Welcome to Upper Market

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

The process isn’t complicated around here. I’m simply incapable of making things harder than they need to be.

^I’ve learned to weaponise my dwindling brain cells

What’s ahead in this Newsletter:

I wonder how hard it is to come to grips with selling your brothel.

Walk with me for a second…

Out there somewhere, I can almost assure you there’s a law abiding family man, who built his sex-empire doing right by everyone.

He pays suppliers & landlords on time, makes sure his contractors have the right tools to get the job done and most importantly;

He never gets high on his own supply

He’s happily married. Raised two amazing children. And gives his spare time to charitable causes in the community.

Before you ask; no. He did not meet his wife at work.

It’s time for him to move on.

What started as a side hustle in his early 20’s was blown out of proportion when the internet came around. Nearing his 50’s, staying up late counting cash and moderating his Pimps is a little too much.

The allure of sitting on the couch, nodding off to reruns of Gilmore Girls by 9pm calls him more each day.

He was a first mover on SEO and solidified his spot in the rankings for Key-Words such as “Hot Girls In Your Area”.

This man is unlikely to be selling the Adult Services Business I saw listed this past week. But it remains a testament to the fact that there are plenty of ways to make money.

It also serves as a reminder that the oldest profession holds its ground by doing one of the core fundamentals of business extremely well:

Fulfilling other people’s needs.

This week, I was reminded of an Acquisition Strategy that’s worth sharing.

“The Property Split” is also known as the “Sale Leaseback”.

Occasionally, you may find a business that also comes with property. Here’s some numbers:

Business Value: $800,000
Property Value: $3,000,000

The property value is going to be influenced by the rental yield.

If you’re buying the business consider increasing the rent you pay.

Why?

Because you can find a buyer for the property at a higher price than what you pay for it. Take the net proceeds, fold it into a down payment for the business, or better yet…

Flip the property, keep the cash and do the business acquisition no money down.

This works because the owner may only be able to sell both the property and the business together. They’ll also be receiving a large sum from the proceeds of the sale, which quells any outstanding debts they may have, while you pay back the rest.

Any questions on this - just email me back and ask.

Beauty Salons are a good example of a simple service business producing strong operator earnings with relatively straightforward operations.

There’s a South Island based clinic which is currently operated under management and allegedly nets over $10,000 cash surplus per month.

It seems as if the team and systems can support day-to-day operations without direct owner involvement. Necessary for anyone new to the industry to be able to take the business over in peace.

This sits under the earnings threshold that I would recommend, however here’s why I like them:

1) These systems can scale. Majority of the output is labour orientated, perhaps mildly capital intensive with machines. Watch out for fit-out costs.

2) The industry is fragmented. More will come up for sale and it will fit into a buy & build a group strategy. This is the only time I would recommend a smaller business (if it’s part of building a group of similar companies)

3) Upsells. I can guarantee you that not all beauty based businesses are run the same. They will use different machines, provide unique services at varying costs. Researching the industry will show you what services you are missing and which will yield better returns. Implement what’s necessary in all future acquisitions and assess deals under your new lens.

4) Customer Lifetime Value. The number one metric to measure. If you know on average how much a new customer is worth to you, you can be certain of your advertising & customer acquisition costs.

If you can figure out points 3 and 4 in this industry and understand how much customers buy, how frequently they buy, what you should pay for customers and how to get them to buy more - you are playing a very unfair game when it comes to 2nd, 3rd, 4th acquisitions.

^these deals are better than pornography.

Note: These customers will be paying at the time of service (perhaps even a portion in advance to book the appointment? So the cashflow cycle also checks out.

Risks

The main risks sit around staff retention and labour availability, as beauty services depend heavily on skilled technicians. These technicians may also be incentivised or interested in started their own clinic in the future.

People say you can’t get good talent, but I disagree. VIVO hair studios was acquired by Castle Rock Partners (who also own Hells Pizza, Majestic Horse Floats and The Tile Depot). The nature of the talent is similar, but they’ve figured it out. Back yourself and figure out what the right system is to find + train them.

New treatments, machines and up-skilling. Take pizza’s for example. The method we use to make these hasn’t changed much. Making people beautiful has. Take Clavicular’s approach for Bone Smashing for example (I’m not linking this).

It’s not a slam dunk, it’ll take some work, but the mechanics may be there.

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

This one services the residential and commercial construction sectors with compliance-driven safety installations. It’s being sold heavily on the basis it is “remote operated,” with strong systems, experienced team and regulatory tailwinds.

Safety and compliance is non-discretionary spend, which makes it structurally more attractive. As regulation tightens, demand should remain consistent. That part I like.

The key questions are around revenue quality and risk. Is this largely project-based work tied to construction cycles, or is there meaningful recurring inspection and certification income? I’d also want to understand client concentration and whether key licences or certifications sit with specific individuals. If one supervisor leaves, does revenue stall?

Focus on here should sit with who and how the staff are trained and replaced. This is likely to be a key risk of continuity. Perhaps even asking questions about what work leaves if a key staff member were to also go?

If margins are stable and the team genuinely runs day-to-day operations without the owner, this could be a solid, leverage-friendly asset. If not, it risks being a well-paid job disguised as a systemised business.

If a business doesn’t have its earnings listed, I’m wary we may be walking into something inconsistent, requiring explanation or potentially over-valued. Those are just reactions and mean nothing until we get more data.

But for this week, this deal is what I would be looking at.

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