Value Of A Micro-Acquisition $25K

All I am nearing the LOI stage of discussions with a small entertainment business.

Asking price: $25k
2017 SDE: 12k
2018 SDE: 12k
2019 SDE: 16k
2020 SDE: 1k
Margins: 60%
Low inventory costs, no real estate, no lease
Modeled IRR for 2 years operating with an exit at the same multiple as entry = 42%

I will be starting B-school this august, the business is located in the same city. My thought process is a successful growth of this company and exit after B-school will provide me credibility with investors when I pursue search in the future. Currently I am an engineer, and I think this experience will lend credibility to my future goals. 

My concern is that this will be a 5-10hour a week job and that the opportunity cost of managing that while in school will outweigh the credibility benefits and $ return. I plan to spend the two months before school learning the ins/outs and automating processes (quoting, booking, billing) then learning about how to market this business effectively to grow revenue. 

 Can any investors or searcher chime in on whether they think this experience will be relevant to a search that will be for a 100x larger company?

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intermediary Bangalore University - 02/22/2021

Hello Neil...my answer is ALWAYS "It Depends" feel free to reach out to me for[redacted]minutes conversation. I am available tomorrow[redacted]between 2pm and 3pm[redacted]Best Wishes

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searcher University of Florida - Warrington College of Business Administration United States Air Force Academy - 02/22/2021

I am not far enough on the other side to be able to tell you the end of the story. However, from my experience so far as a full time MBA student and simultaneously pursuing several entrepreneurial endeavors, the mix of experiential learning with the academics/traditional learning has been a great choice for me. Again, I don't know the end of the story, but I've been very happy with my choice so far.

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searcher Massachusetts Institute of Technology - MIT Sloan School of Management Massachusetts Institute of Technology - 02/22/2021

B-school is about priorities, so if this experience is important to you, you'll be able to manage it. Experiential learning was definitely the highlight of my B-school experience, and this would take it up a level.

As for the acquisition, how certain are you that 2021 will improve back to pre-2020 earnings?

searcher Auburn University - 02/22/2021

Good question, obviously some uncertainty but lots of positive signals emerging concerning demand even for this spring. Could be quite a rush for ‘fun’ events and pent up demand as well after vaccine becomes widespread.

searcher Hillsdale College - 02/22/2021

I don't know the market for companies of this size. I suppose your next owner would be some B-school student or an enterprising undergraduate with some money to invest? The exit plan matters just as much as the company itself, especially for very small investments.

Jonathan, Great point. I did different outcomes in my model, including the worst case of no growth, no exit, dissolve at end of B-school. In the worst case scenario IRR = 1%. So a terrible investment considering the time commitment, but as a worse case not so bad.

One of the biggest opportunities for exit I see here is marketing it as a side hustle. Current time commitment should be around 7-10hours a week. I plan to focus on operations automation and development of the staff (even if that cuts the 60% margins to 50%) in order to reduce that to 3-4 and make this business attractive to someone looking for a semi-passive investment. Also, if the automation is successful I could continue to run the business with a more minimal time commitment and just take $15k a year SDE as long as it lasts.

VALUE OF A MICRO-ACQUISITION $25K

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