Welcome to Upper Market

Each week, I stick my hand into the TradeMe jar. Repeatedly.

Yes. It gets covered in shit.

But every now and then, I find something that’s worth showing you.

What’s ahead in this Newsletter:

This past week, I watch a YouTube video by Chase Hughes. If you aren’t familiar with Chase, he’s a behavioural science expert.

There are three things he believes people can observe to determine whether or not they are going to succeed:

We aren’t delivered these skills in a box - they’re learned.

Self-mastery is pretty straight forward. Doing the actions that you set out to do, without getting distracted by random side-quests.

Observation and Communication are a little tricky. These take place in social situations. When you’re in a new environment like the Business Acquisition World, you can feel out of place. Usually because you have less authority or comfort.

The only way to improve this is through repetition. Repetition works, because it makes you feel more comfortable and gives you the pattern recognition you need to observe correctly.

But here’s my modern view on repetition.

People just throw the word around as if there’s nothing else to focus on. Quality of reps is far more important.

The measure of comfort in social interactions isn’t based on knowing perfect responses to questions, understanding everything that’s being said or making people laugh.

It’s about controlling your physiological response to the environment you’re in.

And the way you do that, is by

slowing

yourself

down

When I was training children to sell mortgages, part of my sales training was to have them force periods of silence in their phone conversations with clients.

Simply just not responding when they should be.

Forcing the silence taught them it was okay to hold back the urge of needing to fill silence with dumb words. It also taught them that if they needed time to piece an answer together, that they were more welcome to have it.

It also meant that you could mute the call and sip coffee without the client hearing it.

The signs of comfort you’re looking for are physiological. Low heart rate, steady breathing, clear mind - the whole package. Without this, you’re not primed to taking anything in.

This makes complete sense. If you’re stressed, all you can see is what is directly happening in front of you - not the undercurrent of the situation. Which then leads into you communicating poorly.

In business acquisition, this matters more than most settings.

You're sitting across from a seller who has spent years building something. They're reading you. They want to know if you're the right person to hand it to. If you're anxious, it shows. Not in what you say, but in how you say it.

Slow down. Observe more than you speak. Let silence do some of the work.

Being confident and composed is what unlocks better terms.

TL:DR; You can assure your success if you repeat the right habits, to a high standard, while operating from genuine comfort in the environment.

$1.96m in revenue. $463k in adjusted earnings. Eleven years in market. Christchurch-based, selling nationwide. And unlike a other dismantlers, this business runs four revenue streams simultaneously: used, OEM, aftermarket and reconditioned. A workshop sourcing parts doesn't need to go anywhere else.

That's the model. One supplier, multiple solutions, deep technical capability. In a parts business, convenience and expertise are the two reasons customers don't shop around. This has both.

What I'd Want to Understand:

First is inventory quality and turnover. A substantial inventory position is either a moat or a liability depending on how well it's managed. Slow-moving stock in a specialist parts business ties up capital and quietly erodes the yield. I'd want to understand what's moving and what isn't. It also takes up space that you might want for other parts that move faster.

Second is customer breakdown. Nationwide customer base with significant repeat business sounds strong. But how many workshops, fleet operators or repairers make up the bulk of that $1.96m? Lose two or three key accounts and the earnings story changes quickly. By the same notion, picking up several more could dilute this risk while growing the business.

Third is the supplier relationships. I'd want to understand the basis of the EOM relationships. Do they supply others in the country (mainly local competitors) and if anyone can walk in and pick up these relationships. I’d also want to know where the busted vehicles are coming in from. I’m assuming it’s from mechanics? How does this relationship work.

Fourth is the e-commerce gap. Digital sales and expanded distribution are listed as growth opportunities. Which means they haven't been pursued yet. That's upside, but it also tells you the business has been run traditionally. Also, this could just be broker BS, trying to convince you that there are more reasons to buy this business than actually exist. Understanding why this hasn’t been done is a good idea.

Growth Angle: A parts business with nationwide reach, specialist positioning and an underdeveloped digital channel is a straightforward growth story. The infrastructure is there. The reputation is there. Could there be grounds to buy something tangental like a large mechanics nearby? Let’s figure it out.

The Drawbacks: This is an inventory-heavy, operationally complex business. Deep technical knowledge sits with a long-serving team. That’s a strength until someone leaves. Staff retention and knowledge transfer need to be front of mind from day one.

Final Thought: Specialist positioning, notable barriers to entry, nearly half a million in earnings and a clear digital upside that hasn't been touched. The question is whether the inventory and team hold through a transition. Someone’s gotta chop the vehicles up.

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

50% market share of NZ pie wrap packaging. Let that sit for a moment.

Every second pie that gets wrapped in this country goes through this business. Find me a person in the country who hasn’t touched something that’s come from this factory.

$6m+ in annualised revenue. Fully managed. Financials ready. A 3,000m² purpose-built facility with room to grow. This is a mature, cash-generating operation that doesn't need its owner to function.

Based on what it’s working with: film, foil, paper, cello bag production, laminating, embossing - this isn't a single-trick packaging shop. It's a customised manufacturer with the ability to work across multiple formats. That breadth is what keeps blue-chip food manufacturers from shopping elsewhere.

The implied EBITDA yield of 27.5% at a $3.6m asking price tells you what you're actually buying here almost $1,000,000 of earnings

What I'd Want to Understand:

First is customer concentration. As always - what’s the split? Blue-chip is a good word. Recurring is a better one. But how many customers make up the bulk of that $6m? If two or three relationships carry the majority of the revenue, that's the first conversation to have.

Second is the GM dependency. Fully managed is only as good as the person managing it and how they’re remunerated & performance measured. I'd want to understand the structure beneath them and what the business looks like if the business were to lose them

Third is raw material supply. A packaging manufacturer is only as stable as its input chain. Film, foil and paper substrates sourced from offshore suppliers carry currency risk, lead time risk and concentration risk if key supplier relationships sit with the outgoing owner. Are these on shore? I'd want to understand who supplies what, on what terms, and how exposed the margins are to input cost movements. Do we have back up options?

Fourth is equipment age and capex. Manufacturing businesses live and die by their machinery. What's the condition, who services the equipment, what's the replacement schedule, and does the yield number still hold after you factor that in.

Growth Angle: The acquirer fit is obvious - a packaging group bolting this onto existing infrastructure, or a food manufacturer pulling its supply chain in-house. Either way, the 50% market share becomes a foundation. What other targets can we expect within the industry or close to it?

The Drawbacks: This is a manufacturing business. This means we’re exposed to challenges in the labour force, equipment downtime and potentially the expected pains on the cashflow cycle in the industry. All things to check before we head deeper.

Final Thought: Dominant market position, fully managed, essential sector, recurring revenue. The bones here are strong. The due diligence question isn't whether this is a good business, it's how certain we are that we aren’t missing something glaringly obvious with this business.

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