In Carl Allen’s Deal Review playlist, he evaluates anonymized business acquisition deals submitted by students in his Deal Maker Protégé Program. Each deal is analyzed for growth opportunities, valuation, deal structure, and seller psychology, offering valuable insights into identifying viable acquisitions and planning potential exits. The showcased deal in this episode is a UK-based microphone and accessories business, revealing a mix of challenges and opportunities.

The business, owned by a husband-and-wife team, has operated internationally for 20 years, targeting podcasting, gaming, and professional audio markets. While renowned for its high-end products, its revenues have declined since a 2021 COVID boom. The owners seek a buyer with a business-oriented approach to scale operations, citing burnout and a desire to transition into education ventures. Despite challenges, the brand boasts strong equity, technical expertise, and a loyal customer base.

Carl highlights several growth opportunities, including leveraging Amazon for direct-to-consumer sales and refining their online presence. He suggests creating separate channels for high-end and lower-end products to better penetrate both markets. Additionally, the business has untapped potential in its podcasting equipment and educational product space, which could drive significant growth with the right leadership.

The financial structure of the deal is favorable due to the surplus cash available. Carl proposes offering the surplus cash at closing alongside a seller note to finance the deal without external funding. Despite concerns about declining revenues, he views this as a manageable issue given the scalability of the business and its strong market position.

Carl encourages buyers like Charles Whitmore to proceed strategically, utilizing their expertise to scale the business quickly. With proper execution, the business could generate impressive returns within 1-2 years. This deal serves as a valuable case study for understanding deal structuring, growth strategies, and seller negotiation dynamics.

Full Transcript:

Hi. It’s Carl Allen. In this playlist, I’m gonna be doing some deal reviews for you. So part of my deal maker protege program, we review our deal maker student deals on a weekly basis. They’re anonymized.

We put them on a Zoom call. We break the numbers down. We look at the growth opportunity, valuation, what a deal structure might look like, interpreting the seller psychology and how that maps in to a desired outcome in terms of a deal structure. We’ll then also look at what the exit options might be for you as a new business owner after you’ve grown the business and you want to go to market and liquidate the asset.

So every single week, we review a bunch of these deals. And my favorite deal of the week, we’re actually gonna showcase for you on this channel. So absolutely check these out, and don’t forget to like and share these videos, and definitely hit the subscribe button so that you’re getting these deal reviews as soon as we release them. So enjoy the video.

I will see you soon. Until then, bye for now.

Okay. Let’s go to the disclaimer to start things off. Yeah. If you’re brand new to this call, you need to understand what this call is all about.

And so this call isn’t really about advice, so I wanna point that out. We’re not providing advice to any specific individual who’s working on any specific acquisition. The purpose of this call is to observe how experienced dealmakers look at new opportunities, the questions they form, and the strategies they might potentially pursue. If we were going to be in a position to develop an actionable acquisition plan, which of course we do do all the time, would require a lot more in-depth information on both the target companies and the sellers than we’re possibly able to review on these kind of short twenty, twenty five minute sessions, which is about how much time we spend on each deal.

So we’re gonna have lots of good discussion, lots of ideas thrown around, lots of opinions, and none of it is gonna rise to the level of actual advice. So important to keep that in mind. We’ll get the simple model down here ready to go with slight pause at the top, and then I like to put the bottom on there so people can see what the both the balance sheet and the income statement looks like. Yeah, this is a pretty interesting deal.

This is Charles’s deal, Charles Whitmore. This is a UK deal. What’s it all about? This business is about microphones and accessories.

What is the focus of the business? Yeah, this is important because sometimes if I don’t emphasize this people will get the wrong idea. These people are manufacturers. They design, they develop, they manufacture, and they distribute microphones and accessories.

So who’s the customer profile? Well, it’s used for podcasting, gaming, streaming, and video calls. There’s a little bit more of a breakdown that I’m going to get to a few bullets down. The market segments that they’re targeting, professional musicians and audio engineers, that’s on the high end.

You know, podcasters are on the low end. And this is an important distinction and it does play a pretty big role in this deal. Customer breakdown, distributors, they’ve got forty of them. Retailers, they sell to thirteen retailers.

They do have direct to consumer. It’s a work in progress. I couldn’t get a sense from either the notes, the SIM, or their website exactly how or how far along they are in that particular enterprise. So maybe when Charles gets on, he can fill us a little in on a little bit on that one.

This is located in the UK. This business is twenty years old, was founded in two thousand and two. The trading area is international. And in this case, it really is international.

They have an actual sales channel in sixty five different countries. Now their main market is North America, Europe, and Australia, Asia. They literally are worldwide. The business has been for sale six months officially, but unofficially officially judging by their SIM, their confidential information memorandum, it seems like it that SIM might have been released sometime in twenty twenty one, so I’m assuming this business has been for sale off and on, maybe for a couple of years.

No ask price was given, offers are invited, no property involved in this sale. The ownership story, this is owned by a husband and wife team, both fifty percent owners, both are around fifty years old, so this is not really a retirement sale. These aren’t baby boomers. Darren is a high end subject matter expert.

I think that’s a key part of this deal. Alright. This guy has deep expertise in acoustics engineering. And, you know, this business is broken down into both high end and low end.

I think Darren’s, you know, real passion is on the high end. He has world famous pop stars using his high end microphones. They’ve had very good penetration with that high end, but the bread and butter is on the lower end and the podcast. I mean, how many people here have bought a microphone, you know, that cost more than a hundred or two hundred dollars over the last couple of years?

I’ll bet you a ton of hands would go up. So they recognize that. They’re trying to work that out. And it’s it’s caused them to be a little busier than they want.

Now Carol also has a passion, that’s Darren’s wife for high quality recording equipment. She works in the sales and marketing side of the business. They’re both working full time and both are overwhelmed by the day to day demands of this business. So the motivation for the sale was really stated as twofold.

Number one, burnout from the COVID inspired rush of twenty twenty one. Ton of people were buying high end microphones in twenty twenty one, working from home, starting a podcast, starting up streaming, you name it. A lot of gaming going on, all of which require a microphone. Right?

And then the other motivation is that they really recognize that a more business oriented owner is needed to reach the next level of this business. They’re audiophiles. You know, Darren is an acoustics guy. He’s a music guy.

He’s a microphone I don’t think he necessarily identifies as somebody who could build this business out.

You know, there’s a lot of players in here like Roadie down in Australia. That was, you know, kind of probably started the same way this, this business did.

You know, obviously, they are business people because that business has just absolutely skyrocketed over the last five years.

And I think, you know, Darren’s the kind of guy that figures his business should be doing the same, but maybe he’s not the right guy in the right seat. And for that reason, right, he’s prepared to exit the business. Now important decisions are made jointly, so any sale of the business would require the full agreement from both Darren and Carol. Gonna Gonna be a joint thing. The future plans for the owners, including spending time on their fishing boat, a little bit of r and r, but they also wanna launch an education product related to audio engineering.

I don’t have any info more information than that on it.

I was curious myself.

I did do some digging, but I didn’t come up with what kind of education product that would be, what it would look like, who they would target, etcetera.

But that is one of the things they wanna do with their time once they’re out. I mean, the sellers are obviously critical to this business, but they do claim pretty strong technical bench strength as well. So Darren is not the only technical expert in this business. And the staffing, five full time, one part time, two R and D subcontractors, four freelancers, plus the two shareholders Darren and Carol, fourteen people in total.

And the fastest growing part of the business, yeah, obvious, it’s podcasting equipment. Now they sell products through a combination of trade shows, direct selling to distributors and social media promotion. Yeah, that’s what the note said. I’m not sure that they’re actually selling through social media promotion, so maybe I should have said sales and marketing is through a combination of.

The main focus is professional equipment, I think, for Darren. I didn’t get a breakdown, on a revenue basis of what professional high end was versus the low end podcasting market. I don’t know if it’s ninety ten or ten ninety that wasn’t provided. Obviously, it would be really interesting number to know.

But in the high end, they do have a very strong reputation. And, of course, as noted, lack marketing and distribution sort of, channels to penetrate the lower end of the podcasting market. That’s a whole other kettle of fish. Our legacy, as you can imagine, is extremely important to both Darren and Carol.

They’re very proud of the reputation they’ve built as high end suppliers of audio equipment. They don’t want a new buyer coming in that’s gonna destroy that legacy. I mean, the biggest opportunity that was identified, and I think the channel agrees with them, is to create separate channels. So they do have a specific high end, you know, equipment channels.

So they do have a specific high end, you know, equipment group with its own channel, its own salespeople, its own marketing, etcetera. And then, you know, kind of going full hog on the lower end, direct to consumer, podcasting equipment through Amazon, etcetera. I mean, they are on Amazon, but they’re not really putting much push and much muscle behind it. Their on Amazon.

That was Charles, opinion. I agree with him. They just haven’t had the time available to really invest in improving their online business, including their Amazon business. They’re only operating at sixty percent of capacity.

Now the reviews are definitely five stars for professional equipment. This is was kind of a nice deal on that side of things. All kinds of places where you could go and take a look at the reviews of both sides of the business the high end and the low end and their podcasting equipment is just fine it’s priced right people like it four point five stars but I think where Darren really shines is on the high end. The website is pretty badly in need of an upgrade as was already noted so there’s a big opportunity there.

I would say the MUD score is only average. I mean Darren and Carol are fifty. Yeah. They’re burnt out.

They had a really good twenty twenty one year because of COVID. In this deal, it would be really nice to take a look at what the twenty, you know, twenty twenty and twenty nineteen numbers were. Just to give you a little bit of a insight on the years, I didn’t I just noticed I forgot to actually change this over here. This should be twenty twenty three, twenty twenty two, and twenty twenty one as well.

But the fiscal year end is March thirty one. So their twenty twenty two fiscal year end is already over. They’re halfway through their twenty twenty three year. And so the twenty twenty three number is a projection based upon seven months of results.

And as you can see, the business is tailing off pretty significantly. So the MUD score is only average. I mean, I think the motivation is high. Obviously, the business kinda seems like it’s a little bit on the road.

They are burnt out, but I didn’t really get any distress or urgency. Distress in terms of concrete reasons that they have to sell, whether it’s family breakdown, illness, moving, or whatever it happens to be. And I didn’t get a sense of a a really strong sense of urgency either, but, you know, the motivation maybe puts us a little higher MUD score than than average. In terms of the the rest of it, the the Relv or whatever, you know, whatever we wanna sort of rename that, you know, it would be nice to have some information on that.

I didn’t get a sense, from the information submitted that I could come up with an approximation of what that might be. Maybe Charles can fill us in a little bit more on that. So a pretty interesting business. It’s kind of a bit of a guru business, at least in my opinion it is, but, of course, I’d love to get Carl’s take on it as well.

Carl, what do you think of this deal?

Yeah. So some good things and bad things about this deal. It’s in a really tool growing market. I think, you know, over the last few years, the whole kind of podcasting, social media, you know, info products, infomercial market has really kind of blown up.

It’s like a six billion dollar market right now. It just doesn’t sound that high, but, you know, most of the businesses that play in this market are gonna be micro businesses like this. You know, Amazon’s a massive growth opportunity for a business like this. I could ten x this business in a year, like, with my eyes closed.

This is such an easy business to kinda grow. And that idea of, you know, they wanna go off an an educational product around, you know, how to get the right stuff at the right tech and how to set it all up. That’s an amazing idea. That was one of my ideas also to kinda grow this.

You could have an info product business alongside this. So, potentially, you could partner with the retiring sellers, you know, for that. Obviously, you know, the margins are pretty good, although they’ve dipped from, like, thirty six down to twenty eight percent. The biggest problem with this deal is it’s it’s like dying.

You know? It’s gone from a million and change in revenue. It’s lost fifty five percent of its sales revenue last two years.

Well, I think twenty twenty one, though, was a super banner year driven by COVID. I think it’s more in line with what it would have been in twenty nineteen, twenty twenty. So twenty twenty one is not a good baseline year. This is why they wanna sell the business. They got run ragged in twenty twenty one.

Right. Okay. But, like, twenty two was eight eight four. Twenty twenty three, they’re forecasting, like, half a million. So, like, that’s crazy.

Yep.

So for a business like this to be declining, because either something wrong with the business, there’s something wrong with with the sellers. So I think the MUD score might be a little bit higher potentially, but, again, I’ve not for some, I’ve overlooked this business.

One other thing, keep in mind when you’re analyzing this is is Charles does have some expertise in this area. This isn’t I know. This is definitely in his lane.

Yeah. I know. So I think this is a great deal for Charles. And and I think one of the best things about this deal is just how fundable it is.

So this is one of those deals. It’s quite rare we see this. It’s earnings, poor and asset rich. So, like, you wouldn’t do a three year average, really, on these numbers when they’re declining.

So if it’s doing a hundred and thirty seven thousand dollars of EBITDA, at most, it’s worth three times. So the business is only worth about half a million dollars. Yet, there’s about seven hundred and fifty thousand dollars of surplus cash in this business. So you wouldn’t need a hundred thousand pounds.

It’s UK, isn’t it? You wouldn’t need more than a hundred thousand pounds in the bank to properly trade this business. So especially if you scale it through Amazon, you know, you probably need even less working capital. So, well, I think you need to do a deal somewhere around the level of the owner’s equity.

So, like, if you turn around and said, hey. I’ll give you half a million dollars, half a million pounds business, they’re not gonna sell it to you because they could shut it down, liquidate the balance sheet, and walk away with probably not one point three seven four million, but probably a million and change. So what I would do is the sort of deal I would do with this is I go as high as a million five for this business. I give them three quarters of a million pounds at closing, which is all the surplus cash.

Right? And then I do a ten year annuity on, say, seventy five thousand a year. And then literally, Charles, within hours of doing the deal, get this thing on Amazon, figure out your supply chain for the impending growth, and then I would absolutely scale the nuts out of this. I think you could massively grow this business over a couple of years and then and then sell it.

So I think this is a split deal. I don’t think you’d be in this deal more than a couple of years. For me, I’d be in and out within twelve months, probably. I think you can do this deal without going near any external financing.

I think, John, I think this is a deal like the the cybersecurity business you and I bought in London. When was that? Twenty nineteen? Just before COVID.

It was basically surplus cash as a closing payment plus a seller note. We didn’t need to go through any other funding channels. And I’m getting a sense from and if you look at the financial trends and, you know, from what we’re talking about with the sellers, you know, obviously, Charles fills in a bit more. I think there’s probably a good a good sense of doing that.

I know it’s in Charles’ lane. I’m a little bit concerned about the decline in revenues, but, yeah, I think I think that’s more their desire, than anything else. This is a this is a growing market. So you might want to do a little bit of due diligence just to make sure there’s a big fundamentally rotten about the company.

But I think this is an interesting deal, and I think it’s very affordable without any external financing.

Before we get to Charles, I wanna ask you something, Carl. We don’t see this very often, because we don’t get those kinds of deals in red light, green light all that often, but I think this business has some real brand equity. If you take a look like I did, obviously, I have an advantage because I spent a couple hours on this deal, yesterday. And you take a look at what the professional reviews are, the name recognition, where it’s written up, you know, etcetera, etcetera, etcetera. This is a it’s a small company, but it’s got a recognizable, brand name that has a lot of cache associated with it, especially at the high end.

Like, I’m thinking, you know, this brand alone might be worth a million and a half dollars or a million pounds in this case.

Yeah. Absolutely. And and I think, you know, you can always play on that as you scale. Like, a lot of the people out there that buy these products probably don’t know that it’s only doing half a million pounds a year in turnover.

They probably think it’s a ten, twenty, thirty million pound business. So I think if it’s got a really solid brand, it’s cash rich, it’s an easy deal structure to fund. There’s massive upside in this business. It’s it’s in Charles’ lane.

You know, I I think this would be a low green light deal for me anyway. I would buy this business for sure. But I think for Charles, it’s probably a a higher green light deal. You know, I am concerned about the decline, but Yeah.

I guess in my mind, I think the podcasting microphone market is absolutely on fire, and I don’t see that ending anytime soon. And you’ve got somebody with some real cache on the high end of the spectrum, and you’ve got a ton of positive reviews Yeah. All over the Internet.

Those two things together Oh.

Make make this a solid green light.

Yeah. Absolutely agree with that one hundred percent.

Now I haven’t checked to see if Charles is here. There’s his smiling face right there.

Mister Whitmer is here.

He’s, Charles, thanks for submitting this deal.

Very interesting. You know, I know this is probably a deal you were looking at maybe a month ago because of the length of the queue. Sometimes the red light, green light isn’t all that timely. Are you still in the process of discussing things with the seller, Charles?

I’ve got an offer in with, and it’s pretty much along the lines of what Carl’s just outlined. You taught me well.

Good at this shit, aren’t I? No. I’m just kidding. No. Clint, like, Charles, you you’ve seen enough of these red light, green light calls.

You you know exactly how to structure this deal. It’s perfect. It’s perfect.

So there’s a couple of points. The one is this, twenty three forecast. They have acknowledged there’s some seasonality to the business, and we’ve basically just extrapolated the turnover for this year. They’ve got a Christmas spike.

So So it should be a good I should’ve mentioned that, Charles.

You’re one hundred percent right on that. Yeah. I should’ve mentioned that.

The other thing is as far as Aleve goes, I’ve got a great relationship with these people. I’ve went I took them for lunch. They really like my passion and what I want to do with their brand. They’re passionate about their legacy because they’ve obviously spent twenty years building up brand.

They are very, very caring about their employees. The owner, Neddy, started crying when he was talking about the one guy on the workshop floor that he’d employed since he left high school early, etcetera. And then as far as values go, one of my key values is integrity, and it’s their top value. We’ve got a high score there.

I think the only other point for me to make is I’ve done some work with Amazon before, and I know they’re not your friend. If you’re trying to sell stuff that other guys are selling as well, there’s a price war that comes on and almost, like, not worth the effort. So I’ve actually been looking for companies that have got their own brand, which Amazon can’t go and cannibalize and destroy with price competition.

And I think I found it, Now, Mike’s made a point that I wanna kinda build on here.

Talking about Shure, of course, Shure is a great brand of microphones based in Chicago, used to be market leader in high end, got out twenty years ago because they could not compete against China. Yeah. That, that might be true, but still, the reputation of the high end is still value. Whether you’re making a dollar in there or not.

Right? It’s a great sort of proof of concept. It’s a great social sort of proof that, that you’ve got what it takes to build a great microphone. So I wouldn’t necessarily be getting out of that.

I just wouldn’t be trying to make any money in it necessarily. Thoughts on that comment, Charles?

So what I don’t appreciate I’m an electronics engineer. Right? So I’ve always thought that microphones are about the electronics. But what I learned from this guy is that it’s about the physical acoustics around the pickup, the weight of the microphone handle, the, the acoustic shape that the sound waves flow in with, and that’s not something that China is very good at, competing with. And they’ve obviously got a high end microphones, the software, over two thousand pounds per microphone. And the pros are prepared to pay that because they can hear the difference.

Yeah.

The pro the pros aren’t gonna buy from China. I I think you guys are playing in in a different part of the market. And just been looking at some of the comments, you know, a lot of people you know, it was it was a kind of thought of mine initially till I didn’t realize it was Charles’ deal, like, who’s gonna run this if they leave? This is Charles’s wheelhouse.

You know, Charles, you can get in there a couple of months, figure out what’s going on, put a GM in even to help you do the day to day. I think strategically, you can move the needle on this very quickly, you know, very impressively. I just think it’s got all the great attributes. And and and I I think those declining numbers based on that seasonality comment, it’s probably not as big a deal as we originally thought.

The beauty of this deal is just how easy it is to finance it. Like, you’re like well, what’s really about the UK, everybody, is in the UK, we have a very interesting, like, tax situation when you’re selling businesses. So in the UK, most businesses exist as like c corps in America. So they’re taxed at the company level profits, and then owners get taxed when they pull the money out.

Right? So it’s not very efficient. But where we make up for that is in England. If you sell the shares of a company, the first million pounds of your money, so about one point two million dollars, you only have to pay ten percent tax.

Right? So these guys, they’re gonna if they get seven fifty at closing, they’ll pay seventy five thousand pounds in tax. Like and if if you do the deal now, they won’t pay back tax, Charles, until the thirty first of January twenty twenty four. So they could take the closing payment, invest it, and if it grows ten percent in that year, they’re paying their own they’re covering their own tax.

So, yeah, I I think that’s another factor in here. They’ll end up paying very, very little tax in this deal as well. So most of the money they get is gonna gonna stay with them.

Okay. Let’s, let’s put it to a vote. Well, hang on a sec. Let me let me touch on on a couple people.

Lating round folks, we don’t have much time. Can’t give you any more than thirty seconds, but I’m gonna start with Garland. I’d love to get his take on this. Garland, can you unmute?

Give me a red, give me a green, give me a number, and give me a y.

So, unfortunately, I was I was on a call for the first ten minutes or so, so I only got the last twenty minutes. But, I think from what I heard, I think it’s still a very good deal for Charles because he seems to understand the technology behind it. I do think that if you have something that is underpinned by a strong brand, usually, there should be a should be a way to make money out of it. But I’ll caveat that with that that I haven’t kind of listed for the first fifteen minutes, so apologies for that.

Fair enough. Thank you for that, darling. Hey. Listen. I’m gonna call in the person who’s got a kick ass mic right in my camera view here. David?

David, look at that.

Dave David is funny. That right there.

Look at him. He’s got a million dollar mic.

David, before you give us your red light, your green light, and your number, what kind of microphone is that?

This is actually a, Rode One of my microphone. Microphone.

I was just so I got a I got a Rode.

This is actually I got my Rode.

This actually, no. This one is an SM, SM seven b.

Oh, okay. I’ll put this short.

Yes. But I have a another roadie upstairs. But this was this was square in my wheelhouse. I gave this a a Greenlight ninety five.

One being the the brand equity that, was apparent that tremendous amount of cash in the business And the fact that the growth opportunity with the lack of a website, that’s, for me, that’s a huge upside. Those are mine, you know, kind of strength. So I was itching, you know, listening to this. This is a great opportunity, I thought.

Yeah. The amount of blue sky in this deal, I think, is far, far superior than ninety eight of the red light green light deals that we see. I mean I’m not saying it’s a it’s a sure thing, pardon the the pun on the word sure, but there is a ton of upside on this. Okay, I would love to talk about this more but I I love Mitch.

Mitch is in here guessing, what the brand might be. No, Mitch. That’s a mess. But we don’t encourage guessing on this call either.

But he did it privately, so no, no harm done. But no. You did not get the right vendor. So are all the, Carl, what did you what did you put in here?

Oh, you’re muted.

Sorry. I was green light forty for me, green light eight two for Charles. Yeah.

Yeah. I’m right there too. Right around green light thirty three. That’s a that’s a great deal, Charles. I’d love to get a progress, report on that. It seems very, very doable.

Hey. El hey. Elden’s Elden’s a microphone geek. He said, if you pair an SM seven b with a Triton Fathead to provide about twenty decibels of clean gain, it’s pretty hard to beat for podcast. Now we’re talking.

Like You are correct.

The whole idea was a sound.

They’re so cool.

I thought you didn’t need preamp with, with that microphone.

Funable deal. It’s good enough for me. I don’t I don’t care how many decibels it produces. You can scale the nuts out of this thing, and you can fund it all day long. Like, go buy it.

Ilona’s a tough sale. She’s still redlining it.

Oh, is she? Okay.

Yeah. There’s a few red lights in there, but, yeah. All in all Yeah.

Fair enough.

I like the deal.

So I hope you enjoyed that deal review. Definitely subscribe to this channel. Hit also hit like and share so that you’re getting the very best content from me in real time. Every time I wanna announce my deal of the week, I want you to see it so that you can understand it.

And what’s interesting is the more of these deal reviews that you go through, you’ll start to see the patterns. You’ll start to see how seller psychology and valuation and deal structure all kind of combine. You’ll start to see common patterns when we look at the financial analysis. You’ll start to see common patterns in kind of red flags and what the growth and exit opportunities might be if you bought a business like this and you took it forward into the marketplace.

So definitely keep watching these and I will see you soon for the next deal review. Until then, bye for now.

Hey, guys. I’m Carl Allen. I’m the founder of DealMaker World Society. I’ve done tens of billions of dollars of deals over the last thirty plus years.

If you’re new to my channel, definitely hit like and subscribe so that you can get all of my amazing DealMaker content in real time. You’re not gonna miss any of the outstanding information that I’m gonna share with you. And if there’s a question that you’ve got, if there’s something that you want to know the answer for, you want me to speak to it, definitely hit me up in the comment section, and I will record those videos for you, and I will get them on this channel as soon as possible. So love having you part of this YouTube community, and I can’t wait to serve you.

Until then, bye bye for now.