for growth through increased investment in marketing and sales, the buyer should have the ability to make these strategic investments.
🏡 Main Street, Offline, Other
Commercial Flooring (BizBuySell) - $2M
Launched in 1992
Serves Colorado & surrounding states
Revenue: $4M
Profit: $672k
Margin: 17%
Multiple: 2.98x
💬 Quick Take
An attractive opportunity given its strong financial performance, diversified customer base, and a broad range of flooring expertise. Staff already in place and no licensing requirements.
✅ What I Like
Established Reputation: This company has a successful track record of over 20 years in commercial flooring, making it a known player in the market.
Wide Range of Flooring Expertise: The business's ability to install a variety of flooring types, from carpet to epoxy, provides a competitive edge and allows it to cater to diverse client needs.
High Margins and Strong Growth: The company's high margins and consistent year-over-year growth demonstrate a robust business model and effective management.
Experienced Staff: The presence of a skilled and well-trained workforce is a valuable asset for business continuity.
❓ Concerns
Dependent on Construction Industry: The company's fortunes are tied to the broader commercial construction industry, which can be cyclical and sensitive to macroeconomic factors. We may be entering a significant downturn in this sector.
Owner's Role: The owner is heavily involved in operations management and customer interactions, making the transition period critical to maintain relationships and business performance.
Limited Digital Presence: The company's current limited online presence may restrict its visibility and growth potential in today's digital-first environment.
Operational Technology Utilization: The current underutilization of technology, CRMs, and streamlined processes/systems could pose challenges in terms of efficiency and scalability. Could also be an opportunity for a new owner.
💸 Valuation
Priced at roughly 3x cash flow, this multiple is below the industry average of 4-6x, which suggests that the asking price might be reasonable considering the business's solid performance, high margins, and growth potential.
💼 Due Diligence Questions
Long-term Contracts: What kind of contracts are in place with clients, and are these transferable?
Staff Turnover: What is the turnover rate among staff, and is there a succession plan for key personnel?
Client Concentration: Is there a high degree of client concentration, and what plans are in place to manage this risk?
Competition Analysis: Who are the main competitors, and how does the business differentiate itself in the marketplace?
Historical Financial Analysis: Can we review audited financial statements for the past five years to understand growth trends and cost structures?
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 Levers
Website and Social Media Marketing: Utilizing digital marketing strategies can broaden visibility and attract new clients.
Cost: Low. Impact: High.Expand Geographically: Expand operations to neighboring states or across the country to tap into new markets.
Cost: High. Impact: High.Implement Operational Technology: Implement CRM and project management systems to streamline operations and improve efficiencies.
Cost: Medium. Impact: High.Capacity Utilization: Leverage the existing shop's capacity to handle more projects without requiring additional infrastructure.
Cost: Low. Impact: Medium.
🙋🏻♂️ The Buyer
Construction or Flooring Expertise: Ideally, a buyer should have experience in the general construction, flooring, or building materials industries.
Project Management Experience: Experience with bidding, sales, and project management would be beneficial.
People Management Skills: Given the company's sizeable staff, a buyer with experience managing blue-collar workers or trade personnel would be advantageous.
Digital Marketing Skills: A buyer with digital marketing expertise could drive growth by improving the company's online presence.
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Residential Landscaping (BizNexus) - $949k
Launched in 1983
Based in the SF Bay Area; Owner retiring;
Revenue: $2.5M
Profit: $405k
Margin: 16%
Multiple: 2.34x
💬 Quick Take
Well-established landscaping business in the SF Bay area. Featured in garden magazines and local tours. Solid team in place. Owner is retiring. Reasonable valuation.
✅ What I Like
Longstanding Reputation: For almost 40 years, the company has been providing high-quality landscape design and construction services, garnering an A+ rating with the BBB and excellent online reviews.
Skilled and Dedicated Employees: The company boasts a cohesive, creative, and dedicated team that contributes significantly to its success.
❓ Concerns
Owner Departure: The founder is preparing for retirement, which could potentially cause disruption if clients have strong ties to the owner.
Potential Market Saturation: Operating in the same area for 40 years might limit the growth potential within the current client demographics.
Dependency on Referrals: The business has grown primarily through referrals and professional recognition, which could present challenges in scaling up if not complemented by other marketing strategies.
Environmental Factors: Changes in weather patterns and local regulations could affect the landscape business operations and profitability.
💸 Valuation
At a 2.35x multiple, the business is fairly valued. The solid customer base, skilled team, and steady growth trajectory make this valuation reasonable.
💼 Due Diligence Questions
What is the owner's role in daily operations and client relationships? Understanding this can help gauge the potential impact of the owner's retirement.
How diversified is the client base? Are there any major clients contributing a significant portion of revenue?
What marketing strategies have been used, and what are the results? This can reveal opportunities for growth through expanded marketing efforts.
What’s the revenue mix? What’s the mix between new construction and maintenance? How do the contracts look like? What % of revenue is recurring?
Can you provide details about the current pipeline of work? This can provide insight into future revenue expectations.
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 Levers
Expand Geographic Reach: Exploring new markets within and outside the Bay Area could provide additional revenue streams.
Cost: Medium, Impact: High.Invest in Marketing: Broadening marketing strategies beyond referrals, such as digital marketing, could bring in more clients.
Cost: Medium, Impact: High.Offer New Services: Adding new services, like maintenance contracts, could increase recurring revenue.
Cost: Low, Impact: Medium.Establish Partnerships: Collaborating with real estate developers or architectural firms could yield additional business.
Cost: Low, Impact: Medium.
🙋🏻♂️ The Buyer
Experience in Landscaping: The buyer should have knowledge and experience in the landscape design and construction industry.
Strong Relationship Management: Given the collaborative nature of the business and the importance of client relationships, the buyer should have strong interpersonal skills.
Business Growth Skills: Skills in marketing and business expansion would be advantageous to capitalize on growth opportunities.
⚒️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.
Acquisition Lab - The Premier Accelerator for Buying a Business created by Walker Deibel, Author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Start-up Game. Acquisition Lab is there to stand by your side, so you can take the right action (at the right time) and avoid wasting countless hours trying to "go it alone." They combine world-class education, a vetted community, extensive group coaching, and resources to provide the first do-it-with-you buy-side advisory service.
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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