❇️ New Deals - 26 March 2024

A third party administrator, corporate catering company, and 3 other interesting finds.

Author

Helen Guo
March 26, 2024

Hello SMB Deal Hunters!

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

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

📣 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.

But before we continue, I wanted to share an interview with acquisition entrepreneur Mike Okhravi, who left his career in tech to buy a garage flooring company and a towing company at the SAME TIME.

In the interview, we discuss:

  • How Mike navigated buying 2 businesses at the same time (and what it’s like to manage them concurrently now)

  • How some early conversations with lenders held him back

  • How Mike financed the two transactions completely differently

  • How to find opportunities where other people find red flags

  • Which of the two businesses he wouldn’t buy again

And more!

1/ Third Party Administrator

📍 Location: Ohio
💰 Asking Price: $6,750,000
💼 EBITDA: $1,418,333
📊 Revenue: $2,369,937
📅 Established: 1994

💭 My 2 Cents: A third-party administrator (TPA) is a company that provides administrative services to other organizations, especially in handling claims and processing for insurance policies and employee benefits plans. There’s a lot of demand for outsourcing TPA services because, shocker, businesses want to skip the insurance paperwork and focus on their core activities. Plus, TPAs are often better at their jobs than the client would be in-house. Their deep expertise in regulatory compliance within their specialty areas and battle-tested systems make them hard to beat. The result is that the global TPA insurance industry pulled in $324.9B in 2022 and is anticipated to generate $795.1B by 2032, a strong CAGR of 9.6%. For this particular TPA, this manifests in 30 years of success. Currently, they have over 130 long-time clients under fixed-fee contracts with 100% recurring revenue. The average recurring billing is around $1,500/month per client with no major customer concentration. I really like their EBITDA margins of almost 60%, which is fueled by their proprietary software and rent of just $1,250 per month. I also like that the seller is looking to retire and there is a trained and loyal senior staff already in place, making for an easy transition. It all adds up to the ultimate boring business.

2/ Corporate Catering Company

📍 Location: Maricopa County, Arizona
💰 Asking Price: $1,864,999
💼 EBITDA: $687,054
📊 Revenue: $3,523,790
📅 Established: N/A

💭 My 2 Cents: This is a corporate catering business listed at under 3x EBITDA. Anytime you find a B2B service at this price it’s worth looking at, and especially if it’s been around for over 20 years like this one. The corporate clientele is nice, because unlike many catering businesses that are highly seasonal (think weddings), this company has steady, year-round demand. Corporate clients usually come with a lot of repeat revenue, so I would want to dig into this as well as what their client retention rates are. I would also want to know what types of contracts they have with corporations and specifically how much of their business is regular or ongoing versus for one-time occasions. In any case, they clearly are doing something right, as their almost 20% EBITDA margins are very strong for the food industry. And with 25 employees on staff and the owner focusing on strategic growth and managing payroll, the transition should be easy, even if you’re no Masterchef.

3/ Commercial Pressure Washing Business

📍 Location: Palm Beach County, Florida
💰 Asking Price: $1,750,000
💼 EBITDA: $635,576
📊 Revenue: $1,792,764
📅 Established: 2010

💭 My 2 Cents: One of my favorite boring businesses is commercial pressure washing, and I especially love them when they are listed for under 3x EBITDA, as this company is. I like commercial pressure washers because businesses, residential complexes, and municipalities often require power washing services to prevent damage, maintain curb appeal, and preserve property values. Plus, commercial clients means a lot of recurring revenue because regular maintenance is required for their properties. While the barrier to entry is low, you’ll inherit a lot of multi-year contracts and an experienced staff of 12. I also like that they have been in business for over 10 years and have proven out strong margins. However, I would want to confirm the extent of their repeat business and what % of contracts renew. Note: this is an established franchise location.

4/ Professional Services Government Contractor

📍 Location: Kansas (Remote)
💰 Asking Price: $2,100,000
💼 EBITDA: $745,358
📊 Revenue: $5,649,558
📅 Established: 2010

💭 My 2 Cents: In business for over 10 years, this company provides curriculum development and instruction, IT support, and several other additional services to government clients across the country. What I really like are their customers. About 1/3 of the company’s revenue is generated from government contracts under the Service Disabled Veteran Owned Small Businesses (SDVOSB) program. Clients include the Federal Aviation Administration, the Department of Defense, the Veterans Administration, and the General Services Administration. The remaining 2/3 of revenue is centered around providing professional services to government customers using the small business set-aside advantage. These “small business set-aside” contracts help small businesses compete for and win federal contracts. Regular readers know I love government clients as they tend to be sticky and always pay on time, but I would need to better understand the government contracts they have in place and whether they expire and/or are renewable. I would also want to check on any client concentration issues. Otherwise, it’s not every day that you find a remote business listed for under 3x EBITDA with government clients, over 50 full-time and part-time W-2 employees, and a retiring owner.

5/ Gourmet Food Distributor with e-Commerce Division

📍 Location: North Carolina
💰 Asking Price: N/A
💼 EBITDA: $1,840,000
📊 Revenue: $11,799,000
📅 Established: 1995

💭 My 2 Cents: This company imports, repackages, and distributes gourmet food products. I like that they have been in business for 30 years and have longstanding client relationships with specialty food distributors, private labels, chefs, and retail customers. Given that food companies come with natural repeat revenue because of the consumable nature of their products, I would want to check how regularly their clients order from them. I also want to know if they have any exclusive relationships with their B2B customers or suppliers, as this could create a moat. On top of that, I’d also dig into what payment terms look like with their clients (net 30/60/90?) as this can be very delayed in the food industry. What’s unusual about this business is they have an e-Commerce arm as well. On the DTC/e-Commerce side, you’ll obviously want to understand how they acquire customers as well as what CAC, AOV, and LTV looks like. But assuming the numbers check out, then you have yourself a very tasty deal with a retiring owner and leadership team in place.

🐦 The Best of SMB Twitter (X)

Business buying observations from this year (link)

Books and podcasts to learn more about SMBs and ETA (link)

19 traits of top 1% performing businesses (link)

18 ways sellers inflate asking prices on small business for sale (link)

Profit is not cash flow (link)

10 books that replace a MBA (link)

Why you don’t need experience to be successful with acquisitions (link)

Using SQDIP to improve monthly results through daily tracking (link)

🤝 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.

See you Thursday!

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. Reply “LP” and I’ll share more.

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

4. Want to promote your business to my community of 50,000+ entrepreneurs and investors? Advertise in SMB Deal Hunter

⏪ Catch Up On Recent SMB Deal Hunter Issues

How was today's newsletter?

Login or Subscribe to participate in polls.

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.