Welcome to Upper Market

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

This week, deals were sparse. The listing marketplace was full of classics: cheap, unscalable duds, franchises and notably… a Gambling Biz that the owners are ready to palm off.

Deals to note:

1) Indoor Playground - For Sale for $900,000. Earnings sub-$300,000. Valuation stacks, perhaps it IS self managed, but I bow out on two factors; replacing the gear is costly, this drops your “true” profit (meaning it’s overvalued) AND you’re desperate on the lease if you don’t own the land.

2) Sushi Shop - Tauranga Based. Nothing crazy about the deal, it’s for sale for sub $500,000 but I know the owners. They already sold one in Auckland before 2020 and they’re looking at their second exit in a decade, running the same playbook. Finesse.

$2m in Earnings is nothing to snuff at. Realistically, this deal might have legs to push near an 8-Figure Sale Price.

What does the business do? Likely servicing, installation, parts sourcing - everything to maintain commercial fridges staying cold.

Think supermarkets, liquor stores (obviously) but also up and down the supply chain of food & beverage (wholesalers, distributors, walk in chillers, fridges).

The B2B environment would be hard to break into as a sole contractor. I don’t imagine you’d lose contracts because your lead installer, Joe, decided to go out by himself and try poach the “Woolworths” contract. Client attrition to exiting employees who buy their own van is a common concern for trades based owners.

I would be ready to scrutinise the process the business finds, trains and keeps their techs. You can find people to send an email relatively easily, but how about climbing a ladder to 8m Stud Height to diagnose the issue with a cooling unit? Let’s see.

At $2m in Earnings, we reach a valuation level where we start to ask ourselves if the additional risk we take for owning a less liquid asset is worth the uptick in ROI. If we value the Co at $8m and we are “guaranteed” the $2m, we’re at 25% ROI.

There are financial products where you can land at 15% consistently. How badly do you want the extra 10% and the leverage?

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

For New Subscribers, Here’s What You Missed Last Week:

Auckland based, rare hybrid business. Branded FMCG platform with multiple, revenue streams.

From an ownership perspective, the appeal starts with its diversified earnings. The business operates across wholesale, manufacturing, e-commerce, export, retail, and its café.

No single channel carries the full weight of performance - you can’t ask for much better than this. Diverse revenue = huge risk mitigation.

In-house manufacturing is a major positive. They make their own products and can run tests for any new lines they want feedback on from their cafe. Extremely effective for testing out any new product lines in small batches

Its Ponsonby café functions as a flagship showroom, customer acquisition channel, product testing environment, and brand amplifier. Extremely hard to replicate and very defensible.

The business is already export-capable, with Australia established and the US in progress.

Owner Earnings are above our minimum. +$300,000 - meaning this business can hold debt as well as pay a modest salary + accrue a bank balance (if your strategy is to grow through reinvestment or further acquisition)

Primary risks likely sit around brand concentration, labour intensity in the café operation, and execution risk in export expansion. Remember, we’re getting close to the other side of a recession right now and hospitality has been left bleeding in the gutter. This will happen again.

Overall, this is the kind of business that scores well on earnings diversity, control, and ability to build a portfolio of companies around

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