Acquisitions Anonymous - #1 for business buying, selling and operating - Insane business running online video game tournaments - Acquisitions Anonymous 279

Episode Date: March 12, 2024

In this episode of Acquisitions Anonymous, Mills and Michael delve into the world of online gaming platforms and competitions, discussing a business with impressive revenue and EBITDA figures. Their thorough analysis reveals a business that ticks all the boxes and captivates their interest. However, the conversation takes a turn as they embark on a rant about the death care industry. Thanks to this episode's sponsor:Acquisition Lab and their team have been longtime supporters of the pod.Created by Walker Diebel author of Buy Then Build: How to Outsmart the Startup Game, is an accelerator with a highly vetted cohort-based educational and support community for people serious about buying a business.Acquisition Lab exists to help people buy a business and navigate all the complexities of the process, as well as provide a trusted framework, tools, and resources to support you from search to close.If you are serious about buying a business, check out acquisitionlab.com or email the Lab's director Chelsea Wood, [e-mail] to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Welcome back, everybody, to another episode of Acquisitions Anonymous, Mills Snell, one of your co-hosts, me and Michael Girdley today, talk about a really interesting business. And for everybody who wants to say that we don't like deals, we barely had anything negative to say about this one. This is a online platform for gaming and competitions and tournaments. And we liked pretty much everything that we read about the business. It has really substantial revenue, $10.5 million,

seven and a half million in EBITDA. we got pretty good detail from website closers. And sometimes you can triangulate these things and figure out this is listed in multiple areas. So we talk about that. Really good business. We would love to know more about it. It checks a lot of boxes and was super intriguing. And then we go off on a tear about the death care industry.

And I don't even know how we fully got there from the discussion. You know, video games and death care. That's what we cover in this episode. But it was fun. And we had, I think, some interesting. things to say. Definitely a unique business, not something you see every day. So hope you enjoy the episode. This episode of Acquisitions Anonymous is sponsored by Acquisition Lab. Acquisition Lab and their team, they've been longtime supporters of the pod and they provide a really great service for

people who are looking to acquire a business. So it's created by Walker Diable, who's become a friend, the author of Buy, Then Build, How to Outsmart the Startup Game. So Acquisition Lab is an accelerator with a highly vetted cohort-based educational and support community for people who are serious about buying a business. So a lot of our listeners like you, you turn in every week to our deal reviews. You want to get in on buying a business. You're on this podcast because you're trying to learn how to buy a business. But if you're not quite sure where to start, acquisition lab is a great place to start.

So they exist to help people buy a business and to navigate all those complexities of the process, everything you hear us talking about on the show. they provide a proven framework, tools and resources that support you all the way from search to close. They do it. There's a whole bunch of educational material and support. So if you're serious about buying a business, check out AcquisitionLab.com or you can actually email the program director Chelsea Wood directly.

Her email is Chelsea at buy then build.com. I went to my CEO peer group yesterday, and there's four ladies in the group. Two of them said the beard look good. It's never going away. It's like, oh, I'm desperate for compliments. I'll take it. So scratchy, though. How do you deal with this, Mills?

Is it beard oil? Is that what your solution? Mine never was scratchy. I think I just got through that phase unscathed. All right. On that note, I have a beard oil business to talk about today. I'm just kidding. It's not a beard oil business.

Michael grew out his beard, just for that. episode. I think this deal actually, it's on LoopNet, which it wins one of the awards for the most circuitous ways that we find it. It's on LoopNet, but it came from Biz Buy Sell, but it originally came for website closers. So, and it's just cover all your venues. Yeah, the only thing it's missing is your local newspaper classifieds that only your grandmother reads. All right, so this one is listed as a high-growth gaming tournament platform with a 99.9% retention rate located in Tampa of Florida, and the picture here is of a very attractive young lady who is screaming in victory. Celebrating.

Celebrating her stuff with a gaming headset on and is staring at the screen. So maybe that will give us a hint as to what it's about going on. Cool. All right, so the asking price is $22 million. If cash flow is $7.5 million. dollars. When you see these, do you ask yourself, why am I building roofs? Yeah, yeah, a little bit, a little bit. I mean, it's just ridiculous. They're making $7.5 million on $10 million in revenue. Yeah, don't you, doesn't everybody do that?

Yeah. All right. So gross revenue is 10.8 million. And, yeah, EBITDA is $7.5 million. Established in 2019. So four years later, these guys have created generational wealth for themselves by helping people play League of Legends. Let's see what this is going on. All right. So let me read it here after we get over our shock. Website closers presents a fast-growing leader in the lucrative e-sports and video gaming vertical.

Fans are flocking to this company's gaming tournament platform designed entirely for everyday video gamers and not just for professionals. The trademarked and proprietary platform is now recognized as one of the easiest to use and most cutting-edge platforms on the market, giving the company a loyal, customer base that has rewarded them with a phenomenal 99.9% repeat customer rate. Businesses have noticed as well and are quick to get it on the action. The company's average B2B contract value is $15,000. Knowing how many fans this platform has, businesses eagerly sign up and have helped the company grow sharply to bring in 10 million plus in gross revenue since

launching three years ago. Here are their key valuation indicators. proprietary platform, proprietary wallet, trademark brand, business is both B2B and B2C, B2B average contract value is $15,000. B2C average player value is $9 per month. Second seed round for next phase, beta tested an operational tournament platform, growing number of users month over month, 99.9% retention rate, most compliant tournament platform in the industry, and easiest to use tournament platform in the industry. The company has multiple ways of generating revenue, including through these subscriptions, advertising and service fees, and a buyer will benefit from this company having an experienced and innovative team in place working to improve the platform,

so it stays ahead of the competition. With solid recurring revenues, in, a buyer has an opportunity to grow this platform significantly. So what do these guys do? That's exactly what I was about to ask. So they host, it's like a hosting platform, but then they're saying it's proprietary, which, okay, so it doesn't live on Facebook groups. That's, you know, the base rate of most of these communities. But then they have a custom-built proprietary wallet, which makes me think of, like, you know,

the way that these platforms create their own currency, like Twitch, you can donate to people, you can buy tokens, you can gift proprietary things in addition to subscribing. They say it's designed entirely for everyday gamers and not just professionals.

I think that's the real caveat here. It's like, okay, I am not big enough to stream on Twitch and build an audience, but I want to somehow compete compete and, you know, try and win prizes playing video games. So the thing I was actually going to look was see if I could find this deal actually

on website closers site. Because sometimes that's a way to find that there's more, oh, there's more data. So, okay. Yeah, yeah, sometimes they do give more. So this is something to know. A lot of times biz buy sell, I think they charge people by the word. So some of these listings are a little short. So I found the listing on website closures.

So what I did is I went and Googled website closers and then I typed the title of this thing and it showed up. So maybe this helps us understand what these guys actually do. Their mission. It's weird that they say their customers, their customers responded with enormous enthusiasm.

Today, 90% of the company's volume is D to C, even as 90% of revenue comes from B, to B sales. That doesn't make any sense, does it? Maybe this helps. Okay, founded by two avid gamers, the current ownership aimed to fill gaps in the markets by ensuring their platform was accessible to everyday gamers, lacking the ability to win large prices if they weren't professional gamers or sponsor players. Designed with those gamers in mind, the new platform revolutionized the video game tournament industry by being successful to everyone and providing them with opportunities to win cash or prizes.

So the way I think this, what I think this is, I think it's an online community. You join it. And they run contests around multiple games. And you can pay an entry fee to be in that. And then on the back end, they also make money where companies pay them to promote their games, right? Because that's kind of one of the big problems with gaming is like, how do you get people to play your games? And I think they make money from that as well. So 90% of the company... It could also be things like, hey, we're going to promote maybe like, you know, an aftermarket

gaming controller or a gaming chair or headphones, like the paraphernalia that goes along with it? Million percent. Yeah, so I bet they've got that kind of stuff on there. So the way they find their audience, here it says the company's digital marketing campaign has successfully driven sales higher each year. The brand mixes paid advertisements on social media sites such as Facebook and Instagram with organic traffic generated by having its website fully estimates for SEO. They do 12,000, they have 12,000 subscribers on their email list. It feels really small. Yeah. Their email marketing campaign is effectively leveraged for targeting customers in several ways,

including through specific games for promoting events, attracting new users and promoting partner events. They also work with professional streamers to promote their brand tournaments and future engagement. So they can't be spending that much money on growing the business because they're doing 10 million in revenue and 7.5 million in EBITA. And when you go down to the team here, you get a full-time, CEO, a marketing officer, a developer, and a part-time risk manager.

Like, why does this company have a risk manager? That sounds like a construction company. So as this team oversees daily operation, the current owners can focus on sales and creation of customer tournaments. The company else provides support for ongoing tournaments and is continuously building new features for the platform. Okay, so I think, I think this totally makes sense. And by the way, this is a great business.

This is a freaking, this is super interesting. Yeah, why are we building roofs or selling fireworks? This sounds much better. I mean, how could this business get hurt, though? That's my concern. I mean, I'm trying to think how it does get hurt. I mean, there's potentially somebody comes in with a competing platform that does really well. Are you going to lose your customer base there?

Because you have one of these things going on where there's some like economies of scale, right? you have the games are paying you to some extent to promote their game on your platform and run tournaments and you're getting ads from them. And the reason they do that is because you're running the biggest tournaments because you have the most number of these kind of loyal folks who are coming to your platform to play the games and try to win tournaments. And like it's hard to see that getting disrupted. One thing that was kind of interesting in the whole Twitch world was that, you know, Twitch is having to moderate in a lot of ways the community and enforce, you know, their like guidelines, you know, for, you know, use. So you have these like mega streamers who control a lot of the audience. This company doesn't seem like it does that. It doesn't cater to the celebrity. But I remember reading about these instances with Twitch where you had these. big time names who were violating like the terms of service in terms of use. And maybe it was like they

said something like a loose word and it was like, you know, taken as discriminatory or something like that. Look, and then they get sidelined. It's just a matter of time until you get accused to be a Motsie. That's basically that's which works. But then some of these people were leaving, right?

And it was like these big famous streamers were leaving to try and go to other platforms. And I haven't really followed it anymore. But it was interesting to me. I'm just thinking if you have this many users on, you probably do have to have some policing and monitoring. And I think Twitch's model is that they have moderators for certain channels. And they're like, I don't even know if they're paid.

I think it's like kind of quasi-volunteer. But people moderate, you know, their favorite streamers channels. And there's like different hierarchies and like almost a pecking order. This seems like, you know, if it's just a kind of free for all, where you say, hey, we're going to host a tournament. It's not invite only, and we're going to play call of duty or something. You can pay $100 to sign up, and here's the tournament structure or whatever. I don't know, Michael, what do you think about, like, how does gambling and, like, the gaming commission interface with what's going on here?

It's skill. It's not luck. So it's not like they're, you know, playing poker or something online, and it would be highly regular. Yeah, so I don't think it's considered gambling in the least because you're you're playing a game, just like if you paid to enter an online chess tournament, right? That's definitely there. At some point, we should do chess.com as a business. That's a great business. That would be cool.

Supposedly if those guys are killing it. Yeah, I was just looking to see if there's any, like this feels like maybe it came from the Counterstrike land. Are you familiar with Counterstrike the game? I've never played it, but I know what it is. I have, well, so one of the things you learn as you get older, I'm almost 50, is that your, what matters in most of these games is how quickly your brain can talk to your finger, can talk to your brain again. And so there's a lot of games like Starcraft, for example, that requires

such high throughput between your hand and your brain that people in their mid-20s start to lose a few milliseconds of response time until you get to where I am now, which is, you know, I'm on a several minute response time to see things. So there's games like CounterStrike go where twitching is really helpful and you want to be 16 years old. You don't want to be 26, 36, or 56. And so anyway, that was, I've well aged out of all these first person shooters because I play him with my son and I'm like, what the hell just happened? I didn't see anything. They're like, you didn't see that? I was like, no, I have no idea. So. That is funny.

So I googled this because I was wondering, I wonder if this is like online CSGO. It comes from the CSGO world. It could also come from League of Legends, which is much more approachable and less as twitchy than CSGO. But you think about it, the fundamentals of this business is,

you know, you have to, one, not screw it up because you have a decent going concern. I think the way you screw it up is you make huge changes to, you know, the tournament structure, the fee structure, the revenue, like, there's some things that you're an outsider, you're coming in, you could completely alienate the whole audience and your 10 million in revenue and seven and a half million and EBITDA goes away really quickly.

But then I think, what do you do with this? It's not that you necessarily have to grow it, but you certainly could grow, maybe by expanding to new games. It seems like maybe their marketing is not fully developed or mature, don't you think? Definitely not. So far, I mean, you look at the numbers. I don't know what they need to be doing. Sounds pretty great.

But, I mean, their biggest decision right now when you own this business is, how many private jets should we buy this year? That does sound like it's a pretty easy business to run. So, yeah, I did Google, did the gurdly thing to try to figure out which business this is. I did Google online League of Legends tournaments,

and this site called BattleFi showed up. These guys claim to have been around since 2018, or 2013. So they're older. Okay. But here it was Deep Roots in the early Starcraft and League of Legends competitive scenes. So I think that, but they do this. It's interesting. One of the things on their front screen said that they have a million hours of gameplay every week, which I guess, you know, you don't have to have that big of an audience to get to that level.

But that is crazy. Yeah. Who's who on the, on the invest? Yeah, they have bunch of investors and all those kind of stuff. I don't know. But yeah, I think this looks like it might be kind of that, here's League of Legends, Valerent, Madden 24, you know, Clash of Clans.

It makes me think that this is maybe like who we're looking at here is the, this is not them. One of the things about it that's kind of unique, I think, is you get people to pay real dollars, you know, into the platform, whether it's like via a subscription or via like tournament entry fees or whatever. And then it seems like that one and probably the one that we're looking at too, because they talk about proprietary wallets,

I think then like you put your money in and you get like a virtual type currency that you can eventually cash out. But it's like putting money on a Starbucks gift card, right? Like they're getting that money. They have the float in between when you deposit the money and when you actually withdraw it. And if you keep, you know, recycling that proprietary currency, then they just get to play with the float while in the meantime. Indeed. Here's another one.

So I googled Battlefly competitors. This site is called LuteCakes. And what LuteCakes does is it rewards you for playing certain free-to-play games. So free-to-play games get you to come in and play. and then you get paid rewards for paying them by lute cakes, but the free-to-play guys make you pay earn money by getting you to pay for stuff, like skins and whatever. My son plays a free-to-play game,

and we happen to own a $60 penguin. So, yeah, it feels like one of these type deals, but like just an amazing business. like zero marginal cost, like, you're just like shipping around bits. They're basically only asking three times earnings too. For this, for this business? Yeah, they're only asking. I think the asking price was $22 million, wasn't it?

Yeah, yeah. So yeah, $7.5 million in revenue or in net revenue in terms of profits. And then they have three times earnings. Yeah. I think the tricky thing about this is that it just doesn't fit in that many people's boxes. And so you end up with this type of business where you go, okay, the fundamentals maybe are good. The cash flow is good. The valuation and terms are probably not bad, but there's just not that many people who can buy it.

Because if you're typically looking at a $7.5 million EBITDA business, it's going to be some type of fund. and they have a specific mandate. And there's things that are probably two in the gray. You know, there's folks who have made a living just buying things that private equity funds can't buy. Vice businesses, firearms, fireworks, right? Whoa, hey. Hey, I'm not like those other guys. That's one time I had a broker who was like, hey, what do you think about payday lending?

And I was like, yeah, I would never really have any interest in buying that. He's like, I mean, what are you talking about? It's not, you know, there's nothing wrong with it. And I was like, well, agree to disagree. I would put that in a category of, you know, unethical businesses like, you know, strip clubs and, and, you know, payday lending and things like that. He's like, what's wrong with those? And I was like, okay, well, we're done. This is not going well.

It's an interesting question. Yeah, we're moving in the wrong. It's an interesting question because I think there's people tend to lump vice businesses, like, together. And I think there's actually some nuance to them and there's a tiering. Like, I think there's ones that are naturally predatory by their nature. like payday lending is one that I have problems with. Or, I mean, it's close. The end of the spectrum is, are you drug dealing?

That's the furthest end of, you know, that predatory nature because you're setting people up to fail, right? And I feel like payday lending feels like one of those things as well. And then you start to get into interesting ones where there is a percentage of people like selling liquor or beer that, look, the data shows that 6% of the population plus or minus is pre-wired to get addicted to stuff, and you are facilitating that. There's a reason why, and I've said this multiple times, there is a reason why during COVID, liquor stores were considered essential businesses.

And it's like, let's just, you know, let's be real about it. Like, there is a functionally a functionally addicted percentage of our population because alcohol is that thing. So then that becomes kind of a thing where it's like, okay, they are. Then you have to ask yourself about fireworks. There are a percentage of people that misuse fireworks because there's just a percentage of people that are morons. Like, where does that sit in the thing as a fireworks owner? You know, but it's like, okay, it's not as obvious as payday lending is to me, or

drug dealing. Yeah, yeah, exactly. And then, you know, there's others that are like with, you know, whether it's like the kind of morphing standard around marijuana and cannabis and derivis and derrific. products. There's also like anything kind of adult industry related, you know, like whether it's content or, you know, adult themed things or adult toys, like those, there's private equity firms just can't buy that stuff because they have like the Ohio's, you know, state fire department

pension. Yeah. Who is like, okay, you know, we can't be associated with that. Firearms is the same thing. I know some guys who have made a lot of money in things firearms related. just because nobody else can buy it. All right, let me pitch you one that I think is worth considering. Okay.

Okay. So let me tell you about this industry. It finds people in a moment of crisis, usually around the time that they have lost a loved one. And it uses an entire set of very manipulative techniques to extract the maximum amount of money out of people in their time of grief. and sells all of it at 95 to 100% gross margin and basically convinces people to reflect on how much they love their lost one by paying $12,000 for something that costs $50. Parting with their life insurance.

Yeah, so I just described the funeral industry. Funeral homes, yes. Yeah. So, you know, I think it's one of those things where if you talk to funeral home people, they will tell you that their job, I think a lot of them will tell you their job, is to help families through their grieving process and move on. But that is not the way it works in practice.

The way it works in practice is, you know, you look up and you're like, how did I just spend $18,000 on a $100 woodbox and a ride in a pretty used Cadillac to a funeral site, right? And like there's something wrong about that industry. I'll just say, having gone through it, you're like, how does, what? Like, yeah. No.

I mean, so I think the industry has come a long way from, I'm sorry, I'm going to keep stagging with this is soapbox. It's come a long way from the local funeral director who was a member of the community and treated everybody a certain way. And now I've been a part of the other side of it where private equity has clearly laid out a value maximization framework and somebody goes through a script. And I've seen people who were in their 70s. lose their parents in their 90s,

and next thing I know, like, where did this $28,000 charge on your credit card come from? Like, how did this all work? And it was because of a manipulative process. And I think it doesn't get talked about very much. I'm with you. I've been through that process as a,

you know, as a loved one who's lost somebody. And when I was doing advisory work, I had funeral home clients, a family who owned a funeral home, third generation, in a small to medium-sized town, lots of consolidation, waves of, you know, different consolidation over different decades.

And they had stayed independent. And, I mean, they had a huge target on their back because there's not that many that are independent. Yeah. And it is absolute value maximization. You know, hey, do you, well, you know, you sure you don't want the cherry casket? The pine, you know, is nice, but, you know, what would your mom want, you know, kind of thing? It is, there is kind of an interesting element, too, with it being a regulated business, you know, with the state health department and, you know, death care, you know, funeral services, embalming all those things. And I think it gives it kind of more the appearance of something that is arm's length. But it's a very, very interesting industry.

Very interesting, too, the cultural nuances between like the way Caucasians, African Americans, Hispanics, they all have different, you know, kind of practices around grief and mourning and how they interact with loved ones around that time. It's really interesting. Also, cremation is the big thing there. Yeah. How prevalent is cremation. So I will tell you, I would like to share my personal journey of how I've approached this whole thing. Number one, when I learned about how the funeral home industry worked, I felt like I didn't, I was like, I told my, in my will, I wrote at one point like, hey, like, don't sign up for this. This sucks. Like, don't, don't get, don't get fleeced by this if I die. Like, I mean, I was that guy, right? Like, this is wrong. We're not going to do this.

And then I went through it on the other side. And I saw, like, when my grandmother passed away, I've lost all four grandparents now. And, uh, and I realized that I needed to just show a lot more respect and grace to the people who were going to be left behind and realize, like, now I'm just like, whatever you guys want to do. was fine with me. Like, I have no wishes. Because, like, I'm like, cool. If you guys want to have a big fancy funeral and spend, you know, whatever money we

have left by then on it, like, great. If you want to do something cheap, fine. Like, whatever's going to work for you guys and make you get through the process the best. Or if you want to just throw a big party because you're all super happy, I'm fine with that too because I'm dead. I don't care. Yeah. Exactly.

All right. Back to this deal. What a ridiculously good business? Yeah. Somebody should buy this and then come on the podcast. and like educate us about the whole thing. He is really good. Which by the way, we've had people reach out.

There's a guy, I don't want to say the deal because I want to have them on at some point, but there's a guy. We talked about a business. He went and maybe he was already looking at it. And he ended up sending me a DM and saying, hey, by the way, I bought that business. And I'm still kind of too early in it to really talk about it. But once he gets like kind of a year to 18 months down the road, he wants to be able to say, hey, you guys were right about this,

you were wrong about these things. So I think it'll be really cool to do that as we do this longer and longer. This would be an awesome one to do that with if somebody does actually get into it. Dear Lord, it's so cool. So cool. All right, well, we'll click stop there.

And yeah, if you enjoyed this episode, please tell your friends to buy this business and call us.