Deal Breakdown: Enrich your data, enrich yourself?

The closer you get to revenue, the more you can charge.
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I’ve looked at thousands of businesses for sale, and learned to read between the lines. In every issue, we'll take a deeper look at a listing, learn something, and I'll rate the deal at the end! 

This week’s listing: A “data enrichment” company that collects names, titles, contact info, etc for businesses running outreach.

The numbers: They’re asking $8.75M, with a profit of $1.9M and revenue of $3.6M. That gives them an incredible 53% profit margin.

Green flags

First, and most obvious: how can you not like that 53% profit margin?

Next, this business is growing like crazy. They’re basically doubling year over year, and it looks like it’s accelerating. B2B sales is super hungry for this information. 

Here’s the thing: companies will pay a premium when you help sales make money. When a rep can call the right person at the right time, it’s worth a lot to them. It’s all about getting close to the revenue.

That means they’ve got a high customer LTV. They put 10-100 customers — assuming 40 customers, that’s $85,000 each. Not bad.

If you’re convinced this business is going to keep growing, this is a screaming deal. If you think you’re going to double or triple the size in the next 5 years, you’ll be able to sell for a higher multiple no problem.

Red flags

If this business is purely labor arbitrage — that is, using offshore labor to do research cheaply — that works great up to a certain size. But it means you have to hire to scale

That means growing 100% year over year is not a slam dunk. Often growth stalls with this model.

On the other hand, if they have some sort of owned intellectual property, scaling is easy. But I’m not convinced that’s here. 

What I’d ask

The big question here is, how do they deliver this service?

There are different ways to do this. Some places, like Zoom Info, are basically databases that you pay to access and search. Other places, like Taskus and Lead Genius, are more manual. You pay them, and they go out and do research. 

Based on the team size here, this is probably more manual, but I’d want to find out what they’re actually doing day to day.

The runway, scalability, and ultimately the value of the business could be very different depending on whether this is software or labor arbitrage.

Next question: is the owner willing to stay on?

Not everybody needs to ask this. But there’s a unique opportunity here since likely the seller bootstrapped this without much capital. 

The new investor (probably private equity) buys in, but the seller retains some of their ownership (say, 30%). With the new cash infusion, the co-owners work together to grow even bigger, and exit at a bigger price.

I’d want to explore that option if I was buying. 

My rating

The buyer here is probably someone who’s ready to take big swings. That’s probably going to be micro private equity: people who buy, grow, and sell.

If you’re a patient, coupon-clipping, safe bet kind of buyer, this is not the right one for you.

Assuming they’re doing labor arbitrage, I get fired up about the opportunities here. There’s a globalization wave, there’s an online-ization wave, and if you can navigate both offshore and onshore cultures, corporations want your help.

(I’m riding the wave myself, with my company Near — the best place for high-quality off shore staffing solutions!)

I think this is a cool business. Kudos to them for bootstrapping it to a $9M sale. 🌎🌎🌎🌎 out of 5.

You can check out the listing yourself here!

What do you think of this deal? Hit reply and let me know!