❇️ New Deals - 14 May 2024

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Hello SMB Deal Hunters!

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

🔥 Community Top Picks from the Last Issue:

#1: CPA firm with diversified revenue streams
#2: Security guard company with clients on renewing contracts
#3: Well drilling and pump service company with a strong backlog

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

Today’s issue is sponsored by Rejigg, a new platform that features exclusive off-market SMB deals.

📣 But before we continue, I have an announcement: I’m hiring a Director of Investments! If you’re interested in working with me to acquire small businesses with the support of my 65,000+ strong investor community, learn more here.

1/ Irrigation Business

📍 Location: Suffolk County, New York
💰 Asking Price: $3,350,000
💼 EBITDA: $685,000
📊 Revenue: $2,500,000
📅 Established: N/A

💭 My 2 Cents: Irrigation companies are great because they require a more niche skillset than your general landscaping business and comes with built-in ongoing work. You see this right off the bat with this company as their revenues are roughly evenly split between irrigation installation and maintenance, which gives a very strong baseline of recurring work while the new projects can help drive customers to longer-term maintenance relationships. I like that they have an experienced team transferring with the business. I also like that their client mix includes corporate clients as opposed to only residential properties, as it’s much easier to manage a small number of large accounts. I’d want to better understand who their clients are, how those relationships are maintained, and, importantly, how they get new work. I’d especially want to know if they ever get completely new clients for maintenance/service work or whether these contracts primarily begin after a client has used this business for new system installation. If it’s the latter, then it would make sense to focus marketing efforts on the installation side of the business. Finally, I’d need to get a handle on the current owner’s role, check if there are any required licenses, and, if there are, make sure that they would transfer with the business. Ultimately, with $800K of equipment included in the sale, this is a nice deal for someone looking for a proven cash producer.

2/ Distributor Of Mission-Critical Fastening Systems

📍 Location: N/A
💰 Asking Price: N/A
💼 EBITDA: $1,100,000
📊 Revenue: $5,700,000
📅 Established: N/A

💭 My 2 Cents: This business is a leading manufacturer and distributor of structural fastening systems such as hex bolts and torque wrenches, used in industries from aerospace and defense to medical devices. As seen with their specialized products, this company has going for it very high barriers to entry, meaning that they often don’t have to compete on price and they have a number of stable, protected revenue streams. These barriers include that they manufacture some of their products, they have required costly certifications and registrations, they have a trademark on a high-demand product, and they have specialized machines and capabilities that are hard to replicate. Add in the fact that they are a trusted supplier to extremely sticky customers and the result is a 92% repeat revenue rate in 2023, with 30% of their revenue from automatically recurring purchases. While competition isn’t a huge concern given the barriers to entry, I’d want to get a better feel for any possible client concentration issues. I’d also want to understand the exact certifications they have and how hard they are to acquire, what the margins look like on products made in-house versus ones they only distribute, and how much inventory is transferring with the business as well as its age and condition. I’d finally want to dig a little more into the nature of their repeat revenue and if any of it is related to construction projects that are slated to end at some point.

3/ Demolition And Site Clean-Out Company

📍 Location: Kings County, New York
💰 Asking Price: $1,550,000
💼 EBITDA: $600,000
📊 Revenue: $1,500,000
📅 Established: 1997

💭 My 2 Cents: This construction removal company is my kind of off-the-beaten-track boring business. Demolition and clean-outs are an essential service for construction sites, and thus they benefit from the steady work associated with construction without having to do any actual construction work, meaning the buyer doesn’t need to worry about special licenses or landing new building projects. I also like that they have 4 dump trucks and 75 dumpsters valued at over $1M, as having hard assets helps prevent against new entrants (as their initial costs would be this high), acts as a worst-case scenario backstop if you need to sell the assets, and gives lenders something they can use to secure a loan. I do want to get a better understanding of what their client mix looks like, which jobs, if any, are their bread and butter, what their repeat revenue rate is, and if they have any work backlog. I’m also curious as to their projections for future work, if there are any services they provide that they expect will be in greater demand in the next few years, and what their current sales and marketing strategy for winning new clients is. If that all comes back clean, then this is a great opportunity to pick up an awesome boring business.

4/ Medical Records And Billing Company

📍 Location: N/A
💰 Asking Price: $11,500,000
💼 EBITDA: $2,798,936
📊 Revenue: $3,773,920
📅 Established: 2014

💭 My 2 Cents: Medical billing is one of my favorite businesses (and I know you guys love them too), as it benefits from a huge market and steady demand as small medical practices make the shift to digital record keeping. Given this, I think there is still a lot of opportunity to capture under-served clients, and once you do, they are typically extremely sticky. This particular company has proprietary software that handles all aspects of protected health information. As a result, they have hundreds of clients. I love a large client base, but I’d want to understand how much it costs to acquire a new customer, how much revenue each customer generates, and how long they typically stay. I’d also want to know what a typical contract looks like, how easy it is for a client to go elsewhere, and if there is any meaningful direct competition. If this business has already built out their full product offering, I would assume most costs are related to sales, but I want to understand their expense mix as well as the split between fixed and variable costs. Theoretically, as you grow and gain more scale, profitability should continue to increase. With the staffing already in place to support this growth, this could be a perfect deal for a buyer looking to scale quickly.

5/ Ski Resort Transportation Business

📍 Location: Steamboat Springs, Colorado
💰 Asking Price: $2,321,000
💼 EBITDA: $773,846
📊 Revenue: N/A
📅 Established: 1997

💭 My 2 Cents: This 25-year-old transportation company in Colorado takes customers door to door between local airports and the state’s ski resorts. These shuttle companies are a critical service and are frequently the only safe and reliable travel method, as inclement weather will often leave vacationers stranded with the only options being to rent a car (and drive through a storm) or use one of these services with experienced local drivers. Predictably, my number one focus would be on the quality of their fleet. I’d need to understand what the value of it currently is and if any large repairs or replacements are to be expected. I’d also want to look at current vehicle utilization rates to see if there is room to grow the business with the assets they currently own or if they have too many vehicles for the service they provide. Drivers are also an indispensable part of the business and I’d need to know if there are any staffing issues. Given the company services ski resorts, they are likely much, much busier in the winter, but is there any revenue during the other seasons? Finally, I’d be curious as to how their pricing and service offerings compare with other players in the space as well as how they gain clients.

🐦 The Best of SMB Twitter (X)

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8 best boring service businesses (link)

Lessons learned from offering seller-financing (link)

How the bank values your deal (link)

6 acquisitions to avoid (link)

Changes that can come up in your deal structure from the time a term sheet is issued from an SBA lender to approval (link)

Top LOI mistakes (link)

The 30-7-1 cadence for ensuring consistent profitability (link)

See you tomorrow with a new podcast episode!

-Helen Guo
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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.