The Business Inquirer #134
A digital marketing agency for EDM musicians, an owner-operated IT support business with 49% margins, and a pool service business in Florida.
Hello Friends!
PSA: My wife and I are going on our dream vacation to Japan at the end of the month. During this time, I think I’ll have to pause the newsletter as we explore the Land of the Rising Sun.
If you have any must-see recommendations for Japan, I'd love to hear them.
Additionally, if you're interested in guest-editing this newsletter for the three weeks (~6 issues) I'll be away, feel free to get in touch.
In this week’s issue:
💼 Online Service - 1 listing
🏡 Main Street - 2 listings
⚒️ Tools & Resources
💡 How I Can Help
This issue of The Business Inquirer is sponsored by Smash.vc
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💼 Online Service
Digital Marketing Agency for EDM Musicians - $221k
Launched in 2017
13 retainer clients
Revenue: $121k
Profit: $91k
Margin: 75%
Multiple: 2.43x
💬 Quick Take
A niche business perfect for enthusiasts of electronic dance music (EDM), this 6-year-old agency excels in social media, PR, and branding within the electronic music industry. Built on organic growth, the business boasts a strong reputation and serves a varied clientele, from up-and-coming artists to established stars. However, its seasonal demand, owner-centric operations, and small team size may present scalability challenges.
✅ What I Like
Niche Focus
The agency has carved out a niche in the electronic music industry, providing specialized services. There are riches in niches.
Organic Growth
Word-of-mouth and organic search have been the primary drivers for client acquisition, indicating a strong reputation and minimal marketing costs.
Comprehensive Service Offering
From social media management to PR and branding, the agency offers a one-stop shop for artists at various career stages.
Streamlined Operations
Extensive SOPs and a willing mentor in the current owner make for a smooth transition for the new buyer.
❓ Concerns
Seasonal Demand
The business sees most of its demand during the summer, potentially leading to cash flow issues in off-seasons.
Small Team
With only four contracted freelancers, the business may face challenges in scaling quickly. This is a challenge with most agency businesses.
Limited Marketing
While organic growth is a strength, lacking a diversified marketing strategy could be a vulnerability. There may not be sufficient revenue to invest in paid marketing channels.
Owner-Dependent
The current owner spends 25 hours a week on strategy and client meetings, which could be a transition challenge.
💼 Due Diligence Questions
Client Retention: What is the average client retention rate?
Employee Contracts: Are the freelancers under any long-term contracts?
Client Contracts: Are there any long-term contracts with clients that guarantee revenue?
SEO Strategy: What specific SEO strategies have been implemented?
Competitive Landscape: Who are the main competitors and what market share does the agency hold?
Post-Sale Support: What level of post-sale support is the current owner willing to provide?
🚀 Growth Levers
Paid Advertising: Introduce paid advertising strategies to complement organic growth.
Expand Services: Offer additional services like event management or merchandise branding to existing clients.
Partnerships: Form strategic partnerships with record labels or music platforms to offer bundled services.
Subscription Model: Introduce a subscription-based model for continuous revenue.
🙋🏻♂️ The Buyer
Marketing Savvy: A buyer with a strong background in marketing and advertising would be ideal.
Industry Knowledge: Familiarity with the music industry, particularly electronic music, would be beneficial.
Resource Availability: Access to a larger team or network to help with scalability.
Feel free to reach out to our team at DueDilio, where we can assist you in assembling a top-notch M&A deal team specialized in this sector.
🏡 Main Street
IT Support & Services in Central Ohio - $400k
Based in Columbus, OH
Single-owner operated
Revenue: $787k
Profit: $386k
Margin: 49%
Multiple: 1.04x
💬 Quick Take
Ideal IT business for those seeking an exit from the corporate treadmill, this single-owner operation in Columbus, OH offers robust financials and a seemingly reasonable valuation. However, its focus on a specific geographical area and the owner-operated structure could present some challenges.
✅ What I Like
Diverse Service Offering
The company provides a full suite of IT services, from network cabling to disaster recovery, making it a one-stop shop for SMBs.
Strong Financials
With a profit of $386k on a gross revenue of $787k, the business shows strong financials and it well-priced at $400k. I believe there’s enough profit for the new owner to bring in an operator.
Business Automation
The company offers business automation solutions, a growing market segment with high demand.
Out-of-State Presence
While primarily serving Central Ohio, the business has some clients out-of-state, indicating potential for geographical expansion.
❓ Concerns
Geographical Concentration
Most clients are located in Central Ohio, which could be a risk if local market conditions deteriorate.
Owner-Operated
Being a single-owner operation, the transition and scalability could be challenging without additional management.
💼 Due Diligence Questions
Client Contracts: Are there long-term contracts in place with key clients?
Employee Details: Are there any employees or is it solely owner-operated?
Customer Churn Rate: What is the customer retention and churn rate?
Marketing Strategies: What marketing channels are currently being used?
Intellectual Property: Does the company own any proprietary software or processes?
Competitive Landscape: Who are the main competitors in Central Ohio? What is the TAM of this market?
🚀 Growth Levers
Digital Marketing: Implement a comprehensive digital marketing strategy to attract new clients.
Service Expansion: Introduce cloud services or cybersecurity solutions to complement existing offerings.
Geographical Expansion: Target businesses in neighboring states to diversify the client base.
Partnerships: Form alliances with software vendors to offer bundled services.
Subscription Model: Introduce a subscription-based model for continuous and predictable revenue.
🙋🏻♂️ The Buyer
Technical Expertise: A buyer with a strong background in IT and network solutions would be ideal.
Customer Service Focus: Given the company's reputation for white-glove service, a buyer should prioritize customer satisfaction.
Growth Mindset: A buyer who sees the potential for service and geographical expansion.
Feel free to reach out to our team at DueDilio, where we can assist you in assembling a top-notch M&A deal team specialized in this sector.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Pool Renovation, Leak Detection & Equipment Repair Business in FL - $975k
Launched in 2005
Serves Sarasota and Manatee County
5 FT employees; Owner retiring;
Revenue: $1.8M
Profit: $538k
Margin: 30%
Multiple: 1.81x
💬 Quick Take
Impressive business with services that enjoy year-round demand in the Florida market. Built on a strong reputation and organic growth, the company has experienced a +37% YoY revenue increase. The valuation appears attractive at a first look. However, it's unclear whether the business has a recurring revenue model or relies solely on one-time projects. The impact of natural disasters is another thing to consider.
✅ What I Like
Strong Financials
With a gross revenue of $1.8M and a profit of $538k, the business is financially stable and well-priced at 1.8x profit. There’s enough profit to bring in an operator.
Loyal Customer Base
Built primarily through word-of-mouth and referrals, the business has a large, satisfied, and loyal customer base.
❓ Concerns
Geographical Concentration
The business is focused on Manatee & Sarasota Counties, which could be a risk if local market conditions deteriorate. There’s also a risk from natural disasters such as hurricanes.
Market Saturation
While competition may be currently limited, the fast-growing market could attract new competitors.
Lack of Recurring Revenue
Not clear if there is any recurring revenue in this business.
💼 Due Diligence Questions
Client Contracts: Are there long-term service contracts in place with key clients?
Employee Details: What are the roles and responsibilities of the five full-time employees?
Customer Churn Rate: What is the customer retention and churn rate?
Competitive Landscape: Who are the main competitors in the area? What is the TAM?
Equipment Condition: What is the condition of the $81k worth of equipment?
🚀 Growth Levers
Digital Marketing: Implement a comprehensive digital marketing strategy to attract new clients.
Service Expansion: Introduce additional services like pool cleaning, automation, or energy-efficient solutions.
Geographical Expansion: Target neighboring counties to diversify the client base.
Partnerships: Form alliances with pool construction companies to offer bundled services.
Subscription Model: Introduce a subscription-based model for maintenance and repair services.
🙋🏻♂️ The Buyer
Industry Experience: A buyer with a background in pool services or similar industries would be ideal.
Management Skills: Given the owner-operated nature, strong management skills are essential for a smooth transition.
Feel free to reach out to our team at DueDilio, where we can assist you in assembling a top-notch M&A deal team specialized in this sector.
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 small businesses ($500k - $10m revenue) considering exits. All deals are sourced by the Rejigg team. Their team adds 7-10 new deals each week.
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.
Smash.vc - Whether you're looking to sell minority stakes in your business to take some chips off the table, looking for a partner to acquire an asset, or needing capital to complete an SBA deal, we'd love to chat with you.
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
Whenever you’re ready, here are a few ways for us to work together…
Schedule 1:1 consulting on deal sourcing, due diligence, M&A ecosystem, newsletters, entrepreneurship, or anything else you’d like to discuss
Promote your brand to business buyers, investors, SMB owners, and other M&A participants by sponsoring this newsletter
Access or share deal flow with your peers through Deal Flow Scout
Assemble your M&A deal team with DueDilio.
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