The Business Inquirer #130
Sharing two niche SaaS with 69% and 90% margin, 43k strong community of IT PMs, an essential service business in Miami, and a 41 year-old landscaping biz in TX.
Hello Friends!
In this week’s issue:
☁️ SaaS - 2 listings
💼 Online Service - 1 listing
🏡 Main Street - 2 listings
⚒️ Tools & Resources
💡 How I Can Help
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☁️ SaaS
Cloud-based API for content publishers, creators, and distributors to automate publishing - $500k
Launched in 2023
Bootstrapped; 2 founders;
Revenue: $144k
Profit: $133k
Margin: 90%
Multiple: 3.85x
💬 Quick Take
Very profitable SaaS business provides a straightforward cloud-based API for content automation, representing a niche but promising market. However, the business is very young and may face challenges in market penetration and technology risks.
✅ What I Like
Strong Profit Margin
The business enjoys an exceptionally high profit margin of ~90%.
Unique Offering
The platform’s cloud-based API automation distinguishes it from competitors and fulfills a clear market need. I imagine the product is very sticky with their clients.
Competitive Pricing Models
Offering three pricing models starting at $490/month provides flexibility and could attract different segments of content creators. The nearest competitor is priced at $9k/month.
Untapped Market Opportunity:
The lack of direct competitors in the space with similar features may present a significant opportunity. There’s a very large TAM.
❓ Concerns
Operating History
The business was launched only 8 months ago. There may not be sufficient financial or operational data to be comfortable with the long-term prospects of this business.
Investment
The business will require significant investment in technology and marketing in order for it to grow.
💼 Due Diligence Questions
Customer Acquisition Strategy: How will the business reach and engage the target market of content creators?
Technology Roadmap: What are the future plans for technological innovation and staying ahead of competitors?
Churn Rate: What is the customer retention rate, and how is churn being addressed?
Marketing and Sales Channels: What channels are being utilized for marketing, and how effective are they?
Seller: Why are the owners selling this business just 8 months after launching it? What is their day-to-day role? Who handles customer support?
🚀 Growth Levers
Expand Marketing Efforts: Investing in both organic and paid marketing to increase brand awareness.
Partnerships with Content Platforms: Forming partnerships with platforms like YouTube could facilitate customer acquisition.
Develop Additional Features: Adding complementary features could enhance the product's value proposition.
Explore Different Market Segments: Targeting various content creator segments or industries could diversify the client base.
🙋🏻♂️ The Buyer
Tech-Savvy Entrepreneur: Someone with a technological background would understand and leverage the product's capabilities.
Content Industry Participant: An existing player in the content creation or publishing industry could benefit from this specialized tool.
Strategic Acquirer with Similar Products: A company with complementary products could leverage synergies.
Investor with SaaS Experience: An investor with experience in growing SaaS businesses might see this as a valuable portfolio addition.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
7-Year-Old Stripe Connect Membership Platform SaaS - $350k
Launched in 2016
256 clients; $600 CLTV;
$7.4k MRR; 3.1% churn;
Revenue: $143k
Profit: $98k
Margin: 69%
Multiple: 3.57x
💬 Quick Take
Niche SaaS that may be a good opportunity for someone with a marketing background. With solid recurring revenue and integration with Weebly and Stripe, it showcases growth potential.
✅ What I Like
Niche
I like businesses that focus on a very narrow niche. Helping content creators build a membership business is a solid area of focus. Niche but has a big TAM.
Technology
The app is built using Ruby on Rails which is a very popular framework. Easy to maintain and hire support.
Diverse Payment Support
Integration with Stripe and support for multiple payment options give flexibility to users.
❓ Concerns
Dependency on Weebly
Most users are on the Weebly app, which may lead to platform risk.
Seller’s Lack of Interest
The current owner's disinterest might have impacted innovation and growth. The new owner will need to test acquisition channels and may need to update the tech stack.
Churn Rate
A monthly churn rate of 3.1% needs to be examined for potential underlying issues.
💼 Due Diligence Questions
Churn Analysis: What are the main reasons for the 3.1% monthly churn rate?
Technology Stack: How scalable is the Ruby on Rails architecture for future growth?
Marketing Strategy: What marketing channels have been tried, and what are the results?
Competitor Landscape: Who are the main competitors, and what differentiates this platform?
🚀 Growth Levers
Expand Marketing Efforts: Investing in SEO, social media, and PPC could significantly boost growth.
Listing on Stripe Marketplace: Leverage the Stripe connection for listing and promotion on the Stripe marketplace.
Pricing Experimentation: Experimenting with various pricing models could attract different customer segments.
Develop New Features: Expanding the feature set could attract new market segments and increase user stickiness.
🙋🏻♂️ The Buyer
SaaS Savvy Entrepreneur: Someone with experience in SaaS who can leverage existing assets.
Digital Marketing Expert: A buyer with digital marketing skills could unlock substantial growth.
Stripe Platform Enthusiast: An entrepreneur with an interest in Stripe-based solutions can capitalize on the existing relationship.
Membership Platform Seeker: A buyer seeking a specific entry into the membership platform space.
💼 Online Service, Media, Marketplace
Community and conference series for IT product managers and leaders - $5M
Launched in 2015
3-person team; 43k community members;
Revenue from tickets, sponsorships, and training
Operates in US and Europe
Revenue: $1.5M
Profit: $347k
Margin: 23%
Multiple: 14.41x
💬 Quick Take
This business is a profitable, community and conference series for software/technology Product Managers and Product Leaders with a strong track record of growth. The business has a loyal community of attendees and sponsors, and it is well-positioned to capitalize on the growing demand for product management skills. The business has a lot of moving parts and is not for a first-time acquirer. The valuation and the current over-reliance on owned marketing channels pose some risks.
✅ What I Like
Multiple Revenue Streams
With conference ticket sales, sponsorships, newsletters, webinars, and virtual training/coaching, the business has diversified income sources.
Strong YoY Growth
A 56% increase in revenue YoY signifies a healthy, growing business.
Repeat Sponsorship Revenue
30% of total revenue coming from longtime sponsors adds stability and confidence in the brand.
Growth Opportunities
Expansion in the US and Europe and investments in events signal the potential for further growth. The market for product management skills is growing rapidly, and the business is well-positioned to capitalize on this growth.
❓ Concerns
Valuation
The $5M asking price is very steep compared to the $347k TTM profit. Have to see clear growth opportunity to justify the valuation. A strategic acquirer may be the best fit here.
Unproven Paid Marketing Efforts
While there are growth opportunities in paid marketing, they remain largely unexplored, take a lot of investment, and can be risky.
Integration of New Acquisitions
The business has acquired additional conferences, but the successful integration and growth of these events need to be assessed.
💼 Due Diligence Questions
Detailed Financials: Can we have a detailed breakdown of the revenue and profit margins for different segments of the business?
Marketing Strategy: What are the future plans for expanding beyond owned and earned SEO marketing?
Competitor Analysis: How does the business compare to competitors who have raised capital or been acquired?
Event Expansion Strategy: How are the investments in additional conferences in the US and Europe planned?
Community Engagement Metrics: How engaged is the community, and what are the retention strategies?
Details of Sponsorship Contracts: What are the terms and conditions of the recurring sponsorships?
Personnel: What do the owners focus on day-to-day? Is there a team in place to manage the business? How easy is it to hire?
Seasonality: Is there any seasonality in the business?
🚀 Growth Levers
Expand Paid Marketing: Invest in paid marketing to broaden the reach and increase growth.
Increase Virtual Offerings: Extend virtual training/coaching and conferences to tap into wider audiences.
Leverage Partnerships: Create partnerships with other technology companies or educational institutions.
Content Enhancement: Utilize content marketing to engage the community and attract new members.
🙋🏻♂️ The Buyer
Industry Expert: A buyer familiar with the technology and product management space.
Marketing-Focused Investor: An investor who can leverage marketing strategies to expand the business.
Conference and Event Organizer: A buyer with experience in managing and scaling conferences and events.
Educational or Corporate Entity: An educational institution or corporation that could integrate this platform with their existing offerings.
🏡 Main Street, Offline, Other
41 Year Old Landscaping Business in South Texas - $5M
Launched in 1982
45 employees; Opportunity for roll-up;
Seller open to carry, earn out, or rollover equity
Revenue: $4.6M
Profit: $1.1M
Margin: 24%
Multiple: 4.55x
💬 Quick Take
Established commercial landscaping business with a strong reputation in design-build and irrigation services. Experienced team in place with recurring revenue from long-term clients. However, the heavy reliance on project-based revenue (not maintenance) poses a challenge.
✅ What I Like
Long-standing Reputation
Founded in 1982, the company has built a strong presence in the market and is known for quality.
Diverse Services
By revenue, 64% Landscaping, 28% Irrigation, 6% Maintenance, 2% Service; offering broad capabilities.
Repeat Business
84% of revenue in 2022 comes from customers who worked with the company in 2018-2021; high retention.
Solid Leadership Team
Includes owner, CFO, operations manager, and team leads; contributes to business stability. Current owner willing to stay on in a consulting capacity.
❓ Concerns
Limited Maintenance Work
Focused more on project work rather than ongoing maintenance; could affect recurring revenue.
Dependency on Local Market
Mainly serves the Rio Grande Valley; economic fluctuations in the region may impact business. The focus on new installations may also limit the TAM.
Property Ownership
Office is owned by a related party; lease or purchase must be negotiated with the new ownership.
Owner Dependence
The owner may be heavily involved in the day-to-day operations of the business and has chosen to focus on design-build work. Keeping them on may present complications if new ownership steers the business to other project areas.
💼 Due Diligence Questions
Client Contracts Analysis: What are the terms and conditions of the existing client contracts? Is there any seasonality?
Maintenance Strategy: What were the reasons behind the decision to limit contracted maintenance work?
Employee Retention: What are the plans for retaining the current leadership and team post-acquisition?
Property Ownership: What are the specific details of the leasing or purchasing of the current facilities?
Future Growth Opportunities: Are there identified prospects for further acquisitions or expansion into new markets?
Competitor Analysis: How does the company compare to regional competitors in terms of quality and pricing?
Equipment: How doe the equipment look and has it been properly maintained?
Owner: Is there any key-person risk? What are the day-to-day functions of the owner?
🚀 Growth Levers
Expand Maintenance Services: Building a strong maintenance division can create ongoing revenue streams.
Strategic Acquisitions: Identifying and acquiring compatible businesses to bolster the company’s reach and services.
Geographical Expansion: Explore opportunities in neighboring regions.
Leverage In-house Nursery: Expanding nursery offerings to other commercial clients or retail could add a revenue channel.
Invest in Marketing: A renewed focus on marketing and branding could attract new clients and further differentiate the company.
🙋🏻♂️ The Buyer
Landscaping Expertise: Someone with a background in landscaping or who operates a similar platform.
Local Hands-on Operator: An individual who will live nearby and operate the business full-time.
Experienced Investor: An investor with a track record in growing organizations, preferably with industry knowledge.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Installation and Service of Anti-Fire Sprinklers in Miami, FL - $1.5M
Launched in 2013
Turnkey business; 9 employees;
Revenue: $1.6M
Profit: $501k
Margin: 31%
Multiple: 2.99x
💬 Quick Take
An essential business in any city. This one has a lot of operating history and a strong reputation. Above average margins, a growing market, and a reasonable valuation make this an interesting opportunity. However, potential challenges in industry regulations, equipment maintenance, and dependency on a skilled workforce need careful consideration.
✅ What I Like
Proven Industry Experience
With over 25 years of experience, the company has established itself as a reputable player, offering specialized services compliant with industry standards.
Diverse Service Offerings
The company's extensive range of services, including inspections, tests, and installations, enables it to cater to different market segments.
Strong Margins
The typical industry margin is around 20% making the 31% margin of this business appealing.
Turnkey Operation
Current staff retention ensures a smooth transition, maintaining business continuity. Includes five specialized trucks and a warehouse comprising an office, storage space, and repair shop.
❓ Concerns
Regulatory Compliance Risks
The ever-changing regulatory landscape requires constant alignment with NFPA and local codes, posing a compliance risk.
Dependence on Skilled Workforce
Retaining skilled staff is crucial for maintaining service quality and may be challenging in competitive labor markets.
Equipment Maintenance
The specialized nature of the equipment necessitates regular maintenance and potential upgrades, incurring costs.
Market Competition
The industry may face intense competition, and differentiating services will be key to maintaining market share.
💼 Due Diligence Questions
Client Retention Rate: What is the client retention rate, and how does the business maintain relationships with existing clients?
Legal and Regulatory Compliance: Are there any pending legal or regulatory issues, and how does the company ensure ongoing compliance with NFPA and local codes?
Supplier and Customer Contracts: What are the details of existing contracts with suppliers and customers, and what terms may influence future business operations?
Equipment Maintenance and Replacement: How is the specialized equipment maintained, and what is the replacement plan to ensure uninterrupted service delivery?
Market Share and Competitive Positioning: What is the current market share, competitive positioning in the region, and strategies to maintain or enhance the company's status?
Employee Retention and Training: What strategies are in place for employee retention and training to maintain a skilled workforce?
🚀 Growth Levers
Expand Geographically: Target new regions or cities to grow the customer base.
Offer Additional Services: Introduce related fire safety services to diversify revenue streams.
Invest in Technology: Utilize modern technologies for efficient service management and customer engagement.
Build Partnerships: Collaborate with construction firms, property managers, or insurance companies for bundled service offerings.
Strengthen Marketing: Increase marketing efforts, especially digital, to enhance brand awareness and attract new customers.
🙋🏻♂️ The Buyer
Industry Expertise: Someone with experience in fire protection or related industries.
Entrepreneurial Spirit: An individual who sees potential for growth and is ready to invest in expanding services.
Investment Capacity: A buyer capable of maintaining and potentially upgrading the existing infrastructure.
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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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