The Business Inquirer #162
Sharing a pool service & supply business in KY, an HVAC with multiple revenue streams, and an HR SaaS.
Hello Friends!
In this week’s issue:
☁️ SaaS - 1 listing
🏡 Main Street - 2 listings
⚒️ Tools & Resources
💡 How I Can Help
This issue of The Business Inquirer is sponsored by:
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☁️ SaaS
Employee Performance Management - $555k
Launched in 2014
26 customers
Revenue: $466k
Profit: $214k
Margin: 46%
Multiple: 2.6x
💬 Quick Take
This could be a good fit for someone in the HR space. This fully configurable and scalable employee performance management system presents a strong financial profile with a 46% profit margin and a reasonable valuation of 2.6x cash flow. However, reliance on a limited number of clients and potential market competition are areas that warrant caution.
✅ What I Like
Strong Profit Margins
The business maintains a healthy 46% profit margin, indicating efficient operational management and cost control.
Stable Customer Base
With 26 stable customers, the business demonstrates consistent revenue, which suggests reliable cash flow and lower risk of volatility.
Scalable Solution
The no-code platform allows for easy scaling, making it adaptable to growing customer needs without substantial increases in costs.
High Demand for HR Tech
As companies increasingly focus on performance and employee engagement, the demand for sophisticated HR technology solutions grows.
Low Overhead Costs
Limited physical assets and the digital nature of the product keep the operating costs manageable. Using low-code keeps the technology costs to a minimum.
❓ Concerns
Customer Concentration
Dependence on a relatively small number of customers increases risk if one or more decide to discontinue their service.
Competitive Market
The HR tech space is highly competitive, with frequent new entrants and innovations from existing companies.
Market Penetration
Expanding beyond the current customer base may require significant marketing and sales efforts/investment. This will negatively impact margins.
Adoption Resistance
Some organizations may resist adopting a new system due to change management challenges.
Economic Sensitivity
HR tech spending may be cut in economic downturns as businesses reduce expenses.
💼 Due Diligence Questions
Customer Retention Rates: What has been the annual retention rate for customers over the past three years?
Customer Acquisition Cost: What is the average cost to acquire a new customer?
Product Roadmap: Can you share the product development roadmap for the next 12-24 months?
Customer Support: What is the structure of the customer support team and service level agreements?
Technology Stack: What technologies are used in the product's development, and how future-proof are they?
Intellectual Property: What intellectual property rights does the company hold?
Employee Skills and Turnover: What are the qualifications of the team managing the platform? What is the turnover rate?
Client Testimonials: Can we review some case studies or testimonials from current customers?
🚀 Growth Levers
Enhance Product Features: Continuously updating the product to include new HR trends and technologies will keep it competitive.
Strategic Partnerships: Forming partnerships with larger HR consultancies or tech firms could provide new sales channels.
Marketing Campaigns: Implementing targeted digital marketing campaigns to raise brand awareness and generate leads.
Customer Success Team: Developing a dedicated customer success team to improve client onboarding and support.
Mobile Optimization: Expanding the product’s mobile capabilities to meet the growing demand for mobile-accessible HR tools.
Data Analytics Features: Incorporating advanced analytics and machine learning to provide deeper insights into employee performance.
Subscription Models: Offering varied pricing tiers and subscription models to cater to different sizes of businesses.
🙋🏻♂️ The Buyer
Tech-Savvy Entrepreneur: Ideal for buyers with a strong understanding of software and technology, especially within the HR tech space.
Experience in HR Management: Beneficial for someone with experience or connections in human resources to leverage industry insights.
Operational Expertise: Ability to manage and scale SaaS platforms while maintaining service quality.
🏡 Main Street
Pool Service & Supply in KY - $1.6M
Launched in 1976
Consistent revenue growth; Maintenance clients;
Revenue: $2.8M
Profit: $828k
Margin: 30%
Multiple: 1.93x
💬 Quick Take
This Kentucky-based swimming pool service & supply business exhibits a strong financial performance with a high cash flow margin and a reasonable asking price relative to its cash flow. What stands out is its well-established operation over 48 years and consistent revenue growth. However, the high COGS raises some concerns about cost efficiency and margins in the long term.
Fun Fact: The term “pool service near me” gets close to 50k Google searches per month…
✅ What I Like
Proven Longevity
Operating for nearly half a century, this business has demonstrated resilience and sustainability in the competitive pool service industry.
Steady Revenue Growth
With an average annual increase of $200K, the financial health appears robust, suggesting effective business strategies and market demand.
Strong Cash Flow
A ~30% net margin is impressive, underlining efficient management and a potentially lucrative acquisition.
Established Client Base
Over 75 maintenance contracts provide a recurring revenue stream, enhancing business stability.
Experienced Staff
A well-trained, tenured team ensures business continuity and reduces risks associated with staff turnover.
Systematic Operations
Proven systems and processes in place ensure the business runs smoothly and can scale effectively.
❓ Concerns
High COGS
Costs of Goods Sold represent 58% of revenue, which might limit profitability as the business scales.
Dependence on Few Clients
Although the client base is solid, overreliance on a limited number of maintenance contracts could pose risks if one or more clients are lost.
Economic Sensitivity & Seasonality
As a non-essential service, economic downturns could significantly impact revenue. In KY, this service may also be very seasonal in nature.
Staff Retention
Maintaining a skilled workforce in a specialized industry is critical and potentially challenging.
💼 Due Diligence Questions
Revenue Breakdown: What percentage of revenue comes from product sales versus service contracts? Is there any seasonality in the business?
Client Retention Rates: What are the historical client retention rates over the past five years?
Market Analysis: What is the competitive landscape in the current and potential new markets?
Staff Turnover: What has been the turnover rate among key staff in the past three years?
Technological Integration: How has the business integrated new technologies into its operations?
Customer Satisfaction: What are the results of any recent customer satisfaction surveys?
Supply Chain Reliability: How reliable are the supply chains for pool products and materials?
Real Estate Valuation: What is the appraisal value of the real estate being offered?
🚀 Growth Levers
Geographic Expansion: Explore entering neighboring regions to capture new market segments.
Enhanced Marketing: Develop a digital marketing strategy to reach a broader audience and increase brand visibility.
New Service Offerings: Introduce additional services such as eco-friendly pool solutions and advanced maintenance technologies.
Strategic Partnerships: Form alliances with home improvement and real estate businesses to cross-promote services.
Customer Loyalty Programs: Implement loyalty programs to enhance customer retention and increase lifetime value.
Staff Training Programs: Enhance employee skills and certifications to provide more specialized services.
E-commerce Integration: Launch an online store for pool supplies to complement the physical distribution.
🙋🏻♂️ The Buyer
Industry Experience: Ideally possesses experience in the pool or general maintenance services industry.
Operational Savvy: Capable of managing and optimizing well-established systems within the business.
Financially Prepared: Prepared for the initial investment and potential additional costs for real estate and operational upgrades.
Marketing Knowledge: Skilled in modern marketing strategies to enhance the visibility and reach of the business.
Customer-Centric: Focused on maintaining high customer satisfaction and service quality.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Commercial, Municipal, Industrial HVAC - $2.8M
Launched in 2000
Based in Rocky Mountains
Revenue: $2.1M
Profit: $1.0M
Margin: 47%
Multiple: 2.79x
💬 Quick Take
This HVAC business boasts a solid financial track record with a nearly 50% margin and a valuation of under 3x, suggesting a strong earning potential relative to its asking price. What stands out is its diversified client base across multiple sectors, reducing dependency on any single market. However, concerns include the limited employee base and reliance on organic growth strategies, which might limit scalability under the current model.
✅ What I Like
Diversified Clientele
The company's client base spans commercial, industrial, and municipal sectors, mitigating risk by reducing reliance on a single customer segment.
Strong Financial Health
With a 47% margin and stable gross sales projections, the financial health of this business appears robust.
Reputation and Longevity
Over 20 years of high ratings underscore a strong market position and customer trust.
Low Customer Concentration Risk
No customer accounts for more than 10% of revenue, reducing the risk associated with losing a single client.
❓ Concerns
Employee Dependence
The business heavily relies on a small team, making it vulnerable to turnover risks.
Organic Growth Limitations
Reliance primarily on organic growth and referrals might restrict rapid scaling opportunities.
Market Saturation
Potential saturation in the regional market could limit new client acquisition.
Economic Sensitivity
Fluctuations in industrial and commercial construction markets could affect demand.
💼 Due Diligence Questions
Customer Retention Rates: What are the historical customer retention rates, and what strategies are in place to maintain these?
Employee Retention: What are the current employee turnover rates, and what measures are taken to ensure staff retention?
Contractual Obligations: What long-term contracts are in place with clients, and what are their terms?
Technology Integration: What is the current state of technology integration in operational processes?
Market Analysis: What market research has been conducted, and what does it indicate about potential growth?
Vendor Dependencies: Are there any critical dependencies on specific vendors or suppliers?
Property Assessment: Is there a recent assessment of the physical property, and what are the future capital expenditure requirements?
Client Acquisition Strategies: What strategies are in place for acquiring new clients, and how effective have they been historically?
🚀 Growth Levers
Technological Advancements: Investing in the latest HVAC technologies to enhance service offerings and operational efficiency.
Marketing Expansion: Developing a comprehensive digital marketing strategy to reach broader markets.
Strategic Partnerships: Forming partnerships with construction firms and real estate developers to tap into new customer segments.
Service Diversification: Expanding services to include energy efficiency consulting and retrofitting.
Geographical Expansion: Extending service areas beyond the current regional focus to include neighboring regions.
Training Programs: Implementing ongoing training programs to enhance employee skills and service quality.
Customer Loyalty Programs: Introducing customer loyalty programs to boost repeat business and referrals.
E-commerce Integration: Developing an online platform for scheduling and customer management.
🙋🏻♂️ The Buyer
Industry Experience Required: Ideally possesses experience in the HVAC or a related industry to navigate sector-specific challenges.
Operational Expertise: Should have a background in managing and optimizing small to mid-sized teams.
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.
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