2024.10.17 - Online Biz Acquisition Opps

Hey hey peeps, happy Thursday evening.

There’s so much going on in my business world, I don’t even know what to share here. I don’t want to revisit it. I don’t even know if I am having a good day or bad day. The SP500 is was up 0.01% today, so I guess it’s good.

On to the deals.

🔫 Gun to my head question:

If I had to write a check for one of the businesses in this email, with no other details which one would it be?

// Kids’ Unbreakable Eyewear Brand | 3.9x Multiple

// Premium Ride-On Toys eCommerce Brand | 3.1x Multiple

// Dental Practice Management SaaS (40 years old) | 5.5x Multiple

There’s a lot to like in all of 3 these business this week. The ‘ride-on toys ecom’ just seems to be high growth with really no differentiation/moat — maybe I’m wrong — but it’s out for me. I really like the Kids Eyewear Brand and the Dental Practice SaaS. The dental SaaS does come at a high multiple though. Both seem to have some solid equity value.

Still I would go with the Dental Practice SaaS. I think the customers are stickier and less susceptible to competition. The eyewear brand could be susceptible to competition from incumbent eyewear brands marketing a new product, whereas the SaaS customers are really locked into the product (switching costs are high).

// Kids’ Unbreakable Eyewear Brand | 3.9x Multiple

💰 Asking Price: $3,000,000
📊 Gross Revenue: $2,800,408
💼 Cash Flow: $771,225
📅 Established: 2012

Overview:
This established kids' eyewear brand offers unbreakable, Italian-made glasses assembled in the U.S., catering to both prescription and non-prescription needs. With a 25% profit margin, the business is supported by a licensed optician who handles prescription orders, along with an 8-member team managing a full-service optical lab and warehousing in a 6,800 sq. ft. space. The brand’s reputation is further reinforced by a 40% repeat customer rate and a full-year replacement guarantee on frames, creating a strong moat and customer loyalty.

Highlights:

• Strong Moat: Proprietary unbreakable frames with a unique replacement guarantee.

• High Customer Retention: 40% repeat rate with a growing base of loyal customers.

• In-House Optical Lab: Complete control over assembly and fulfillment, ensuring quality and customer satisfaction.

• Healthy Margins: Maintains a 25% profit margin even with the costs of warehousing and an onsite lab.

Questions:

❓ Is there more than one licensed optician on staff, and how challenging would it be to recruit additional talent if needed?
❓ What roles does the owner currently oversee, and could the team operate autonomously with minimal owner involvement?

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// Premium Ride-On Toys eCommerce Brand | 3.1x Multiple

💰 Asking Price: $6,500,000
📊 Gross Revenue: $8,593,597
💼 Cash Flow: $2,101,840
📅 Established: 2021

Overview:
This fast-growing eCommerce brand specializes in premium ride-on toys, boasting 100% year-over-year growth, 20% profit margins, and a solid $703 average order value. Operating exclusively DTC with 25 proprietary SKUs, the business has built a notable brand presence in the competitive toy market. Fulfillment logistics are not specified, and a 3PL setup would be ideal to avoid warehousing needs. The business’s rapid growth raises the question of whether it has developed a lasting brand with defensibility or if it remains vulnerable to market competition and pricing arbitrage.

Highlights:

• High-Volume with Strong Margins: Achieves 20% margins on substantial sales volume.

• Efficient Product Range: 25 SKUs make for a manageable and streamlined product lineup.

• Optimized DTC Model: Strong brand development with high customer loyalty and no dependency on third-party marketplaces.

• Scalable Marketing Efficiency: ROAS of 9.3x and TACoS under 8% indicate effective customer acquisition.

Questions:

❓ Is there a 3PL arrangement in place to handle fulfillment, or would warehousing be necessary for the new owner?
❓ Has the brand created a strong moat, or is its success largely reliant on a winning product and marketing?
❓ Could expansion into wholesale or marketplace channels be feasible without diluting the brand?

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// Dental Practice Management SaaS | 5.5x Multiple

💰 Asking Price: $2,000,000
📊 Gross Revenue: $1,236,080
💼 Cash Flow: $380,800
📅 Established: 1984

Overview:
This established SaaS business has been serving the dental industry for 40 years, offering a comprehensive practice management solution. With a high customer retention rate—most clients have been with the company for 30+ years—it operates in the sticky vertical SaaS market with low churn. The recent transition to a cloud-based, mobile-friendly platform is promising, but the company’s size at $1.24 million revenue raises questions about growth — its kind of small for its size. Given the strong existing customer base and potential for cost-cutting, the 5.5x multiple appears reasonable.

Highlights:

• Highly Loyal Customer Base: Most customers have stayed for over 30 years, underscoring the software’s value.

• Updated Technology: Recent cloud-based updates and mobile compatibility improve the user experience.

• Vertical Market SaaS: Dental industry focus ensures low churn and high customer stickiness.

• Pricing Opportunity: Product pricing sits below market trends, offering room for revenue growth.

Questions:

❓ Why has the company not expanded further, given the long tenure and high value of its customer base?
❓ Are there additional revenue opportunities from upselling new features to an established client base?
❓ Could cost-cutting measures, such as reducing support frequency, increase profitability without risking customer loyalty?

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