Acquisitions Anonymous - #1 for business buying, selling and operating - Two Online Businesses for Sale - Ari Ozick of HRX Capital - Acquisitions Anonymous - e50

Episode Date: November 4, 2021

This week, we're joined by Ari Ozick, who is a partner of HRX Capital. They buy distressed digital businesses.  Our guest co-host is Franco Pereyra, co-founder of Near.  We review two online businesses for sale.  Thanks to our sponsors Tiny Acquisitions (tinyacquisitions.com) and The Scribes (https://thescribes.co/) this week.-----* 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.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe 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]

All right, welcome to Acquisitions Anonymous. We're doing something special today. We're recording on a Wednesday rather than on a Friday. And we also have a special guest and a special guest co-host. And for those of you that are new, this is our 50th episode of the Internet's number one podcast about small businesses for sale. Every week, me, Bill and Mills, both of whom are not here today. But I'm Michael Girdley. We get together, usually with a guest, and we talk about two small businesses for sale.

and chaos erupts, and we also learn a lot from each other and provide some pretty interesting content about them. Today we have two cool deals to talk about in the online website, digital marketing space, and a special guest and a special co-host. So special co-host is Franco Perea, who works with me and is a colleague and runs our business near. And our special guest is Ari Ozik, who is joining us. And this is the most international version of this we've had so far with Franco in Buenos Aires, me in the foreign country of Texas, and Ari in Israel. So pretty cool. Ari, thanks for being here. It's my pleasure. I'm excited to be here. You're also our first guest to refuse to be on camera, which is awesome and totally welcome. So it's going to make it even better. So excited to go through that process. Like I said, I have a

face for radio. Yeah, right now I have no data to argue with that. So cool. Let's see. Let's get started with Ari. Introduce yourself. Tell us about you and what brings you to be with us today. Right. So my name's Ari. Like we said, Ariozic, and I run a company called HRX Capital, which is primarily in the digital media space.

Digital media, you know, is websites, lead generation, that sort of thing. I think a good way of describing us is a smaller, scrappier, much less sexier version of Dot Dash. If you're familiar within the IAC universe, we run very similar sites to stuff that they run on the, a smaller scale. And we acquire a lot of them as well. I've been in the industry since 06. I've been doing this for about 15 years now. And it's been amazing to see it grow. And I'm just love talking deals and listening to the podcast. So I'm excited to be here and take a part of

these deals. Yeah. And you're one of my favorite folks to interact with on Twitter. So we'll definitely push people that way because your content is excellent. There's a small tribe of us contrarians on Twitter. And one of my favorite to work with. So, Cool. So Franco, thanks for being here as well. I think I shared with you. We're trying to make this podcast get from a money losing enterprise to a break-even enterprise. So we have sponsors that are helping with that. And I'll do a couple live reads as we go through and talk about our sponsors a little bit. The first one that I want to talk about is a group that paid us, which makes them an amazing sponsor, but also has a cool product. So let me pull this up here and everybody can see it. It is a group called The Scrub. that is putting out notebooks. And they are New York City-based that you can buy journals from them, kind of hard cover and soft cover. And they're a team of four.

And for every journal that they sell, they donate one to students a need. And since their inception in 2020, over 10,000 students have a new notebook thanks to the scribes. So basically Tom's shoes, but for notes books. So pretty cool idea. They have 90-day planners and a new one that,

that new product that is some pens called the Quill. That's called the Quills, which is pretty neat here. We pulled that up for those of you on YouTube. If you're interested in buying one, you can go to their website, the Scribes.co, and use promo code podcast for 10% off your purchase. So they're giving our listeners a special deal. So thanks to the folks at The Scribes for sponsoring today.

And so we're going to start with, I'm going to read both deals today. So pretty exciting. We'll go to the first one. And I think we decided we were going to do this project gaming one first. Is that right? Yeah. Cool.

So Project Gaming. is one that's represented by a broker. And so we have a teaser for that. I pulled that up. So looking at the past few years, revenue-wise has been, looks like pretty flat, right? So 2.8 in revenue over and over,

located in the South Atlantic part of the U.S. EBADA is about $2 million on $2.8 million in sales. So 73% EBITA margin. They are in an industry of education and services, schools, sports instruction, sports instruction camps are schools, sports instructors, blah, blah, blah, and all these industries that the broker lists them is in. In the deal description, we don't have a ton of information on it, but I'm definitely curious about something operating at 73% EBIT of margins.

Is the company operates an online site that specializes in training of a specific sports activity. The revenue model is monthly subscriptions that consists of thousands of clients. The company has over 20 years of video content and its' instructional videos and very robust content library. The founder is seeking to sell the business and will remain with the company post-close in a celebrity and lead instructor role. Not much to go on, right? Not much to go on.

And then the broker, as we discussed before, we started clicking record. The broker has a very good headshot. That is a very professional photo. Noah, who runs the brokerage for this group. So this is what we know. And then you can get an NDA and a SIM and all that kind of. stuff available. I guess if you go talk to Noah. And he appears to be somewhere in Georgia, Woodstock, Georgia is where Noah is located the broker. So thoughts or questions on this one,

besides we don't know much about it, but it's curious. Right. I feel like the numbers are a little bit fudged. I think we'll have, you know, you'd have to get like the actual NDA. It's one of those where they have some numbers. I kind of like, it's exactly making 2.8 every year consistently. I feel like we're missing something. I mean, there's like no talk about churn or everything. I love businesses like this, though, with the 73% margin and the strong user base and the membership. And as I was talking before, I kind of decided that this is probably golf, like a golf sort of membership thing because the, there's like us, there's a, where is it? There's a celebrity lead instructor. And that's typically like you see that like golf instructor, semi pro, and then they go like, like it doesn't make sense to me.

That would be like basketball. People are, you know, what sport are people actively interested in fixing, you know, getting better at? And so to me, it's probably a golf membership site. I mean, I could be wrong. It could be, like, for all we know, it could be ultimate Frisbee. But, you know, that'd be great, right? But it's, you know, it just kind of leads me to believe it could be baseball. I don't know.

But, you know, anything where the margins like this are, like, are, they claim 73% are, you know, is out of this league. It's really just stuff we love. So, I think it's, I mean, I'm sure there's, like, all these businesses. I'm sure there's something wrong with it. like when you start looking at the P&L and start like reaching into it and trying to figure out the churn numbers and everything. Everything is not roses as much as you think or, you know, like the instructor is the draw. Like there's a key man risk. But these type of businesses where it's like a, you know, it's like a smaller version of Skillshare or whatever for a specific thing do really, really well because you have people who are just passionate about that marketplace.

And then, you know, like we've been talking about Twitter, you can probably raise your prices without any, you know, real issue if we keep talking about inflation and everything you know people you know you up the monthly by a few bucks you know you'll up your ebit though there's a lot of i think opportunity in these in these types of uh in these types of businesses it's very interesting so let's dig into maybe like the stuff you would go look at first sure after signing an india and a sim on this like yeah what what sort of things would you being experienced in this kind of stuff like this website i mean this is basically a paid content website yeah sure What kind of things would you go look at first and be worried about and dig into?

I'd be worried about churn primarily. I think that would be the number one thing. And then I'd want to see what the LTV as a customer is and what their cost of acquiescence is, right? Sort of the things that you worry about for any online business, but coming back down to digital. I'd be curious why the growth is so flat because that doesn't make sense to me. I mean, maybe COVID, but with COVID, you'd sort of expect things to go way up. Big 2020 is not normal for most of the businesses that we see. because everyone was home. And so that would, you know, I'm curious why it hasn't gone up at all.

And then also, you know, where's the traffic coming from? Is there like sort of like a healthy split between paid acquisition, organic acquisition, or is it all like, you know, they have a deal with golfers digest and every single customer comes from there, right? So sort of like, you know, the typical sort of things they look for in any business, but applied to digital customer concentration, customer acquisition, churn. And then, you know, how stale is the content, and the lifetime value for us is a big part of it. Because if people are only staying subscribed for a month or two, but they just have a great acquisition channel

that doesn't cost them anything, well, then the product needs improvement, right? Because you want to be able to sort of diversify into other acquisition channels that cost money. How, and Franco needs to talk because I haven't talked to you. But I have one more question that I'm going to make and ask Franco to ask. Sure, go ahead. How do sites like this keep people,

and this may be a really dumb question. Like, if you have a static content library like this, how do you keep people from coming in and just downloading all of your content, like scraping it and paying for one month and then churning? Because I'll admit in my younger days when I was less more broke, like I did that. I don't know what you're talking about. But the, it's a problem. I mean, you can ask anybody who has a digital course. It's really an issue. And there are sort of, you know, I think it's just probably the easiest way to answer is the cost of doing business. I would say that if this company is over 20 years of video content, it really makes me believe

that it's skews to an older age group that don't know how to bit torrent. And even if they did, they wouldn't know where to look. Right. But I think what you're talking about is an absolute problem. And I think it's just the cost of doing business. I'm sure, like, I really have no idea because I've never looked, but I'm sure you could probably go on to any of the torrent sites and find all masterclass. Right. But most people, I think if they're given an option to sign up, they will. Like those people who pirate the content weren't going to be your customers anyway, I think. But yeah, no, I think it's just the cost of doing business at the end of the day. And I think it just, if it gets to be too crazy, then I think you have to figure out something.

But I don't think that for most people, it's a major, major issue the way they make it seem. Right. But it's definitely an issue. And then, you know, some people will hire takedown experts until you sort of like, you know, you can pay like a monthly fee and they'll go on to all the torrents and they'll try and fire DMCAAs at them and all, you know, and get stuff removed out of the Google Index. And, you know, but it's trying to play whack-a-mole, basically, if that answer. your question. Yeah, no, totally dig it. Okay, Franco, I've done all the talking. Anything come to mind? Yeah, yeah. Ari, you mentioned before that's something you like to dig into,

it'd be the source of traffic. Yeah. And so, you know, if it follows traffic, it's paid traffic. Is there a split or a certain percentage that you feel comfortable with this business? Let's say, it's 30 paid and 70% organic or something like that. That's a great question because I'll be really, I'm probably going to shoot myself on the foot, but I'm going on record here as saying I'm a little bit of a hypocrite in the sense that I don't love buying businesses that are very dependent on organic traffic, but I love owning them in the sense that if we start them from scratch, I don't have a problem with that. I have more of an issue where buying it from scratch. But I think, I think, like, I'd prefer for a business like this to see like a, what I really want to see is something

like, which is very hard these days because of the concentration is like a 30-30-30-30-30-30, or 33, 33, 33, 33, 33, so like 33 organic, 33 paid, and 33, like, social. But that's, but that social could also be paid. But I think that that's very hard because what you discover in life, especially the smaller side of these things

is that people get very good at doing one channel. And that's the channel that they just execute on incredibly well, but they can't work, they haven't got the other channels, which is fine, but you just have to figure out either, you have to be really good at another channel that they haven't done and be ready to add that as soon as you do the acquisition to bring in more revenue

or just get really comfortable with the risk that being a one-channel business is, right? I mean, there are just a lot of one-channel businesses online that make a lot of money, and I think it's just, you know, part of the risk that you have to absorb when you can buy these companies. Yeah, I'm interested in the part of the channels. And when you say paid, you're, you mean mainly PPC giving money to Google ads or everything, content marketing, email marketing and all. I mainly in my head, and this, again, I'm a little bit of a dinosaur in online terms, which is funny because I'm not even, I'm still under 40.

But like in my head, paid is like really Google, they don't even call AdWords anymore. They call ads. But that's like really PPC. And then I view content marketing as like a part of organic acquisition. And so like it goes in that bucket, the cost that you pay there. And I think email marketing is a totally different game. And I'll be the first to tell you that I know enough to know that I don't know enough about it. And you can run whole businesses just on sending mail to other people's lists and

and list bartering and, you know, doing mail drops. And there's, it's a whole another world that. I'd be like if I said I have the detailed expertise to, you know, to give you a lowdown. But, you know, I wouldn't know what to talk to, but I think like that's a whole other bucket, right? To me, in my head, paid is really like AdWords and then Facebook because they're just kind of like the giants in the industry. But it could just as well be as like if you were an app, it could just as well be your paid paid on the app store and on Google Play, right? So, you know, that's how I think about it. How do you think about, well, in terms of shopping for this kind of asset, compared to some of the other stuff we look at, like this teaser is very very very very.

And like, we've also talked about the broker appears not to be somebody who returns phone calls for you actively. So, like, in this kind of niche of buying these, these high margin websites and these sort of things that you shop in, is this kind of the normal? Like, are the listings all this bad? Like, because... No, this is actually one of the worst I've ever seen, but I really think it's a good business to talk about.

Like, I like the numbers, if they're real. I think, like, I don't want to shoot, I don't want to, like, knock any specific broker. I think if this had probably been given to a different broker, it probably would have been guarding a lot more interest. But they might just be at a different stage. I don't really know what the story is. But no, most of the brokers who are dedicated to the space, right? That meaning like it's not like one of the franchises that happen to pick up an online listing,

but like you're sort of like dedicated digital brokers in the space. And I have a listing on my blog somewhere. And they're always new ones popping up. They tend to have better information, even in their pre-assies. and then, you know, and even a little bit better numbers. And then, of course, if you get the NDA, usually get pretty detailed Sims or CIMs. So, yeah, like I said, this one's pretty bad.

Yeah, but so, and then how does that make you think about, like, how you're going to be investing your time looking for deals as a buyer? Like, are you attracted to crappy listings? Like, I know there's people that are like in the real estate space, they're excited when they see a commercial listing done by a residential broker and vice versa. Yeah, totally. No, I took it off my Twitter, but I used to say that I, I'm digital dumpster diving for deals.

And I think that I love like, I love when the wrong broker gets a deal, although it can make it difficult sometimes because they really just, they don't know the industry at all and things are mispriced, but mispriced the wrong way. And I love sort of distressed, we love distressed deals, but like those are, you have to really be on top of like a million and one things. We must know, like, we try and talk to every, you know, distressed person in the space and we're constantly monitoring for deals like that. But we love sort of anything that is.

poorly ridded and poorly, you know, like not getting enough eyeballs on it, right? Like, we love that sort of, that's, that's amazing. It just doesn't happen enough. So what qualifies something is distressed? Like, I'm just trying to get my brain around how something that runs at 73% like, no, this is not distressed. This is great. Yeah, not this, but.

Anything goes into receivership, bankruptcy's one that, I mean, like I said, like, the problem with this is that you can't, like, once you sign India, you're limited, but like, there's the income store receivership. I don't know if you're familiar with that one, but it was. It was basically a Ponzi scheme, and you can Google it. And basically, like, you put in money into this company, and then they gave you ownership of websites and everything. And no one ever stood how it worked, but, like, and it didn't.

But some of the assets were good. And so, like, the receiver gave some of the assets to the people who lost money in lieu of actual capital, and then, like, the rest went for sale. So that auction is mostly over now. So, like, that's, like, one way. So some of the assets were fine, right? Like, some of the assets were making money. It's just, like, they had to be sold.

And so they were distressed, right? Like that's stuff like that work. And then you have things that end up in chapter 7 or chapter 11 bankruptcy. And if it's a digital site, it might have just been neglected. And with a little bit of work, it can come back to getting, you know, not necessarily 73% margins, but 40, 50% margins, what have you. So, fascinating. Yeah. So another question for me.

And then I want to shut up so Franco can ask for sure. But so one of the very unique thing here is this, you know, this celebrity lead instructor role. Sure. You know, a lot of times I think these online businesses, right, the moat is. where they are in Google rankings, like their establishment and all that stuff, or similar kind of modes. This one seems to have a unique feature in terms of this celebrity person. So how do you think about that in terms of evaluating this deal? Well, I'll tell you what's funny is every time I look at it, it's right above the guy's headshot.

So I keep thinking it's him. But like, if you see it's like above no answer, I'm like, oh, that's the celebrity, but it's not, obviously. It worries me a little bit, but you really have to take a look there somewhere, like it really doesn't work. right? Like, I'll give you an example. You couldn't buy Tony Robbins business because only Tony Robbins can go on stage and people are coming to see Tony Robbins. But I think like a golfing video, I think over time, and we've tried to do this in the past as you phase out the guy. Like you still have him in the videos and everything, but he's not the draw. Right. Like he's not the guy selling the program. And, you know, usually there's sort of like a transition period where the, you know, you start emailing like, hey, you know, Ari has acquired this business and he's going to, you know, but I'm still going to be here. Like if he had some sort of relationship. But this sounds like sort of like there's a video library as opposed to like you have sort of more, I tend to call them bizoppy things where there's like a guru who's sort of like in the picture and like those are harder to take over. But I think if you have like a video library with somebody, you can usually, if the front end you can change and say like, oh, we have this guy, but he's not selling it or something.

If that makes sense. But it worries me a little bit. Do you have an opportunity to go find more of these kind of upcoming folks and de-risk around that kind of stuff? Yeah, I think that's also an option, right? I've never bought one in the sports arena, so I don't know. But I think that's definitely an option. Sure. That's not bad idea.

Actually, I write that down. I try to add one smart thing per episode. There you go. Yeah. Perfect. Check. Yeah, I was just thinking in this type of business, I guess in this one, you buy it and you keep the guy who's running it because

he will be, sure, will be part of this as a celebrity as a lead instructor, something like that. You normally are comfortable keeping the people. people that are running the business running it or are you just changed in the management? Usually we change the management, but that's a function of sort of how they fit into our existing operations, right? If they don't fit into our existing operations, or there's something like unique that's going on, then we're not going to change the management, but a lot of times they're just overhead that doesn't make sense that we're already doing

internally so we don't need to pay for it twice. Like, it doesn't make sense. And we don't buy things for the sake of synergy. Like, I hate that word. Like, that's not why we don't look at something to say like, oh, we can be able to like add 5%. onto the pro forma EBITDA when we own it because we're going to knock out these people because that doesn't necessarily work anyway. So I don't like to think like that. But I just, we don't keep them on board because it doesn't necessarily fit into it unless they're like, you know, good people we can find a place for them. Right. My goal is not to make people's life miserable because they're a business they worked for got acquired. So.

Cool. Well, a very, a very interesting one. Ari, where would this, where would you expect to deal like this kind of to trade in terms of? I mean, if it's, if it's accurate, I mean, probably five or six acts of the EBITDA. Yeah, I mean, which pains me to say that. But like, I think in the marketplace that is today and if it's a strong business, and again, like, I think we have so little information to go by here. But I think if it's a strong business doing that kind of cash flow consistently with a strong customer acquisition engine and stickiness, then yeah, I think it will go there.

Again, like if there start to be, you know, warts on the deal or, you know, hair on the deal, then things will change, as I'm sure you know. So, yeah. Has this one been around for a while? I think so. Not so long. Is it possible to know because the broker doesn't really want it. Like, it's very hard to get in touch.

I don't know what he's doing. So, like, you know, at this point, Noah, if you're listening, send me an email. Well, I mean, I think the context here is when you're in looking at these types of deals, right? We talked about this before recording. You're signing so many NDAs that, like, it ruled out a ton of the potential deals that I sent you or vice versa that we could talk about. Right, right. Well, I think that's, I think I was. actually very pleased to discover it because it meant that I haven't really missed anything from

that, like, from a deal source. Like, that actually made me very happy. I was like, oh, I looked at this. I looked at this. I looked at this. Right. And it's unfortunate because as we were saying, some of them are actually turds, but we can't talk about them. So, which is, I think, I think more informative to the listeners to sort of understand what, what gives, puts risks into online businesses, right? Yeah. So. Well, I know, we talked about there was one deal that we shared, which unfortunately we can't talk about because you signed an NDA on it, but it was recently featured

on some other podcasts as being like a good digital marketing digital deal. And when you looked at it, you were like, man, this thing's an SEO quicksand business. Like this,

you don't know how long this thing's going to be around. I think it's great for the people who built it. Yeah. Right. You know, that's the problem. Sure.

Well, unless you're going to trade at one year's profits because you can probably estimate it'll stick around for that, but they're not going to want to trade for one year's profits. No, no, no, no. You end up with an unsellable business.

Yep, 100%. Cool. Cool. This is really cool. Franco, any more thoughts on this one? Otherwise, we'll move on to deal number two if you guys are cool with that. Oh, yeah. This was a really interesting one. Yeah. Okay. Well, cool. All right. So let me switch real fast to our second advertiser to today. As I told you, we're trying to break even. It's the first thing, if you want to be profitable, guys, the first thing you have to do is break even. I don't know if you're aware of that in business, but I've learned that over 26 years. So the other advertiser we actually have is the acquiring minds podcast. So this, this, This is Will and his team.

And he is one of my favorite advertisers because he wrote a script for us to read that actually insults me. So I got a perfect. I'll fit right in. I like this guy already. Yeah. And so he says, listening to Bill, Mills, and Michael take apart deals here every week. And you might think there's no small business worth buying. On the acquiring minds podcast, we go the other direction.

We focus on buyers that actually buy small businesses and succeeded with them. So it has different stories, and he goes through those. And so he talks through different stories, people buying plumbing businesses, e-commerce, brands, all that kind of stuff, scaling them to millions of dollars and that sort of thing. So these acquisition stories and many more are on the Acquiring Minds podcast available at acquiring minds.co. And I showed the Apple podcast link here. So he has done a number of episodes. It looks like the latest one was a guy named Jason buying a 45-year-old software business,

which is right in my wheelhouse. So some fun stuff there. So check out Will's podcast, not only because he paid us, but also because it's a good podcast. So thank you to Will for supporting our podcast today. And let's move on to our next deal, which is from website closers.com. And so that's an online brokerage, focus on website. So this is an Inc. 5,000 online quiz platform with Emmy Award-winning writers, premium subscriptions, a billion annual page views, 60% returning user rate, automated buying tech,

custom CMS that ensures traffic scale and ROI. When I read that headline, it makes me think of like Ron Popiel, you know, the guy that would do the nighttime infomercials. Yes, sure. Just set it and forget it. Absolutely. He said it and forget it. This sounds great.

So I'll skip to the numbers first and then we'll come back up. They are asking $14 million. Real American dollars for this business. It generates $2.5 million in cash flow and does $13 million in gross income. it was founded five years ago and has eight employees. Yeah. That is an amazing revenue per employee number. Yeah, I love this listing.

You can't be website closers for really knowing how to sell to add the little sizzle. Because it's just... The clip art just does everything for me as well. Which one, the top one or the bottom one, the giant mountain that they've climbed up to? All of the above. The quiz top. God, yeah. They're all perfect.

For sure. All right, cool. So website closers presents a unique publishing house that has entertained millions. Wait, are you going to read the whole thing? Sorry to interrupt in the middle of the pot. Are you going to read this whole webpage? We got really nervous. I was like, there goes the whole podcast.

It's like a page and a half. We do not have time for it. Yeah, go on. But I got to give the people on the audio only a chance to what we're dealing with here. So they become a thriving media business, a billion pages a year with advertisers. So they are a digital ads focused business. the best we can tell here through web banner ads and native display that has become enormously

lucrative. In 2016, they brought the site together, blah, blah, blah, great team. It has worked entirely as they envisioned from their original stuff. They published 25 to 30 quizzes a week, have more than 2400 quizzes and more than 80,000 unique questions in their content library. this content, of course, is entirely evergreen and is easy to combine questions than a new unique quizzes that create an in-nose supply of content. They've been growing 10% every year,

all kinds of categories and stuff like that. Talk about how they, I guess, cross-pollinate and receive their daily quiz emails, keep people coming back, do engagement. They've been really focused on traffic, SEO, and then they have an active subscriber list, which is 118,000 in their daily newsletters and 600,000 in total.

and they have SEO and social media. They write content daily and ad campaign support organic growth and 4 billion questions, yada, yada, yada, have translated stuff into Spanish, Mandarin, Japanese, or could be translated to Mandarin Japanese and could translate beyond stuff like that.

Right now, they're not doing paid ads according to this, and that's some of the growth opportunities, could expand premium subscriptions, blah, blah, blah, digital advertising, and so on. And again, they were, cash flowing two and a half million a year selling for close to 14 million. It doesn't really say

why they want to go, why they are selling. And also maybe why this business isn't as profitable as the previous one we looked at. That's my other first question. Why is it cash flowing so little? But anyway, thoughts are things I didn't mention in terms of this particular listing. Well, I mean, I don't know why they say they're not buying ads. I mean, they're clearly buying ads, right? This is, I mean, this is a funny thing because it's positioned at one thing, but if you read between the lines, it's basically an arbitrage business. Like, if you're ever on Twitter, I don't know if you get in Twitter in the States, but Twitter and Israel, the ad targeting is horrible.

And so I often get, like, a lot of, like, these people of Walmart ads that come up and, like, they show pictures of people at Walmart, and they want you to click. And it's like this endless scrolling picture of people on Walmart that you scroll through and they make money on the difference between what they pay Twitter and what they get from the ad networks while you scroll. And so that's basically what this business is, right? And that's why their margins are so much different because their cost of goods is all of ads, right? Like, they're spending 11 million or I guess, yeah, 11 million plus minus, you know,

on ads, you know, and people and everything to get people to come to this website and fill up the quiz. And then while they're filling out the quiz, they're serving them lots of ads, right? It's, it's a great business model, but they're very, very hard to sell. Like, I think, if you're good at it, like, I've never been able, I, like, we have a, we have sort of like an incubation arm and we try to, you know, to build stuff like this and we're never, ever, ever, you know, successful in sort of building something like this, probably because, like, it's just not that interesting, you know, like, it's just like you're, you're, you're, you're just feeding celebrity trash to people to get them to click on stuff. I don't know about

this particular business, but, you know, it's kind of like, if you ever, you ever see, like, a tabula ads at the bottom of website. Yeah. Yeah. So this, it's usually like, if you click on one, you end up on another site and there's more ads. Like, we could probably find one on some website you've been to, and that's, that's what it is, right? So, very interesting. Yeah. So, the danger you rent, the reason that the net margins are relatively low here, despite there being only eight employees and in theory some recurring revenue because they said they have a subscription model is because they're paying Facebook, Google for traffic. Right. And or Twitter maybe. Yeah, it says. If Facebook, Google, it says it in the copy. It's just buried. Their content

is marketed across a wide range of popular online platforms, Facebook, Google AdWords, Twitter, Quora, and numerous native ad networks. So there you go. So you really run the risk buying this business that because those are automated buying and ad markets on Facebook and those other sites, somebody eventually over time them getting more efficient and outbidding you. Yeah. So that's why these are hard to sell?

Or what is the core of? I think they're hard to sell because, first of all, you run the risk on both sides, right? You run that you have the demand side. You either your ad account gets banned because at some point they get sick of it. this stuff because you're not like really selling a service you're just you know slinging stupid slinging national inquire type content on the internet which people love but the ad networks you know try and get away from as they try and go more upmarket and then you also run the risk of you know the advertising revenue on the supply side going down right like they get those right demand supply

other people who are paying you right like there's a you know like Q1 is always softer regard usually in a normal year right like and um and just in general and then and then and then, you know, maybe advertisers don't want to be on your website anymore. They don't like the quality of the traffic. Anad network bans you. Anad network goes out of business. They don't want to take arbitrage traffic anymore. I think it's like a very specialized part of the industry and it takes like a lot of

knowledge. So I think the only other person, only people could buy this is someone else who's doing arbitrage, right? Like, there are people out there. This is like what they do. But I think the only business that could buys is another company. I got a, I got, I had like someone sent me another one the other day in my email, which I am in the DA done so I can't talk about it.

but it was the same idea, right? It was the same on a smaller scale, but the margins were about the same, right? Because all the money goes to advertising. So, I mean, compared to the golf business, the theoretical golf business we just looked at, like that seems like a much better business to be in than this one. Oh, yeah, totally.

No, I 100% agree with you. You know, this is a business that I really wouldn't want to own. Like the headline numbers are amazing, like a billion angle page views, 60% returning, you know, automated ad buying tech. a custom CMS. I don't know why you need a custom CMS. Like, everything can just run on WordPress. I'm going to get flamed for saying that. But like, you know, everything can run on on WordPress, right? You can just scale WordPress. Like it's real or just like HTML. You don't need like a custom

CMS. The headlines look great and the gross revenue looks great, but the margins are, you know, the margins are like, you know, less than what people make selling on Amazon. Like, it's like a, well, a little bit more. But, you know, therefore what is essentially a no goods business, It's slim margins, right? Like you want to see margins like the golf business, not like a retail business. Yeah. So I feel about it.

Interesting. Franco, any questions or thoughts? Yeah, on the custom CMS, do you think that that could maybe give them like another level of protection because they have their own platform? They don't depend on WordPress or something like that, or that's another thing at all? No, no.

I think you're like totally at the mercy of the people you buy traffic. from, but you're totally at the mercy of people who sell you, who you sell advertising to. And I mean, that's like, again, I think a risk that you can be comfortable with, I think it's just a very hard risk to sell it. What is it? Like 7x, six and a half X there? I mean, that's like just... Let's see. Yeah, that's like 13.7, 2.5. So, yeah, it's about six and a half. Yeah, that's, that's, that's, that's kind of rich. That's a lot of risk to, to take on, I think, for six and a half X, especially if you're not coming, I mean, like, I don't even know who buys this. Like, that's, that's, I've always, that's always been the

problem with arbitrage businesses, they're great cash cows. But who buys them? No one buys them. Like, they just kind of die a death. If I'm in an arbitrage business already, I mean, you talked about how relatively, like, why am I going to spend $14 million on this when I could spend half a million to a million starting my own? Right. Just outbid you by 10%. Right, right, right, right. Maybe they have some ad tech. Like, I think if you're new to the game, it's much harder to get, start doing it. There's a lot of, I think there's a lot of, like, knowing the right people in the ad serving space and knowing the right companies to work with and everything. It's like an insider knowledge type thing. I don't think it's as easy as they make it out to me. But I think, yeah, why would you

buy this? If you know what you're doing, like, why would you buy this? You're just like, oh, this is, I'll just open another site, right? Like, I was only, before I was only writing, you know, content, I'll do something else. Like, I totally agree. I don't know who buys this. And I think, I think they don't know who buys this either. So, I mean, are there dumb buyers who weighed into this stuff and are like, oh, like, I can do this. Like, and like, is that, is that the hope? I mean, you only need one sucker. I was going to say, you hope at this price point there isn't.

But, I mean, I've been proven wrong about this so many times that there's, maybe there is. I mean, I really, you know, like, you got to say yourself, like, who you hope somebody who has $14 million is lying around is somewhat intelligent. But, like, you know, we've been proven wrong before. So money is not a proxy for cents, I guess. Correct. Well, so, I mean, is there a scenario in which you would do something like this? You say you were sent another one. I guess there's definitely a price at which you would buy this business.

It's just a long way from six and a half X where it makes sense. I could probably be convinced to buy it at like 1x. But, you know, I can't. But that's me, right? Maybe there's somebody out there who can buy it at 2x. And so they started at like 6.5x as sort of like a negotiation. play. And maybe, you know, there could be people out there who say like maybe three, but again, like, if you're, if you have the money to buy it at two or three X, why?

Like, that's like the whole, that's sort of like the whole problem with it, right? It's like, why? Why? Yeah. So I guess that's, you're, you're leading this idea that if your business gets bigger, especially if you're trying to find one sucker, it's much harder. It gets an owner magnitude harder to transact, right? Because what you're at a smaller scale, like, okay, we can find some dentist willing to drop 50 grand on something and be an idiot and not think through it well. But here, like, somebody with $5 million probably is pretty sharp. I wonder, you know, and again, something else I'm going to get flame for here. If this was like SBA-sized, would it be able to sell?

Like, if it was like, it was like $5 million now? Like, is the cap, something like that, $5 or $6 million? And you only have to put 10% down? Could they convince? Like, so let's say this business was doing like, I don't know, a million a year. right, and they will ask for 5x and someone was able to get SBA funding on it, which they would. I mean, SBA would

totally, some banker would underwrite it. No, no question in this climate. Would someone, I think then maybe they'd be able to get somebody by it, which I think is really, really interesting in terms of where you want to be in the sweet spot of digital acquisitions now? Like if you're looking to sell, like maybe it's a good idea, like

don't price your business for more than the size of an SBA loan and make sure your, make sure your company is domiciled in the United States. there's something we said for that, you know. Our co-host, Bill Delisandro, uses that to talk about the, my asking price is the size of my mortgage, plus enough for me to buy a vacation home. Right.

The pricing strategy for certain sellers. Right, right. So new pricing strategy is just enough to stay under the SBA loan guidelines. So one thing I've read about is how good a business, the New York Times, crossword businesses. Right. And their quizzes. But so the difference between the New York Times and this is they're both in the same business, which is giving away free quizzes, selling ads against them, and then trying to upsell you to a paid subscription for the hardcore. Right. But the difference is, is the New York Times has the front, doesn't have to pay Google and Facebook

for the traffic, whereas these guys do. Well, yeah. I think also that's not fair than New York Times. The New York Times crossword is an institution. Right? I mean, people want to do the New York Times crossword puzzle. They don't want to do, I don't know, the Washington Post crossword puzzle, right? Like, the New York Times crossword puzzle is an institution. And second of all, even then, I think, I don't know who's talking about it, but someone was saying, like, they don't break out their subscription revenues between, you know, because

they're public between the gaming revenue and the, like, the, like, the crossword revenue and the, and the, and the major subscription. revenue and that it's quite possible that the people who sign up for crosswords don't convert upwards to like they just stay at the games so i think that's also sort of sort of interesting but i think i'm not i don't have in front of me but i'm sure they also rank like number one for crossword puzzle or like number two they just they don't they have all the traffic that they need yeah super interesting yeah so you know as you see a buyer like this with like just an astronomical crazy asking price in this space?

Like, how useful is it in your time to actually go through the process of telling them where you would price it? Or do you just pass on something like this? Like this? I mean, we're not really that interested in buying an arbitrage business, so that's like an easy one. I think it gets more difficult businesses we really like that are just priced wrong. And I think often what you need to do is either you need to submit an LOI or just have a call with the buyer and figure out how crazy they are.

And I think, I don't know if everyone can do this, but if you have a call with people, you can pretty easily figure out how nuts they are. I don't know if that's your experience. But having talked to a lot of people on the phone, it's very easy to figure out who's just, you know, crazy. And then you're like, okay, I'm not going to waste my time. And then you have people who are rationally. You can waste, you can put an LOI together and set it up to them. Yeah, super interesting. I mean, there's this whole class of businesses that are, like you're talking about here, are worth one to two X to the buyer, but to the seller.

because to them it's going to keep going and keep going. There's no reason to sell for 1 to 2x. Right. And they just don't transact. Right. Right. There's a lot of them. I think we probably even own one like that.

Like, I mean, it's just kind of like a, you know, you sort of get into certain spaces on digital where it's very easy to make money, but there's like not enough value for someone to come and buy it. But you're like, okay, I don't need to sell it. I'll just keep the cash flow forever. I think that's like a totally legitimate place to be. Not all business needs to be sold if they don't need a lot. of, you know, it's not like, it's not like, I hope not. It's not like everyone here's having like a daily stand-up about like what content to write on the website involving the owners, right? Like I think they're probably checking in the ad accounts and that's it for the day.

So I hope, you know. Super interesting. So what are you seeing in the market for this kind of stuff happening now? Or like, is it just like everything else like SaaS prices, website prices, like they've been discovered and there's a flood of cash going in? Are you still finding opportunities for deals? Both. There's definitely a flood of cash. Also, everyone in their mother or whatever is raising a fund, which I find super, super interesting.

There's definitely more money coming into the space. But a lot of the stuff that people are really comfortable buying is, you know, like certainly people not from the industry is like they love e-commerce stuff, right? So like Shopify and then like SaaS because SaaS, people like everyone knows SaaS. So, you know, the stuff that we don't buy, there's definitely been a, uptake in price and some of the higher quality stuff, there's definitely an uptaken price. But if you can do sort of offline deal flow, offline, you know, sort of not from broker deal flow and find deals that have a lot of, not necessarily hair, but they just need to be

improved. I like to talk about it about, like, you know, junkie houses on Fifth Avenue type of thing, right? Like, you know, could be a website with great traffic but just not monetized properly because the owners forgot about it or didn't realize or things like that. I still think there's a decent amount of opportunity there to kind of search them out, but it requires a lot of work, which I think most people, which is great for me, are not interested in sort of like, you know, following up with people for three years to finally, you know, buy the site that they had for sale, right? If I think about a deal that we just finished. But yeah, I definitely think prices through brokers are going up in combination of, you know, SBA funny money and more capital

coming into the space and everything. And I think the other big challenge that I face is, is, and I'm sure everyone acquiring now is like, how do you, how do you price in the COVID for digital businesses, sort of like, you know, everything went crazy in 2020. I mean, so first of all, like, we're talking about the previous deal. The big red flag is, is if it didn't go crazy in 2020, why not? Unless it's like a travel business or whatever. Why didn't you go crazy? And then the other question is, well, that's not going to continue, but no seller wants

to admit that, right? So that's a big, between the stimulus and the fact that everyone was home, how do you price that in? And it becomes a sort of an issue of contention, I think. It drives valuations way up. Totally dig. And then what, you talked just about a deal where, you know, it took three years of working with a seller to eventually close on the deal.

Is that typical for you? I mean, and I ask that in the context of when I tell people that, like, serial software acquires the meantime from initial content to contact to close is anywhere from a year to four years and some average four years plus, their minds kind of explode. They're like, wait, these don't transact like, like, you know, Ford's or outies from the dealership. So is that typical that these are transacting,

you know, you're developing a relationship with people over a long period of time, or are they short? Or what was your, what is your average in your experience? I think average is probably closer to like three or four months. That one was an outlier for many, many reasons in terms of both our ability to to effectively monetize it changed dramatically in those three years. And it so made the asking price that they had significantly more palpitable in a way that it wasn't three years ago in terms of our operations. But I would say it's probably closer like three or four months.

But, you know, it's just like endless amounts of follow-up being people getting comfortable and do they want to sell? Do they want to sell through you? It depends. Broker deals are much faster, right? You send it now because that person is already to sell. But transactions where you're trying to, you know, affect the relationship. It's at least, I would say average six months, right? even for small deals, which drives me nuts. But yeah. What is the competitive dynamic for people in your space in terms of acquiring and post-acquisition? How do you think about that?

Because, you know, like, well, we talked to, I'm not supposed to ask you what you actually own, which is fine. Like, we don't need to know. So can you explain that competitive dynamic? Sure. Because other people, other spaces, people are totally comfortable. Like, our software business, Dura, like, has all the listings. Like this is all the stuff we bought. Like, go ahead.

How does that competitive dynamic work here? I mean, I think part of it is just, you know, my personality also. But like the number one rule is you don't talk about Fight Club. But I think like a lot of us just don't want a target painted on our back of people saying like, oh, here's this niche. You know, they bought this site in this niche. This looks like we should start competing in there, right? And it's not like the niche isn't known or anything, but what do we need the extra competition for?

I think is the big thing that we think about. Like I'm very jealous of people like Moses Kagan or a sweaty startup, you know, who can sort of like they can talk about their deals because they're like very focused on, you know, what they're doing. And there's not, there's just, there's enough deals that like you don't really have to worry about, especially after the deal is done. I find that to be like very, very liberating. But I think when you're operating on a much, on a like sub-institutional scale pursuing deals in weird, basis where your edge is probably very specific to the industry that you're operating in. I think it, you know, people don't like to talk about, like the old joke used to be like, not the old joke, but the joke is like FBA people who do fulfilled by Amazon don't like to

talk about what they sell because then if you say like you sell fidget spinners, someone else is going to go to China and buy fidget spinners. So I think we have a little bit more of remote than that, but it's, we don't like 100% talking about it. Yeah. Well, I've, I've come to the conclusion. just whether you're in a global market or a local market for those guys. And they're like at that far end of the local market. Like, like, heck, I'll talk about apartments in Tucson all you want. Sure. Who cares? Like, because I'm, Ari's not flying over there to buy them out from me. You never know. But if it's, I don't know if you've been to Tucson. I have, yes. Super cool. Franco, any, any questions or thoughts from you? Yeah. You just mentioned the normal

it takes three to four months to close a deal. Is there any type of business that gives you a tougher time? What do you mean? Due diligence. I mean on due diligence, like something that you really need to dig into it. And that's going to take more to really see if there's anything wrong with the business. Wow, I find due diligence to be humbling because I always have this hubris that I've seen a lot of deals and I know what's wrong with stuff and I've been doing this for a long time.

and then I always find something new that I missed that I hadn't thought of. So I think every business, every time we acquire something else, our due diligence checklist gets longer because of something we screwed up on the previous deal, right? Nothing like earth-shattering, but stuff that we didn't think about. I don't really think so. Online businesses are pretty, especially if they're above board. I think like you can, if everything is in stripe or everything is being paid by Google AdSensor, and you know, everything is there and it becomes a function of having the audit team,

you know, connect the trends out. I mean, that's what we look for. What I think is, it's harder to pick up on sort of is, yeah, I would have a horrible, I would be horrible doing a due diligence like on the website closers one with like all these traffic sources. I mean, that would be, I would find that very difficult because there's just a lot of moving parts, I think. So I think the more moving parts there are, the harder it gets.

And I think also there's there's always weird tech debt, even on WordPress. It's just like any business that's been around for a few years online, there's just tech debt that no one remembers and no one knows about. And it's not that they're trying to screw you over. They just totally forgot. And no one's going to find it until something breaks. And then the guy you bought it from goes, oh, yeah. Like, we had that. And then you're like, so you go and fix it.

Like, it's not the end. But I'm so like, there's always like, there's nothing that. It just, it doesn't exist that there's not. Even if it's like a vanilla WordPress install, there's got to be tech debt somewhere. Right. Like, it just is. a function of doing business. So I think that's probably our biggest challenge. But I don't think there's like a specific industry that we work in. I'm sure like we get sent to adult stuff.

I'm like we don't do that. But like so, you know, like I'm sure in the adult stuff presents its own unique set of challenges, but I don't know enough to to really speak about it. What a, you know, you have, and this has been as a compliment, you have a very unique personality and outlook on life. Like, what do you, what do you think about how you're wired makes this the right space for you because frankly like spending the past 45 minutes with you is scared the crap out of me to go and compete with you. So like what what is it about you as you think about yourself that makes this the right business for you to be in and the right space to compete in? Oh, I love loopholes. And I don't like people. Like and so like I wouldn't want to own a business that required active selling.

And so it kind of like and then sort of like figuring out what traffic providers there are and how you can sort of, you know, make more money without, with just a little bit of leverage in the context of like not monetary leverage, but operational leverage is very exciting to me. And then it's kind of a business that really, I mean, it wasn't always like this, right? But like it's, it makes money while you sleep. Right. It's like it very much lets you live a certain life. And I think that's like that really helps him. But I love going down. You've, you've said this before. I think it's true. I love going down rabbit holes. And I think the business is conducive. This type of internet business is conducive to going down rabbit holes and learning about new things.

And every time you see something that like kind of peaks your interest, even though I'm just browsing the internet, I have like a spreadsheet open on the side. If like I end up on a website, like, oh, this could be an interesting acquisition. Add it to the spreadsheet for further contact and research, right? And learn about this industry, right? Like, and so you end up learning a lot about weird industries and, and I find that. And there's always something to sort of like, I probably have undiagnosed ADHD or something. There's like, you know, that stimulates you because you're learning about something new.

So there you go. Yeah. Well, it does sound like you have off the charts level of natural curiosity and energy to go pursue those things. And you know, you're going out and digging into each of these deals and discovering like what's the scheme. Yeah. I mean scheme in a nice way. What's the scheme I can use to unlock value here, both pre and post? Right.

And like that's a perfect. I think the way you're talking about it, that's like a, that's the answer for me. I think that's right on. Yeah. It's funny that you say scheme, though, because I always feel like it may be and it's probably because I'm from. New York, but, like, I'm always trying to figure out how the other side is trying to screw me. And, like, it's not because there's also because, because, no, it's interesting because when you talk about, like, doing business with worldwide people, there are different people from different

countries have a wide variety of different ethics, I will say politely, right? Like, it's totally not politically correct, but, like, there are people out there, like, who are trying to screw you. And, like, I don't think that's true for everybody, but I think, like, especially because you're dealing with literally the entire world is, like, on some level. you're competing against them, you have to figure out, like, why am I the person lucky enough to get this deal? Right. Like, what am I missing? Right? So either I'm paying too much for it, or there's something I haven't uncovered yet, right? Like, that's usually what I think about. And then usually it turns out that everything's fine. But I go in with, you know, Reagan's trust but verify,

is kind of how I think about it. Yeah. Well, and then that's exacerbated by, and this is also meant as a compliment, because I've told you if I wasn't American, I'd want to be an Israeli. late and you told me that was really stupid. But, and then exacerbated by being in New York living in Israel. Right. New Yorker living in Israel. It's like turns it up to 11. Yeah.

So totally dig it. Yeah. I don't think it's as bad as you think, but yeah, we've had some. Yes. I'll just say yes and leave it at that. The stories I've heard about Israeli work culture, I'm like, that sounds amazing, except for the part where it would be terrible. But the stuff where like the intern feels okay, calling out the CEO in a team meeting and stuff

like that. Like, that's the stuff where I'm like, that would just be fun to watch. I'd be totally, totally into those kind of moments. Yeah, that culture where people, I has its pluses and minuses because the problem is is that you everyone think, imagine a roomful of people from Twitter. Yeah. Where everyone thinks they're right about something, then it gets when, and it's like, well, you know, and everyone thinks they know everything about everything is it can get a

little bit overwhelming at times, I would say. Yeah. Super cool. there go. This is awesome. Franco, any other questions or stuff for Ari? Otherwise, I think we're a great place to wrap this one up. No, yeah, this was super interesting.

I hear you talk. Like, as Michael said, for two years, I'm working on building an intern of business, so having your buyer's perspective. It's amazing, yeah. Yeah. My only advice would be to you is domicile in the U.S. so you can get somebody with an SBA loan to buy your business.

There you go. We are domicile. Then you're all saying. my man there you go yeah he's got he's got a hook up in the u.s between me and and our third partner sure awesome super cool well um first of all franco thanks for doing this franco by the way everyone got a text yesterday at 430 which was hey we need an emergency guest host because bill and mills can't make it so um franco thanks for doing this you're awesome uh and also not in your first language which was like super cool given i could barely do it in my first language i'm super impressed yeah so thanks for doing it

And we'll all shout up for your business. What is the business that you work on, Franco? It's called NIR. It's a job where we're all building to help U.S. companies hire Latin American talent for different types of roles, engineers, sales folks, finance folks. And, yeah, there's great talent in Latin. There's a huge tattery gap between U.S. market and Latin market. Times zones are the same.

So, yeah, we think we have a great opportunity there. Super cool. And thanks to our sponsors, The Scribes.com, so the Scribes.com, you can check out their notebooks and pens, which are super cool, and the acquiring minds podcasts. So if the editing is good today, you can thank them because they made for it. So in closing, Ari, I'd love to give you a chance to ask anything of our audience or of us. Definitely appreciate you being so open and with us today. What can we do for you? Well, if you see any deals in the digital space or you have a deal of your own that you want to sell that's not on the market yet, send them.

it to us. You can just send to me, Ari at HRX.com, ARI at HRX.com. And why not? You can follow me on Twitter for my occasional rants about life and business and buying business online. It's Ariozic on Twitter, ARI, OZIC. Super cool. Yeah, thanks for being here. Great job, guys. I'm going to click the stop button. We'll see you all next week.