❇️ New Deals - 18 April 2024

A drug testing administrator, B2B trucking logistics company, and 3 other interesting finds.

Today's Sponsor

Hello SMB Deal Hunters!

Thanks for all the great feedback from the deals I shared on Tuesday!

I’m excited to share 5 new deals worth checking out.

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Today’s issue is sponsored by Rad AI, an AI startup that’s disrupting the $633B Content and Data Industry.

1/ Drug Testing Administrator

📍 Location: N/A
💰 Asking Price: $3,200,000
💼 EBITDA: $574,000
📊 Revenue: $3,265,000
📅 Established: 2001

💭 My 2 Cents: This is a drug testing administrator that handles everything from testing and compliance to recovery programming. The fact that they provide a full suite of services is very attractive to me. There are a ton of options for how firms can run drug testing programs, so I’m bullish on their ability to adapt to any situation. This versatility and the essentiality of drug testing (they are government-mandated in many industries) should make this business both sustainable and sticky. There will obviously be much larger national players, but considering that this company has been offering a completely managed end-to-end program for over 20 years, I’m fairly confident that they’ve been able to carve out a nice niche for itself. Plus, they aren’t even currently doing any active outbound sales or marketing, so there’s still room to grow here. I do want to know more about the certifications this business has and the regulatory requirements in the industry, specifically the barrier to entry for new participants, as this determines the steepness of competition. I also want to know whether they have their own lab or if they outsource the testing, how many of their services are run in-house versus outsourced, who is their ideal customer, how sticky their clients generally are, how popular the full service is, what services are done in the main office, and if there's room to expand both geographically and to clients in other industries. Overall, though, this looks like a nice essential business.

2/ B2B Trucking Logistics Company

📍 Location: California
💰 Asking Price: $2,000,000
💼 EBITDA: $785,720
📊 Revenue: $3,298,475
📅 Established: 2014

💭 My 2 Cents: When it comes to boring businesses, they don’t get much more reliable than trucking companies. This particular B2B trucking company has valuable and recurring long-term contracts with a number of large businesses, with the average contract value sitting at a healthy $117,800 per month, although there is an element of seasonality as revenue peaks during the holidays and first quarter. I like that they put a lot of emphasis on relationships, as the result is very strong customer reviews and 22 employees who are all willing to transfer post-acquisition. I also like that they have never needed to advertise, as this tells me that their claims of differentiating via their service and reliability are actually true, and that’s a great base to build on for any business. Finally, the fact that the owner only needs to work 2 hours per day doing logistical tasks is a great sign. It’s a situation where a new owner can come in and work on the business instead of in the business. I do need to better understand what industries their clients operate in (and whether they’re cyclical). I’d also want to dig into their balance sheet and business models, specifically how much is outsourced to subcontractors versus full-time drivers and vehicles, the value and health of the fleet, the ability to grow without new vehicles, the longevity of the customer relationships, and the details surrounding the contracts. But with this much recurring revenue, I’d think there’s a lot of room to grow even with just the current customers if you’re able to keep providing high-quality service.

3/ Managed Service Provider

📍 Location: Hawaii
💰 Asking Price: N/A
💼 EBITDA: $203,031
📊 Revenue: $1,440,000
📅 Established: 1999

💭 My 2 Cents: It’s no secret that I love MSPs. How could I not love an industry that comes with sticky B2B customers, high-value contracts, and high margins? My only hesitation is that there are a lot of MSPs out there, so I like that this one is in an isolated and smaller market as this likely thins out the competition. Plus, it’s been around for 25 years so it likely has an awesome reputation in the community, which is always a great asset to have. The fact that they are completely full suite and pride themselves on their relationships with clients doesn’t hurt either. This is especially important in these businesses as customer retention is everything. If their strategy is to be a loyal partner to their customers, it should be clear from their retention stats. The strong (and growing) MRR of $120K makes me very optimistic, but still, this is something you’ll want to check. Otherwise, I’d want to screen for any customer concentration issues, better understand the TAM in the area, and know what the full growth potential is for the business. If that all comes back clean, then this could be an opportunity for someone to take over a business with a strong base, secured cash flow, and the community reputation in place to serve as a launch pad for growth.

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4/ General Contractor with Government Clientele

📍 Location: Minnesota
💰 Asking Price: $1,850,000
💼 EBITDA: $773,174
📊 Revenue: $2,462,371
📅 Established: 1986

💭 My 2 Cents: This is a general contractor that only works with local and state agencies. Most of their work involves building and maintaining schools, parks, and government buildings. Obviously, this is quite intriguing as government contracts are extremely sticky and recession-resistant. You’re never going to find a government building that wasn’t repaired because of market conditions. I also like that the owners only have to spend about 20 hours per week each on the business, as they have 10 employees and an experienced management team in place who handle the day-to-day. I do want to better understand how revenue has fluctuated throughout the years, what the project mix looks like, who their key customers are, whether they work with the same groups repeatedly or if new projects always require new bid processes, how long the current management team has been around for, and what would go into replacing the current owners. All these unknowns make me think that this is likely best for someone who has experience in the space, but regardless, it’s an interesting opportunity for a home-based business with a long history.

5/ Weight Loss Program

📍 Location: Florida
💰 Asking Price: N/A
💼 EBITDA: $494,000
📊 Revenue: $2,400,000
📅 Established: 2009

💭 My 2 Cents: Founded in 2009, this company provides highly tailored, research-driven, and medically supervised wellness and weight loss programs to clients. Not only do they help clients lose weight, but they also also help them keep it off with long-term maintenance plans. And, if that’s not enough for you, they’ve also developed a white-label product line that supplements their programs and provides an additional revenue stream. The result is that they have horizontally integrated into multiple segments of the health space, something that I really like, as this both de-risks them from downturns into any one segment and allows them to capture maximal value from every client they have. I also like that their key employees are expected to remain post-transaction and that ownership is open to providing ongoing support even after a transition period. Although there is a lot to like here, I also have a lot of questions. First, I’d want to know what the programs look like. How are they offered, is there automation or is every meeting one-on-one, and are you able to scale without adding lots of new staff? Next, I’d want to better understand what products they are offering, where they sell them, and whether the bulk of revenue comes from clients or third-party stores. Finally, I’d want to understand if one of these offerings feels more core to the business than another and if it makes sense to focus on a specific one, or if they really are complementary.

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See you next Tuesday!

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This publication is a newsletter only and the information provided herein is the opinion of our editors and writers only. Any transaction or opportunity of any kind is provided for information only; SMB Deal Hunter does not verify nor confirm information. SMB Deal Hunter is not making any offer to readers to participate in any transaction or opportunity described herein.