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Welcome to the man izing the show for acquisition

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entrepreneurs Search funders and holdco builders across the UK and Europe.

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Each week we dive into the real world

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stories, strategies and challenges behind buying a building Small businesses.

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Whether you're searching for your first deal

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or running a growing group of companies,

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this is your space to learn, share and get inspired.

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I am joined this week as ever by my effervescent co-host, Gareth Wilkins.

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Gareth, how are you investing?

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I feel like a thousand milligram vitamin C tablet buzzing away in water.

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Actually, what I need at the moment is I am fake with code.

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So when I think of investing, I think of salvation.

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Okay.

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Well, hopefully it can save you at least.

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We've got a really exciting week this week,

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so we're doing a slightly different format.

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We're going to do what we call the buy side breakdown sort of thing, a company

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that is for sale and delving into the details therein.

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But before we get into that, Gareth can kick us off with the news.

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Yeah, I mean, there's loads going on in this last week.

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It's clearly the beginning of a new fiscal year and there's lots of

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pent up activity that seems to have been released at this threshold

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and we won't talk about Trump and tariffs.

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So let's chat about that the better.

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But yeah, here we are, 9th of April.

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We I guess the big news is that the team

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formerly of Ethos Partners search fund

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activities, Jo Coburn, Scott Bannerman, Sadie

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Farmer, Pascal Willett, they're all formerly equals partners.

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They have bought out the search fund activity and relaunched

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anew as orca equity partners.

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Excitement loving the Orca Pods idea.

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They were probably one of the first and most prolific

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team of investors in UK search funds and ethos,

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and I sincerely hope that they're going to continue to be a huge catalyst

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for the UK scene, but super exciting that they're now under their own steam.

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I'm going to go on to bigger and stronger

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under this new brand that is super exciting news.

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my news is from Match's Search Capital.

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It's a search fund led by UK based Croatian Cambridge and Absalom

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Philip Traumatic.

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They've closed their search phase funding round and they now

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reports on finding B2B software, business services

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and like manufacturing companies to acquire.

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So Philip super interesting guy.

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He was a mechanical engineer, time management consultant, then API investor,

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and he's now, in his own words,

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chasing his dream of acquiring a company and preserving a legacy.

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So congratulations, Philip, on closing.

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What a great journey and actually what a great preparation

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to embark on becoming an operator of

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the software or services or manufacturing company.

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I mean, if he's got a mechanical engineering

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and management consultancy background, he's is well equipped.

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I think I would say so, yeah, absolutely.

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It was a perfect pipeline. So yeah, very excited.

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See see what he does in the space.

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Exactly.

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And speaking of being well equipped, SOCOLOVSKY, a a French based

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management buying venture led by Sebastian Wiel,

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who is actually ex McKinsey, offers

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and has recently closed their search phase

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capital race have now launched fully properly in public

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and are out there seeking acquisition opportunities,

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specifically in France, French speaking Belgium and Switzerland.

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What's really

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interesting about Simplify is just

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how many of the sort of good in the gray,

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if you will, in the search fund

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investment team have backed in 17

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acquisition investors,

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including Will Thorndyke

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and Tobias Reda from 47 partners.

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Yeah this is quite a few on there.

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So lovely to see the sort of continuation

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of more search funds launching in France.

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Exciting.

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We love to see and hear more news from Europe

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and more to come.

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More to come.

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Well, okay, so some more news.

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So our legacy research fund led by gentleman called and Adam

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Jan Syracuse are seeking a company based in the UAE to acquire and operate

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have just closed their search phase funding round as well

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and we hope to speak to them soon on the pod

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here about the search scene in the JCC.

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So that's going to be interesting episode.

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Yeah, I mean, you think about the JCC and perhaps wrongly, you think it sort of

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hasn't got as much history, I mean, in terms of like businesses

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and generational businesses that it's got plenty of history,

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but has it got as much of the sort of generational wealth transfer

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opportunity as the as the European and American scenes have?

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I imagine it has.

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But it's sort of maybe not as forefront in people's minds.

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So I'm really hoping that Adam can educate us on that and tell us,

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you know, what's what's going on over there in terms of who's backing

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who and and what kind of opportunities he sees in country.

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Yeah, I think it's one of those things that you kind of imagine, you know,

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the year 2000 was a couple of years ago, but it's actually 20 years ago,

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you know, businesses in the JCC that started in the eighties

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and nineties are 30, 40 years old now.

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So that's true. That's true.

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Yeah.

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So there is a vintage there to to to go after so and I'm sure he's

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he's well equipped.

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Okay.

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Well so the last piece of such fund news

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is about the launch of Tembo Search partners in Germany.

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We talked recently about other search investors in Germany.

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This is a brand new one led by Christian Geiger and Benedikt on heartfelt.

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They launched recently and are already backing to search

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entrepreneurs that are leading acquisitions

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into some pretty interesting deals

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in Germany in the electrical and electronic spaces.

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Well, I quite like having spoken to Christian about the model at Tembo

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is that they uniquely

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provide all of the search capital to their acquisition entrepreneurs.

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So they kind of solve

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that problem and provide infrastructure and tools to help in the search.

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So really quite a hands on.

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But they do that at

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like not stand for traditional search fund terms.

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So the terms are actually more favorable for the entrepreneur.

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Yeah.

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So the 1.5 X preference is is not necessarily

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obligated in this model for them.

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So that's really decent.

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But they, they only take themselves 10% equity

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in the acquisition and then they bring their investors

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and co-investors along to to capitalize the project.

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So really great for the German Mitchell stand

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really interesting to hear from Christian.

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I hope that at some point we'll get to meet up.

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We'll have another part to talk about the emerging German scene.

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But yeah, really great to see Tembo

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now out there backing projects.

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Yeah, I would love to get Christian on to talk about that.

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It'd be really interesting. Interesting to highlight.

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Highlight from my chat with him was about the difference

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between the multiples paid in Germany versus

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the multiples paid in the UK and the other side of the coin

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being the cost of commercial finance in both those countries.

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So he was quite shocked to hear that sort of 12% was the going rate here for,

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you know, senior debt when in Germany it's more like 6 to 8%.

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Thank you. ECB versus the Bowie.

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But also he was quite shocked to hear

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just how low our multiples or how compressed our multiples are here.

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You know, averaging 3 to 4 here versus 5 to 6 in Germany.

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So, you know, you win on the swings, you lose on the roundabouts.

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But it's quite eye opening

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how the two geographies differ in that sense.

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Absolutely. That leads me to my final piece of news.

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So Ian Reece of Premier

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Meats and Adrian Goodson, extra income fund manager at Jupiter.

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I'm Richard Penny of Oberon Investments were talking on the Financial Times

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Advisor podcast and they were talking about how many small mid and small cap UK

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companies trade a considerable discount of 20 25% relative to their global peers.

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So it's interesting, like you say, the kind of discount that we

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that we have here compared to our international brothers and sisters.

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Yeah, it's it's inherent, I think.

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I mean, we see that on the public markets in the UK that,

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you know, in a normal year

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there is this sort of compressed valuation

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in UK companies right now.

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So that's probably why there's so much US

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and Gulf Capital that's come in to do kind of take privates.

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If you will, in the UK because you can take a listed company

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in the UK private and then real estate in the States

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and make an arbitrage just out of moving it to a more buoyant economy.

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Yeah, but that does tend to trickle down into the private markets as well.

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And hence why we see, I think these compressed multiples in the UK that

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and you know, it's needlessly complicated and costly to get a deal done here.

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So it's not exactly exactly a seller's market in the privates,

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but let's hope that that playing field, you know, evolves.

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But yeah, really interesting to hear those guys having that conversation and,

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you know, coming to the same conclusion

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that the the UK small cap private market is abundant with opportunity.

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Cool Right.

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Well we'll get into our main topic shall we.

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Our buy side breakdown. Yes.

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At random, seemingly at random.

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We have picked from businesses for sale dot com actually

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and online retailer of

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power and hand tools.

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So industrial equipment if you like. Yeah.

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This leapt out to us largely to me because this was the space

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that I cut my teeth in.

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So this is where I did a fair bit of M&A and, and have an exit.

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This is what we were supplying to

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online resellers as well as traditional bricks and mortar retailers.

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But yeah, this one is being represented by Turner Butler

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and it's a 30 year old company

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that is a respected supplier

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through eBay shops and Amazon as well as, I guess from their industrial unit

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somewhere in the industrial states of the UK

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where they supply workshop and garage equipment products doing about 1.2 million

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in revenue from which their adjusted

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EBITDA is about 230 K

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and they have an asking price asking price of 500 K plus stock.

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And interestingly, they want stock at value.

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The book value of the stock, which they come on to.

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That's quite interesting.

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The kind of split of asking price in full price stock

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is that's something that I mean, that's not something

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I've ever come across before, is it something you've seen before?

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Yeah.

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It's fairly normal for a distribution company

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to be having its, you know, you buy the assets

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alongside, if you will, you'll, you'll give it a kind of valuation

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on a multiple of profit and then you know, you'll, you'll buy the assets.

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In this case, obviously the assets are the inventory.

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But what's quite telling about this transaction is that they they seem to feel

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that they can get full price for the inventory.

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And I don't think I've ever paid

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full price for inventory in my life because normally what you what you're

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getting with inventory is a lot of stock that doesn't turn up that you can't sell.

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Yeah, that's what I was going to get too,

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you know, how much of that stock is age discounted?

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Seasonal.

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You know I'd be very surprised that

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face to face value for that.

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Yeah I mean a business of this sort of size kind of,

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you know, SUB10 million where they're not audited,

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it's kind of like they're free to do what they like with the valuation

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of their stock.

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It's only when you get to an exit like this that, you know,

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someone else comes along and actually property values it.

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I wonder if they're they're following any kind of internal robust policies

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about writing down the value of their stock based on,

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you know, speed of turn or what condition it's in.

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So yeah I would I would suggest that's probably a point that will be attempted

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to negotiate by any prospective buyer

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the listing.

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So it basically is seeking I guess two times EBIT, which is not unreasonable

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and yet

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is alluding to the fact that there is a

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730 4k gross profit out of the 1.2 mil

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in in revenue, which is quite impressive actually, that a business in what

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you would consider to be a commodified space

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is making that kind of margin

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60% I think. Yeah

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yeah yeah that's

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that's not too shabby for a a tool business.

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Well I mean it definitely suggests a healthy business model.

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My concern here would be platform risk

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and there seems to be a really heavy reliance on eBay and Amazon.

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And I think that, you know,

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I've traded on those platforms before in the past and there is a real risk

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of being delisted or even sort of algorithmically deprioritized.

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I feel like not owning a channel gives you less defensive ability.

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Yeah,

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not just

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delisted, but with Amazon disintermediated because Amazon,

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our past masters at using their merchants to discover what has.

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Yeah popularity and demand and then offering an Amazon equivalent

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where they make the margin themselves and don't give it up to the to the vendor.

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I previously was an Amazon vendor.

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We went through Marketplace before and then became a fulfillment

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through Amazon type operation and

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yeah they you have to watch your back frankly Yeah.

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And you know and then are you buying a brand

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or are you buying an Amazon storefront you know and that has implications

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for growth and I would think valuation too.

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Yeah, it certainly won't command a premium.

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I think actually you have to pricing in an element of risk there because

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as you rightly say, you know, they could sort of snuff you out in a heartbeat

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and you know, I don't know, I haven't probably really explored eBay

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as a as a sales channel for quite some time.

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But for four years it had a stigma about being more of discounted goods.

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Yeah, I think some of

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these kind of products are actually fairly well respected to buy through eBay.

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I think that eBay a kind of at that adoption curve level where,

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you know, everybody in their mum and their grandma knows

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and has heard of eBay and they kind of are more respected,

00:15:05:04 - 00:15:07:14
sells front for store, front for some of these kind of goods.

00:15:07:14 - 00:15:10:18
So what you'd hope when you look at this sort of business,

00:15:10:18 - 00:15:15:09
that it would have used these channels to cultivate sales through its own,

00:15:15:11 - 00:15:17:25
you know, own ecommerce store

00:15:17:25 - 00:15:21:16
and it doesn't mention here, I don't think in the listing what

00:15:21:19 - 00:15:23:31
whether it's a big commerce

00:15:23:31 - 00:15:29:21
or a Shopify or a magento or whatever store stack they're running on,

00:15:29:23 - 00:15:32:22
which leads me to think that actually

00:15:32:22 - 00:15:36:01
their own website might be underdeveloped

00:15:36:01 - 00:15:40:22
and that they're hugely reliant on these two third party channels.

00:15:40:25 - 00:15:43:31
Yeah, I would, I would hope for a bit more information on that

00:15:44:00 - 00:15:46:21
and where their site is hosted and what kind of traffic.

00:15:46:21 - 00:15:50:25
I mean, they talk about having high organic Internet

00:15:50:28 - 00:15:51:28
SEO ranking, but

00:15:51:28 - 00:15:54:00
is that for their Amazon products, in which case

00:15:54:00 - 00:15:56:02
that isn't actually their ranking, that's Amazon's ranking,

00:15:56:02 - 00:15:59:01
or is this always their own site ranking well or not?

00:15:59:01 - 00:16:00:12
If it is, and that's excellent.

00:16:00:12 - 00:16:02:04
And maybe they are cultivating

00:16:02:04 - 00:16:04:18
using Amazon as a gateway and bringing them back to their main site?

00:16:04:18 - 00:16:06:09
I would hope so.

00:16:06:09 - 00:16:08:17
I would like more information on that.

00:16:08:17 - 00:16:09:10
Yeah, likewise.

00:16:09:10 - 00:16:12:25
I think that's something to pick up in any due diligence here

00:16:12:27 - 00:16:16:20
that the listing makes a couple of interesting statements.

00:16:16:20 - 00:16:20:02
One around an enviable supply chain sourcing parts

00:16:20:02 - 00:16:23:30
directly from renowned manufacturers and suppliers.

00:16:23:33 - 00:16:25:09
I think that probably speaks to

00:16:25:09 - 00:16:29:10
where the 62% gross margin is coming from, frankly, because

00:16:29:12 - 00:16:33:21
if they've disintermediated, if they're not buying through, you know,

00:16:33:23 - 00:16:36:31
to distributors and wholesalers and that kind of thing, they're getting it straight

00:16:36:31 - 00:16:41:25
from the manufacturer, then arguably, you know, that's where their advantage

00:16:41:28 - 00:16:47:02
lives and probably where they can you know, they've got some means to

00:16:47:04 - 00:16:49:25
offer at attractive price in the market,

00:16:49:25 - 00:16:53:31
but at the same time be profitable, which is which is the holy Grail here.

00:16:54:00 - 00:16:59:20
So I'd love to dig a bit more deeper into the robustness of those relationships.

00:16:59:20 - 00:17:01:08
And yeah,

00:17:01:08 - 00:17:04:32
you know, again, is there a concentration risk just in the vendors as well?

00:17:04:32 - 00:17:10:07
I mean, is it really that they've got a small number of manufacturers

00:17:10:10 - 00:17:13:04
whose ranges they're representing

00:17:13:04 - 00:17:15:30
and they're actually if any of those manufacturers change their policies

00:17:15:30 - 00:17:19:19
and said, you know, you don't have to go through one of our wholesalers and bang

00:17:19:19 - 00:17:22:27
goes 20% of your margin, you know, are they at risk?

00:17:22:27 - 00:17:25:29
They're, you know, being compressed between a rock and a hard place,

00:17:25:29 - 00:17:27:14
if you like, of Amazon on the one

00:17:27:14 - 00:17:31:09
hand, and and a manufacturer that changes its distribution policy on the other.

00:17:31:12 - 00:17:35:31
So I'd want a price that is a sort of risk element

00:17:36:00 - 00:17:36:25
to be honest.

00:17:36:25 - 00:17:40:21
And then it talks about a strong asset base.

00:17:40:24 - 00:17:43:17
So I'm not quite sure they don't really talk about anything more than that.

00:17:43:17 - 00:17:47:13
Just so I'd love to know what they mean by a strong asset base because it appears

00:17:47:13 - 00:17:48:26
that the building is leased.

00:17:48:26 - 00:17:51:16
They have a a very little

00:17:51:16 - 00:17:55:22
in the way of capital equipment and it mostly seems to be an inventory.

00:17:55:25 - 00:17:58:05
Yeah, that is interesting.

00:17:58:05 - 00:18:00:06
And I would love some more information on that.

00:18:00:06 - 00:18:05:03
When I first saw that, I automatically assumed it was, you know, warehousing and

00:18:05:05 - 00:18:06:00
and other such things.

00:18:06:00 - 00:18:07:04
But yeah, that's leasing.

00:18:07:04 - 00:18:10:15
I don't I don't know where that asset base is coming from and they say

00:18:10:15 - 00:18:13:30
I'll reference that stock again it maybe or

00:18:13:33 - 00:18:19:20
you go on to see in the listing that it talks about a 2500 square foot

00:18:19:23 - 00:18:21:06
industrial premises.

00:18:21:06 - 00:18:21:16
Yeah.

00:18:21:16 - 00:18:24:22
Which is where their offices begin when warehousing and storage

00:18:24:22 - 00:18:30:06
and distribution takes place from which can be offered at an annual rent of 13 K.

00:18:30:09 - 00:18:33:24
So I wonder if actually the strong asset base

00:18:33:24 - 00:18:37:09
is that the building is owned by the operator currently

00:18:37:12 - 00:18:40:26
and but is not being made available in the sale, in which case

00:18:41:00 - 00:18:44:31
you would have to start looking at well whether that 13,000 commercial rent

00:18:44:31 - 00:18:49:29
and you know all the other bits that go with it, you know the lighting service

00:18:49:32 - 00:18:52:15
rates, whether that has actually been properly

00:18:52:15 - 00:18:57:30
reflected in the PNL of the business and whether that adjusted EBITDA actually

00:18:57:30 - 00:19:01:24
takes cognizance of that rent or whether it's had it rent free

00:19:01:24 - 00:19:06:12
because it's, you know, in the pension fund of the of the owner, for example,

00:19:06:15 - 00:19:08:32
them owning that that space actually would make sense for the fact

00:19:08:32 - 00:19:12:01
that they've listed this to relocate of all

00:19:12:04 - 00:19:15:15
this business could be relocated if required.

00:19:15:18 - 00:19:16:24
Okay. Yeah.

00:19:16:24 - 00:19:20:06
Albeit you've got to two key members of staff,

00:19:20:08 - 00:19:22:13
a warehouse assistant and an online sales manager

00:19:22:13 - 00:19:25:15
that are obviously, I guess based from those premises.

00:19:25:15 - 00:19:30:07
So you'd have to deal with the sort of sensitivity of that.

00:19:30:10 - 00:19:30:23
Yeah.

00:19:30:23 - 00:19:34:29
And that is a kind of operational risk, only having two full time employees,

00:19:34:32 - 00:19:37:25
you know, all the systems and staff in place

00:19:37:25 - 00:19:40:25
to run this without the current founder slash owner.

00:19:40:32 - 00:19:41:20
Yeah.

00:19:41:20 - 00:19:42:06
I wonder

00:19:42:06 - 00:19:46:01
just how much, you know, you think about when you buy businesses like this.

00:19:46:07 - 00:19:49:07
we could put in X amount of automation and there could be, you know,

00:19:49:12 - 00:19:52:33
customer services and we could we could streamline the fulfillment.

00:19:52:33 - 00:19:54:06
You still need somebody to actually

00:19:54:06 - 00:19:57:27
pick it off of the pallet racking and stick it on the back of a courier

00:19:57:31 - 00:20:01:01
and consign it properly and and manage returns.

00:20:01:01 - 00:20:04:01
Because inevitably, you know, especially with Amazon returns.

00:20:04:03 - 00:20:04:15
Yeah.

00:20:04:15 - 00:20:08:06
I mean this, this was you know my point with the with the staff

00:20:08:06 - 00:20:11:31
is that I would be surprised if there are only two people

00:20:12:00 - 00:20:15:25
picking, packing selling 1.2 million quids

00:20:15:25 - 00:20:19:25
worth of stuff online every year and managing all of the listings,

00:20:19:28 - 00:20:23:14
photography descriptions, customer service.

00:20:23:17 - 00:20:26:17
And that's a hell of a lot of work for two people.

00:20:26:22 - 00:20:29:19
Yeah, and I think the listing

00:20:29:19 - 00:20:32:25
might be a little bit short on detail

00:20:32:25 - 00:20:35:25
there because, you know, when you look at the fact that the adjusted

00:20:35:25 - 00:20:39:24
nice adjusted so that the reported EBIT was going to be less than this

00:20:39:26 - 00:20:44:14
of 230,000 on the 1.2 mil

00:20:44:17 - 00:20:45:00
revenue.

00:20:45:00 - 00:20:50:24
But if we've just said look there's 730,000 of gross profit,

00:20:50:27 - 00:20:55:24
well, you know, we know there's 13,000 effective cost of

00:20:55:27 - 00:20:58:07
of the building in there.

00:20:58:07 - 00:21:01:13
There isn't half a million being paid to those two employees.

00:21:01:13 - 00:21:03:20
So where's the rest of the overhead?

00:21:03:20 - 00:21:04:23
That's a very good question.

00:21:04:23 - 00:21:10:08
My mind would go to the Amazon margin, perhaps being in overheads

00:21:10:08 - 00:21:13:15
rather than cost of sales, which which I think would be

00:21:13:18 - 00:21:16:00
incorrectly accounted for in that sense.

00:21:16:00 - 00:21:20:18
And perhaps if you inverted that, the gross margin isn't quite as healthy

00:21:20:21 - 00:21:24:04
as as it's being made out to be, because you could see

00:21:24:10 - 00:21:27:06
Amazon fees being reported kind of below the line

00:21:27:06 - 00:21:30:05
rather than as a cost of sale in the transaction

00:21:30:05 - 00:21:33:20
if they were doing it this way, because I am still struggling to get over

00:21:33:20 - 00:21:38:04
the very healthy GP on this business, knowing that

00:21:38:06 - 00:21:43:04
industrial tools is very kind of compressed,

00:21:43:07 - 00:21:46:07
commodified, competitive sector.

00:21:46:07 - 00:21:47:24
So I think I think there's an element there,

00:21:47:24 - 00:21:52:02
but I would still, my mind can't work out where about 300 grand is going on

00:21:52:02 - 00:21:55:15
on the overhead or running this business again, could it be logistics?

00:21:55:15 - 00:21:57:16
Could they be spending a lot of money on shipping?

00:21:57:16 - 00:22:01:31
And again, that should probably be in cost but is perhaps in overhead.

00:22:02:00 - 00:22:06:20
But yeah, if you can do this with two members of staff,

00:22:06:22 - 00:22:07:25
that's interesting.

00:22:07:25 - 00:22:10:21
I mean, there are two very hardworking members of staff.

00:22:10:21 - 00:22:13:04
I'd like to know we can find some more of those.

00:22:13:04 - 00:22:16:18
Well, it is quite yeah, I mean, it might speak to the fact

00:22:16:18 - 00:22:20:10
that the the tools that they're selling may be more on the premium end.

00:22:20:10 - 00:22:23:11
So maybe they're more specialized capital equipment rather

00:22:23:11 - 00:22:27:27
than, you know, being hammers and mallets and

00:22:27:29 - 00:22:29:28
wrenches and things that would that would make sense

00:22:29:28 - 00:22:31:22
because they don't have a huge warehouse space

00:22:31:22 - 00:22:36:07
between two and a half thousand square feet, including offices and

00:22:36:10 - 00:22:37:24
as well as their warehouse and storage.

00:22:37:24 - 00:22:40:05
So it's not a huge warehouse.

00:22:40:05 - 00:22:41:23
So maybe there are you know,

00:22:41:23 - 00:22:46:15
maybe we are looking at premium items here and it's not so much. So

00:22:46:18 - 00:22:49:18
yeah, no, it's a think about stock turn.

00:22:49:24 - 00:22:53:13
So I wonder if that half a million

00:22:53:16 - 00:22:56:24
sorry 800,000 of stock, I don't know how many units

00:22:56:24 - 00:23:01:00
that kind of translates to because if this is kind of high value capital equipment

00:23:01:00 - 00:23:06:01
that they're turning a few off but they those items

00:23:06:04 - 00:23:09:09
generate a sensible profit and are actually fairly efficient

00:23:09:09 - 00:23:13:27
on floor space and they're turning them at a reasonable pace.

00:23:13:30 - 00:23:18:16
I wonder just actually whether that means that they don't really have a lot of

00:23:18:16 - 00:23:22:11
of aging inventory and that they they use that two and a half square,

00:23:22:11 - 00:23:26:27
a thousand square feet of floor space, super efficiently potentially.

00:23:26:30 - 00:23:30:15
And so my question for you on this is so we're obviously we're

00:23:30:15 - 00:23:34:05
going to come back to this kind of split of the asking price of, you know, the 500

00:23:34:06 - 00:23:38:16
K for the for the Goodwill and a 50 K for the for the stock.

00:23:38:19 - 00:23:41:06
Is this a good opportunity for a bit of sort of deal

00:23:41:06 - 00:23:44:24
structure, alchemy and you could negotiate the stock value separately and structure

00:23:44:24 - 00:23:48:08
a kind of earnout or deferred payment on sale of that stock.

00:23:48:11 - 00:23:51:33
I think you'd have to because I would suggest that there is

00:23:52:02 - 00:23:54:23
some risk that the seller needs to where

00:23:54:23 - 00:23:59:10
I'm surprised that Turner Bottler have used the word goodwill.

00:23:59:12 - 00:24:01:11
You know, goodwill is an intangible asset.

00:24:01:11 - 00:24:04:33
Most sensible acquirers aren't paying for intangible assets.

00:24:05:07 - 00:24:10:19
Yeah, So I would have said this is more just a straight multiple of orbit

00:24:10:22 - 00:24:14:12
type arrangement and in which in which case,

00:24:14:14 - 00:24:18:30
yeah, half a million is not it's not unreasonable,

00:24:18:33 - 00:24:21:06
but I wouldn't call it goodwill because that lands

00:24:21:06 - 00:24:24:06
in the unreasonable bucket with me.

00:24:24:11 - 00:24:28:04
The, the stock definitely I would, I would want to price that down.

00:24:28:04 - 00:24:32:16
I want to do what's called bucketing where you would look at the,

00:24:32:19 - 00:24:35:29
the sales information and you would see what has transacted

00:24:35:32 - 00:24:39:03
in volume and recently and what has been latent.

00:24:39:03 - 00:24:41:20
And it's sort of like, you know, the peak.

00:24:41:20 - 00:24:46:09
I never pay more than about 10% for the pigs if that.

00:24:46:12 - 00:24:49:29
And you know, I'd only pay 100% for the stuff

00:24:49:29 - 00:24:53:26
that's turning in the last quarter and anything, you know, older than that,

00:24:53:26 - 00:24:57:16
you're on a kind of like a sliding scale with your buckets of like, you know, 50%,

00:24:57:17 - 00:24:59:05
25%, etc., etc..

00:24:59:05 - 00:25:00:17
So I would

00:25:00:17 - 00:25:04:15
I would be definitely bucketing this stock and not paying full price for it.

00:25:04:18 - 00:25:07:21
On that half a million. I would

00:25:07:24 - 00:25:09:28
I would suggest at

00:25:09:28 - 00:25:14:24
asking price wise that there's bound to be a deferred

00:25:14:27 - 00:25:19:24
or likely conditional earnout element on that.

00:25:19:27 - 00:25:21:20
You could probably finance

00:25:21:20 - 00:25:25:08
some of the stock purchase

00:25:25:11 - 00:25:29:05
on an on an asset backed arrangement

00:25:29:07 - 00:25:32:25
that might free up some capital to get a deal done,

00:25:32:28 - 00:25:36:14
albeit the lender would take the same approach that they don't want you

00:25:36:14 - 00:25:39:21
to pay full price and they wouldn't loan full price against the inventory.

00:25:39:21 - 00:25:42:21
So that's that's one thing.

00:25:42:23 - 00:25:45:13
I wonder where that where the debtors are in August.

00:25:45:13 - 00:25:48:06
Is this a fully cash upfront business in which case

00:25:48:06 - 00:25:51:06
they don't have, you know, debtors, but then what's the creditors look like?

00:25:51:06 - 00:25:55:07
So I would be I would be interested in the sort of

00:25:55:10 - 00:25:59:05
the cash position post that doesn't speak to if there's any debt

00:25:59:05 - 00:26:03:01
being carried, it doesn't speak to if there's any surplus cash in the deal.

00:26:03:04 - 00:26:06:17
So so I'd probably be going in thinking let's try and defer

00:26:06:17 - 00:26:11:31
about 30% of this asking price over at least a year

00:26:12:00 - 00:26:13:07
to sort of help

00:26:13:07 - 00:26:17:24
where some of the risk that might come from the transition to new ownership.

00:26:17:25 - 00:26:20:21
Okay. So let's talk growth opportunities.

00:26:20:21 - 00:26:25:03
You know, where could we see someone improve in this business after purchase?

00:26:25:03 - 00:26:26:15
I mean, I think we've touched on one already,

00:26:26:15 - 00:26:30:11
which is if they aren't leveraging their own sales

00:26:30:18 - 00:26:34:33
shopfront online, then that's probably the best place to start, I would say.

00:26:35:01 - 00:26:37:07
Yeah, I think that's a huge one.

00:26:37:07 - 00:26:40:20
I do agree that they should get it through.

00:26:40:28 - 00:26:44:20
They should try and convert more sales through their own channels

00:26:44:23 - 00:26:47:02
and not be giving up as much margin

00:26:47:02 - 00:26:50:13
to Amazon, for example, or the eBay fees.

00:26:50:13 - 00:26:52:05
So if they're not doing that, then that's

00:26:52:05 - 00:26:56:08
definitely an opportunity to value engineer the upside for the acquirer.

00:26:56:10 - 00:26:56:32
Yeah.

00:26:56:32 - 00:26:59:21
You've also got to wonder about geographies like is this

00:26:59:21 - 00:27:04:04
just 1.2 million being done for supplying the UK market?

00:27:04:07 - 00:27:07:19
What if these if they have got a particularly special relationship

00:27:07:19 - 00:27:10:25
with a couple of manufacturers, does that relationship

00:27:10:25 - 00:27:14:26
extend to them being able to supply into Europe, for example?

00:27:14:29 - 00:27:17:32
So, you know, is there an opportunity to grow this business through

00:27:17:33 - 00:27:21:26
additional territories beyond their core UK territory,

00:27:21:28 - 00:27:25:03
Something I'm thinking as well as if you could?

00:27:25:06 - 00:27:28:06
It depends on maybe the relationship with the manufacturers,

00:27:28:12 - 00:27:31:24
but if you if someone took this on and they had some marketing experience

00:27:31:24 - 00:27:35:03
and they knew how to do this kind of thing and they could build up their own

00:27:35:03 - 00:27:41:00
storefront presence, there's a potential to convert this into an actual DTC brand,

00:27:41:02 - 00:27:44:24
you know, and have your own tool rather than be in a kind of shopfront

00:27:44:24 - 00:27:48:11
for other people's manufacture tools they'd have to become synonymous with.

00:27:48:11 - 00:27:49:25
So a value add there.

00:27:49:25 - 00:27:52:30
So yeah, are they, are they the sort of knowledge experts

00:27:52:30 - 00:27:57:09
in wherever the process is that relates to this product, or are they really great

00:27:57:09 - 00:28:00:09
kind of service center to keep the good in the running,

00:28:00:16 - 00:28:04:19
you know, post warranty or do they do planning preventative maintenance?

00:28:04:19 - 00:28:08:21
Yeah, it could be that there's some value added surface element to this.

00:28:08:21 - 00:28:13:27
If they become the synonymous owned DTC or B2B or whatever, it would be brand

00:28:13:30 - 00:28:15:04
supplying this ship

00:28:15:04 - 00:28:18:13
and servicing this kit, that could be an upsell opportunity there.

00:28:18:16 - 00:28:22:09
I'd also think from a cash utilization perspective, like

00:28:22:12 - 00:28:26:04
if the inventory isn't already optimized, could it be better optimized?

00:28:26:04 - 00:28:29:24
I mean, if if they're doing this on two and a half thousand square foot, great.

00:28:29:24 - 00:28:32:29
But what if they weren't

00:28:32:32 - 00:28:33:26
you know,

00:28:33:26 - 00:28:37:16
if you had some good predictive technology in your ledgers,

00:28:37:16 - 00:28:40:16
you could probably work out what your optimal stock really looks like

00:28:40:20 - 00:28:44:23
and not keep looking overstocked,

00:28:44:26 - 00:28:46:00
as you want to say around it.

00:28:46:00 - 00:28:49:24
It seems otherwise, you know, pretty standard

00:28:49:24 - 00:28:53:24
and a business, I would say, worthy of consideration.

00:28:53:27 - 00:28:57:01
I would say that if you are a first time buyer, you're looking at this business.

00:28:57:01 - 00:29:00:21
Go back and listen to our episode about the the first call with the seller

00:29:00:23 - 00:29:02:29
and take some advice there, because I think that's really

00:29:02:29 - 00:29:05:06
where a lot of this information is going to be on Earth.

00:29:05:06 - 00:29:08:30
I think that it's definitely worth consideration, but there's a lot of detail

00:29:08:30 - 00:29:11:01
missing from this, as there always are in these listings.

00:29:11:01 - 00:29:15:02
But there's some stuff that I think if you could find that out fairly early

00:29:15:02 - 00:29:17:20
on, you could know within a phone call as to whether this was worth buying.

00:29:17:20 - 00:29:20:20
I think, yeah. So

00:29:20:23 - 00:29:21:12
if you had a

00:29:21:12 - 00:29:24:24
cool three quarters of a million

00:29:24:26 - 00:29:28:19
in your back pocket burning a hole, would you buy this business?

00:29:28:22 - 00:29:29:28
So we didn't buy or pass.

00:29:29:28 - 00:29:33:14
I for me I think I would pass.

00:29:33:16 - 00:29:35:02
I think there's definitely

00:29:35:02 - 00:29:38:21
a good business here and they're obviously got great profit margin.

00:29:38:24 - 00:29:39:01
I don't think

00:29:39:01 - 00:29:42:06
I have quite enough information and I'm still quite hung up on the the,

00:29:42:07 - 00:29:45:07
the channel risk and the overreliance on Amazon and eBay.

00:29:45:10 - 00:29:46:21
That doesn't quite sit right with me.

00:29:46:21 - 00:29:49:31
So for me, I'm afraid I think it's going to be a pass.

00:29:49:33 - 00:29:51:01
Okay.

00:29:51:01 - 00:29:54:06
Well, I'm going to take the other side of the coin and I'd request the same on this

00:29:54:06 - 00:29:59:17
because I think there might be some legs that the profitability interests me.

00:29:59:19 - 00:30:02:19
I, I mean, I'm intrigued to know a bit more

00:30:02:19 - 00:30:06:10
about what what it is they actually are distributing.

00:30:06:13 - 00:30:10:27
But a business making this sort of money is always worth having a look at,

00:30:10:30 - 00:30:14:32
particularly if they could sort of wean off the Amazon and eBay drugs

00:30:15:01 - 00:30:18:06
and own more of their distribution channel

00:30:18:06 - 00:30:21:06
and make more of the margin themselves,

00:30:21:10 - 00:30:23:20
that that could be a nice quick way

00:30:23:20 - 00:30:27:08
to improve your return on equity. So,

00:30:27:11 - 00:30:29:31
Okay. Well, there we are.

00:30:29:31 - 00:30:32:04
We're in pass one for one.

00:30:32:04 - 00:30:33:20
Again,

00:30:33:20 - 00:30:35:18
if we were an investment committee Alpha, we'd need

00:30:35:18 - 00:30:39:01
someone else on this call to have the casting vote. So.

00:30:39:04 - 00:30:41:11
Well, consensus will have to pass.

00:30:41:11 - 00:30:42:21
Maybe we can do that with our listeners.

00:30:42:21 - 00:30:45:21
So anybody listening and drop us a comment

00:30:45:21 - 00:30:49:09
and give us a buy or pass and we'll we'll collect the results and

00:30:49:15 - 00:30:55:00
and see which way it goes and we'll let you know how we go on to the

00:30:55:03 - 00:30:55:18
call.

00:30:55:18 - 00:30:58:15
And also, while you're commenting, let us know if you like this format,

00:30:58:15 - 00:31:00:24
if you feel that it's the sort of thing you want us to do.

00:31:00:24 - 00:31:06:00
Again, in reviewing some opportunities out there in the wild

00:31:06:07 - 00:31:10:17
and talking about what we do with them or to them,

00:31:10:20 - 00:31:11:01
Great.

00:31:11:01 - 00:31:12:19
Well, thank you for joining us, Alfie.

00:31:12:19 - 00:31:15:19
Any closing comments?

00:31:15:24 - 00:31:18:11
Keep on crunching

00:31:18:11 - 00:31:21:11
why wife's more

00:31:21:15 - 00:31:22:06
people crunching.