Acquisitions Anonymous - #1 for business buying, selling and operating - Will Heather get a kick from a $20mm online karate training school? - Acquisitions Anonymous 241

Episode Date: October 31, 2023

In this episode of Acquisitions Anonymous, hosts Heather and Michael discuss an online martial arts education platform, dissecting its rapid growth and revenue numbers. They speculate on the business model, highlighting the company's dependence on influencers and SEO for sales. Exploring potential strategies for private equity involvement, they estimate the business's valuation and potential future growth trajectory. The conversation delves into the challenges of online learning for martial arts and the dynamics of social media marketing.Today's deal comes from Axial.  Axial is a trusted deal-sourcing platform serving professional acquirers in the American lower middle market.Thanks to our sponsors!Employer Flexible will help you take action to streamline your company’s HR processes. They are the proud provider of flexible and adaptable PEO services. If you’re a small business trying to grow, and you’re struggling with a lack of internal HR or you’re just dissatisfied with your current HR setup, consider Employer Flexible as your next vendor for HR outsourcing services.Check them out at https://www.employerflexible.com/.------------Double Jump Media is your one-stop shop for creating engaging, high-quality videos.Double Jump is a boutique video production company with over a decade of experience creating professional, memorable videos for clients from around the globe and in various industries. All while helping those clients generate millions in sales through video content.So, whether you’re rebranding a business you recently purchased, launching a new product or service, or want to look awesome, Double Jump is down to clown.Visit www.doublejump.media to check out their portfolio and schedule your free consultation today.Subscribe 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]

Do you want to learn martial arts online? Well, it turns out you can. Some guys started a company that does just that. And today, Heather and I, this is Michael, reviewed a very successful online education company for sale that does martial arts for you to learn from home. And they've been incredibly successful, and they've kept growing post-COVID.

So we'll dig into why we think all of that is the case and where this business should go and who should buy it in this episode. Here we go. Today's sponsor is employer flexible. And what employer flexible does is really function as a fractional HR department for your company or business. I've used them numerous times and putting together my companies. I've used them when I bought companies.

I've used them when I started from scratch. And basically, when you're moving quickly or when you don't want to spend the time, putting together your own HR department, benefits, all that kind of stuff, and you want to get the scale of being part of a larger group, you can reach out to employer flexible. And what employer flexible does is give you that buying power as if you're part of a bigger group and all that kind of stuff. And for me, I love working with them for numerous reasons. One is I know the owners and a lot of the staff,

and they've always treated me super good. And then the second thing is I hate HR. Like, I don't enjoy it at all. And this way I can know it gets done right. I get the benefits of having a big fully staffed HR department and the flexibility of having a vendor like Employer Flexible being there as a partner throughout my journey and making sure that everybody I work with

is happy, taking care of, and we can focus on what really matters in our business, which is take care of our customers. So you can find their contact details, locations of their various offices, as well as more details on how they will help your business by going to employerflexible.com. And again, that's employerflexible.com,

and thanks to them for sponsoring today's episode. Hey, Bill? I'm Bill. I called you Bill. Oh, my gosh. So sorry. Well, Bill's very bright. So I'm going to take that as a compliment. So good morning to you, too. How's the coffee going today? Have you had your first coffee?

It's lost. True story about our first episode, you know, and I didn't know the other guys very well, I was the host. And if you're interested in something hilarious, go back and listen to us three years ago and hear how we're like, hello? Like, is this thing on?

Anyway, I couldn't remember the other guy's names because I froze. So there's a section in recording where you can hear me pause. and look on the screen to read their names. It'd be like, hey, Bill and Mills. It's so like the worst. I don't know what just happened to me

when I called you Bill, but okay. That's fine. He's me with better hair, so for sure. Okay, well, that's true. And it's morning. You guys are in the different time zone as me. It's hard for us West Coast people because we have to get up early every day

and like we have to be on. Like, we roll out of bed, and our emails are, we already have 30. And people are like, you know, come on. And you're just still trying to drink coffee and, you know, become coherent. And then I heard like last week it was partly cloudy and under 70 degrees. I don't know how you guys deal with this. If you notice, I'm wearing a sweater and it is about 65.

I was excited. Like, oh, it's cold. I'm going to wear a sweater. I need to move to SoCal. I need to move to SoCal. Yeah. Anyway. You'd enjoy it.

I think you would fit right in, unfortunately. Unfortunately, you know, I'm telling you that like that. I do think about my main conflicts with everything. I love San Antonio, but everything I'm unhappy about with Texas is because I try to live a California lifestyle in San Antonio. Okay. So you would sit right in. Yeah. Like strong level of ambition.

We eat super healthy. We like to be outside all the time. We like to travel. We're open. I feel like we're open-minded about other people's views. Like, we, you know, I don't like to go see guns and roses for the 14th time at our convention center, you know, they were here the other night. Yeah, I mean, we get good acts and say it, but we get like pink and guns and roses. And after the third time you see Billy Joel come through town, like, you're like, okay, I've seen, like, I don't need to see it again.

Like, I'm interested in something else. Yeah. Anyway, so you know, I don't know if you're aware. This podcast is actually about us talking about deals, not about the weather. So we have one that I found off of Axiol. this is an interesting one because it's A, it's big, and B, it's not something we've looked at really before. So it is a rapidly growing, market-leading, online education platform for martial arts. Pulled off of Axial, I pulled it up here on the screen, Project Blackjack, so you know

it's a little bigger because they give it a codename. So that's pretty fun. Sometimes they tell you things in the code name, which I find very interesting. So in this case, Project Blackjack, which when you see something like that would not surprise me if it is like in a in Reno or Las Vegas. They just, brokers love to do weird stuff. Project Blackjack created a category

in online education that previously did not exist and has since submitted themselves as a leader in an attractive and growing niche market. Each year since inception, the company has expanded this market share and product offering by partnering with a growing number of world-renowned

martial arts instructors and industry media publications. I want to put a pin in that. that and talk about how I think they're growing their business. That explains a lot. With strong customer loyalty and tenured relationships and an expert in a growing niche industry, the company's market position lends itself for expansion into other product and service offerings. The teams has started to replicate their proven business model and adjacent market opportunities as seeking a capital partner for both the liquidity bent and to help execute on operational

initiatives. The company's leadership is happy to stay in place and is seeking an opportunity to add a strategic partner for the next leg of their journey. Here are the brief final. In 2020, they did $17.2 million. This is an online martial arts education platform and $2 million in EBITA, so 12% EBITA margin. In 2021, they grew 23% to do $21 million in revenue and $3.5 million in EBDA. And in 2022, they did $26 million, growing 23% again with $5.6 million in EBITA. And this year, they are scheduled to do $30.8 million in revenue and $7.2 million in EBITA. they want to do a sale or a change of control,

so bring in a partner, and they are located somewhere in the United States. Heather, are you excited about Oni? I don't know. I'm perplexed. I mean, I love the growth. The numbers are exciting. And it shows 2020, but not before.

And I would imagine, like, any kind of online fitness, you know, hit the big time in 2020. It might have been a small thing or maybe didn't even exist much at all, before 2020, but that certainly would have given it a big boost. But I'm very impressed with how much it has grown since then, because a lot of times you see that COVID tailwind just, you know, kind of level off or, you know, kind of digress back to where they were before. This one's not. So, you know, the margins are getting fatter, which you would expect with that kind of growth.

And it's almost doubled in sales in the last three years, which I think is pretty, pretty incredible, but I don't know a lot about martial arts. I do think it's hard to learn these kinds of things online. I mean, maybe I'm wrong about that, but don't you kind of need some in-person instruction too? Does it supplement that? I'm curious how it works. Well, I just went and Googled learn martial arts at home.

And this is what came up. There's two, there are two main platforms, maybe three. that I saw here. So you have Black Belt at Home, global martial arts university, martial arts academy online. And then it drops into kind of the aggregators after there.

And there's a handful of other ones, cyber taekwondo. You can do cyber taekwondo. So let's try, which one do you want to try it? Black Belt at Home? I feel like Black Belt at Home might be it. Project Blackjack. It sounds like it.

So here I'll pull it up. From GMAU training courses, is the name of us. So that could be that. So they have all these courses. You learn, train, Kravmaga, Taekwondo, Ultimate Bow, Nanchako, BJJ,

Brazilian Jiu-Jitsu, all that kind of stuff. By the way, somebody tweeted the other day, every man should learn how to do Brazilian Jiu-Jetsu. So they said, I was like, that is the worst tweet I've ever seen by all the way.

Basically, you can go through and get your rank online. It's basically what I'm reading here as you look through, this. So let's tie taekwondo. Don't you have to have matches? I'm sorry. I don't know enough about martial arts, but don't you have to have a partner to do this with? These appear to be, yeah, I thought part of the deal of learning taekwondo was actually

like having, competing with, inspiring with other people. So here they show a picture, and I guess this is the way it works. You're at home with videos, you're doing the instruction. You learn how to basically do these kicks, and agile reactions through intense taekwondo training. You get healthier and do all that kind of stuff. Learn it at your pace, a bunch of instructors and support it on multiple devices. And here it shows that they have over a thousand students

in their supportive community just doing taekwondo amongst all the other stuff. So how much does it cost? Have we talked about that? Yeah, that's, for that kind of sales, I'm wondering, is it a lot of low ticket or is it, you know, they really appeal to some folks who spend a lot of money. Let's hear, here we go.

So tuition for these is you get instant access to all belt levels, $40 per month. And then biannually, you get a discount. And then there is a three-monthly installment where you get a three-year membership to the course. And this is just for Taekwondo. So basically they're getting people to pay $480 a year plus or minus for the course. And then basically, oh, this is really interesting.

So what they have here is you can submit stuff and they have online teachers review your videos of you trying to achieve the rank belts and stuff like that. So you send in a personal video, like if you want to get a rank, and then you send in 60 bucks and they look at your video and say that you qualify or based on what you're supposed to do in the video. That just seems, it feels a little odd to me that this many people would want to learn this way. When it feels like if, well, maybe I don't know where these people are located where their customers are, if they're global or if they're just all in the U.S.

I guess it does, you know, could be global. But it just feels like a strange way to learn this skill. I feel like you need to be in person to really learn it well and have partners. But maybe I'm wrong. train wherever whenever. So here's this lady. She definitely, like, if you think about accessibility, she's like, has a stick,

like fraction of the cost. Yeah, I mean, I have to imagine there are people who are doing this who are in random places where you can't, you know, you can't find a dojo or you don't have time to go in. And it definitely, you know, definitely feels like,

and then they have like a beginner's course. These guys have all of the like the core selling tricks down, which is good. Free course to get you in. And then they sell all these different products. Journey to Black Belt. Yeah. Interesting.

It's beautiful. The teaser didn't say, it didn't say any kind of product mix, did it? Did it tell us that, you know, some of it is products and some of it is the actual subscriptions? They don't really say, they have expanded product offering. So it wouldn't surprise me if it's these guys. the black belt at home guys, though there were several other ones that came through here.

But yeah, it looks like whatever this company has turned into is a multi-product thing. Oh, wow. These guys actually... Yeah, of the sport. Yeah, these guys actually have both of the top two top two results when you Google martial arts online.

So like SEO is for sure here. And then here's this martial arts academy online. It wouldn't surprise me if this is the same guys. Oh, under a different name. Yeah. Kind of capturing the audience another way. That would be interesting. But it's interesting how there is just no competition for this search term.

And it's also interesting that Google didn't try to sell us any ads. Why isn't there any competition? And could there, you know, if you buy this, just someone eventually figure it out. and build up, you know, some competition for you. It wouldn't be hard, I would imagine. Not sure what their secret sauce is here. Yeah.

Well, I think so moat-wise, moat-wise, you would have, obviously SEO is going to be huge for you. You have relationships where you are paying a number of these influencers. So, like, that, I think is what's definitely going on here. the fact they're bringing in 17 millionaire revenue for course sales and only profiting two million leads me to believe they are paying massive, massive affiliate fees to these people that are recommending their stuff. Some of these businesses pay 60, 70, 80% affiliate fees to people promoting their stuff. Like all those gum road courses and stuff like that, some of those gum road courses that are like,

you know, basically people taking Seneca and like putting it into PDFs and getting you to pay $100 for it, like they'll pay 80% like commissions to try to get people over. So actually if you look on Twitter, it's really interesting. There's people that play this game.

Basically, they go through and like write a bunch of tweets. They try to build an account that's like, if you see them, they're like anonymous accounts and they say like, life wisdom or whatever, and then their bio always has you go into a gum road page, and that's what they're doing. They're basically using Twitter as lead gen for them to get affiliate fees to sell gum road courses. By the way, this is why I would not put anything on

gum road personally, because it's like contrary to my brand. I don't want to be associated with that scammy stuff. Do you need video content for your business that doesn't suck? Double jump media is your one-stop shop for high-quality, highly engaging video content. They have over a decade of experience producing great memorable videos for their clients across North America and beyond. And those clients have taken those videos and turned that into millions more in sales for their business to help them grow and achieve their goals. And a distinguishing characteristic that sets them apart is they have a small team that

does everything in-house. So what you see on their portfolio page and what you see on their website, that's what you're going to get. They do everything soup to nuts, consulting, scripting, strategy, production, post-production, helping you put it all together to produce something that is just as top-notch as your brand. So whether you rebranding an existing product, you've just bought a business, or you're trying to grow the one that you have, the double-jump team is one that is down to clown. By the way, they've wrote that down to clown. I know what it means, but it sounds awesome. So to get in touch with them, visit doublejump.com media, fill out their form, tell them that we sent you,

have an introductory call at no cost to you and figure out what's best for your business. They're great folks and can help you on your journey in producing amazing video content to help meet your business needs and goals. And thanks to them for sponsoring today's episode. But anyway, it would not surprise me if these guys are paying out 50, 60, 70% affiliate fees to YouTube martial artists folks that are doing it. And that's the way it also works with like athletic greens. You've seen athletic greens and all those ads.

Yeah. Right. So like if you like the way that works is if you pay, if you buy athletic greens using one of their links, of all the money you send to athletic greens and perpetuity, like anywhere from like 2030 or even a greater percentage, goes straight to the person who's affiliate link. You got you there. Yeah. Wow. So this so this business kind of belongs to the influencers somewhat. You know, it seems like and you're very dependent on them. not knowing the martial arts world, I don't know how often they change too. I mean, are there just some really big names that kind of last for a long time or are there new superstars up and coming that you kind of have to sign on?

I don't know how it works. We talk about, we talk about like small business Twitter and like financial Twitter. I wonder if there's like karate Twitter. I want to try. Carate. There's every kind of Twitter.

It's amazing. The world karate stuff, the Karate Kid movie. Yeah, there's a bunch of people who are talking about karate here. Yeah. If you're enthusiastic about a topic, there's always a Twitter for it, it seems like. There is no way that karate Twitter is not larger than small business Twitter. That's my guess. It probably is.

So I bet there's that. I bet you if I pulled up YouTube right now, I bet you, oh, good, I'm going to get killed by martial art stuff now. I was going to say do ratings matter on this kind of business? Are there people that rate the course? And does anyone even look that up? I haven't seen it. I haven't seen it really mattering. But here, I mean, some of these videos are unbelievable.

This martial arts short with this guy from, he looks like he's from Thailand, maybe, 44 million views. How did choose the right martial art for you? 1.1 million views. What's the best martial arts style? or school for you. I bet you you go through here and they have a ton of these guys

are doing promotion for schools like this. I bet you dig into that. Best martial arts for self-defense ranked, 2.2 million views. Wow. Fascinating.

So you get a good big name in here and then you promote the course. They probably all promote something else, something different. That is my guess. Here's a video from Sensei, Seth, and I bet you includes paid promotion. I got to get out of here.

Otherwise, I'm going to get barraged with martial arts videos for the next six months. But yeah, so I think that's the business that's going on here. And is that a good business? Like, yeah. Like, AG1 is a good business. Like, Hewle is a good business. This is a good business. You know, the gum road thing is a good business.

My course is a good business. I don't do any affiliate stuff. And yeah, but that's what's going on. That's why they're selling 100% gross margin, zero marginal cost product, and only making, you know, 12% EBITA margins. Because it's all going out to, it's all ads, all promotion spent. Yeah, I saw something like this a year and a half ago that was Pilates. It was a library of Pilates classes online. And they, and I learned a lot about Pilates that I didn't know that there were all these different, you know,

styles and gurus of Pilates. and they had this kind of huge library of it. But it was nowhere near this size business. You know, so this business has done some things right and is, you know, has really grown. I mean, that business did okay after COVID, but it didn't do anything near like this. It probably just doesn't have as big a market, Pilates. You know, people aren't as enthusiastic probably about that as martial arts in general is just a bigger market. Yeah.

Well, Pilates is very equipment heavy, right? like you need it to, if you're doing the reformer. It doesn't have to be, but can be, yes. Yeah. Well, I guess there's Matt Pilates, which is also there. Yeah. All right, I was trying to, which way I was going to go to this is what I had stuff to say. But then I also had stuff to say about Pilates, but I was like, I'll keep this myself.

So I think the other thing, reading into this worth noting, like, the company's leadership, here's what they say, is happy to stay in place and is seeking an opportunity to add a strategic partner for the next leg of their journey. To me, that typically means they want private equity or growth equity fund to come in by 60, 50, 51%, 70% of the business, they would roll over and stay and keep working and take some chips off the table. So this is probably not at this size a complete buyout. It's probably one where private equity would be coming in. So if you're, I think, a buyer looking at this, you've got to realize, oh, these guys want to be paid a high multiple for growth and they want growth capital to be injected in the business. And my suspicion is they could, their thesis is they would take this same play that they've done

for this niche and go do it for other niches. And whether that's martial arts and expanding into other stuff, it could be driving or, you know, race car driving. I mean, any kind of stuff that's there, but run this same play where you pay influencers and get good SEO and then have a beautiful business that comes out the other end. Anyway, what do you think? I think you're right. They do not, this is not an individual buyer.

they don't really want a full change in control. They'd like to keep some chips on the table. Most likely it's private equity. I have no idea how to value this, though, because I am not an online course expert by any stretch. What do you think, Michael? This is going to get a private equity play done to it, I would suspect. So I think they're probably going to come in and build out a model

and then have a level of certainty around, say, getting to 15 or 20 million in EBITA, and then thinking about what they could sell for it, sell it for. So my guess is they would probably value the business at, you know, let's see, 2023,

$7.2 million, EBDA with 18% growth. They would probably value it at seven to eight times. I mean, at this point, maybe that's low, but let's say 50 to $60 million. I was going to say 10,

but I don't know, you know, so I like your number better. So let's say 10. I mean, their play, I think would be to come in, value the business.

Let's say it's 70 million. depending on how 2023 is really going. And they would put together some debt plus equity plus rollover to make that work. And then their goal would be to inject another 10 to 15 million in capital into the business to grow up quickly for CAPEX and whatnot. And then get it up to say 25 to 30 million in EBITDA and then turn around and sell it again for 250 to 300 million to the next buyer. That would be my guess. You know, I don't do a lot of growthy stuff like this. So, but I think that's the kind of numbers I would expect it to be.

So let's say 70 to 100 million valuation or 70 million valuation is now. And then look to try to sell up for three to four times that, you know, in three to five years. Yeah. I think that sounds like a smart laybook. And we'll have to see if they do it. Well, I'll be looking now for martial arts training online. Well, just do what I did and like Google martial arts and click on a couple videos. YouTube's going to kill you for the next month.

No, I don't, I'm not really going to do that, by the way. So, I mean, the depressing thing about all these platforms is how quickly they realize, like, I'm a 48-year-old married man with teenage boys. And, like, all I see is freaking MMA and, like, attractive 25-year-old women. It's like, come on. Like, give me at least a few minutes away from this. Like, and it's not like I'm clicking on it. Like, I'm intentionally not clicking it.

Like, when I go on TikTok, I've intentionally ruined my TikTok. Have I told you how I did this? Oh, no. So my strategy for TikTok is I figured out how to make TikTok not addictive. I only click on things that teach me Spanish on TikTok. That's my whole strategy. Oh, that's good. And so it's gone from being a total time-waster to basically Spanish lessons.

Something narrow that you could use. Yeah, that's very smart. I like that. Okay. So it seemed like a good strategy, right? Then I looked up, it's the next thing I know, now all I get are incredibly gorgeous Spanish women teaching me Spanish. It's like, oh, come on.

Come on. What's what's going on here? We'd try anyway. I was like, oh, I fixed this. The next thing I know everybody's 25-year-old and gorgeous from Barcelona. It's like, oh, man. The secret to not getting addicted to TikTok is not having an account. I do not have one.

I don't know that that'll last. Eventually, I may have one, but I do not have one now. Forget it. Yeah. they all have their time. I think one day, I was thinking this morning, I was like,

I think just one day a week, I just need to be like, no, I'm not social mediaing today. It's just like just a one day a week holiday. Maybe that's the right way to handle it. So, I don't know.

Social media is fun. And it's a huge opportunity for our generation because you and I, like, how many of our friends, like, have no idea how to do it and are terrified to write even one tweet. Like,

like, it is such a huge opportunity. if like 45-year-olds, 55-year-olds would just get out of their, get out of their rut and like just take a chance. I agree. I tell my friend's kids that I'm on Twitter and they're like, what? You are? I go, yeah, check me out. So, you know, absolutely.

Our generation should be using it a little better than we do. But we're there. We're there. We're leading the way. I think it's great. And I do have a, like we're going to, I wrote up like a Twitter. thread and like we're going to do a video like how to like grow your business on Twitter the right way and I see so many people that are just doing it totally wrong like just totally wrong

and it's like even everything fundamental from like you know what just like in your bio like say what you actually do like people don't do that and then like nobody wants to hear your take on like if you're growing your business nobody wants to hear your take on the college football weekend like don't talk about that like stay on topic stay on topic yeah I sure with that. But it's also like, and then we're like, okay, well, I'm going to share all my wisdom on Twitter. It's like, nope, don't do that. Nobody wants to hear your generic like fortune cookie wisdom.

And look, I do it too, but I try to make it funny. That's the only way I figured out to make that work. But like nobody wants to hear generic fortune cookie wisdom. Like, tell tweet about what 25-year-old you should hear from 45-year-old you. and because most of the people out there, 95% of our beginners. They just want basic stuff, right? That's why threads about the Pareto principle keep going viral. It's because that's new to most people.

Right. Yeah, so first time they heard it. Yeah, it is interesting. I tweet in the morning. That's my strategy. Just tweet in the morning when your brain is still kind of open and you're kind of listening to it like, what's going on right now?

What are people kind of interested in? And it doesn't always work, but I just, I only tweet in the morning. I think that's good, too. All right. This is a great deal. Now, actually, all keeps bringing the interesting stuff, very different. This is a big one. And, yeah, thanks for being here today.

I've enjoyed spending my Friday with you. And we'll consider it again next week. All right. All right, bye, everybody. See you next week. Tell your friends about this episode. And I thought it was, we did a good balance. It was fun.

We did. All right, bye.