$550K Profit Just Doing Paperwork? This Deal Has Us Shocked

0:00Jonathan Jay:Welcome to another edition of Acquisitions Anonymous. I'm Heather Anderson, one of your co-hosts. Today, Bill Mills and I talked about a really interesting deal I actually liked. I'm going to give you that up front. FDA compliance business with unbelievable margins. Really, really interesting business. Lots to talk about on this one. Hope you like it. We'll start Acquisitions Anonymous.

0:26Jim Davis:Hello, another episode of Acquisitions Anonymous. We don't have 100 % beers anymore.

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2:04Jim Davis:Friday Acquisitions Anonymous, always my favorite ones. I don't know if these get published on Friday.

2:09Jonathan Jay:Not mine. You know why? Because it's early for Heather. It's early. It's early and it's Friday. So can you imagine? It's really hard. But it's like starting off the day making your bed. You've done the difficult thing, and now the whole day is ahead of you. Yes, it's true. It's very true.

2:25Jim Davis:Yeah. We record on Fridays at 1030 Eastern, 730 California. So Heather is a champ for being with us. So she's always got her coffee. I do.

2:35Jonathan Jay:I polished off an espresso just now. Yep.

2:39Jim Davis:No, I love the Friday ones. Everybody's in a good mood. I don't know if these publish on Friday or not, but if you're listening to this not on Friday, We're bringing the Friday interview. It's Friday. Yeah. It's Friday. Yeah. So we have a fun deal today. If I can find the share screen button for our YouTubers. This is an interesting one. I wonder if Heather and Mills have any experience with this. This is from Biz by Cell, but it's by Quietlight. It is a growing FDA compliance digital service business. So let's learn what that means. First to the size. They are asking$1.9 million, and it has$790 ,000 of revenue and$550 ,000 of EBITDA.

3:25Jim Davis:How about them margins right there? So they're asking, it looks like a little under four times, like 3.8 times, something like that. It was established in 2017, and here's what it's all about. It says, as FDA compliance requirements continue to expand, this growing digital services company has established a significant competitive advantage through its expertise and strong reputation in that 50 % of revenue is generated through renewal services, despite the owner's limiting growth due to personal preferences. Okay. Established in 2017, this business helps companies comply with FDA regulations, providing registration, agent services, and various compliance services for food, medical products, drugs, and cosmetics.

4:13Jim Davis:The operational model is remarkably efficient, requiring minimal working capital to operate, with a contracted overseas team handling the technical work at just 7.5 % of monthly revenue. Despite its success, the current owners have deliberately limited growth to personal preferences and geographical constraints. This creates exceptional opportunities for a new owner to capitalize on untapped potential through expanded digital marketing, service diversification, and affiliate network development. The trend toward increased FDA regulatory requirements positions the company to capture significant market share as these requirements continue to evolve.

4:49Jim Davis:The business transfer includes a comprehensive three-month training period with the current majority owner, while the minority owners, who each own 25%, will remain involved, ensuring continuity and established relationships for a smooth transition. The buyer will enjoy immediate cash flow from an established client base while having complete freedom to implement growth initiatives like expanding into various compliance services or developing proprietary AI tools. Have to slide the AI in there for improving the services. This business represents a rare opportunity to acquire a profitable, stable business in the growing regulatory compliance sector with mineral operational overhead and considerable untapped growth potential.

5:29Jim Davis:Heather, you'll be happy to know this business has been pre-qualified with funding options. So your work is done. It's all done. Yeah, it's approved. Okay. No problem. It says there's no industry experience required. The business can be successfully run without FDA or pharmaceutical knowledge. It says obviously the margins are very high, 90 % gross, 70 % net. 50 % of revenue comes from renewal services. 70 % of website traffic comes from organic sources because they have strong SEO, it says. 20 % of revenue is generated through existing foreign agents creating diversified client acquisition channels.

6:09Jim Davis:Many clients have maintained relationships with the company for over eight years. and the overseas team operates at predictable costs, creating an exceptionally efficient cost structure that scales with growth. The company serves over 1 ,000 clients across multiple industries. The owners will provide three months of transition and it is a home-based business. It says they are selling because the owners feel the business has outgrown their capabilities. Since there's only beer gummies and you're not. There's only one employee. One employee, I glossed over that.

6:40Jonathan Jay:But an overseas team. So overseas team, there's more. It did in the heading, it did say it's based in Florida, but relocatable.

6:50Jim Davis:Yes. Right. And this is being sold by the folks at Quiet Light, Mark Doust, who is one of the senior brokers over there at Quiet Light, who I know. So what do you guys make of this?

7:04Jonathan Jay:I think it's some kind of form or, you know, some kind of document because they're saying digital services. So I feel like it's something that they offer to, you know, we'll take, you know, you feed the data in and we'll put the form together for you, the government form together for you. And maybe it's a pay as you go rather than a subscription, because this is why, you know, they say 50 percent revenue is generated through renewal services. It doesn't sound like it's a subscription model, but it does sound like it's some kind of government form preparation. Mm hmm.

7:37Jim Davis:it's probably an FDA form that like you have to file every year or something like that. So they probably sign you, like let's say you create, I'm making this up, let's say you create a new supplement product. It needs to be FDA registered. There's probably like an initial registration that you got to fill out the right way. It's probably like a whole bunch of homework that you got to do that most entrepreneurs don't want to do. So they probably have an overseas team, does a bunch of homework, fills out the form, files it for you. And then maybe every year you need to file a refreshed version and they just take care of it.

8:06Jonathan Jay:And it sounds like maybe you just pay each time you hit their website and ask for the form. So it's not as sticky as a subscription would be. You know, they've got to come back to you and fill out that renewal form. And only half of them do. So that would maybe, you know, the revenue maybe would not be as consistent as, you know, a subscription model. But it sounds like it's pretty solid. And wow, on the margins. Great.

8:34Jim Davis:Yeah. Well, I mean, it's digital service, right? It's just paperwork. So there's no cogs. They've got 7.5 % of revenue in overseas team members. And I'm not sure what the rest is, but then you're pretty much at profit.

8:45Jonathan Jay:But then the sales process is also a mystery to me because they use the word foreign agents. And this made me... That really was weird to me. Yes. I was like, okay, is this a spy show or what is this? So where are these customers? What does the sales process look like? That's a mystery to me at this moment. So I have a hypothesis, Heather.

9:09Jim Davis:So I was reading this whole thing, not knowing what this might be, until I got to that phrase that you keyed on, foreign agent. And this made me wonder if this is a service for international entrepreneurs. So let's say you are not from the United States. You want to sell, say, on US Amazon. You have some FDA compliance and you probably need like a local United States registered agent or like point of contract or responsible party or, you know, you guys have all filled out enough government forms to understand the concept that, you know, you need an American citizen that they can go choke. And I wonder if the service that this business provides is sort of like a registered agent service.

9:50Jim Davis:We will be the American point of contact. We'll give you our address. We'll give you our name. We'll sign on the dotted line. and be your point of contact for the FDA. Interesting.

10:01Jonathan Jay:Probably. That sounds right. That sounds like that. It's interesting because I Googled, you know, help with FDA compliance. And there's a lot of, I mean, there's a lot of sponsored posts at the top of the heading, you know, FDA compliance attorney, former FDA agent, then another one that says we will act as your FDA agent, FDA compliance consulting, there's a bunch of different kind of people, right, who are targeting that. And I don't know how much those keywords cost, but I can't imagine that it's super competitive, but I don't know. There's three already just from help with FDA compliance, which is pretty much easier.

10:41Jim Davis:Anytime I see lawyers bidding on Google terms, I freak out Those are big clicks, man.

10:48Jonathan Jay:Yeah. I imagine that there's a couple different kind of like revenue channels for them. One, you know, what Bill did, did you ever have FDA products?

10:58Jim Davis:I can't remember. Uh, we, so all the stuff that we did in the human space are what are called monographs. So like sunscreen, for example. So there's, there's two ways to do it. You have generally recognized as safe grass products where you can just sell them. But then there are some categories which are called monographs. So sunscreen is an example. So anything that's monographed is going to require a drug fax label. Okay. Right. So you kind of think of like if it has a drug fax label, think FDA. If it doesn't have a drug fax label, you are basically not making any claims like this product cures cancer or whatever.

11:33Jim Davis:You're not making any structure or function claims, which means it is not a drug, which means you kind of don't fall under FDA pre-approval. You don't need to be pre-approved. So if you don't make any structure or function claims, you don't need pre-approval, don't step into FDA world. There are certain categories of product that are called monograph products. Now, monograph products are FDA says this is a drug. There are structure and function claims here, but we don't want to do pre-market approval, meaning clinical studies submitted to us and all that stuff before you go on market for this type of stuff.

12:06Jim Davis:So we will publish what's called a monograph, which means that if your product conforms to all these testing requirements and we use these active ingredients and you only market it in this way, you can bring it to market. And if you label it in this way, you bring it to market, you don't have to pre-approve it, but you got to put a drug facts label on it. And if we find out that you are doing things outside the monograph, we're going to come after you. And then the third category, which no one gets into, is pre-market approval required drug. And those are drugs. I mean, that's Pfizer's domain, right?

12:34Jim Davis:So the monograph ones are the stuff that we had with sunscreen. So we had to, you know, you do the retains, all this testing, like there's all this compliance, and you put a drug fax on the back. But our contract manufacturer took on most of that compliance and typically does because a lot of it is batch records, testing, keeping retains, things like that that go on in their facility. Hey everyone, it's Bill. And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called Capital Pad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses.

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13:54Jim Davis:Basically, Capital Pad professionalizes investing in small businesses and the returns can be really, really good. I'm so stoked they exist. It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out CapitalPad.com and tell them that Acquisitions

14:19Jonathan Jay:Anonymous sent you. So I'm a dummy and I didn't know anything about what you were talking about. But you learned that, right? Kind of the hard way probably sometimes of like, oh, we got a nasty letter on this thing we have to respond to. So if a dummy like me is like, hey, I want to create a supplement brand or something like that. And I'm Googling, I'm probably going to end up finding either this company or somebody like them to say all of what you just said and not just the scary amount of information, but we will hold your hand and help you through the process.

14:54Jim Davis:Yes. So there are companies, which we have worked with in my past, that are basically lawyers, and that's probably what you found at the top of the Google results, that will review your label and make sure you're not saying anything that would cause it to be a pre-market approval drug. That then if you take it to market without pre-approval, the FDA drops the hammer on you. So there's a whole compliance legal function.

15:18Jonathan Jay:Well, and I think there's a few levels, right? So you have like the initial, you know, submission of, hey, I want to, you know, introduce a new product or I need to make sure I'm in compliance with the FDA. One is like the initial. Then there's ongoing compliance, like regular filings, internal audits, all those kind of things that the FDA would make you do and have the paper trail of documentation. But then the FDA also, like if you're manufacturing, like you said, your contract manufacturer was handling, you get like FDA inspections of facilities and things that have to occur on a regular basis.

15:53Jonathan Jay:This company maybe presumably could be helping, you know, probably not with onsite inspections because they're so remote. the other things that came up in terms of FDA compliance was like, like you said, labeling, but ingredient review, facility registration, things related to import export. If it's a medical device, it's a whole nother category. Like there's so many different facets to this. It just makes me a little bit worried that they basically are subbing out the entire workload and it only costs them seven and a half percent of their revenue. That's what they said their cost structure is for the overseas team.

16:30Jim Davis:It does seem a little weird. The service they are providing is so SOP-able that you can contract it out to overseas folks at 7.5 % and then functionally mark up their labor by 12 times.

16:42Jonathan Jay:And you have 1 ,000 customers that can't figure it out enough on their own, to Mills' point, that they're paying, I think, about$7 ,000 on average. I feel like this

16:54Jim Davis:is a case for deregulation in a nutshell right like this process is so convoluted that a thousand that it is in practice simple enough that overseas people can follow an sop and do it yeah but it's so complicated and convoluted in the way that it is presented that people are paying huge amounts