🧐What I Learned Last Week

Week ending Friday November 4, 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.

Let’s connect: LinkedIn, Twitter

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Hello Friends!

This issue of What I Learned Last Week is brought to you by BizNexus.

BizNexus is one of the pioneers in proprietary deal sourcing (Concierge) and public deal aggregation (Marketplace). I personally use the BizNexus Marketplace to source deals for this newsletter. I think it’s one of the most helpful tools out there.

Rather than focus on the quantity of deals, they focus on quality. All deals are verified and removed after a period of time unless the seller or seller’s representative confirms it’s active.

I invite you to try the BizNexus Marketplace for 60-days free of charge. Simply use code “DUEDILIO” at checkout 👉 BizNexus Marketplace

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📰 Articles

MiBiz published a summary of a recent survey of business executives & M&A participants.

Nearly two-thirds of business executives and M&A professionals told law firm Dykema Gossett PLLC that they expect the market to strengthen in 2023, driven in part by buyers with reserve funds that they need to invest and a rise in distressed deals amid a weaker U.S. economy.

“For now, it appears dealmakers remain hopeful, if vigilant, in the midst of economic turbulence. With the effects of COVID-19 subsiding and hoped-for easing of supply chain constraints, players with cash reserves still have opportunities in the coming year — even if that means shifting toward tighter due diligence, smaller add-on acquisitions, and cross-border outbound deals,” Dykema’s annual M&A outlook concludes. “Macro and micro-economic conditions are not expected to substantially reduce M&A activity, but instead to reallocate dealmaking across a select range of industries and buyers.”

M&A outlook shows cautious optimism as economic conditions create ‘haves and have-nots’ among dealmakers

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FE International published an article on how to value a SaaS business using SDE, EBITDA, or revenue.

The test for SDE vs EBITDA vs Revenue is:

• Is the business reliant on the owner?

• Are revenues growing less than 50%+ YoY?

• Does the business generate <$2,000,000 revenue per year?

An answer of “yes” to any or all of the above means the SaaS business is one for a valuation using SDE. Investors will likely appraise the business based on this benchmark alone and apply a multiple to arrive at the final business valuation. If the answer is “no”, EBITDA or revenue might be more appropriate.

SaaS Valuations: How to Value a SaaS Business in 2022

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Kyle Harrison is an investor and publisher of the excellent Investing 101 newsletter. Not strictly related to SMB M&A but I thought the latest issue discussing TAM arbitrage was a great read.

The core idea is that if you, as an investor or a founder, can do the work and understand a market better than anyone else, and appreciate that its actually bigger than anyone gives it credit for, then investors can pay higher prices, founders can be more aggressive with burn, and experiment more broadly.

Markets, Markets, and Markets

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IESE Business School published a paper looking at trends for international search funds.

International Search Funds - 2022 Select Observations

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Check out a replay of a webinar hosted by Bain & Co discussing the latest market trends from the viewpoint of deal originators.

PE Webinar: What Top Originators Predict for 2023

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🧵 Twitter

Great thread on purchase price allocation…

M&A Focused CPA @BoilerPlateCPA

If you're buying a business as an asset acquisition, you will have to allocate your purchase price to the assets for the IRS. Use this as a guide on how it's done and how to maximize value:

Summary of the HBS EtA conference…

Matthias Smith, CEO - Pioneer Capital Advisory LLC @SBA_Matthias

Over the weekend, I had the opportunity to attend the @HarvardHBS Entrepreneurship Through Acquisition Conference. I wanted to put together a thread of key takeaways from the conference to help searchers in the SMB acquisition space. I'll sprinkle in some quotes as well. 1/x

Great summary of the latest IBBA report…

Josh Levine @levinejm

The @IBBAHQ Q3 Market Pulse report is out this afternoon. They survey brokers and #smb industry participants every quarter, and there are some interesting nuggets of data embedded in today's results. A deep dive below:

Good lessons in here…

Jacob Williamson @jacubwilliamson

The process of valuing small-medium business may be broken Here's how I bridged the gap between a seller and myself recently. THREAD 🧵 ... Maybe too long... 😂

Another good summary of the HBA EtA conference…

Cody Agee @codywagee

Yesterday, I attended the Entrepreneurship Through Acquisition Conference at Harvard Business School. A few quick highlights from the panel discussions: - Good searchers know no deal is perfect; have to find something “good enough” and become comfortable with identified risks

How to be an attractive buyer…

BuySellSMB @BuySellSMB

New trend I’m noticing in SMB acquisitions: Searchers are starting to become the most hated buyers to work with. A few reasons why…

Operating during times of uncertainty…

Mark Brooks @markbrooks

With all the current uncertainty, it's likely that more businesses will face a crisis in the coming months. Having managed through a few of these, I thought it might be helpful to compile some thoughts on managing through crisis:

How to analyze debt…

Chris Williamson @Chris_CayneQofE

Cash free debt free ➡️ What does it really mean and why does it cause hang ups in so many deals? 🧵

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🤔 Thoughts, Events, Other

Red Forest Capital
Each month, the team over at Red Forest Capital publishes a huge newsletter with industry-specific links to events, articles, presentations, and more. Highly recommend subscribing.

Here’s the October 2022 issue 👉 https://www.redforestcapital.com/newsletters-home/october-2022

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🛠 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.

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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.