Welcome to Upper Market

Each week, I hand-pick & highlight one business that passes the “eye-ball” & “tell me more…” tests.

Ideally, things that can also survive odd weather patterns.

What’s ahead in this newsletter:

We’re getting close.

Saturday 25th April I’ll be hosting an in person workshop in Auckland [Tickets Here]

I’ll be walking through the core principles of acquisition and what to expect from the journey ahead.

My goal is to deliver something personable, realistic and authentic to what the buying process and ownership journey is like.

We’ll talk strategy, thesis, finance, due diligence and post deal operations.

No upsells, gimmicks or random BS that you could probably expect from this kind of set up.

For anyone new to the game, this is a great point to start from.

For anyone not new to the game, there will most definitely be worthwhile perspective.

Access to Capital is misdiagnosed as the “missing link” for anyone wanting to do deals or complete an acquisition.

I’m not sure how to say this politely

But that’s bullshit

Two years ago I ran a workshop series teaching a group of aspiring business owners the ins and outs of acquisition.

For our last session I promised to bring in an investor that I knew. He had personally invested close to $1.5m in a combination of small businesses and privately owned funds in New Zealand.

After they met and spoke with him for around 2 hours, they all had the same thing to say about him:

He’s a regular guy

Funny that.

He’s a human. Drives a regular vehicle. Speaks English. And puts his pants on the same way we all do.

Capital is everywhere.

The reason capital appears to be a constraint for most people is because they aren’t actively engaging in networks where they can find these people.

The most consequential people in your life will come from chance encounters.

They’ll also come from contacts you build while you interact with the world with intent.

Your job, is to place yourself in these environments and learn how to communicate the opportunities that you see.

People say that there are hacks like buying a Ferrari and going to supercar meet ups. Picking up golf clubs and flirting with 60 year olds at the course. Or paying to join high value masterminds that promise to put you in front of high net worth individuals that you can pitch.

I’m not going to dispute that these can work - but the core message stays.

You need to tune yourself into Deal-Making FM

It’s the kind of frequency you can access when you start actually engaging with deal-makers and people who are out there trying to play the actual game.

Refraining from communicating your ambition to the world is the problem.

The opportunity for you to build relationships with people who can connect you to those that have capital exists in front of you every day.

Do you know the owner of your local cafe? Your barbershop? Anywhere you go that you may know the owner or someone well connected?

Those are opportunities for you to share your ambition. Every so often, one of those people will know who to put you onto.

Speaking for myself, Mortgage/Insurance Brokers, Real Estate Agents, Lenders, Property Traders, Developers - all have had networks I can tap into. Start there.

The job, is to become connected and known as someone who is actively trying to create an investment opportunity for someone else to join you one.

These relationships stack over time and there’s no real shortcut to it, other than finding those people who are well connected, getting to know them and being ready to share the opportunities that you are creating.

These investors have a similar problem that I’ve come to learn:

They have an investment strategy that works, but they want some exposure to more volatile assets that they can understand.

They are willing to issue loans that return them interest slightly above market that makes a meaningful return to them. The same could be said for small ownership in companies that are verifiably stable and have some growth prospects.

They also lack the access to deals like this where they are not the operator - they normally don’t want to be the operator.

As an acquirer, I know what it’s like to think that that’s not possible. SURELY everyone wants all the smoke?

Here’s the truth:

Not everyone is willing to storm the castle, but they’re willing to give you the tools you need to do it.

They just want some of the gold you bring back.

Here’s my solve for you:

In a couple of weeks I’ll be sharing deal structures that will reduce the amount of capital you may need.

But as for next week’s constraint: its your Judgement on what is a good deal and/or asset.

Find me something more appealing that a must have B2B solution which requires ongoing compliance and is service based?

You could, but this still doesn’t mean that this isn’t a turn on.

What stands out here, is that there are three divisions that reinforce each other. Health & Safety, Drug Testing & First Aid & Emergency Care.

Different revenue streams. Same core function from an operation perspective

The earnings are above the threshold you want as an acquirer with a pretty reasonable sticker valuation. You’re sub 2.5x. Even if you need to backfill some of the leaving owners responsibility, there’s a strong chance you’re going to be buying under 3x.

From a financial and structural perspective, it looks like it could be a winner.

What I’d Want to Understand

First is where the money is really coming from.

Split out the services - which is more profitable and by how much? This could lead to some kind of concentration risks

That could compound based on who is fulfilling the work.

Not only could you have revenue weighted from one core offering, but also one core team member - check it out.

Second is capacity.

How many services can be provided co-currently? Can it take more or is staff/contractor production under utilised?

Importantly - how is this work allocated, scheduled and what constraints are we working with here? It seems like planning could is likely to be a core function. Is there a system to do this or is it vibe coded?

Third is how sticky the revenue is.

Are clients locked in through contracts? Potentially not, but what is the driving force behind revenue coming in.

If it’s repeated, on schedule and predictable, even better.

Fourth is people.

Who delivers the training? This is service based and if there are facilitators, how are they found, trained and remunerated?

If the lead time on getting a facilitator up to standard is long, then staff attrition could be very problematic.

Also - does the company hold the relationship with the clients? Or are the facilitators so customer facing that they hold the relationship?

The Drawbacks

You’re operating in a regulated environment.

That’s part of the appeal, but it comes with upkeep.

Your responsibility is to sift through all the legislation changes on behalf of your clients. You are effectively, interpreting the law for them to comply with. This needs to be maintained.

Mistakes carry real consequences.

Final Thought

This isn’t a “nice to have” service, it’s an obligation that people have and it makes them push buy.

If you’re the provider they trust to handle it, you have embedded demand and that counts for something.

If you want more details on either of these businesses or would like an introduction to the sellers, just reply to this email.

Heating isn’t optional.

When winter hits, people don’t debate whether they need warmth. They just decide how they’re going to get it.

This business sits right in the middle of that decision.

What stands out here is the combination of product + install.

A lot of retailers sell the product and leave it there, but this business goes further:

This matters for a couple of reasons:

Full solution delivery, with the ability to charge servicing fees.

For something like this to produce strong earnings, it usually means the operation is structured properly and the team knows what they’re doing.

One person can’t deliver everything, you need an operation with business integrity.

Something I like about this business is that part of its product offering is stimulated by winter driving demand.

Not very often do you find businesses where winter is the trigger for sales. It’s normally summer that gets all the flash.

Rather than leaving summer as the “down” period, product sales and installations still happen for;

That balance smooths revenue across the year.

What I’d Want to Understand

First is how much of the revenue is install vs product.

Installation tends to carry better margins and creates more control.

If this is heavily product-driven, the business behaves very differently.

Second is capacity constraints.

How many installs can the current team handle per week?

If demand increases, what needs to happen to service it?

This tells you whether growth is operationally simple or not.

Third is lead flow quality.

Where are customers coming from?

If enquiry is consistent and not overly reliant on paid channels, that’s a strong position.

Growth Angle

There are a few obvious levers.

The Drawbacks

You’re dealing with a more complex operation than standard retail.

Installations require coordination and you’re going to need competent staff, with a way to train them.

Mistakes here can be extremely expensive.

There’s also some exposure to housing activity and discretionary spend on higher-end products.

Final Thought

A lot of retailers compete on price, but this type of business competes on delivery and execution.

Dial it in, and this business becomes hard to compete with.

If you want more details on either of these businesses or would like an introduction to the sellers, just reply to this email.