❇️ New Deals - 25 April 2024

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Hello SMB Deal Hunters!

Thanks for all the great feedback from the deals I shared on Tuesday!

🔥 Community Top Picks from the Last Issue:

#1: Medical billing company with 92% retention rate
#2: Adobe add-on SaaS with recurring annual subscriptions
#3: Equipment and machinery rental with 43% EBITDA margins

I’m excited to share 5 new deals worth checking out.

Today’s issue is sponsored by Live Oak Bank, my preferred SBA lender and the #1 SBA lender in the country by dollar amount and loan volume. Get a personal introduction to my contact Elyse Gonzalez (VP of SBA Lending) today.

1/ Financial Services Industry Expense Management SaaS

📍 Location: Remote
💰 Asking Price: N/A
💼 EBITDA: $1,100,000
📊 Revenue: $1,400,000
📅 Established: N/A

💭 My 2 Cents: This SaaS business provides a complete online expense reporting solution. What helps them stand out is their highly customizable proprietary software that lets them create unique solutions for every customer’s needs. All of their customers are in the financial services industry, which is a niche I love because the total assets under management for their customers are over $500B, so these are large, well-established firms. Generally, companies of this size and in this industry are not fast to change systems. Couple this with a highly customized product, and you’ll likely have very sticky clients. They now have 77 active customers and, with the low overhead seen with SaaS companies, very impressive sustained 78% Adjusted EBITDA margins. As with all SaaS businesses, I’d want to understand their client acquisition cost (and leading indicator metrics like cost per lead), average length of relationship, churn rate, and lifetime value. I’d also want to check on possible customer concentration issues and what their standard sales cycle looks like, as courting their type of clientele can be an involved process. Overall, though, I love SaaS businesses like this. The stable, recurring revenue and amazing margins mean every dollar of growth contributes significantly to your bottom-line earnings.

2/ Niche Printing Business

📍 Location: Minneapolis, Minnesota
💰 Asking Price: $2,200,000
💼 EBITDA: $549,619
📊 Revenue: $2,462,146
📅 Established: 1992

💭 My 2 Cents: This is a 25-year-old specialty printing business. Printing is an interesting space with lots of fragmentation and some very large players. As a smaller player, it’s your specific niche and service offering that sets you apart. Given how long they’ve been in business, this company could potentially have found a small corner of the industry that they are uniquely positioned to serve. In this case, they could have a very loyal and stable customer base that would not have many options for somewhere else to go. On the flip side, if there is nothing that innately distinguishes this company, they could be open to extremely challenging competition. So, I would need to determine the exact niche in which they operate, including what unique services they provide and what aspects of their customer relations might set them apart. By extension, I’d want to know who their main clients are, as well as any possible competitors. I’d also want to dig into the current utilization of their $400K in equipment and what the room for growth is given their current equipment and staff of 12. If this business has found a secret sauce that sets them apart in the crowded printing world, this deal could be a real winner.

3/ 8 Orange Theory Units

📍 Location: District Of Columbia
💰 Asking Price: N/A
💼 EBITDA: $899,000
📊 Revenue: $3,692,000
📅 Established: 2018

💭 My 2 Cents: This deal is for a portfolio of Orange Theory Fitness studios in the Washington, DC area, involving 3 operating locations for sale as well as approval to develop 5 additional sites. It’s important to note that this is a franchise resale opportunity, so there will be nuances put in place by the franchisor that don’t exist when buying an independent business. But that’s not necessarily a bad thing. Buying into a thriving, highly desirable brand like this can help protect a first-time operator from a number of challenges of business ownership. Plus, with franchises, you can often receive SBA funding to open new locations even without the typical several years of performance and earnings. So, given it’s a franchise, I’d first want to learn about the franchisor’s terms, including what they provide to franchisees, what they charge, what types of things you are allowed/required to do, how they limit competition in a particular market, and what restrictions they have on transferring and selling. Then, I’d want to know how well each studio performs on its own, as I’d want to make sure I’m not overpaying for a bad location just because it’s bundled with a good one. I’d also want to check on the lease terms for each location. The right to develop 5 additional locations is a key part of the deal, but what does being approved for these locations actually mean? I’d need to know how good these locations are, as well as what corporate does to support their development and what you would need to handle on your own. Finally, I’d want to look into staffing and see if there are any challenges in finding and retaining employees.

4/ Dry Cleaner

📍 Location: Chester County, Pennsylvania
💰 Asking Price: $1,750,000
💼 EBITDA: $595,764
📊 Revenue: N/A
📅 Established: 1999

💭 My 2 Cents: Dry cleaners are generally very solid, cash-flowing businesses. This dry cleaner, located in a wealthy Pennsylvania area, fits the bill as it has been humming along for 25 years. And it’s set up to continue to operate without a hitch post-transition, as they have 10 full-time employees and a manager in place. I really like that the business comes with $400k in fixtures and equipment and has significant excess capacity, as this means they can grow without needing to expend capital. At the same time, given how important their physical plant is to daily operations, I’d need to verify the quality, age, functionality, and remaining useful life of all the equipment, especially as I’d want to make sure I wasn’t facing any unexpected costs. I’d also want to look into this business’s historical performance. In a retail-based business like this, there likely aren’t any recurring contracts, so it would be great to understand how many customers they have, how long they’ve remained loyal, and if there is any predictability to how frequently they come back. I’m also curious as to what advertising the current owners have been doing and if there are any low-hanging opportunities to boost sales. Who knows, there could be an interesting opportunity here to expand into serving commercial clients utilizing the current excess capacity or land recurring contracts with neighboring businesses and hotels. In any case, this looks like a good boring business listed at a reasonable multiple.

5/ Disaster Restoration, Abatement, And Remediation Company

📍 Location: Colorado
💰 Asking Price: N/A
💼 EBITDA: $1,173,000
📊 Revenue: $6,500,000
📅 Established: N/A

💭 My 2 Cents: Believe it or not, I tend to like companies in the disaster space, as there’s always a disaster happening somewhere. While there are some very large national chains, there are also a sizable number of independently owned mom and pops like this one. I like that they’ve been in business for 15 years. While I would want to check reviews, my hunch is that they have an excellent reputation in their area. I also like that they have a mix of revenue streams and do work outside of emergency restoration. This diversification is seen in their 2023 work distribution, with damage restoration representing 47% of their revenue, while water damage mitigation accounted for 32%, asbestos/mold/radon/biohazard 5%, and other restoration-related services 16%. I’d be curious as to where most of their inbound business comes from and what the breakdown is between referrals from insurers and customers just finding them directly. I’d also want to know about their main competitors. Growth really shouldn’t be too hard, as businesses like this can provide a base that you can use to expand into other services, like construction and remodeling-related business lines. The initial marketing is basically already in place, as you already have a direct in with a clientele who will likely at some point need the additional work, making this a deal tailor-made for someone looking either to get started in the disaster relief industry or to absorb their capabilities into an existing business.

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See you next Tuesday!

-Helen Guo
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P.S. Whenever you’re ready, here are a few ways for us to work together:

1. Want me to help you find a business to buy in the next 90 days and handhold you through closing your first deal? Apply to work with me.

2. Invest with me in cash-flowing SMB deals. I’m bringing on a select few investors from this community into businesses I’m buying and investing in.

3. Raising money for your deal? I’ll connect you with investors from the SMB Deal Hunter Community.

4. Join my mastermind community of 280+ elite business buyers to get support on your deals and meet fellow entrepreneurs on the same journey.

5. Interested in selling your business? I’ll help you connect with buyers from the SMB Deal Hunter Community.

6. Want to promote your business to my community of 60,000+ entrepreneurs and investors? Advertise in SMB Deal Hunter

🤝 Vendors and Lenders

I’m committed to helping the SMB Deal Hunter community close more deals, faster. Click on any of the links below and I will make a personal introduction to folks I trust.

SBA 7(a) Lender: The most common way to finance an acquisition up to $5M purchase price with 10% (give or take) down with the help of a government-backed loan. My preferred lender Elyse will help you out.

Non-SBA Lender: Best for smaller deals if you want to avoid the hassles of SBA. My preferred lender Grant and his team are the only private lenders I know who offer acquisition financing with long payback periods without any collateral requirements. Note: You must have great credit.

Quality of Earnings Provider: I always recommend conducting a QoE during due diligence to uncover any red flags. Get introduced to my preferred QoE provider that offers top-tier financial due diligence without breaking the bank.

Legal Counsel: A must-have on your team to help get a deal to the finish line. Get introduced to legal counsel with experience closing SMB deals that won’t rack up your legal bill.

📽 Recent Podcast Episodes

• How This Former Investment Banker Acquired a Dairy Testing Lab (link)

• How This Serial Acquisition Entrepreneur Left His Corporate Career and Bought 10 Businesses (link)

• How This Acquisition Entrepreneur Left a Career in Corporate America to Buy a Print Shop (link)

Disclaimer

This publication is a newsletter only and the information provided herein is the opinion of our editors and writers only. Any transaction or opportunity of any kind is provided for information only; SMB Deal Hunter does not verify nor confirm information. SMB Deal Hunter is not making any offer to readers to participate in any transaction or opportunity described herein.