Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
π They paid 110x revenue (for the greatest deal ever)
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π Jamesons started a boring business that does $1.5m in revenue, hear his story (Podcast) He left his banking & private equity career to start a boring, home deck construction business in San Diego. And he's already grown it to $1.5 million in annual revenue in a couple of years. In this podcast episode, I talk with Jameson Haslam about why he chose a boring business, how he sold his first $50k in projects before even having an LLC, and how he acquired customers. βListen on Spotifyβ βListen on Apple Podcastsβ What would you pay for a strong business? 5x EBITDA, Or maybe 2x revenue? Well, I know of someone who acquired a company for 110x revenue. And the company was losing millions of dollars at the time. In fact, three years later, the company was losing 10x as much money. Sounds like a pretty bad acquisition, right? This is actually one of the best acquisitions of all-time. I'm describing Google's $1.6 billion acquisition of YouTube back in 2006. At the time of the deal, YouTube was generating $15 million in annual revenue and was losing money. Three years later, YouTube's losses were estimated in the hundreds of millions. Google's CEO Eric Schmidt even admitted that they overpaid. In 2009, Schmidt said that he estimated YouTube's true value at the time of acquisition to be $600 million or so. But he was willing to pay a $1 billion premium. Even a few years later, the acquisition looked questionable. CBS News said that investors were still "scratching their heads" over the deal. Five years after the acquisition, Mark Cuban said he "still thinks it's a huge mistake." But today, YouTube generates $30 billion in revenue with an estimated $10 billion in gross profit. We often talk about rate of return from a deal, but we usually skip an important point of that equation: The Time Horizon. Most of us want to make money as soon as possible. We want to double profits right away and flip the business for 3x what we paid a couple of years later. Those can be good goals. But the YouTube acquisition is a reminder that great deals can take a long time. The media didn't start speaking favorably about the Google/YouTube deal until 2016, a full decade after it closed... I believe that you can outperform other investors by thinking longer-term. While we often judge acquisitions in quarters, we should be thinking about them in decades. I wrote about how an early investor in YouTube turned $1 million into $503 million in a year. Check it out here. As an additional note, I'm uncomfortable losing money for years like Google did on YouTube. I prefer to buy businesses that are profitable every month after I buy them and can also grow over the long term. Warren Buffett, who was not a technology investor took a similar strategy with the Buffalo Evening News. He spent $30M on the acquisition. And was losing $10M+ per year for a number of years while they battled with the other local news companies. Once they won the battle and became a local news monopoly, they raised their prices and this investment started generating $19 Million in profit per year...that means he was generating above a 50% cash-on-cash return in those years! π One interesting read: Selling your company to PE - and buying it back What do you do after building a company to $45 million in lifetime revenue and selling it to private equity? Retire, travel, and maybe do some investing? Not in this case. Cathryn sold her company to a private equity group in 2022, but they had trouble running it. This year, she bought it back for pennies on the dollar and is running it again. In this blog post, she gives a detailed look at how she's fixing the company's new problems and how she plans to scale up again. If you like this story, I have a podcast coming out next week on a similar topic. π One interesting deal: Flooring business with $1.25m in cash flow These guys have been in business since 1968 - that's 56 years! This business is (likely) a family legacy. There's a lot going on in this listing. The first line of the listing description is: Seeking an Owner/Operator only! βCash Buyerβ based in North Texas. But the listing headline says "Reduced Price". This signals to me that they're having trouble finding the right buyer. Finding an owner/operator that can also buy the business for all cash will be very hard. Cash buyers are few and far between. If I were an individual, I'd look to buy this business with some cash, and likely an SBA loan. After a while, I'd also want to hire an operator to help me run it. This is what I'd do:
βCheck out the listing hereβ Have a great week, Sieva P.S. if you're thinking about buying your first business, check out my free email course. It's 6 days of my top lessons on business buying after acquiring several multi-million dollar companies. What did you think of today's newsletter? Rate this newsletter using the poll below: Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning. |
Sieva Kozinsky
Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
Welcome to The Business Buying Academy with Sieva Kozinsky. π They invented the utility roll-up in the 1850s In the 1840s, communication changed forever with the invention of a revolutionary new technology: The telegraph. Written messages no longer needed to be physically delivered by train or horse. But while the telegraph made it possible to send a message hundreds of miles instantly, someone still had to build the lines and maintain them. The need for a national telegraph infrastructure...
Welcome to The Business Buying Academy with Sieva Kozinsky. π How to acquire $4 billion in outdoor brands In the 1950s, three business partners developed an early snowmobile prototype using spare parts from a farm. Today, the company they created is worth over $4 billion. The business has done some of the best acquisitions in the outdoor industry, rolling up several iconic brands within a $4 billion empire. Let's jump into the story of Polaris. Brothers Edgar and Allen Hetteen and friend...
Welcome to The Business Buying Academy with Sieva Kozinsky. π From pushing a tea wagon to raking in billions. They started by pushing a wagon down a crowded Manhattan street to sell tea. Within a few decades, they invented the modern grocery store and became one of the biggest businesses in the world. This is the story of the Great Atlantic & Pacific Tea Company. Known more commonly as A&P, the business started in 1859 on the busy streets of Manhattan selling tea and later coffee and...