🧐What I Learned Last Week
Week ending Friday September 30th, 2022
What I Learned Last Week curates the most interesting content relating to business acquisitions, operations, entrepreneurship, finance, and more. WILLW is a publication of The Business Inquirer.
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Hello Friends!
I’ll be taking a publishing break next Tuesday in observance of Yom Kippur. We’ll be back to our regular schedule next Friday.
This issue of What I Learned Last Week is brought to you by DueDilio.
DueDilio is a leading online marketplace focused on M&A due diligence.
We connect business buyers, sellers, intermediaries, and private investors with pre-vetted due diligence service providers.
Our large and growing network of verified independent professionals, boutique and mid-size firms, and subject-matter experts specialize in finance, technology, legal, commercial, and other key areas of business diligence.
Submit your project. Review qualified proposals. Hire service provider.
📰 Articles
Kyle Harrison writes the Investing 101 newsletter. In the latest issue, he goes into a lengthy discussion about the importance of analyzing how a business actually makes money or “the economic engine”. Kyle talks about this from a VC perspective but the same analysis applies to any type of business.
I find myself thinking about this idea all the time whenever I dig into the weeds on a company’s P&L. “Oh, so that’s revenue?” Well, actually thats the total platform volume. “Oh, so then revenue is your cut of the volume?” Well, actually we have to pay carrier fees. “Got it, and then revenue comes from that.” Right, but we have all the marketplace take rates to pay out. “So, is that gross margin?”
With a lot of companies, you get down, and down, and down the P&L before all the sudden you find yourself with a very negative number, and a greedy owl that ate your lollipop. “What metric should I care most about?” is not always an easy question to answer.
The Mysteries of an Economic Engine
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A.J. Wasserstein of Yale School of Management released a new case study on multi-acquisition strategies, due diligence, and post-close integration. The study focuses on Ari Santiago and his programmatic acquisition strategy at CompassMSP. Great read, especially for those interested in the IT MSP space.
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David LaMore of the Maverick newsletter writes about his thought process for narrowing down his industry focus.
In the first four months of my search, I dove into two particular niches with entirely different business models, one services-focused and one software, and what I found was somewhat surprising. In conversations with business owners, I sometimes struggled to articulate what I was looking for. Yes, I had a set of criteria, but they varied a bit based on the business model. Was I valuing the business on recurring revenue, EBITDA, or some combination of both? How should I be thinking about the quality of their revenues or their cost structure in general? I knew I needed to make a change to have more fruitful owner conversations.
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XO Capital is planning on financing its latest SaaS acquisition with an SBA loan. They will be documenting the whole process and sharing their insights. I’m looking forward to this series of posts as I mostly hear about SBA loans used for Main Street SMB acquisitions, not SaaS.
The amazing part about the SBA is that you can have one (or multiple in separate transactions) SBA loans totaling up to $5M. The other cool part is that over time, as you pay off the principle, you can get up to $5M at the time of the transaction meaning if you received $5M worth of loans but you've paid off half of the principle, you could still get another $2.5M in SBA loans. This is truly amazing. Think about buying a business or assembling a portfolio with only $500k down (total) that does roughly $1.5M a year. As you'll see below, you'd roughly be paying $1M back as loan payments and cashflow $500k annually. I'd say yes to that all day long.
How To Buy A SaaS Business Via The SBA - Part 1
🧵 Twitter
A rundown of SMB M&A trends…
I had this problem. It’s being solved based on advice in this thread…
Good discussion around ad spend in recessionary times…
Good reminder…
A quick primer on accounting principles…
Mushfiq is an OG of website flipping. This was a great AMA…
Never too early to start thinking about this…
SMB structuring…
SMB ownership can be challenging…
🤔 Thoughts, Events, Other
SMB Acquisition Community
I recently discovered a new online community for those interested in SMB acquisitions. The founder is Andy Schornack and he started a Discord channel to discuss small business acquisitions and acquisition entrepreneurship.
You can join here 👉 https://discord.com/invite/Fab9jnmrE8
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Value Creation
I really enjoyed listening to the latest podcast from Mineola Search Partners. The two guests are very impressive and offer good insights.
My guests today are Steve Lau and Rameez Ansari, co-CEOs of AutoLeap, a cloud-based auto repair shop platform that counts Bain Capital Ventures among its investors.
Prior to founding AutoLeap, Steve and Rameez purchased, operated, and sold D’Esco (later renamed FieldEdge), a software company that helps entrepreneurs run their HVAC, Plumbing, and Electrical Contracting businesses. Steve and Rameez purchased the company from its original founder in 2015 at 5X EBITDA, when its product was entirely on-premise and its revenue was generated solely through the sale of perpetual use licenses. After successfully transitioning the company to one that sold a cloud-based product on a subscription basis, they sold the company to a private equity firm for 8X revenue in 2019.
Buy at 5X EBITDA, Sell at 8X Revenue: The On-Premise to SaaS Transition of FieldEdge
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Maximize Your Exit
Armanino is part of the DueDilio network and they’re hosting a free webinar on October 4th at 11 am CT geared towards those who are thinking about exiting their business.
In this webinar, Bryan Graiff, Partner-in-Charge of Armanino’s Transaction Advisory Services and Private Equity, will discuss the key areas to prepare for an exit when the time is right.
Identify your level of readiness for a successful exit
List the steps in the exit planning process
Compare strategies to grow before, during, and after the transition
Maximize Your Exit Later by Planning for it Today
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Selling to Lawyers
As a co-founder of a legal tech startup, I know first-hand the struggle of selling something to attorneys. Wouldn’t wish that job on my worst enemy.
Alex Su from Off The Record newsletter shares his insights from years of carrying a sales quota on behalf of legal tech startups.
The hardest part about selling to legal is that most people aren’t used to persuading a skeptical audience that’s professionally trained to poke holes in whatever you say.
🛠 Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these may contain affiliate links. This means that I may receive compensation if you sign-up and use them.
Cerebro Capital - Cerebro has a network of 1,500+ lenders who can provide debt financing for your acquisition, refi, etc. $500k minimum.
X5 Deals - Proprietary deal sourcing. They do the outreach and send you relevant, actionable deals directly into your inbox.
Curators - Proprietary deal sourcing. You need targets that fit your investment criteria, and Curators delivers week after week - we even update your personalized database on a daily basis with new information on best-fit targets.
BizNexus - Proprietary deal flow, deal aggregator, and exit prep. Local Boston company and I consider the founder (Adam Ray) a friend.
PrivSource - Deal aggregator for lower and middle-market listings.
The Website Flip - a newsletter that sends content sites for sale to your email inbox. They send deals each Wednesday and Friday.
Kumo - Find every deal in one complete platform. Spend less time sourcing deals and more time closing them. Kumo aggregates 180K+ business listings into one easy-to-use platform.
Deal Flow Scout - Peer-to-peer deal flow exchange. Free, open, transparent.
Deal Sourcing Guide - A directory I put together of online marketplaces, brokers, DFY deal flow, and more.
That’s all for this issue of What I Learned Last Week!
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Important Disclaimer: This newsletter is provided for informational & educational purposes only, and should not be relied upon as legal, business, investment, or tax advice. This newsletter may link to other websites and certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, it has not been independently verified. The Business Inquirer makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. References to any companies, securities, listings, investments, or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any business, tax, or investment decisions. Content in this newsletter speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.