Are content sites not selling at the moment?

[CCarter]

You know you guys are describing the QLA model from Dan Peña.

QLA is simply buying businesses like Dental practices or Pet Grooming operations for 2-5x yearly cashflow (aka profits), average is about 2.75x. Then bundling them under a single brand entity - the holding company. However each business is also a sub-holding company (LLC) under the main holding company.

Basically an roll-up acquisition plan where you turn around and sell off the holding company for 12-15x cashflow to a private equity or insurance company or bigger industry player.

The only missing piece I see is there is no board of directors and it's skipping the credit line increased of the businesses and taking out business loans for each company for working capital and to pay bonuses to directors, because the directors lend credibility to the operation.

But essentially you guys are describing about the Dan Peña QLA model that he got from Andrew Carnegie. Multiples are same and everything.

 

[JOoa0ky]

You know you guys are describing the QLA model from Dan Peña.

QLA is simply buying businesses like Dental practices or Pet Grooming operations for 2-5x yearly cashflow (aka profits), average is about 2.75x. Then bundling them under a single brand entity - the holding company. However each business is also a sub-holding company (LLC) under the main holding company.

Basically an roll-up acquisition plan where you turn around and sell off the holding company for 12-15x cashflow to a private equity or insurance company or bigger industry player.

The only missing piece I see is there is no board of directors and it's skipping the credit line increased of the businesses and taking out business loans for each company for working capital and to pay bonuses to directors, because the directors lend credibility to the operation.

But essentially you guys are describing about the Dan Peña QLA model that he got from Andrew Carnegie. Multiples are same and everything.

There's one last subtle nuance that I want to add on... the increase in valuation doesn't necessarily require like 100 acquisitions.

The only criteria for increased valuation is the overall business to generate revenue beyond a certain threshold. Whether that be one business generating 50MM per year or 30 stores together generating 50MM per year.

Your "business" just needs to be BIG enough to be of INTEREST to those with DEEP POCKETS.

Prime example is to just look at the stock market and how companies are valued. They are all above 3x annual revenue. You just need to be big enough to enter the big leagues.

 

[CCarter]

the increase in valuation doesn't necessarily require like 100 acquisitions.

The QLA model focuses on the quantity route while professionalizing servicing. It's a bit hard to increase revenue by 20% for most companies established. However buying another company is 1000x easier. So you should professionalize service, increase profits, reduce cost, etc, but the model is based off of volume versus trying to turn a single Dental praxtice operation in buttfuck Eygpt into a billion dollar operation when there are limited amount of potential dental customers. There are only so many teeth you can pull from the surrounding area.

 

[secretagentdad]

Chill. Its August, people that work in buying expensive stuff fuck off to their boating town or what ever.
We're a wee bit locked up, the sky isnt falling yet. The Jacksons asshole brigade even announced they intend to keep raising interest rates. *

Personally, I look at the current market environment as either playing for strategic valuations or getting scraps. Incremental growth plays for cashflow don't work when there is more demand for investment opportunities than their is for services.

If you disagree with the multipliers, hold your assets and operate them for profit.

 

[timaay]

The reason sites sell at 3x multiples (36x monthly-ish) is consistent with small business valuation. If you were to buy a small local accounting firm or medical office etc.

They are all CAPPED at 3x annual valuation.

Why? That is because banks won't give financing greater than that to individual buyers.

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Now that all changes when you start scaling in SIZE.

The ambitious ones out there do what is called a PE (private equity) ROLL UP.

• You start building multiple locations.
• Or you start acquiring a ton of small businesses.

In the case for site building, you acquire a ton of sites.

When you have a ton of locations or a ton of sites, you roll it all up together and sell it off to large companies or PE firms at a higher multiple.

Why did the valuation increase? To put it simply... because larger buyers have deeper pockets. They're also able to get the financing for the purchase.

PE firms and larger buyers aka Dom from onfolio don't want anything to do with small potatoes. However, if you build it big enough, it will become of interest to those with deep pockets.

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As a live example, I am in the healthcare space.

If I were to put my clinical practice up for sale right now I would get about 3x of my annual revenue.

However, if I go and acquire another 8-10 offices all at 3x valuation each... and I pack them up together into a 10+ office chain... the valuation will increase to at LEAST 8x.

Of course that won't be getting sold to any of my colleagues... the only buyers at that end will be large corporate chains or private equity firms.

PE roll up.

You had me until you started valuing your business off of revenue. Please point me to your buyers that will buy a business based in a multiple of revenue… would LOVE to do a deal with them!

 

[CCarter]

If I were to put my clinical practice up for sale right now I would get about 3x of my annual revenue.

No you won't. It's based off of profits, you'd get 3x your annual profits/cashflow. Anyone that would give you 3x your revenue has lost their mind, send them my way too, I got a bridge to sell them in Brooklyn.

If you are making $1 million in revenue, but $100k profit at end of year, plus whatever salary you are paying yourself, your total take home, you will get offered $300k + the 3 year salary. You will not get $3 million.

And this disconnect is the reason 95% of businesses that are for sale don't get sold. A guy is working on a business for 20 years, but only making $100k a year, he thinks he'll get 12-15x multi or based off of revenue, yet the buyers only offer $300k. He wants to retire thinking he'll walk away with $1-10 million+. That ain't gonna happen. So of course the business owner scoffs at the $300k offer. And then that business stays for sale because the owner's expectations were unrealistic.

Go to any of the big four accounting firms and ask for a consult, the valuations are 2-5x based off of industry, for the cashflow/profits, NEVER revenue.

The only people that would give 12-15x are big players that can wait 12-15 years for their ROI, private equity, insurance companies, etc. but those guys buy rolled up operations, not one off small mom and pop stuff.

Talk to a business broker that sells businesses, they'll give you a free valuation most of the time, it won't be based off of revenue.

Actually you can just go to BizBuySell, and look up your type of business there and see how much they go for, you'll see revenue, profits/cashflow, and the selling price. The selling price is always off of cashflow, unless the guy is in the Brooklyn bridge buying business, in that case send him my way and I'll give you a 5% finders fee.

 

[JOoa0ky]

@CCarter @timaay

Guys, I meant EBITDA.

Yes, the whole QLA thing is because most small businesses hit a ceiling cap but I already said that it doesn't matter if it was 1 business or 50 doing the same numbers or any number in between. If you manage to scale one entity to the stratosphere then that is all you need.

It just has to be big enough to warrant a larger valuation.

The bottom line is, the valuation of your business is limited by the amount of financing banks are willing to lend to small potatoes. Typically less than 3x for small individual buyers.

However for larger entities and organizations, they're about to get much more financing and able to pay a lot more... You enter into the 8x + range. The limitation is the ability to get greater financing than 3x.

Just look at how companies are valued in the stock market.

You just need to be big enough to play in the big leagues. It doesn't matter how you get there... 1 website or 5 website or 1000 websites.