Welcome to Upper Market

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

This Newsletter’s a bit longer. So here’s what’s below:

This week was harder than usual. No clear winners, but a few deals caught my eye.

Digital Marketing Agency: High earnings & retainers. Work from wherever. Perhaps I’m wrong, but I’m not bullish on the industry with AI. Friends in the industry have pivoted multiple times and it seems like the profitable work sits with Blue-Chip contracts. $450,000 earnings, close to $1.5m asking.

Moving Business: If it’s the biz I suspect it is, it’s been listed for the last 3 years and dropped in earnings ($400,000 atm). For sale for $1m. I love blue collar deals, but it’s a race to the bottom. In the B2C space you’ll be competing for price in a market where two mates will buy a truck (or use their work truck) and price jobs knowing they won’t pay GST, Income Tax and price their time for $30 an hour.

I respect the hustle, but I don’t respect the tax evasion.

For the love of God, they irritate me.

What gets me the most is how many people “watch-list” them, engage with them and ask me “If this is a good deal”.

Your machines will need replacing (Capital Expense). They’re overvalued because of their simplicity (Foolishly). They’re run as cash businesses (No verifiable income). They can’t scale easily (Harsh Capital Requirements). And your value is really pegged by the lease.

Here’s how people actually make money from them:

Your best bet to recoup your investment from a Laundromat is through finding another fool or arson.

Next weekend I’ll be hosting an AMA. No need to join but I’ll answer any question you want (can’t be arson related).

If you have any burning questions (or 10) send them through and I’ll record it & pass a link through in the next Newsletter.

Last week I met with a broker looking for businesses for sale for an Ultra High Net Worth based in California. They’re looking to play the passport game and have picked New Zealand as their intended secondary base.

This gave me an idea which you can also use to potentially solve any capital requirement issues you have getting into a deal.

Check out the “Active Investor Visa” requirements; particularly the Growth pathway. $5m has to be invested.

If you’re an Operator (or know an Operator) who needs capital for a deal AND you have a thesis + plan for an asset, why not reach out to Immigration Advisors who process applications for UHNW individuals like this?

If you hold industry knowledge and have evidence you can operate, you also have one thing that the overseas investor probably doesn’t have; Local Knowledge. This is worth something.

Submit it to the Advisor, ask for a 20 minute digital meeting to introduce yourself and see what comes from it. They want a de-risked investment and have other priorities than getting caught up in HR disputes, employing key members of staff and maintaining an asset.

You can solve this for them.

This week I’ll be submitting to them a tear sheet they can use to introduce me as a potential operating partner in a deal they like. I don’t need the capital today. But tomorrow I might have a deal that demands it.

Nothing ventured, nothing gained.

Like I said, we didn’t have a lot to work with this week - but here we go.

With average earnings of $368,000 over the last 2 years, this business sits as the better option I would look into if it were my first deal.

Asking price is $640,000. From what I can tell, you’re likely to be on the tools - a less than ideal start.

Realistically, you’re not going to be paying the asking price. From experience, you’re going to be able to land far closer to $550,000. Take out some profitability for another staff member and yes, you’ll reduce your earnings - relative to what you end up paying, you’re still likely to walk away with an ROI above 50% and something that can handle a little bit of leverage.

What I’d be focussing on here, is finding all of the constraints that get in the way of this business taking on more work. From what I gather, it would be the fact that most blue collar operators are left doing tasks that do not scale a business or promote further growth and they don’t build the infrastructure needed to be able to take it. Not hard, but time intensive.

I’d be looking for strong evidence that there’s a way to get more work enquiries and subsequent sales into the business, before pulling the trigger. This is a fragmented industry. This tells me that more business is out there, but I’m wary that this would potentially be a speculative play.

There’s no way that the Kitchen and Cabinetry markets are served by just this one player.

You’ll be taking a punt on it (which typically I would not be doing) but it’s up to you and your Due Diligence as to whether or not you can pull it off. The valuation would work in your favour but another drawback is the quantum; the total earnings is not that high.

Growth by acquisition is my favourite strategy. But in this industry, it may be hard to justify it; unless you’re acquiring strong relationships with the NewCo of repeat business (think smaller developers). However, if I could prove that those relationships exist, I would be far more tempted to invest in growing organically.

This deal definitely isn’t for everyone and most probably not for someone based out of town.

If you want more details on this business or you’d like me to put you in contact, reply to this email

For New Subscribers, Here’s What You Missed Last Week:

$2m in Earnings is nothing to snuff at. Realistically, this deal might have legs to push near an 8-Figure Sale Price.

What does the business do? Likely servicing, installation, parts sourcing - everything to maintain commercial fridges staying cold.

Think supermarkets, liquor stores (obviously) but also up and down the supply chain of food & beverage (wholesalers, distributors, walk in chillers, fridges).

The B2B environment would be hard to break into as a sole contractor. I don’t imagine you’d lose contracts because your lead installer, Joe, decided to go out by himself and try poach the “Woolworths” contract. Client attrition to exiting employees who buy their own van is a common concern for trades based owners.

I would be ready to scrutinise the process the business finds, trains and keeps their techs. You can find people to send an email relatively easily, but how about climbing a ladder to 8m Stud Height to diagnose the issue with a cooling unit? Let’s see.

At $2m in Earnings, we reach a valuation level where we start to ask ourselves if the additional risk we take for owning a less liquid asset is worth the uptick in ROI. If we value the Co at $8m and we are “guaranteed” the $2m, we’re at 25% ROI.

There are financial products where you can land at 15% consistently. How badly do you want the extra 10% and the leverage?

If you want more details on this business or you’d like me to put you in contact, reply to this email