The Business Inquirer #137
An electric bicycle e-commerce business, an access management SaaS, and a FedEx route.
Hello Friends!
I am currently overseas on vacation.
This newsletter is written by guest editors Corey and Riley, two searchers looking for digitally native businesses <$2M in total transaction value. If you’re interested in networking, please reach out to corey@skyviewadvisory.com and riley@skyviewadvisory.com.
I am very grateful to Corey & Riley for their assistance with this newsletter.
In this week’s issue:
🛒 eCommerce - 1 listing
☁️ SaaS - 1 listing
🏡 Main Street - 1 listing
⚒️ Tools & Resources
💡 How I Can Help
This issue of The Business Inquirer is sponsored by Smash.vc
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🛒 eCommerce
Electric Bicycle eCommerce Business - $3.9m
Founded in 2018
Competitors: Rad Power Bikes, Trek, Specialized, Electra
Revenue: $2.5m
Profit: $820k
Margin: 33%
Multiple: 4.8x profit
💬 Quick Take
This profitable, fast-growing eBike eCommerce business sources bikes from Asia and resells them under various distribution channels. The relatively low multiples relative to growth and margins make this a good buy for a cash flow-oriented buyer or for someone who has experience taking eCommerce businesses to the next level.
✅ What I Like
Established brand: With 6 years of operating history and 10,000+ customers, the business has clearly established product-market fit and brand presence.
Strong distribution network: The business has multiple avenues for selling/distributing the product (regional agents, retail dealerships, physical stores, and online channels), meaning it is not dependent on one source of sales.
Referral opportunities: ~5% of sales come from customer referrals which demonstrates a high level of customer satisfaction and a sign of increasing brand recognition through word-of-mouth recommendations.
❓ Concerns
Competition: eBikes are currently very popular and large bike manufacturers (Trek, Specialized, etc.) have entered the space. It will be important for the buyer to understand what sets this business apart from others.
Replicability: Given the bikes are sourced from Asia and resold, the buyer should consider whether a new entrant could source from the same manufacturer and replicate the business.
💼 Due Diligence Questions
Uniqueness of product: What sets these bikes apart from competitors? Are there better features or is it purely cost-driven?
Sourcing and related costs: How much does it cost to buy the bikes from the Asian manufacturer? How did the founders find the manufacturer?
Distribution costs: How much does it cost to distribute/sell through the outlined channels? Are certain channels more profitable than others?
Referrals: Is the 5% of sales related to referrals increasing or decreasing over time? What is the company doing to incentivize referrals and is it a sustainable practice?
After-sales service requirements: What level of service is required for the bikes post-sale and is there recurring revenue resulting from this?
Subscription model: Can you elaborate on the subscription element of the business?
🚀 Growth Levers
Increased marketing: Improve brand recognition through increased marketing efforts (social media, content); potentially double down on the referral program to generate further sales.
Add further resellers and distributors: Expand the distribution channel to further resellers and partners; evaluate whether new partners can be added at a lower cost/better margin than existing partners.
Leverage distribution channels for other products: Offer additional sporting goods or eBike-related products through the existing distribution channels to increase sales
Chain stores: Begin selling through customer-focused retail locations; the seller believes this strategy will offer a hands-on experience, increase customer loyalty, and open up further revenue streams if accessories and services are offered.
🙋🏻♂️ The Buyer
Sports/outdoor enthusiast: This is a great opportunity for a buyer passionate about being active and helping others do the same
eCommerce operator: The best buyer may be a buyer who currently operates a sports and fitness eCommerce company and can leverage this business’s network to cross-market and increase sales.
☁️ SaaS
Privilege Access Software Provider - Open to Offers
Launched in 2019
Competitors: CyberArk, BeyondTrust, Delinea
Revenue: $616k
Profit: $317k
Margin: 51%
💬 Quick Take
This company represents a lower-cost alternative to leading businesses in the Privilege Access Management space. While the company has high margins and a strong history of growth (30% YoY), the buyer universe may be limited to investors with Cybersecurity experience given the technical nature of the industry.
✅ What I Like
Global scale: The business has customers globally, reflecting a large addressable market, and an ability to onboard customers easily.
Subscription length: Premium subscriptions are offered on a 1 and 3-year basis, mitigating the risk of churn and providing revenue stability.
Microsoft Business Partner: The company is a Microsoft Business Partner, potentially meaning higher marketplace visibility, collaboration opportunities, and access to unique resources depending on the level of partnership.
❓ Concerns
Technical proficiency: Given the constant updates and development required in the Cybersecurity and Privilege Access Management space, the buyer must likely have strong development skills or access to a knowledgeable network of contractors.
Large competitors: Some of the competitors listed are public and/or long-term operators. While the company has scaled quickly, these players may be difficult to capture market share due to their size, large development teams, and access to capital.
💼 Due Diligence Questions
Subscription lengths: Which subscription length (1 or 3 years) is the most popular? Do you see the average contract length increasing or decreasing over time?
Cancellation penalties: Is there any fee for customers on longer-term contracts who cancel? If there’s no penalty, this may erode some of the benefit of having 1-year+ contracts.
Microsoft Business Partnership: What type of partnership exists with Microsoft and what are the key benefits to the company?
Competitors: What aside from price sets this business apart from the larger players and how can the company capture long-term market share?
Development: How often must the product be updated and what does the development team look like? Are they willing to stay on post-sale?
Geographic mix of customers: Where are most of the customers located and where should the company focus on expansion?
Valuation: What is the range of values the seller is expecting? This will be important to determine as early as possible to avoid a mismatch between buyer and seller.
🚀 Growth Levers
Sales: Improve conversion rates by hiring an experienced B2B sales team.
New markets and geographies: Expand by offering the existing product in more locations based on market research and feedback from existing customers.
Pricing analysis: Determine when pricing was last updated and consider an increase; also consider whether to offer the free version and how to get customers to upgrade plans
Marketing initiatives: Focus on improving brand recognition vs. competitors through content marketing and social media marketing.
Product additions: Develop adjacent Cybersecurity products that can attract new customers and be cross-sold to existing customers.
🙋🏻♂️ The Buyer
Tech-savvy: The buyer should have significant experience developing Cybersecurity products or leading teams at Tech-intensive companies.
Marketing expert: Given the outlined growth strategies, the buyer is great at scaling businesses (ideally globally) using social media, content, and SEO marketing.
🏡 Main Street
6-Day FedEx Route Business - $1.33m
16 employees
Furniture, Fixtures & Equipment: $720k
Revenue: $1.7m
Cash flow: $375k
Margin: 23%
Multiple: 3.5x cash flow
💬 Quick Take
This profitable FedEx route provides a well-supported, turnkey operation with potential upside opportunity in the coming months given a forecasted 25% increase in volume due to FedEx integration of Express into Ground.
✅ What I Like
Turnkey acquisition: Full team in place including 2 managers supporting a semi-absentee-run business.
Ecommerce tailwinds: Revenues are driven by continued growth in ecommerce, which is expected to continue for the foreseeable future.
Strong partner: Fedex is a well-established company and brand that should continue to hold market share barring major disruption in the industry.
❓ Concerns
Cost of labor: Recent bump in UPS driver pay could lead to unrest of FedEx drivers, requiring a comparable pay bump.
Limited organic growth opportunities: While ecommerce growth should continue to improve the fundamentals of any given FedEx route, there are not many obvious growth levers to pull outside of capturing the new demand.
💼 Due Diligence Questions
Key contracts: Who are the key parties (Fedex, suppliers, customers) with whom the company has contracts in place; What are the key contract terms and lengths?
Employee satisfaction: Are the employees generally satisfied with the job? Have they made any noise about pay/benefits/working conditions?
Cost structure: What are the fixed/variable costs of the business? How large a % of the cost structure is labor?
Express integration into Ground: Are there any operational complexities that now arise to absorb the projected 25% increase in volume? How will a 25% increase in volume translate to the bottom line?
🚀 Growth Levers
Operational efficiencies: Look for areas to trim fat and optimize routes.
M&A: Use as a platform for further FedEx route acquisitions.
🙋🏻♂️ The Buyer
Experience in logistics: An ideal buyer should have prior experience working in the transportation or logistics space.
Roll-up entrepreneur: This would be a great acquisition for someone currently participating in or looking for a platform for a FedEx route roll-up.
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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