The Business Inquirer #128
Generator install business with 90% margin, a $25M landscaping business in Boston, and a landscaping business in sunny Idaho.
Hello Friends!
This week’s issue is a bit lighter than usual. I found a few interesting home service business opportunities but nothing caught my eye in the online business space this week.
In this week’s issue:
🏡 Main Street - 3 listings
⚒️ Tools & Resources
💡 How I Can Help
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🏡 Main Street, Offline, Other
Electrical Generator Installer - $1.4M
Launched in 2019
$14k AOV; 50% of leads from referrals; 30% from online;
Revenue: $675k
Profit: $599k
Margin: 89%
Multiple: 2.34x
💬 Quick Take
This electrical generator installation business boasts a strong online presence and a unique subcontracting model that minimizes overheads. However, its reported 90% profit margin, significantly higher than industry norms, warrants closer scrutiny. Despite the full-time involvement of the current owner, the profit margin could accommodate additional hires. The potential for service expansion is notable. Thorough due diligence is crucial given the complexities of this business.
✅ What I Like
High Market Demand
The business operates in a region with a faulty electrical grid, leading to a surge in demand for generator installations.
Strong Customer Acquisition
Approximately 50% of new projects come from referrals, indicating a high level of customer satisfaction. The company also ranks first on Google search within the region, helping to attract 20 to 30 percent of its clients.
Low Overhead
The business model relies on a team of proficient subcontractors, eliminating the need for employee salaries and reducing overhead costs. The subcontractors will continue to service the business or join the payroll.
Stable Sales
Sales remain strong throughout the year, without relying on seasonality. Power grid instability triggers customer interest, offering a consistent source of new business.
Service Expansion
The potential to add new services to the existing offering can broaden the customer base and increase revenue streams.
❓ Concerns
Owner's Role
The current owner works full-time on various tasks, including sales, invoicing, scheduling, and general office management. It's uncertain whether these responsibilities can be distributed or if the new owner will need to assume them.
Dependency on Unstable Grid
The business relies heavily on the region's faulty electrical grid for its demand. Significant improvements or repairs to the infrastructure may decrease the need for generator installations.
Subcontractor Reliability
The business depends on subcontractors to complete projects. Any issues with subcontractor availability or performance could impact operations and customer satisfaction.
Single Revenue Stream
The business focuses on generator installations, making it vulnerable to industry-specific risks and changes in consumer behavior or technology. Lack of recurring revenue is a concern.
Margin
The typical profit margin for this type of business is 10-20%. The 90% margin shown here is suspicious. How sustainable is it?
💸 Valuation
At first glance, the 2.34x multiple seems reasonable especially considering the very strong margin. Further diligence is needed to really understand the scalability of this business and its future potential.
💼 Due Diligence Questions
Contractual Arrangements: Are there formal contracts in place with the subcontractors, and what do these entail?
Owner's Tasks: What are the specifics of the owner's duties, and can these be delegated or outsourced?
Marketing Strategy: Can you provide more details on the company's marketing efforts and their effectiveness? What’s the CAC for the lead-gen service they use?
Service Contracts: Are there any service or maintenance contracts with clients?
TAM: Are there any market studies to understand the TAM of this area?
Competitors: How does the competition look? Why would the subcontractors not compete with this business? How do online reviews look for this business?
Margin: How sustainable is the 90% margin?
🚀 Growth Levers
Expand Geographic Reach: The business can extend its services beyond the current region to capture a broader market share.
Diversify Services: Offering related services such as generator maintenance and repair could provide additional revenue streams.
Form Strategic Partnerships: Collaborating with construction firms and electricians could generate more leads and increase project numbers.
Leverage Digital Marketing: Further enhancing SEO efforts and social media presence can help attract more clients online.
🙋🏻♂️ The Buyer
Industry Knowledge: The ideal buyer would have experience or knowledge in the electrical, generator, or related industry.
Willing to be Hands-On: The new owner may need to assume some of the duties of the current owner or invest in developing a team to handle these tasks.
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Commercial Landscaping in Boston
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Landscaping in Idaho - $1.8M
Launched in 2006
Based in Canyon County, ID
Residential & commercial clients; No concentration;
2 FT + 11 PT employees;
Revenue: $1.6M
Profit: $681k
Margin: 43%
Multiple: 2.64x
💬 Quick Take
This established landscaping company represents a solid business opportunity with consistent profit margins of 30-35% and a robust growth track record. It has a diversified residential and commercial client base with installation as well as maintenance contracts. The team is staying in place with the business.
✅ What I Like
Consistency
The business has been successfully operating for 17 years and consistently generates profit margins of 30-35%.
Diverse Client Base
The mix of residential and commercial clients minimizes the risk of income concentration, ensuring stable revenue streams. Maintenance as well as installation projects.
Experienced Team
The company benefits from long-term employees and foremen with significant industry experience, indicating a high level of operational expertise within the team.
❓ Concerns
Relocation Requirement
The business needs to be relocated, which might cause disruptions to operations and entail additional costs.
Spouse
The owner's spouse currently performs light support duties, and their continuation or replacement after the sale might need to be addressed.
Seasonality
The business is seasonal with peak demand in the spring and summer months
💸 Valuation
The asking price of $1.7M represents a cash flow multiple of around 2.6x. This is within the standard valuation range for businesses in the landscaping industry, which typically sell for 2-3x of their cash flow.
💼 Due Diligence Questions
Client Retention: What is the client retention rate and what measures are in place to maintain strong relationships with existing clients?
Team Retention: What are the retention strategies for the long-term employees and foremen?
Relocation Plan: What is the projected cost and timeline for the required business relocation?
Equipment Condition: What is the condition of the vehicles, machinery, and equipment and when will they need to be replaced?
Large Commercial Project: Could you provide more details about the large commercial installation project that will continue for the foreseeable future?
Seasonality: How has seasonality impacted this business in the past?
Cash Flow < NOI: The financials show the NOI being lower than cash flow. Why? Is it due to seasonality? CAPEX? Increasing AR?
🚀 Growth Levers
Marketing Expansion: Expand marketing efforts to acquire new residential and commercial clients and increase brand visibility in the local market.
Offer Additional Services: Introduce new services, such as eco-friendly landscaping options, to tap into emerging market trends.
Geographical Expansion: Consider expanding operations to nearby towns or regions to grow the client base.
Partnerships with Property Developers: Form partnerships with local property developers for regular landscaping contracts.
🙋🏻♂️ The Buyer
Experience in Landscaping: The ideal buyer should have experience in the landscaping business to effectively manage operations and growth strategies.
Team Management Skills: With a long-term crew in place, the buyer should have strong team management skills to maintain employee satisfaction and retention.
How did you like this issue of the newsletter?
⚒️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.
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. 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.
Search Fund Coalition - community for the Entrepreneurship Through Acquisition ecosystem. Monthly events and meetups for acquisition entrepreneurs.
Deal Sourcing Guide - a comprehensive list of business marketplaces, brokers, deal origination firms, and more.
💡 How I Can Help
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