Welcome to Upper Market

The world rewards consistency. And almost all of you readers, have that.

We’ve maintained over an 80% open rate over the last 25 weeks. Good on you for sticking to it.

Finding the right deal isn’t easy - it requires persistence and patience.

A life changing transaction isn’t going to show up on your doorstep. A deal won’t do itself for you. No one’s going to hand you a business.

Stick to the path - you won’t regret it.

Anyway, let’s not make this cold open too deep…

What's ahead in this Newsletter:

YouTube Videos from the Week:

You can do everything right and still lose, if you buy into the wrong tide.

You can buy horrifically and still win if you buy in the right industry.

Every business sits inside an industry, and every industry is doing one of three things: growing, holding flat, or dying. That direction - the tailwind or the headwind behind the business - matters just as much as how well the business is run.

A good operator in a shrinking market is swimming against the current. A mediocre one in a growing market gets carried.

Headwinds are invisible in a single year's accounts. A business in a dying industry can look wonderful right now: profitable, dominant, decades of history, loyal customers. The decline shows up as a slightly smaller one, every year, for ten years, until one day the numbers fall off a cliff. Print, physical media, video rental, high-street travel agents: all looked fine, until they met the cliff.

When you look at a business, spend as much time on the industry as on the accounts. Is the total market growing or shrinking? Is the thing this business sells being replaced by something cheaper, faster or digital? Are its customers an ageing group or a growing one? A dominant share of a market that halves is still a business that halves.

We’ve had billions of dollars leave the liquor industry. Why? The younger generation just isn’t drinking as much.

Where does the money go? Things like Hyrox, of course. A focus on health and longevity, rather than nights spent throwing up on the side of the road or buying Powerade from the gas station the morning after a big night.

Or perhaps vaping?

So how about the other side? A business riding a tailwind - infrastructure spend, an ageing population, a regulatory shift, electrification - gets a lift you don't have to manufacture yourself. Demand grows on its own, and your job is to keep up with it rather than fight to win every dollar. You'll pay more for that tailwind, and usually it's worth it.

A dominant share of a shrinking market is still shrinking.

None of this means never buy into a mature or declining industry. Some of the best returns come from being the last, best operator standing - consolidating a dying market, buying competitors cheap, milking the cash while managing the decline. But that's a deliberate strategy with a clear exit, not an accident. If you're buying a business in a shrinking market, you should know you're doing it, and the price should reflect the headwind - not the history.

The mistake is falling for the story - 95 years, dominant, trusted - and forgetting to ask the only question that matters about the next ten: is the tide coming in, or going out?

Short Summary:

$486k of EBITPDA on $2m of revenue, three-year average. Asking $900k plus stock - around 1.85x. A cheap multiple, and what looks like an honest number behind it.

A Wellington flooring retailer since 2004, the owners retiring, priced like a plain, profitable trade. There's a lot to like at 1.85x.

It supplies and installs the full range - carpet, vinyl, timber, laminate, hybrid, cork - mostly to residential customers with some light commercial, from a high-profile Wellington retail site. It runs lean: one key person alongside the proprietor, plus contract installers, and deliberately low inventory. The number is a three-year average, not a single good year, which is a more honest way to quote earnings than most listings manage.

Cheap, simple, profitable and long-established. The two things to pin down are what happens when the proprietor leaves, and what happens with the building.

What I'd Want to Understand:

First is the proprietor's role, because EBITPDA includes their pay. That $486k has the owner's salary added back, and the owner is retiring. It's a lean team - one key person and the proprietor - so I'd want to know exactly what the owner does: selling, quoting, managing installers, supplier relationships? Whatever it is, you either do it or you hire for it, and that cost comes out of the $486k. At 1.85x it's still likely cheap, but know the real hands-off number.

Second is the building, because the vendor owns it. "Attractive rental terms" were set by the seller for their own business. The location is a high-profile retail precinct - foot traffic the showroom depends on - so I'd want a long lease with capped rent reviews locked in as a condition of sale, and I'd model the business at full market rent to make sure it still works when the friendly rate ends. This could work out in your favour - perhaps asking for the first 90 days rent free in the deal?

Third is the demand and the cycle. Flooring is renovation and construction spending, which rises and falls with the housing market and consumer confidence. The business held up "through a tough economy," which is a genuinely good sign - but I'd want to see the revenue through the cycle, and understand how much depends on the retail showroom versus repeat trade and builder relationships.

Fourth is the supplier positions and the name. The listing mentions "advantaged supplier positions" and a widely recognised local trading name. Those are the real moat for a flooring business - buying terms and reputation. I'd want to know how durable the supplier arrangements are, whether they transfer, and how much of the trade walks in because of the name versus the retiring owner personally.

Growth Angle: It's a deliberately simple, lightly-run business, which means the upside is straightforward: the listing itself flags weak digital marketing, so a proper online presence and lead generation is low-hanging fruit. Beyond that, more commercial work, more installer capacity, and leveraging those supplier positions harder. This is a "run it well and modernise the marketing" business, not a moonshot.

The Drawbacks: It's small and owner-involved, so the real earnings depend on replacing the proprietor cheaply. It's cyclical, tied to renovation spending. And the vendor-owned building is a genuine risk that has to be papered properly. At 1.85x you're being paid to take those on - but they're real.

Final Thought: This is an unglamorous, quietly good buy: a long-established, genuinely profitable trade at a cheap multiple with an honest, averaged number behind it. Nail down the lease before anything else, work out the true cost of replacing the owner, and you've likely got a solid, cash-generative little business bought well. Just don't let the friendly handover distract you from who owns the floor you're standing on.

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

Circa $850k of EBITDA. Asking $3m. That's around 3.5x - the same multiple as last week's childcare centre, for a completely different kind of asset.

It's a West Auckland food manufacturing and meal solutions business, eight years old, founder-led, running out of an MPI-certified 600sqm facility with 25 staff. Three channels underneath it: wholesale manufacturing for two well-known NZ food brands, government and institutional contracts, and a direct customer base of around 10,000 repeat buyers. Two-time Deloitte Fast 50, including fastest growing manufacturer.

On paper it's the opposite of a passive asset - it's a real operating business with plant, people and contracts. Which is fine. But the questions that matter here aren't about who runs it. They're about whether the earnings are real, whose revenue it actually is, and how much cash the thing swallows to stand still.

What I'd Want to Understand:

First is the number itself, because $850k is a 2026 figure. That's a forecast, or at best a part-year run rate. You're being asked to pay 3.5x on earnings that haven't fully landed. I'd want the last three years of actuals side by side, and I'd want to see the bridge - what specifically takes it from what it did last year to $850k, and how much of that is already contracted versus hoped for. Then the add-backs: founder's salary and vehicle, any family on payroll, one-off legal and consulting, R&D or grant income sitting in the wrong line. A number built on a forecast plus a generous normalisation can be $200k lighter by the time an accountant is finished with it, and at 3.5x that's $700k off the value.

Second is concentration, and what the contracts actually say. "Blue-chip wholesale partnerships with two of NZ's most recognised food brands" is a selling point right up until you learn they're 60% of revenue. I'd want a revenue split by channel and by customer, and then I'd want to read the agreements. Are those manufacturing relationships contracted with terms and notice periods, or are they purchase-order-by-purchase-order with no obligation to keep buying? Contract manufacturing for a big brand is a lovely relationship until they retender, bring it in-house, or lean on you for a price reduction because they know what your margin looks like. Same question on the government and institutional work - those come with tender cycles and expiry dates. I'd want to know when each one is up for renewal, whether it's been renewed before, and whether the contract survives a change of ownership at all. Some don't.

Third is cash, not EBITDA. Food manufacturing is one of the more cash-hungry businesses you can buy. You carry ingredient and packaging inventory, you pay staff weekly and suppliers on 30 days, and then you invoice a major grocery brand or a government agency who pays you sixty days later - tying up working capital before it ever becomes profit. I'd want the cash conversion cycle, the debtor ageing, and a clear answer on whether stock and work-in-progress are included in the $3m or sit on top of it. Then maintenance capex: commercial kitchen equipment, blast chillers, refrigerated vehicles and a chiller room all have replacement cycles, and none of that shows up in EBITDA. Real free cash flow here could be meaningfully below the headline.

Fourth is capacity, because every growth lever listed needs it. Expanding wholesale volumes, new retail channels and South Island expansion all mean producing more food out of one 600sqm site. So what percentage of that site's capacity is being used today, on how many shifts? If it's running at 60% there's genuine free upside. If it's at 90%, the growth story isn't a growth story - it's a capex plan, a second site, or a night shift, and the buyer funds all of it. I'd also want the MPI audit history and any recall or non-conformance record, because that certification is the thing that lets the doors stay open.

Growth Angle: The interesting one is mix, not volume. Wholesale manufacturing is the lowest-margin channel and the one where someone else owns the customer. The 10,000-strong direct database and any retail listings are where the margin actually lives, and a database that size is under-monetised in most businesses I look at - frequency, basket size and reactivation are usually worth more than a new channel. Beyond that, this is a natural bolt-on. If you already have a kitchen, distribution or a food brand, you're buying capacity, certification and two brand relationships you'd struggle to win cold - and you can strip out overhead a standalone buyer can't.

The Drawbacks: You're paying a full multiple on a forecast, in a low-margin, labour-heavy sector with 25 staff and real capex. Ingredient and freight costs move on you and big customers don't always let you pass them on. And a founder-led business that grew fast enough to win Fast 50 twice is exactly the kind that has grown into its systems rather than the other way around - fast growth hides a lot, and it's usually the working capital that tells you the truth.

Final Thought: This is a proper business with real assets and real revenue, priced at a multiple that isn't demanding for what it is - but only if the $850k survives contact with an accountant. Get the actuals, read the two wholesale agreements, find out when the government contracts expire, and work out what percentage of the plant is already full. Do that and you'll know very quickly whether this is a $3m business or a $2.2m one.

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