Welcome to Upper Market

The hardest part of the game is saying no to the masses of deals that won’t work.

Yep, you’re mean - but we can keep that between ourselves.

It’s not your responsibility to buy a business at the price someone else wants to sell it for.

What's ahead in this Newsletter:

YouTube Videos from the Week:

A big growth number can be a turn on.

"60% growth in the past year" sounds like a business on a rocket. Maybe it is. But a growth rate on its own tells you almost nothing until you find out what’s driven it.

60% growth on a business that did $200k last year is a different beast to 60% on one that did $2m. Small numbers grow fast. And this can happen for a few reasons, but nothing to get high on. Something as simple as finally reaching page one of Google SEO or figuring out your advertising campaign can lead to this. This might persist, but it’s no sure bet that growths going to come forever.

Growth comes in two ways, both very different.

Structural growth - more customers, a bigger market, something that can be repeated. This is the good kind as it's likely to continue, and you're buying a business that'll be bigger next year.

One-off growth - a single new contract, a competitor closing, a post-Covid bounce, a burst of the owner's personal effort - is a step up, not a trend. It lifts the number once and then flattens.

Let’s not ignore the post lockdown boom we had. Plenty of money flowing through businesses, now almost nowhere to be seen. Buying based on thinking those numbers were forever would be pretty painful right now.

Sellers might be showing you growth before it's about to slow. The best time to sell a business is at the top of its growth curve, when last year's number looks amazing and next year's is going to disappoint.

So the question isn't "did it grow?" - it's "will it keep growing, for reasons that survive the founder leaving?"

A growth rate tells you what happened. It doesn't tell you what happens next - and that's the number you're wary of.

So interrogate the growth. Three years of revenue, not one, so you can see the shape. What specifically drove the jump, and is that thing repeatable or spent? Is the growth in new customers or just more from the same few? And crucially, are you being asked to pay for growth that's already happened - baked into a high multiple on this year's peak - or for growth that's genuinely ahead of you?

Growth is wonderful when it's real and repeatable. But "it grew 60%" is a headline, not a reason to buy. The money is in knowing which kind of growth you're looking at - and refusing to pay trend prices for a one-off.

Short Summary:

$439k of SDE on about $1.5m of revenue, a three-year average. Asking $1.5m including stock - around 3.4x. A long-established, well-regarded bespoke fabricator, sold by the person who built it.

That last part is the crux. This is a skilled, reputable Wellington sheetmetal business with a loyal, diversified customer base and an honest averaged number - and an owner who's run it since day one. Everything good about it, and the main risk, trace back to that.

It does bespoke sheetmetal fabrication for commercial, industrial, architectural and residential clients, with a long-tenured team, a modern workshop, and a strong reputation for quality that generates repeat work and referrals. Revenue is diversified across sectors, the earnings are quoted as a three-year average rather than a peak, and the owner will do a full handover. On paper it's a solid, proven trade business.

What I'd Want to Understand:

First is the owner's role, because they've run it since inception. SDE adds the owner's salary back, and this owner has been the business for its whole life. What do they actually do - quoting, key customer relationships, the hard fabrication jobs, the books? Whatever it is, you inherit it, and the true hands-off earnings are $439k minus whatever it costs to replace them. The handover matters more here than usual.

Second is the team and the skill. Bespoke fabrication is a craft, and "long-tenured team" cuts both ways: deep skill and stability, but also key knowledge sitting with a few people who are that much closer to retirement. I'd want the team's ages, tenure and pay, and to understand how much of the quality reputation lives in specific hands versus documented process.

Third is the customer mix and the cycle. "Diversified across commercial, industrial, architectural and residential" is a genuine strength - but all four of those ride the construction cycle to some degree. I'd want revenue by sector and by customer over the three years, and a feel for how the business performed when building activity last slowed.

Fourth is the equipment and the workshop. "Modern workshop" and "quality fabrication equipment" are good, but fabrication gear is expensive and wears, and the premises are the base. I'd want the age and replacement schedule of the key machines, whether that capex is reflected in the earnings, and the lease terms on the workshop.

Growth Angle: This is a business bought for steady cash and reputation rather than a growth story, but there's room: it's owner-run and lightly marketed, so a more commercial owner could chase larger architectural and commercial contracts, add capacity, and lean harder on the referral reputation. For an existing fabrication or construction business, it's a capability-and-reputation bolt-on that's hard to build from scratch.

The Drawbacks: It's owner-built and owner-run, so the real earnings depend on replacing the founder well. It's a skilled-labour business in a trade where skill is scarce and ageing. And it's tied to the construction cycle. At 3.4x you're paying a fair, not cheap, price for a proven business - the return comes from running it well, not buying it low.

Final Thought: A reputable, diversified, genuinely profitable fabricator with an honest three-year number is a good business. The whole question is how much of it is the founder - the relationships, the quoting, the craft - and how much is a transferable operation with a skilled team. Spend the handover finding that out, price in replacing the owner, and 3.4x buys you a solid trade with a real moat in its reputation.

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

$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.