The Business Inquirer #170
Sharing a pool and hardscaping business, a custom cabinet manufacturer, a CNC shop in the auto sector, a social media management firm for SMBs, Bubble plugins, and a marketing tool for RE agents.
Hello Friends!
In this week’s issue:
☁️ SaaS - 2 listings
💼 Online Service - 1 listing
🏡 Main Street - 3 listings
⚒️ Tools & Resources
💡 How I Can Help
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☁️ SaaS
Marketing Tool for Real Estate Agents - $1.3M
Launched in 2012
Serves real estate agents and firms
Revenue: $388k
Profit: $266k
Margin: 72%
Multiple: 3.35x
💬 Quick Take
This SaaS business provides scalable marketing tools for real estate professionals, boasting a 72% profit margin and strong growth rate. The enterprise clients show stickiness due to custom services and complex setups that would be difficult to replicate elsewhere. While the growth potential is evident, scaling will require active marketing and potentially a more dedicated sales team.
✅ What I Like
Strong Profit Margins: A 72% profit margin demonstrates efficient operations and high profitability potential.
Sticky Enterprise Clients: Eight well-known enterprise clients with MRR from $300 to $11,000 showcase high retention due to custom solutions that would be hard to switch from.
Scalable Platform: The product is built to scale, providing a wide array of marketing tools for both individual agents and large enterprises, appealing to different customer segments.
Proven Track Record: The platform has over 12 years of history and $4.5M+ in lifetime revenue, indicating product-market fit and long-term stability.
Low Overhead: With a small team of 2-20 people, the business is run efficiently, keeping costs manageable and leaving room for high profitability.
High Customer Lifetime Value: Enterprise customers are unlikely to leave due to the complex setup of custom services and templates, ensuring long-term revenue stability.
❓ Concerns
Reliance on Key Clients: A significant portion of the revenue comes from a few large enterprise clients. Losing one or more of these clients could negatively impact cash flow.
Limited Marketing Efforts: Current growth is reliant on organic measures. More proactive marketing (digital and sales) will be needed to scale.
Enterprise Client Churn Risk: While enterprise clients are sticky, the cost of losing even one could impact revenue significantly.
Slow Customer Acquisition: The current business model is likely dependent on high-touch sales for enterprise clients, which may slow down growth without a dedicated sales team.
Tech Stack Complexity: The platform’s reliance on multiple technologies may require more advanced developer knowledge, potentially increasing operational costs.
Growth Plateau: The business will likely need significant new resources (staff, capital) to reach the next level of growth.
Future AI Integration Challenges: While AI could add value, implementing it successfully may be challenging without the right development expertise and resources.
💼 Due Diligence Questions
Client Churn Rate: What is the current churn rate for both enterprise and agent clients, and what measures are in place to reduce it?
Key Personnel: Who are the key employees, and how dependent is the business on them for day-to-day operations?
Customer Acquisition Costs: How much does it currently cost to acquire a new enterprise client or agent, and what is the customer lifetime value?
Enterprise Contract Terms: What are the contract lengths and renewal rates for enterprise clients?
Technology Ownership: Are there any third-party licensing or technology use agreements that could impact future scalability or costs?
Revenue Breakdown: What percentage of revenue comes from enterprise clients versus self-service agents?
AI Development Roadmap: How feasible is the AI integration plan, and what investment would be needed to implement it successfully?
Sales Strategy: Is there a formal sales strategy or dedicated sales team for enterprise clients, and if not, what is the plan to scale this side of the business?
Platform Vulnerabilities: Are there any known security or technology vulnerabilities that could pose a risk to the business?
Current Growth Strategy: What initiatives are currently in place to grow the platform, and how effective have they been so far?
🚀 Growth Levers
Increase Content Marketing: Implementing a content marketing strategy focused on SEO and educating potential clients about the platform could drive inbound leads.
Expand to New Markets: Target adjacent industries such as commercial real estate or other high-value sectors with similar needs for scalable marketing tools.
Launch a Sales Team: Hiring a dedicated sales team to focus on enterprise accounts could significantly accelerate customer acquisition and revenue growth.
Enhance AI Capabilities: Fast-track the integration of generative AI to automate more aspects of the marketing process, enhancing the platform’s value proposition.
Improve Conversion Rates: Optimize the user experience on the website to increase conversion rates from free trials to paid subscriptions.
Introduce Tiered Pricing: Implementing additional pricing tiers or packages for larger enterprises could drive up average revenue per user (ARPU).
Boost Social Media Marketing: A focused effort on social media, targeting both agents and enterprise clients, could expand brand awareness and lead generation.
Focus on Client Referrals: Leverage existing enterprise clients to provide referrals or testimonials, encouraging their network to join the platform.
Partnership Opportunities: Form partnerships with complementary platforms or businesses in the real estate sector to co-market the solution.
AI-Powered Marketing Automation: Incorporate AI-driven features such as predictive analytics to help agents and brokerages optimize their campaigns.
🙋🏻♂️ The Buyer
Experience in SaaS: The ideal buyer should have a solid understanding of SaaS business models, particularly within the B2B space.
Real Estate Industry Insight: A buyer with experience in or connections to the real estate industry will better understand the needs and pain points of the target audience.
Marketing Expertise: This business will benefit from an owner who can drive a strategic, multi-channel marketing plan to accelerate growth.
Sales Leadership Skills: Experience building and managing a sales team, especially one focused on enterprise clients, would be crucial for scaling revenue.
Technology-Savvy: A buyer with technical acumen will be better positioned to oversee AI integration and platform development.
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Bubble Plugins - $520k
Launched in 2020
Revenue: $117k
Profit: $116k
Margin: 99%
Multiple: 4.5x
💬 Quick Take
This business offers a compelling opportunity for someone seeking a lean, highly profitable SaaS product. With nearly 100% gross margins, minimal operational time commitment (about an hour a week), and recurring revenue streams, it’s an ideal passive income play. However, growth may be limited to the Bubble.io ecosystem, and there's a dependency on the platform’s continued popularity. Also, pricing increases or aggressive marketing could significantly boost profitability, though competition within the plugin space might apply some pressure on future growth.
✅ What I Like
High recurring revenue: Approximately 80% of revenue comes from recurring subscriptions, ensuring a steady and predictable income stream.
Near-100% gross margin: With almost no overhead, the business is highly profitable, allowing most revenue to flow directly to the bottom line.
Minimal time commitment: The owner currently spends just one hour per week managing the business, making it an attractive option for a passive or part-time owner.
Scalable business model: The SaaS model with subscription-based pricing allows for easy scaling with minimal additional costs.
Established customer base: Over 70,000 plugin installs and 1,200 paid customers demonstrate strong product-market fit and brand loyalty.
Growth potential with focus: The business has grown both actively and passively, meaning that a buyer who focuses on sales and development could further increase revenue.
Strong community presence: The business has a good reputation in the Bubble.io community, with high plugin search rankings and solid reviews.
Low acquisition cost: With the brand’s established position, customer acquisition costs are lower than they would be for a new entrant.
❓ Concerns
Dependency on Bubble.io: The business is reliant on the Bubble.io platform. Changes to the platform or its user base could significantly impact the business.
Highly competitive market: Other developers within the Bubble.io marketplace may create competitive pressure, potentially affecting pricing power.
Owner-driven growth: The historical growth spurts were tied to the owner's focus; a less engaged owner might see stagnation or decline.
Low revenue per customer: With subscription prices ranging from $4 to $9 per month, the business relies on volume rather than high-ticket sales.
Pricing sensitivity: Significant price increases could risk losing lower-paying customers, especially if competitors offer similar plugins at lower prices.
Platform risk: If Bubble.io changes its plugin policies or fees, it could disrupt this business's revenue model.
No intellectual property protection: As the plugins are built on existing technology and integrated into a public marketplace, there's no clear IP protection to prevent competitors from replicating offerings.
💼 Due Diligence Questions
Platform dependency: What are the potential risks if Bubble.io changes its platform policies or plugin requirements?
Customer concentration: Is there a concentration of revenue among a few customers or specific plugins that drive the majority of sales?
Retention rates: What is the customer churn rate for both the subscription and lifetime license models?
Growth efforts: How has the business marketed its plugins to date, and what efforts have been made to optimize growth through SEO and content marketing?
Pricing strategy: Have there been any recent price increases, and how did customers respond to them?
Product roadmap: Are there additional features or plugins that could be developed to expand the business, and how has customer feedback shaped product development?
Support demands: How often do customers require support, and what is the owner’s involvement in resolving customer issues?
Plugin usage: Which plugins drive the most revenue, and are there opportunities to cross-sell or upsell within the existing customer base?
Legal risks: Are there any legal concerns regarding plugin development, such as licensing or intellectual property issues?
Competition analysis: What are the main differentiators between this business’s plugins and those of its competitors on Bubble.io?
🚀 Growth Levers
Increase marketing efforts: Invest in content marketing, SEO, and social media campaigns to attract more Bubble.io developers to the plugins.
Expand product line: Develop additional plugins to meet the evolving needs of Bubble.io users or expand into adjacent no-code platforms.
Raise prices: Consider increasing subscription and lifetime license fees to boost revenue, while closely monitoring customer response.
Offer tiered plans: Introduce a premium pricing tier with advanced features or priority support to capture higher-paying customers.
Leverage partnerships: Form strategic partnerships with other no-code tool providers or agencies that build on Bubble.io to expand the reach.
Improve conversion rates: Optimize the plugin listings and marketing copy to increase the number of free users who convert to paid subscriptions.
Enhance customer retention: Implement retention strategies, such as regular updates, new features, or customer loyalty programs, to reduce churn.
Target specific niches: Develop niche plugins tailored to specific industries or use cases that are underserved in the Bubble.io ecosystem.
Cross-sell services: Bundle plugin sales with consulting services or sponsored feature development to increase the lifetime value of each customer.
Engage with the community: Increase visibility in the Bubble.io community by contributing to forums, offering webinars, or creating educational content.
🙋🏻♂️ The Buyer
Experienced in SaaS: Ideally, the buyer should have experience with software-as-a-service models, particularly in subscription-based businesses.
Comfortable with technical management: While not overly technical, the new owner should understand the basics of managing plugins and have some familiarity with the Bubble.io platform.
Hands-off investor: This is an ideal acquisition for someone seeking a mostly passive income stream, as the business requires minimal time investment.
Strong marketing skills: Experience in digital marketing, especially SEO and content marketing, will be key to unlocking growth potential.
Risk-tolerant: Given the business’s reliance on Bubble.io, the buyer should be comfortable with platform dependency and potential risks.
Community-driven: An owner who can engage with the no-code community, particularly Bubble.io users, will be well-positioned to maintain and grow the customer base.
💼 Online Service
Social Media Management for SMBs - $1.2M
Launched in 2021
Bullet Point
Revenue: $585k
Profit: $253k
Margin: 43%
Multiple: 4.7x
💬 Quick Take
This is a well-established, subscription-based social media management business that offers steady monthly recurring revenue (MRR) with low client concentration risk. The experienced and reliable team allows for semi-passive ownership, which could be attractive to a new buyer. However, the competitive landscape, with other similar low-cost providers, could pose pricing pressures. The current growth opportunities, such as expanding service offerings and hiring more overseas contractors, are promising, but they will require active management and investment.
✅ What I Like
Low Client Concentration Risk: The largest client accounts for less than 5% of total revenue, reducing dependence on any single client.
Diverse Clientele: Serving businesses across various industries minimizes exposure to industry-specific downturns.
Strong Team in Place: The team manages all client fulfillment and support, requiring minimal involvement from the owner.
Consistent Subscriber Growth: There is a steady increase in monthly recurring revenue, showing a growing demand for services.
Part-Time Owner Involvement: The current owner is only part-time, which suggests the business is well-managed and operationally efficient.
US-Based Team: A reliable US-based team provides high-quality service, with the potential to expand the workforce overseas for cost efficiencies.
High Client Lifetime Value (LTV): The average LTV of $4,736 indicates strong customer retention and profitability over time.
Growth Opportunities Identified: Clear paths for growth, such as expanding service offerings and hiring more overseas contractors, offer potential for a new owner.
❓ Concerns
Competitive Market: The social media management industry is saturated with low-cost providers, which could squeeze margins.
Overseas Contractor Management: While cost-effective, managing a growing overseas workforce could introduce communication and quality control challenges.
Limited Owner Involvement: The part-time nature of the current owner's involvement might mean some processes are overly reliant on the existing team, which could pose risks if key employees leave.
High Asking Price: A 4.7x multiple on cash flow is on the higher end for service-based businesses, potentially limiting ROI for the new owner.
Growth Requires Active Involvement: While the business is mostly self-sustaining, capitalizing on growth opportunities will require a more active owner.
Outsourcing Risks: Increasing the reliance on overseas contractors may reduce service quality, which could impact client satisfaction and retention.
Technological Dependence: The business relies heavily on third-party platforms like Cloud Campaign and Service Provider Pro, creating potential risks if these tools experience downtime or pricing changes.
💼 Due Diligence Questions
Client Retention: What is the customer churn rate, and how does it vary across pricing tiers?
Employee Retention: How long has the current team been in place, and what are the terms of their contracts?
Customer Acquisition: What is the current cost of customer acquisition (CAC), and how has it trended over time?
Growth Projections: What are the historical growth rates, and what is the projected growth over the next 3-5 years?
Competition: How do competitors like 98 Buck Social and Smarcomms compare in terms of pricing, service offerings, and client retention?
Technology Dependence: What would the financial and operational impact be if the business had to switch from Cloud Campaign or SPP?
Client Feedback: Are there customer satisfaction surveys or reviews available? How has client feedback been incorporated into operations?
Service Add-Ons: How successful have the newer “add-on” services been in terms of adoption and revenue generation?
Contracts with Agencies: Are there any reseller agreements in place with agencies, or have negotiations occurred in this area?
Subscription Model Health: Are clients shifting to higher-tier plans or purchasing add-ons, and what factors drive these decisions?
🚀 Growth Levers
Agency Partnerships: Build relationships with traditional marketing agencies to offer white-label social media management services, expanding reach rapidly.
Expand Service Offerings: Introduce additional digital marketing services such as paid social media management and SEO, increasing average revenue per user (ARPU).
Overseas Team Expansion: Continue hiring overseas contractors to reduce fulfillment costs and increase margins, while maintaining quality.
Focus on Upselling: Promote quarterly or semiannual subscription plans to lock in long-term clients and increase ARPU.
Referral Program: Implement a client referral program to encourage existing clients to bring in new business, lowering acquisition costs.
Increase Marketing Spend: Allocate budget toward SEO and content marketing to improve organic search rankings and drive inbound leads.
Cross-Sell Services: Offer complementary services like content creation, Instagram Story management, or Short-Form Video production to existing clients.
Sales Team Addition: Hire a dedicated sales team to target new clients and pursue larger agency accounts.
Automation: Invest in automating client onboarding and reporting processes to increase efficiency and scalability.
Productize Services: Create fixed-price service packages that are easy for SMBs to purchase directly from the website, simplifying the sales process.
🙋🏻♂️ The Buyer
Marketing Experience: An ideal buyer would have a strong background in digital marketing and social media management.
Growth-Oriented Mindset: The buyer should be ready to take a more active role in the business to capitalize on identified growth opportunities.
Operational Management Skills: Familiarity with managing remote teams, particularly with an emphasis on balancing US-based and overseas staff.
Agency Connections: A buyer with connections in the marketing industry, particularly with agencies, could quickly build out reseller relationships.
Process Improvement Focus: The ideal buyer should be interested in refining processes and exploring automation to scale the business efficiently.
Customer-Centric Approach: A focus on client satisfaction and long-term relationships will be essential to maintaining low churn and high LTV.
🏡 Main Street
After-Market Auto & Power-Sports Parts Manufacturing and CNC Machining - $4M
Founded in 2012
Based in Los Angeles and Ventura;
Roll-up of several businesses;
Revenue: $5.0M
Profit: $800k
Margin: 32%
Multiple: 5.0x
💬 Quick Take
This is a roll-up that the owners are exiting from. This business has a solid financial foundation with diversified revenue streams from both branded and white-label products. The exclusive government contract and D2C segment provide opportunities for growth. However, the relatively low gross margin could be a challenge, especially given the high level of competition in the market. Additionally, the real estate situation presents both flexibility and potential headaches, depending on the buyer’s approach to leasing vs. owning. Overall, this opportunity is well-suited for a buyer with operational experience in manufacturing and a willingness to explore further growth avenues. The valuation of the business is towards the higher end indicating they may be targeting a PE buyer.
✅ What I Like
Recurring Revenue Base: The business has strong long-term relationships with key clients, ensuring revenue stability.
Exclusive Government Contract: This offers near-term growth with guaranteed income.
High D2C ROI: An 800% return on ad spend in their D2C channel presents significant growth potential.
R&D Capabilities: Strong in-house R&D with a track record of rapid innovation.
Diversified Revenue Streams: Revenue from multiple sources such as automotive aftermarket, power-sports, defense, and D2C.
Niche Manufacturing Expertise: The company’s unique manufacturing capabilities provide a competitive edge.
Scalability: Opportunity to expand capacity in the existing facilities or relocate.
Experienced Team: A seasoned team of employees is already in place, minimizing transition risks.
Potential for Strategic Acquisitions: Several opportunities for horizontal and vertical integration to expand capabilities.
Proprietary Products: The branded, high-margin products help differentiate the company from competitors.
❓ Concerns
Relatively Low Gross Margin: At 32%, the gross margin is lower than typical for high-end manufacturing, indicating potential cost or pricing challenges.
Real Estate Ownership: Leasing the facilities from the original owner may complicate negotiations, especially with the option to buy.
Dependence on Key Contracts: The success of the government contract is critical; delays or cancellations could significantly impact growth.
Inventory Costs: $600k in inventory ties up a significant amount of capital, which could affect cash flow.
Lease Terms: Expiration of the lease options in 2028 could introduce uncertainty for the buyer, particularly regarding long-term planning.
Competition in D2C: While the D2C segment is promising, this market is competitive, and maintaining a high ROI may be challenging.
Industry Fragmentation: The highly fragmented competitive landscape may require significant efforts for consolidation to capture market share.
Labor Shortages: As with many manufacturing businesses, recruiting and retaining skilled labor could become a challenge.
Machinery Maintenance: High reliance on CNC machines means that any downtime for maintenance or breakdown could disrupt operations.
💼 Due Diligence Questions
Contractual Obligations: What are the specific terms and milestones of the exclusive government contract?
Lease Negotiation: Can the lease be extended beyond 2028, or is purchasing the facility a better long-term solution?
D2C Channel Breakdown: What is the current customer acquisition cost and how sustainable is the 800% return on ad spend?
Inventory Turnover: What is the average inventory turnover rate, and how does the company manage obsolete inventory?
Customer Concentration: How much revenue comes from the top 3 clients, and what is the risk of client loss?
R&D Pipeline: What new products are in the pipeline, and what is the timeline for bringing them to market?
Staff Retention: What is the current turnover rate of key employees, and are there any gaps in the management team?
Competition Analysis: How does the company differentiate itself from competitors in both the automotive and defense sectors?
Capacity Utilization: What is the current utilization rate of the manufacturing and CNC facilities, and how much can production be scaled?
Growth Projections: What are the projections for revenue growth beyond the 15% annual rate?
🚀 Growth Levers
Expand D2C Efforts: Invest further in digital marketing to drive additional direct-to-consumer sales, capitalizing on the high return on ad spend.
Optimize Pricing Strategy: Evaluate pricing to improve the gross margin while maintaining competitiveness in the niche market.
Increase Contract Manufacturing: Leverage the government contract to pursue additional opportunities with other government vendors.
Product Line Extension: Develop complementary branded products for the growing power-sports and UTV markets.
Geographical Expansion: Expand into other regions by either establishing additional manufacturing facilities or through strategic partnerships.
Improve Inventory Management: Streamline inventory management to reduce capital tied up in inventory and improve cash flow.
Leverage Existing Clients: Increase wallet share from existing customers by offering additional services or products.
M&A Strategy: Execute strategic acquisitions of smaller competitors to consolidate the fragmented market.
Build Supplier Relationships: Strengthen relationships with key suppliers to improve terms and reduce costs.
Expand Capacity: Utilize the adjacent lot for facility expansion to increase production capabilities.
🙋🏻♂️ The Buyer
Manufacturing Experience: A buyer with experience in manufacturing and CNC machining will understand the operational nuances.
Growth-Minded Operator: Someone focused on scaling both the D2C and contract manufacturing segments.
Familiarity with Government Contracts: Experience in navigating government contracts would be a significant advantage.
Digital Marketing Expertise: A buyer with a solid understanding of digital marketing can optimize the D2C channel and maximize returns.
Operationally Focused: The business is self-sustaining but will benefit from a hands-on operator focused on refining processes.
Acquisition Experience: A buyer experienced in M&A would be well-suited to execute potential strategic acquisitions.
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Custom Cabinet Manufacturer - $2.8M
Founded 50+ years ago
Serves a tri-state area of NJ/NY/PA
Revenue: $5.8M
Profit: $700k
Margin: 12%
Multiple: 4.0x
💬 Quick Take
This custom cabinet manufacturer offers a stable and established business with over 50 years in the industry, which is a major plus for buyers looking for a reliable investment. The dual focus on custom cabinets and component parts provides diversification in revenue streams, catering to both residential and commercial markets. While the business shows strong potential, growth will likely depend on more aggressive sales and marketing initiatives and expanding into new regions. However, the competitive landscape and reliance on regional markets might pose challenges in scaling the business.
✅ What I Like
Established Reputation: The business has a strong legacy with over 60 years of experience and customer loyalty in the region.
Diverse Revenue Streams: Custom cabinets and component parts offer diversified income sources across residential, commercial, and wholesale markets.
Skilled Workforce: The experienced and knowledgeable staff is a key asset, ensuring continuity of quality and craftsmanship.
Niche Market Focus: Operating in a specialized segment with few regional competitors provides an opportunity for market dominance.
Recent Technology Investment: Investment in new machinery and technology enhances production efficiency and capacity.
Strong Industry Growth: The custom cabinet industry is expected to grow, representing a large portion of the $18 billion cabinet market.
Cross-Industry Appeal: Serving residential, commercial, and even smaller cabinet shops broadens the customer base.
Scalable Business Model: With the right marketing and sales infrastructure, this business could grow well beyond its current regional reach.
❓ Concerns
Lack of Marketing Infrastructure: The absence of a strong sales and marketing program limits potential growth and customer acquisition.
Regionally Concentrated: The business is heavily dependent on the NJ/NY/PA market, which could make it vulnerable to regional economic downturns.
Low EBITDA Margin: A 12.1% EBITDA margin is relatively low, which may indicate room for operational improvements.
Reliance on Key Relationships: Long-term customer relationships are great but can be risky if any key clients are lost during the transition.
Labor-Intensive Industry: Manufacturing businesses like this one require skilled labor, which can be difficult to find and retain in the current job market.
Technological Integration: While investments have been made in new equipment, fully integrating these systems into the workflow may still pose challenges.
💼 Due Diligence Questions
Customer Concentration: What percentage of revenue comes from the top 5 clients, and how stable are these relationships?
Lease Terms: What are the details of the facility’s lease, and are there options for extension or expansion?
Technology Implementation: How well has the company integrated new technology into its production processes, and what’s the return on investment?
Sales Channel Breakdown: What proportion of revenue comes from residential vs. commercial clients, and how seasonal is the demand?
Labor Force: What is the employee turnover rate, and how difficult is it to find skilled workers in the area?
Growth Strategy: Has the company developed a formalized growth strategy or marketing plan, and if not, what resources would be needed to create one?
Expansion Plans: Are there any existing opportunities or plans to expand into new geographic markets or increase online sales?
Product Mix: What is the profitability of custom cabinets vs. component parts, and how does the company prioritize its production resources?
Vendor Relationships: Are there any key supplier contracts that might be at risk during a transition of ownership?
Future Capital Expenditures: Are there any foreseeable capital expenditures required to maintain or expand operations?
🚀 Growth Levers
Invest in Sales and Marketing: Building a strong sales and marketing infrastructure is crucial to reaching new customers and expanding into adjacent markets.
Expand Geographical Reach: Consider expanding operations or sales efforts beyond the NJ/NY/PA region to tap into broader markets.
Develop E-Commerce Capabilities: Introduce an e-commerce platform for direct-to-consumer sales of component parts and custom cabinets.
Enhance Product Offering: Expand the product line to include more custom options for high-end residential projects or specialized commercial builds.
Optimize Production Efficiency: Further streamline production processes to improve the EBITDA margin and reduce operational costs.
Leverage Existing Relationships: Strengthen relationships with existing commercial clients to increase wallet share or secure long-term contracts.
Expand Commercial Projects: Increase the focus on commercial work, particularly in hospitality and office spaces, where custom cabinets are in demand.
Introduce Recurring Revenue Models: Consider launching maintenance or service contracts for custom cabinetry to increase recurring revenue.
M&A for Smaller Competitors: Acquire smaller cabinet shops to integrate their operations and expand customer bases.
Utilize Digital Marketing: Use targeted digital advertising to increase brand awareness and drive new business from contractors and homeowners.
🙋🏻♂️ The Buyer
Manufacturing Experience: A buyer with experience in custom manufacturing, particularly in cabinetry or woodworking, would be well-positioned.
Operational Expertise: Someone who can focus on optimizing production processes and improving margins.
Sales-Oriented: A buyer with a background in sales and marketing would be able to scale the business through enhanced customer acquisition strategies.
Employee Management: Experience managing a skilled labor force is essential, given the specialized nature of the workforce.
Client Relationship Focused: The new owner should be adept at managing and nurturing long-term customer relationships.
Industry Connections: Someone with existing industry connections or a network in the residential or commercial construction sectors would be advantageous.
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Pool and Hardscaping Business in AZ - $3.5M
Based around Phoenix, AZ
Revenue: $7.1M
Profit: $905k
Margin: 12.7%
Multiple: 3.9x
💬 Quick Take
This pool and hardscaping business in Phoenix presents a promising opportunity for an owner-operator or a complementary business looking to expand. With consistent growth, a strong reputation, and a full-service offering, it stands out in a competitive market. However, its margin is relatively thin for the sector, and scaling the business might require substantial capital investment to expand the team and handle more projects. Overall, it's a well-established operation with room for strategic improvement, but careful attention should be paid to cash flow management and market saturation.
✅ What I Like
Turnkey Operations: The company handles everything from design to installation, offering customers a one-stop solution, which is a major selling point.
Consistent Growth: The business has shown consistent growth over the years, indicating solid demand and effective operations.
High-end Service Offering: Specializing in custom pools and premium backyards, this business taps into the higher-margin luxury segment.
Skilled Workforce: A dedicated team is in place, reducing the reliance on the owner for day-to-day operations.
Location Advantage: Phoenix is a growing market with high demand for outdoor living spaces, particularly pools, given the climate.
Diversified Service Portfolio: From custom pools to landscaping, the business offers a range of complementary services, allowing cross-selling opportunities.
Cross-Selling Opportunities: There are natural upsell opportunities between pool building and landscaping or remodeling services.
Potential for Expansion: The service portfolio and market can be expanded into neighboring regions or via new service offerings.
❓ Concerns
Relatively Low Margin: The margin of 12.7% is on the lower side for this industry, which could indicate pricing pressure or inefficiencies.
High Asking Price: At $3.5M, the valuation is 3.9x cash flow, which may seem steep given the margins and industry norms.
Seasonality: Pool construction and landscaping are often seasonal businesses, which could impact cash flow consistency throughout the year.
Labor Dependency: The business relies heavily on skilled labor, which could be a challenge in terms of recruitment, retention, and wage inflation.
Potential Market Saturation: Phoenix is a competitive market for pool services, and standing out could become more difficult over time.
Owner Involvement: If the current owner is heavily involved in operations, the transition to a new owner could pose challenges.
Capital Intensive: Pool construction requires significant capital outlays, and scaling the business might necessitate more working capital.
Economic Sensitivity: The luxury nature of this business may be vulnerable to economic downturns, as discretionary spending decreases.
Regulatory Hurdles: Arizona has strict regulations regarding pool construction, and navigating these could be time-consuming for new owners.
💼 Due Diligence Questions
Owner Involvement: How involved is the current owner in daily operations, and how will that transition be managed?
Team Structure: What is the current team's skill level, and how reliant is the business on any key employees?
Customer Base: What percentage of revenue comes from repeat customers versus new projects?
Supplier Relationships: Are there strong, long-term relationships with suppliers, and are any price increases expected?
Seasonality: How does seasonality affect the business, and how are cash flow fluctuations managed?
Backlog of Work: What is the current pipeline of projects, and how far out are they booked?
Marketing Strategy: What marketing efforts are in place, and how effective are they in generating new leads?
Permitting and Licensing: Are there any outstanding permits, licenses, or regulatory hurdles that need attention?
Employee Retention: What is the turnover rate among the workforce, and what measures are in place to retain key employees?
Competition: How does the business differentiate itself from competitors in the Phoenix area?
🚀 Growth Levers
Expand Geographically: Targeting neighboring cities or counties could unlock new markets and increase revenue.
Increase Marketing Spend: A stronger digital marketing campaign could generate more leads and increase brand awareness.
Add Maintenance Services: Offering long-term maintenance plans for pools and outdoor spaces could create recurring revenue streams.
Partnerships with Builders: Form partnerships with home builders or real estate developers to integrate pool and hardscaping services into new developments.
Upsell Landscaping Services: Cross-sell premium landscaping services to pool clients to increase average transaction values.
Leverage Customer Referrals: Implement a formal referral program to tap into satisfied customers' networks.
Streamline Operations: Conduct a thorough review of operations to identify inefficiencies and improve profit margins.
Increase Pricing: Consider a price increase for premium services, especially in the custom pool segment, to improve margins.
Offer Financing Options: Partner with financing companies to offer flexible payment plans to clients, which could boost sales.
Develop a Strong Brand: Build a stronger online and social media presence to position the business as the go-to provider for high-end outdoor spaces.
🙋🏻♂️ The Buyer
Experienced Operator: Someone with experience in construction, landscaping, or outdoor services who can oversee large-scale projects.
Growth-Oriented: A buyer who is eager to expand geographically or through service diversification.
Marketing Savvy: A buyer with digital marketing expertise could further grow the business through improved lead generation and brand awareness.
Hands-On Manager: The business would benefit from an owner who is willing to get involved in day-to-day operations, especially during the transition phase.
Relationship Builder: Strong networking skills are essential to building partnerships with builders, suppliers, and local real estate professionals.
Client-Focused: A customer service-oriented buyer who can maintain and enhance the business's reputation for excellent service.
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 ($1M - $10M of revenue) considering exits. All deals are sourced by the Rejigg team. Their team adds 7 to 10 new deals each week.
Kumo - 100,000+ deals sourced from thousands of brokers and marketplaces. Plus, AI-powered listings, robust data & analytics, and more.
Sterrett Law - At Sterrett Law, we offer Manhattan and Boston experience at Vermont prices. Specializing in deals under $10 million, we're your go-to partner for navigating the complexities of mergers and acquisitions without the hefty price tag
DealFlowXchange - The premier private capital funding community for raising and deploying capital. Use discount code DUEDILIO for 20% off your lifetime membership.
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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