The Business Inquirer #129
A coaching business with > 60% margins, an IT MSP w/ expanding recurring revenue, an aquarium with a $100 lease, a Canadian EdTech business, and more.
Hello Friends!
In this week’s issue:
🛒 eCommerce - 1 listing
☁️ SaaS - 1 listing
💼 Online Service - 3 listings
🏡 Main Street, Offline, Other - 1 listing
⚒️ Tools & Resources
💡 How I Can Help
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🛒 eCommerce
LED Lighting Ecommerce Brand - Open to Offers
Launched in 2010
B2B and B2C; ~50% gross margins;
Revenue: $4.4M
Profit: $730k
Margin: 17%
Multiple: N/A
💬 Quick Take
Decade-long operational history and strong manufacturing relationships. With the recent addition of a new brand targeting larger enterprises, the business has potential for strong future growth.
✅ What I Like
Strong Reputation
With an average 4.9/5.0-star review rating, the business has a solid reputation for quality and customer satisfaction. Established in 2010, the business has formed strong manufacturing relationships and offers an industry-leading 15-year warranty.
Diverse Customer Base
Targeting SMBs, individuals, and now larger enterprises with a newly established brand, the business has multiple revenue streams and opportunities.
Future Expansion Opportunities
The recent addition of a brand for larger enterprises, with staff and marketing in place, presents an interesting growth opportunity.
❓ Concerns
Niche Dependence
The focus solely on the LED lighting niche might limit opportunities and expose the business to industry-specific risks.
New Brand Risks
The newly established brand targeting larger enterprises may face unforeseen challenges and competition which would divert attention away from the main business.
Economic Sensitivity
Economic downturns may reduce spending on non-essential lighting products and accessories.
💸 Valuation
Valuations of e-commerce businesses have been coming down lately due to market dynamics. Applying a 2.5x to 3.5x SDE multiple would value the business at $1.8M to $2.5M.
💼 Due Diligence Questions
Product Sourcing: What are the details of manufacturing relationships and supply chain management?
Customer Segmentation: Can you provide a breakdown of revenue by customer type (SMBs, individuals, enterprises)?
Marketing Strategy: What marketing strategies have been employed, and what are the plans for the newly established brand?
Warranty Obligations: What are the details of the 15-year warranty, and how is it supported financially?
Competition Analysis: Who are the main competitors, and what sets this business apart?
New Brand Performance: How is the newly established brand performing so far, and what are the growth projections?
Seller: Why is the owner selling this business right after establishing a new brand?
Pricing Power: Does the business have pricing power with consumers?
🚀 Growth Levers
Expand Product Line: Introducing new product variations and accessories could attract more customers.
Enhance Online Presence: Investing in SEO and social media marketing could boost online visibility and sales.
Explore International Markets: Expanding into international markets may provide new revenue opportunities.
B2B Partnerships: Forming strategic partnerships with construction and interior design firms could drive bulk sales.
Utilize Data Analytics: Leveraging data analytics to understand customer behavior and personalize marketing efforts can boost conversions.
🙋🏻♂️ The Buyer
Experience in E-commerce: A buyer with experience in e-commerce operations, preferably in the lighting or related industry.
Interest in B2B Sales: A buyer with a strategic vision for scaling the B2B aspects of the business, particularly targeting larger enterprises.
Resources for Growth: An organization with the resources to invest in the newly established brand and potential international expansion.
☁️ SaaS
Reputation Management for SMBs - $840k
Launched in 2021
Competitors: Podium, Birdeye, Swell
168 clients paying $99-$199 per month
4-person team; Bootstrapped;
Revenue: $356k
Profit: $154k
Margin: 43%
Multiple: 5.45x
💬 Quick Take
This reputation and referral management software company operates a profitable SaaS model with strong margins and >80% growth. With 90% of clients in the insurance sector, there's a very large TAM and a lot of room for expansion within and beyond that field. However, the industry is very competitive, business is relatively young, and the over-reliance on a single sector are just a few of the risks.
✅ What I Like
Profitable Business Model
The company has a 43% profit margin and TTM revenue growth of over 80%.
Proven Value to Clients
There is a clear market need for offering SMBs an automated way to collect and manage reviews and referrals. The business has a very large TAM. B2B clients tend to be sticky.
Growth Within Niche Market
90% of clients are insurance agents, providing a strong base in this industry with potential for further growth.
❓ Concerns
Sector Dependence
Reliance on the insurance sector may pose risks if there is a downturn in that industry.
Competitive Landscape
The space of review and referral management is competitive; understanding the unique edge against competitors is crucial.
Scalability Concerns
The business is relatively young. Expanding beyond the current niche may require considerable marketing efforts and potential customization of the software.
💸 Valuation
This SaaS is valued at around 5.4x profit. Comparatively, SaaS companies often trade at a wide range of multiples, commonly between 4x to 8x profit. Considering the niche focus and potential growth, this business is reasonably valued.
💼 Due Diligence Questions
Customer Acquisition Strategy: What are the current methods for attracting new clients, and what's the customer acquisition cost?
Retention Rates: What is the retention rate of current clients, and what strategies are in place to maintain these relationships? How has churn trended over time?
Competitive Positioning: How does the software stand against competitors, and what are the unique features or advantages?
Potential Legal Obligations: Are there any legal obligations or regulations that need to be adhered to, especially concerning user data?
Technical Aspects: What are the ongoing maintenance requirements, and is there a dedicated team for software updates and customer support?
Reviews: How do client reviews look for this product?
🚀 Growth Levers
Referral Program: Institute a referral program to encourage existing clients to refer their contacts.
Expand into New Sectors: Target different industries beyond insurance to grow the customer base.
Develop New Features: Continuous development of additional features or customization to meet the diverse needs of clients.
Strategic Partnerships: Building partnerships with industry leaders to leverage their network and enhance market penetration.
Invest in Marketing: Implementing a comprehensive marketing strategy to increase brand awareness and reach potential clients.
White Label: There may be an opportunity to white label this solution and offer it to marketing agencies.
🙋🏻♂️ The Buyer
SaaS Experience: A buyer with prior experience in running or managing a SaaS business to capitalize on existing momentum.
Interest in Reputation Management: Understanding the importance of online reviews and reputation in today's digital age.
Marketing: A buyer with a strong track record of growth and proven ability to market and sell a SaaS product.
💼 Online Service
Cloud-Based Business Solutions - Open to Offers
20+ year history
HQ in Midwest
IT Services, software services, and development solutions
8 employees
Revenue: $3.0M
EBITDA: $900k
Margin: 30%
Multiple: N/A
💬 Quick Take
This cloud-based business solutions company is a profitable business with a strong track record of growth. 60% of revenue is recurring with an 82% client retention rate. The company has a diverse offering of services, a healthy work backlog, and a sticky client base. The company is also led by a team of experienced and motivated professionals.
✅ What I Like
Diverse Service Offerings
With a range of services including CRM, ERP, and custom app development, the business has various streams for revenue.
Healthy Work Backlog
A consistent backlog of at least 800 hours since January 2022 reflects a robust demand for their services. The current backlog is 1,400 hours.
Effective Transition Plan
The CEO’s willingness to stay post-transaction assures continuity and may ease the transition process.
❓ Concerns
Customer Concentration
76% of revenue generated from the top 10 customers could be a significant risk if any of these clients are lost.
Slow Growth in New Segments
Though ERP is growing, it still constitutes only 14% of total revenue, with 74% of the workload coming from legacy offerings.
Potential Market Saturation
Being in a specialized sector, the company might face challenges in scaling beyond its current market.
💸 Valuation
Similar businesses in the cloud-based solutions market generally trade at 5-7x EBITDA, leading to a valuation range of $4.5 million to $6.3 million. Given the company's strong margins, diverse offerings, and healthy backlog, a valuation within this range would seem appropriate.
💼 Due Diligence Questions
Client Contracts: What are the details of contracts with top clients, and what is the renewal rate?
Intellectual Property: What intellectual property does the company own, and how is it protected?
Competitive Landscape: Who are the main competitors, and what distinguishes this company from them?
Growth Strategy: What are the plans to grow ERP and other new offerings?
Employee Retention: What are the retention strategies for key leaders and management staying post-transaction?
Backlog: Does the business need to hire additional personnel to address the backlog?
🚀 Growth Levers
Expand into New Markets: Exploring new geographical or industry markets could boost revenue.
Invest in Emerging Technologies: By focusing on new technological trends like AI, the company can stay ahead of the competition.
Enhance Marketing Efforts: Increased investment in marketing can attract new clients.
Strategic Partnerships: Building relationships with other technology providers might open new opportunities.
Implement Customer Success Programs: Ensuring customer satisfaction can increase retention and grow revenue from existing clients.
🙋🏻♂️ The Buyer
Technology-Oriented Focus: A buyer with experience in cloud-based services or a complementary technology sector.
Strategic Expansion Aim: A company looking to expand its existing portfolio and leverage synergies with current operations.
Cultural Fit: An organization that aligns with the company’s team-focused leadership approach and client-oriented values.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Cloud-Based Accounting Course - $1.9M
Based in Canada
8 employees
Revenue: $1.5M
EBITDA: $600k
Margin: 40%
Multiple: 3.17x
💬 Quick Take
This cloud-based accounting courseware business is a leader in its field, with a long-tenured customer base and a proprietary online platform. The business is well-positioned for growth, as consumer preferences shift from in-person to online learning. However, the rise of machine learning and AI may be disruptive to this business.
✅ What I Like
Strong Market Presence
Long-tenured relationships with prominent Canadian colleges make it a preferred choice for accounting courseware. This also provides a moat against competitors.
Highly Personalized Platform
The business has developed a proprietary online platform that enables a high degree of user personalization for both professors and students. The platform also includes online testing applications, making it easy for professors and institutions to deliver entire accounting courses without having to create additional proprietary materials.
Patented Tutorials
The proprietary platform with patented interactive tutorials offers unique value and a competitive edge.
Aligned with Market Trends
The business aligns with current shifts towards online learning, positioning it well for ongoing relevance.
Ready for Expansion
Built to allow integration with complementary online education providers, or expansion into adjacent markets.
❓ Concerns
Limited Geographical Reach
Concentration in Canadian colleges might restrict growth and exposes the business to localized market risks.
CAPEX
Ensuring the ongoing relevance of the proprietary platform and tutorials requires continuous investment in technology and content.
AI
With advancements in AI and machine learning, there's a growing trend of personalized, adaptive learning platforms that might outpace the current offerings of this business.
💸 Valuation
Compared with similar online education businesses, this 3.17x multiple falls within industry norms but is on the higher end. The valuation must consider the uniqueness of the offering, including patented technology and the potential for market expansion.
Further reading: Is ChatGPT a threat to high edtech company valuations?
💼 Due Diligence Questions
Customer Retention: What are the retention rates, and what strategies are in place to maintain long-term relationships with colleges? How long is the typical sales cycle?
Intellectual Property Details: Can you provide full details on patents and any other intellectual property associated with the courseware?
Competitive Landscape: Who are the major competitors, and how does the business differentiate itself?
Technology Infrastructure: What investments have been made in technology, and what is the roadmap for future development? How easy is the platform to maintain and update?
Expansion Strategies: What plans or strategies are in place for selling to adjacent markets like corporations or associations?
🚀 Growth Levers
Expand Geographically: Exploring opportunities in markets outside Canada could fuel growth.
Diversify Target Audience: Targeting corporations and associations, in addition to educational institutions, could broaden reach.
Develop Complementary Products: Creating related financial literacy products can enhance the existing offering.
Collaborate with Educational Publishers: Forming partnerships with other online education developers can extend content and reach.
🙋🏻♂️ The Buyer
Experienced in EdTech: A buyer with experience in educational technology, particularly in cloud-based solutions.
Interested in Content Expansion: A complimentary online education developer or publisher looking to extend content offerings.
Strategically Aligned: An organization aiming to capitalize on the growing trend of online learning and possesses the resources to explore adjacent markets.
Understanding of Canadian Market: A buyer familiar with the Canadian educational landscape and regulations.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Online Coaching & Professional Development - $6.7M
Launched in 2018
9 employees
200+ clients
Revenue: $3.3M
Profit: $2.0M
Margin: 61%
Multiple: 3.35x
💬 Quick Take
Online company that teaches clients how to grow their online coaching businesses organically. The company has averaged 100% year-over-year revenue growth over the past three years. However, there is a significant reliance on social media for revenue and lead generation that could present vulnerabilities in the face of advertising platform changes or market saturation.
✅ What I Like
Robust Growth
Averaging 100% year-over-year revenue growth, the company has demonstrated consistent success in attracting customers.
Diverse Service Levels
Offering various service levels and coaching categories, the business reaches a broad spectrum of clients, ensuring revenue stability.
Strong Community Focus
By fostering a collaborative atmosphere, the business promotes meaningful growth and client engagement, setting it apart from competitors.
Effective Marketing Strategies
Utilizing social media, email marketing, referral programs, and affiliate marketing, the company has built a powerful matrix for lead generation and client acquisition.
Well-Defined Processes
Precise SOPs and organized procedures make the business model replicable, easing the transition for a new owner.
❓ Concerns
Reliance on Social Media
With lead generation and revenue heavily driven by social media, changes in platform algorithms or policies could negatively impact the business.
Market Saturation Risk
The growing popularity of online coaching businesses may lead to market saturation, potentially affecting growth.
Potential Scalability Challenges
Managing further growth may require additional resources and more complex management, leading to potential challenges in maintaining quality and customer satisfaction.
Growth
Hockey-stick growth is typically not sustainable in a business.
💸 Valuation
When comparing similar businesses in the online coaching industry, the valuation is supported by a robust growth rate and an established client base. However, further analysis is required to understand the sustainability of recent growth and profitability. This will drive the appropriate valuation of this business.
💼 Due Diligence Questions
Customer Retention: What is the exact churn rate, and what strategies are in place to minimize it?
Revenue: What is the CLTV? What % of revenue is from new clients and existing clients?
Marketing Performance: How have different marketing channels performed over time, and what is the long-term sustainability of the current ad spend?
Intellectual Property: Are there any patents, copyrights, or trademarks associated with the business?
Competitive Landscape: What are the competitive threats in the market, and how does the business plan to maintain its edge?
Owner Transition: What is the owner's plan for long-term assistance to the buyer, and how will this be structured?
🚀 Growth Levers
Develop Additional Courses: Create new coaching modules to cater to emerging trends and needs in the coaching industry.
Enhance Affiliate Programs: Build more strategic partnerships to leverage mutual growth with other businesses.
Invest in Technology: Implement advanced technologies, such as AI, to enhance personalization and efficiency in coaching delivery.
🙋🏻♂️ The Buyer
Experienced in Online Coaching: Someone with a background in online coaching or similar industries.
Tech-Savvy: Ability to leverage the existing digital marketing strategy and possibly enhance it with technological innovations.
Growth-Oriented: A buyer aiming for aggressive growth, with the capital and resources to support expansion.
Community-Centric Approach: Alignment with the company's community-building values and integrity-driven business approach.
🏡 Main Street, Offline, Other
Aquarium in the Southeast - Open to Offers
Revenue: $3.3M
EBITDA: $801k
Margin: 24%
Multiple: N/A
💬 Quick Take
This one is too unique not to share. This Southern USA major aquarium serves as an evergreen family attraction in a bustling downtown area with impressive facilities that are close to new. The offering also includes a restaurant and multiple event venues. With an extremely low rent as part of an economic development deal and strong financials, it presents a unique opportunity. Concerns include the need for a skilled operator to maintain complex exhibits and potential fluctuations in tourism affecting revenue.
✅ What I Like
Well-Maintained Facilities
The facilities are close to new, including a walk-through tunnel with sharks and over 70,000 gallons of exhibits, signifying minimal immediate investment needs.
Favorable Lease Terms
With a multi-decade lease at just $100/mo, the rent offers a significant competitive advantage.
Multiple Revenue Channels
In addition to aquarium exhibits, the business includes a restaurant and multiple event venues, diversifying income streams.
Experienced Staff
An experienced management team is in place and will stay on. The current owner operates the business remotely.
❓ Concerns
Operational Complexity
Managing an aquarium with hundreds of species requires specific expertise and adherence to regulatory requirements. Maintenance costs have to be closely examined.
Tourism Dependence
Being in a popular tourist city, revenue may be subject to fluctuations in tourism, which can be unpredictable.
Post-Pandemic Recovery
Though rebounding, the effect of COVID on attendance and revenue may still linger in consumer behavior. The strong recovery reflected in financials may not be sustainable.
💸 Valuation
Here are a few examples of aquarium businesses that have been sold in recent years:
The Monterey Bay Aquarium in California was sold for $100 million in 2018 with revenue of $141M.
The Georgia Aquarium in Atlanta was sold for $70 million in 2015 with revenue of $102M.
The Shedd Aquarium in Chicago was sold for $50 million in 2012 with revenue of $71M.
💼 Due Diligence Questions
Lease Transferability: What are the specific terms and conditions for transferring the lease to the new owner?
Regulatory Compliance: Are there any pending regulatory or environmental issues or concerns with the exhibits?
Staff Retention: What are the agreements with the current on-staff experts, and how will their expertise be retained?
Customer Base Analysis: What percentage of revenue comes from tourists vs. local visitors, and how does this affect marketing strategy?
Maintenance Requirements: What is the ongoing maintenance schedule and costs for exhibits and facilities?
COVID Impact Analysis: Can you provide a detailed breakdown of how COVID restrictions affected revenue and what recovery strategies are in place? Excluding COVID, how does a normalized year look on the financials? How strong is the post-COVID recovery and is it sustainable?
🚀 Growth Levers
Enhanced Marketing: Building partnerships with local hotels and tourism boards to boost visitor numbers.
New Exhibits Expansion: Adding new exhibits or seasonal events to attract repeat visitors and enhance guest experience.
Catering and Events Growth: Expanding the existing restaurant and venue spaces for private functions, corporate events, and thematic nights.
Educational Programs: Creating educational programs for schools and colleges to enhance community engagement.
🙋🏻♂️ The Buyer
Experienced in Tourism: An owner with experience in the tourism or hospitality industry will understand market dynamics and customer needs.
Financially Stable: Sufficient capital to invest in ongoing maintenance and potential growth strategies.
Strategically Located: Ideally a buyer who understands the local market, either residing in or having business interests in the Southern USA region.
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⚒️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.
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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.
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