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Oct 30, 2023

Announcing Acquisition #2

You know that feelin that you’ve made a horrible mistake.

When you’ve invested an enermous amount of money into something that wasn’t going to work out…

Or when you realized that you screwed up a huge project at work and it could cost you your job…

Or when you made a huge bet on something only to realize it wasn’t going to go in your favor…

I’ve felt that these last few weeks…

Many times.

But honestly…

I think that’s just the nature of buying a 1 person business.

Do I actually believe I made a horrible mistake? No.

Do I actually believe I invested all this money and it’s going to fail? No.

I still believe I bought a great business…

But it’s going to take time and a hell of a lot of effort to get it to a great spot.

I’m not sharing all these details quite yet, I’m here to share what I bought.

My next article will go into depth on my first 4 weeks of this acquisition.

Now, let’s get into the details of acquisition #2.

Company Overview:

Name: Appleton Electronics Group

Since 1985, Appleton Electronics Group has sold to hundreds of manufacturers around the world. We specialize in supplying production quantities of electronic components.

Not interesting, not sexy. High demand.

Website: https://appletoneg.com/ (Straight gold right here. Who’s ready to help me rebuild this thing? haha)

2022 Gross Revenue: $1.01M
2022 Net Revenue: $479,000
Employees: 1 part time (the owner)
Marketing / Sales: 100% inbound email. Owner sends 1x a month newsletter email to ~3,000 customers (see it below 😳 😂)

The Owner/Operator averaged 3-4 hours per day running the business. He estimates about 20-30% of that time was spent driving to pick up and drop off shipments at UPS and FedEx stores in Park City, Utah.

4 weeks in, I’m guessing this was a very true statement.

Acquisition Details:

Purchase price: $1.2m (2.5x net , 1.1x gross multiple)

Down Payment: $400,000 cash (savings we’ve had with an advisor that has done nothing)

Financed: $800,000 (Debt)

Why I liked this deal

As I’ve scoured over 300 deals, financials and CIMs over the last 6 months. Doing this allowed me to more acutely refine my search to a few things:

I like to sell. It’s what I’m good at and somethiing I enjoy doing
I don’t want many employees (like, very very few at scale)
I don’t want heavy CAPEX businesses (companies with a lot of items on the P&L. It’s just messy and more shit to keep track of. This is why I love vending.)
I enjoy having the revenue targets & growth 100% in my hands
It has unlimited potential. At one point (15 years ago) the owner had scaled it to $15M a year in revenue with a small team
There’s a ton of opportunity for a roll up. The big players in the space roll these up all the time. Although this isn’t in my thesis right now, I want all optionality
The way he’s run this thing is pretty old school. Paper / Pen, website from 30 years ago, zero marketing, zero outbound selling.

Appleton checked all of these boxes.

It’s probably not the type of deal that you’ll hear about on a podcast because I think it’s a bit less attractive to many searchers. Specifically for all the reasons I listed.

But, at $1.01M of revenue and 47% net margins, it’s hard to beat.

Even with debt service, the business could take a hit to top line and still be a great business to fit my lifestyle.

I like the flexibility to scale it up and down and not have to worry about paying the debt service, subscriptions, employees, etc.

All in all, it’s basically an internet business that I can put as much effort into as I want without the pressure of having to grow it substancially to be worth more.

And I can run it from anywhere, anytime. Without more zoom calls.

Financing details:

I’m going to save the details of this process for another post.

I went down every rabbithole on financing I could find.

SBA, Seller financing, private capital, asset-based lending, mezzanine financing, revenue based financing and probably a few more I can’t remember.

I ended up talking to ~30 lenders of different types to figure out which option was best.

A few key things that helped drive my decision:

I wasn’t comfortable collatorizling my personal home. We own over 30% of it and since we did, most options would have forced us to use the house as collatoral
I didn’t want to give equity away. Honestly, it’s too small of a deal to give up equity and I am not ready to have ‘investors’ that I feel responsible reporting too. Maybe next year.
I knew I could pay down debt quickly if I bust my ass which would allow me to pay it off 100% in a few years

We own property outside of Park City.

I found a lender that was going to do a line of credit and would collatoralize our property in Kamas.

The best part was that it would be a 20 year amoritization at 7.5% interest.

Honestly, pretty smoking deal considering SBA would have collatoralized my house and been ~11.5% on a 10 year note.

As we were progressing to a close on these terms, my father joined the conversation and expressed interest in writing a similar note.

We decided to parter with him as a win:win for my wife and I & my father. He needed to put some cash somewhere and I wouldn’t have to pay closing costs.

Terms were a bit less favorable but something we were willing to do given the circumstances.

Loan amount: ~$800,000
Term: 10 Years
Rate: 8%
*Balloon payment at 3 years for the reaminder of the loan & defered first payment to Jan 2024.
Monthly Debt Service: $9,706
Projected monthly cashflow: $15k - $30k after debt service (many variables in here)

Share Solopreneur from $0 - $1M

How I found this deal

I originally found this deal back in May 2023 on bizbuysell. I engaged the broker, signed the NDA and immediately was intrigued.

Emailed the broker, silence.

Called & emailed again the next day, silence.

Called & emailed again 2 days later, silence.

2 days later he calls me, it’s under contract. I was pretty bummed but moved on.

I tracked every deal I liked that was under contract on a spreadsheet and would follow up every few weeks with the broker in case it fell out.

~3 weeks goes by and I circle back with the broker.

Sure enough, it fell had fallen out but went back under contract within 2 days.

I missed it, again. By only a few days.

I went back to the grind, looking at other deals but stuck to my follow up routine.

Sure enough, ~45 days goes by and I catch it again. It had just fallen out of contract the day prior.

I asked for a call the next day (it was Sunday) and sent him proof of funds.

We talked for 1 hour and scheduled a zoom with the owner the next day.

We talked to 2 hours the next day then scheduled a lunch for the next day in Park City.

We talked in depth over lunch about the mechanics of the deal.

I didn’t sleep much those 3 days.

After some analysis & review for a day, I wrote an offer. 15% below asking.

He accepted 2 days later.

I’ll write an in depth about the due diligenc period later.

If I’ve learned anything, it’s to never write off deals until they are 100% done.

Wrapping up

The first 4 weeks have been a journey.

I’m proud to be on the other side of many things… it’s been a hell of a learning journey. Should make the next deal 10x easier (I don’t think they are ever easy).

I’ll share details in my next article.

Regardless, I’m bullish on the opportunity.

I believe this business has tremendous upside… if I want it.

You see, that’s what I love about it.

It can be as big, or as little as I’d like it.

Very little pressure either way.

Right now, I have are my sights set on stabilization.

Get each business to a healthy, stable spot.

Then decide where to run.

Thanks for following a long. Grateful you’re all here.

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Only live until the course is 100% uploaded.

The 1x a month newsletter that goes out from Appleton.

You’d be surprised, this sucker generates some deals!

Hand delivering my first order to a customer here in Utah on day 2 post acquisition. $33,000 order in this box. Benefits of buying a company with revenue already. 😳