❇️ New Deals - 23 April 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: B2B trucking logistics company with an average contract value of $117,800
#2: Managed service provider with $120K in MRR
#3: Drug testing administrator that’s been in business for over 20 years

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/ Adobe Add-On SaaS

📍 Location: California (Remote)
💰 Asking Price: $3,500,000
💼 EBITDA: $740,455
📊 Revenue: $918,130
📅 Established: 2012

💭 My 2 Cents: Regular readers know that I like SaaS businesses for their recurring revenue, low overhead, and scalability. Founded in 2012, this particular SaaS offers an add-on for a popular Adobe program and has a really nice steady revenue stream: recurring annual subscriptions, while they also bring in another 10% from the sale of their premium online courses. As expected with a SaaS company, they have a very lean operation, as the owner works a minimal number of hours remotely and there is only a part-time team of 2 coders, 2 support staff, and a salesperson. While the numbers are good, as with any SaaS company, I’d need to understand their churn rate, acquisition cost, and customer lifetime value. I’d also need to learn more about the specific service this business provides, including how crucial it is for users, how large the market for it is, and, given this, how much room there is to expand. Finally, I’d want to check if there is any risk that they are made obsolete by a larger company turning their business into a feature. At the end of the day, it’s extremely rare to find a SaaS business like this that has had stable sales for a number of years and isn’t priced at an extremely high multiple. The fact that the business is SBA pre-qualified is just icing on the cake.

2/ Medical Billing Agency

📍 Location: Tampa, Florida
💰 Asking Price: $4,700,000
💼 EBITDA: $1,100,541
📊 Revenue: $1,925,001
📅 Established: 2009

💭 My 2 Cents: This is a medical billing agency for physical, occupational, and speech therapy practices that’s been in business for 16 years. I love medical billing companies because they provide an essential service for healthcare providers, and because of the specialization required, even large hospitals often outsource this function. What caught my eye here is their stellar 57% net profit margins, which means every new client is adding a ton of value, and their 92% customer retention rate, as this tells me they are providing a very good service. I like that the business is fully remote and has very few employees. I also really like that this company has relied entirely on word of mouth, so there’s an obvious growth opportunity to put a sales and marketing function in place. While this all looks great, I’d need to dig in on a couple of things. I’d want to understand what their standard contract looks like, how easy it is for a client to leave, and if there is any major client concentration or risk associated with losing a key client. While staffing is not a major concern (especially because you can offshore a lot of medical billing work), I’d want to check if any key employees or key roles will need to be replaced with the sale of the business. Overall though, this is a great opportunity for a new owner looking to scale, with the financing to do so aided by the fact the business is SBA pre-qualified.

3/ Commercial Kitchen Rental Firm

📍 Location: San Jose, California
💰 Asking Price: $3,995,000
💼 EBITDA: $930,000
📊 Revenue: $2,834,620
📅 Established: 2012

💭 My 2 Cents: This commercial rental business provides outsourced kitchens to chefs, caterers, food truck operators, and culinary entrepreneurs on a flexible rental basis. In operation since 2012, with 12 fully equipped kitchens and 72 food truck parking spaces, in 2023 they brought in $2,834,620 in revenue and $930,000 in cash flow. What I like about this business is it takes a lot of time and money to build and operate a kitchen space and have it properly licensed. The result is this company is a great option for smaller entrepreneurs who don’t necessarily have the need for a full kitchen or the capital to create their own. From my experience having rented these in the past for my food startup, customers are often on memberships or long-term plans (i.e. monthly or annual). That being said, I’d want to see an exact breakdown of how many customers rent on the regular vs on an ad-hoc basis to understand how secure and predictable their revenue is. I’d also want to get a handle on the quality of customers (how long they’ve been in business for) and what customer churn looks like, since there’s an inherent risk working with smaller food businesses and entrepreneurs that have a higher likelihood of going under and/or outgrowing the need for an outsourced kitchen space.

4/ Equipment And Machinery Rental

📍 Location: Washington
💰 Asking Price: $2,400,000
💼 EBITDA: $520,000
📊 Revenue: $1,200,000
📅 Established: 1974

💭 My 2 Cents: This nearly 50-year-old (!) company, which began as a small rental business, is now the go-to source in their area for homeowners and light industrial needs. Their services include daily and long-term equipment and machinery rentals and delivery, scaffolding rentals, and propane refill services, while they also act as sales dealers for the lines they rent if customers decide to purchase the equipment.  I like that there is an established team in place and that the seller is open to finding a transition structure that helps ensure the success of a new owner. I also like that the business comes with a reported $1.9M in inventory, which can potentially make this transaction very appealing. In a downside scenario, having hard assets can be a huge help with debt financing and can add a lot of protection if things go south, so it’s great to have that built-in value within the purchase. At the same time, it also requires its own line of diligence. I would really want to understand how old the inventory is, how much useful life it has left, and when it will need to be refreshed. On the revenue side, I’d be curious as to what the economics look for the rental side of their business as opposed to the sales side. Specifically, I’d want to know if there are any upcoming capital expenditures related to refreshing their rental stock and what happens when new models come out. Do they switch over to selling the new models and how does this impact the equipment they rent? Ultimately, assuming the inventory is worth anywhere near $1.9M, this looks like a great deal with great margins for a proven boring business.

5/ Commercial Floor Cleaning And Maintenance

📍 Location: Iowa
💰 Asking Price: N/A
💼 EBITDA: $591,000
📊 Revenue: $1,880,000
📅 Established: 1992

💭 My 2 Cents: This commercial floor cleaning and maintenance company provides an unsexy but important service, which means it's my kind of business. A full suite company, they offer a range of services from hard floor and carpet maintenance to data center cleaning. Off the bat, I really like that they’ve been around for over 30 years and have 80+ active accounts with an impressive 98% repeat business rate. I also like that they have 58 employees in 3 locations, with this large area helping mitigate the risk from any one client or geography. In terms of revenue flow, I’d want to know how much of their business is attributable to the different services they provide. Specifically, how much comes from contracted cleaning and maintenance, as this represents a steady recurring revenue stream. By extension, I’d want to fully understand the nature of their repeat business, including what their standard contracts look like and what kinds of services their customers typically come back for. This company should be somewhat recession-resistant, as businesses always need cleaning to maintain appearances, but I’d be curious as to how they fared in past economic cycles. In thinking about a transition, I’d want to get a picture of the organizational structure and what the current owner’s role is. It’s nice that all the key employees are staying with the business, but I’d want to get a handle on what it is they do. This may not be a flashy deal, but I see a real growth opportunity for someone ready to hit the ground running and leverage this company’s wide geographic reach and market.

🐦 The Best of SMB Twitter (X)

How to grow a home service company (link)

10 investing KPIs (link)

How to craft a thesis that will generate the right deal flow (link)

What a strong deal looks like to a lender (link)

What you can do with SBA funds when it comes to real estate (link)

Questions to ask your staffing agency (link)

Unlocking the secrets to Seller Financing (link)

5 ways to set up the right commission structure (link)

How to buy a small business for cheap using the “ugly duckling” method (link)

See you Thursday!

-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.

⏪ Catch Up On Recent SMB Deal Hunter Issues

• April 18th, 2024

• April 16th, 2024

• April 11th, 2024

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.