Welcome to Upper Market

Each week, I hand-pick and break down one business that passes both the “eye-ball” and the “tell me more…” tests.

Lately, I’ve also opened the vault on the politically incorrect commentary that was previously reserved for me and my group chats with The Boys.

What’s ahead in this Newsletter:

Had my first haircut this week behind enemy lines (Sydney). Barber was a young guy (23) and told me how he had bought the business 4 years earlier.

Props to him, but he said the transaction didn’t go as smooth as he expected.

About 6 months in, they were unexpectedly dead and he couldn’t figure out why.

A couple weeks into the dip, a customer told him he was surprised they were open as their “Google My Business” page said that they were “Temporarily Closed”.

Ali realised he had never received access to the Google Account from the previous owner.

He rallied his Lebanese Uncles and went over to chat with the guy. Turns out he was funnelling people over to his place for haircuts.

Regardless, the intimidation worked and they got access to the Google Account, made the updates and called it a weekend.

Next day, Ali got a call from the seller and he was really upset. Turns out overnight someone went to the shop and blew it up.

There are a lot of lessons to take from this story, but here’s the major:

Professional handovers matter. Miss the small details (account access, logins, control) and you leave doors open that shouldn’t be.

Note: Ali maintains he’s innocent, but I’m going to dig a bit deeper when I see him in about a month.

I’ve spent more time over the last six months talking to buyers than I ever imagined I would.

The most common conversation I have is that they’re not targeting large enough companies.

I’ve been guilty of this myself and occasionally revert to the same mistake when searching.

If your plan is to buy a business to replace your full-time income, there are a couple of realities you need to address:

You’re ambitious enough to buy a business, so finish the job and buy a good one.

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.

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