After spending a few weeks recovering from the recent debacle, I picked myself up and focused on finding a new business. I contacted the brokers that I had been in touch with before and reactivated all my alerts. In a short while, I had deal flow and was reviewing a few deals a days.
In about a week, I found a business that seemed pretty interesting. It was a small portfolio that the owner had built over 12 years. The revenue was around 3M, had a few employees, and was growing. This seems promising.
I requested 24 months of P&L statements, traffic reports, and a breakout of the finances by site. Time to dig into the data.
The one thing I like about data is that it tells a story. People can lie but the data always shows the truth. Ok, people can lie about the data but that is for another post.
Here is what I found in my initial analysis:
- Site A: $2.2M in revenue, growing revenue/ profit/ traffic (RPT)
- Site B: $650k in revenue, flat growth in RPT
- Site C: $150k in revenue, downward trend in RPT
Aside from Site C, it is a pretty good business.
Some more info:
- Site B received a manual Google Penalty in 2013 and was lift in 2014
- Site A,B,C were all hit with Penguin & Panda and have not fully recovered
- Margins looked pretty good & the existing employees have been there from 3 – 9 years
- Custom platform built on LAMP (Linux Apache MySql, Php)
- The UI/UX for all the sites is dated
Overall still a good business but definitely some issues that need to be addressed. No deal is ever perfect and I am very interested in learning more and seeing what this business is worth.
Still reeling from my last experience with the Golf Cart business, I re-engage Centurica to help me see what I don’t see and give me a value on the business. I also start reaching out to SEO & Internet Marketing agencies to better understand what the SEO issues are and see if there is untapped potential.
A week passes by and I get back the valuation report. Good news is that there are no major issues that should hold up an offer. The valuation came in under what the seller wanted (surprise!) but still pretty reasonable. I also spoke to a few SEO companies that all said the same thing. No major red flags at first glance but there is a bit of work to do. That wasn’t all that surprising since the owner had not done any SEO since 2013 when he received the penalty.
I decide to make an offer that was about 20% less then asking……and it was accepted with no negotiation.
Now I know you are thinking that I must have overpaid. That is certainly one way to look at it. I look at it a little differently.
My strategic goals:
- Get a cash flowing business that gives me ample operating capital and a decent salary post debt service. Check.
- Get a business that has real growth potential and can double or triple with the right strategy. Check.
- Get a business that I can understand and add value day 1. Check.
I am also financing the business. This means that for every $50k in financing its about $500/ month in debt service. So, even if I did overpay by $50k, I gave up $6k to achieve my strategic goals. To me, $500/ month to buy what I am looking for is well worth it. In my opinion $1k is worth it as well.
I wrote up a 1 page “Letter of Intent” (LOI) and we were off to the races.