Does anyone have experience valuing deals where there is an owner-operator selling and no team staying on after the transaction? I am looking at a company selling profitable Shopify apps, but it’s more of a one-person-show rather than a “company” in the sense that after the apps were built there is (supposedly) little/no maintenance needed. I am a software engineer by trade so that doesn’t concern me, however I am trying to think through what happens if/when I grow and decide to sell down the line.

For context, he is currently at $280k ARR and ~$250k SDE selling for ~5.5x. The company is 93% margin, and per the above there is little to no operating team aside from occasional maintenance from a contractor.

Assuming I hire someone (let’s say $150k salary for now) both my margin and enterprise value drop based now on $100k SDE. Is this really worth the 5.5x on $250k I’s be paying?

In contrast, I am looking at a similar business with a team. They do $600k ARR with the same $250k SDE, but have a team in place for both CX and 2 software engineers that are needed to support the day-to-day operations, and could also help grow the business without additional investment. It is also valued at around 5.5x SDE, but is obviously a more complex, lower margin operation.

On one hand, the higher margin, lower effort business seems more valuable in the sense that all my effort could be on supporting growth, vs. maintaining the business as is. However, I am questioning whether I’d be acquiring it during a period of temporary stability, and in reality I just am not factoring in the future team appropriately. Perhaps the higher ARR opportunity despite lower margin could be better to fuel necessary growth.

Curious to get this group’s thoughts as I can see both sides of the argument. Thanks!