Small Business Investment Strategies
1847 Holdings: Uncovering Small Business Gems in a Sea of Opportunities

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The path to success in the world of investments is oftentimes a treacherous one, riddled with potholes of risk and uncertainty. However, 1847 Holdings LLC EFSH has managed to weather the storms and emerge victorious, demonstrating that diligent efforts can overshadow potential losses. This publicly traded diversified acquisition holding company, nestled in the heart of New York City, specializes in acquiring small businesses with approximately $5 million of EBITDA. It then undertakes a comprehensive approach to fortify the enterprise and refine operations, a strategy that often culminates in a profitable sale or IPO, frequently at a significantly enhanced valuation compared to the initial investment.

A standout example from the companyโ€™s portfolio is the IPO of 1847 Goedekerโ€™s, now rebranded as Inc. POL. Originally purchased for $6.5 million in April 2019, this online retailer of appliances, furniture, and home goods attained a valuation of approximately $60 million when it went public in June 2021. Ellery W. Roberts, the companyโ€™s founder and CEO, expressed satisfaction with the endeavor, stating, โ€œOur investors were able to sell the shares in what was a fairly robust market. Itโ€™s been rewarding, and weโ€™re excited about the opportunity to invest capital in the businesses that we have that we believe are going in the right direction, all the while looking at new opportunities to expand our platform going forward.โ€

The Quest for Lucrative Exits

This successful exit is emblematic of the possibilities that await 1847, as it diligently steers towards similar triumphs with other portfolio companies such as Wolo, a key manufacturer of automotive horn and safety products, purchased for $8.3 million in March 2021. Moreover, its acquisition of ICU Eyewear Holdings Inc., a distinguished designer of non-prescription reading glasses, sunglasses, and specialty eyewear, for $4.5 million in February 2023 highlights the firmโ€™s knack for identifying small businesses with potential for exponential growth โ€“ a testament to its ability to cultivate their enterprises and subsequently either enhance their market value through substantial improvements or retain them for continued benefits from the bolstered business conditions.

A Nonconformist in Private Equity

In stark contrast to conventional private equity firms, 1847 Holdings sets itself apart by granting its shareholders ownership in each individual operating entity under its purview rather than creating vast funds for its investors. โ€œWith us, youโ€™re not investing in the manager; youโ€™re actually investing in the underlying operating subsidiaries,โ€ remarked Roberts. โ€œOur investors get shares in the additional entities or they benefit from the increase in asset value of our holding company.โ€

The companyโ€™s strategic approach to acquisitions revolves around unearthing small business jewels endowed with a clear growth blueprint, situated favorably within their respective industries, and exhibiting untapped value potential that can be unleashed through bolstering the management team, fortifying infrastructure, and facilitating access to capital. Furthermore, prospective targets must be headquartered in North America, boasting revenues of at least $5 million, along with a minimum current EBITDA/pre-tax income of $1.5 million and a positive cash flow history.

Tapping into an Underserved Market

1847 Holdings opted to concentrate on small businesses drawn by the fragmented nature of the M&A market for these companies, which presents the company with opportunities to acquire at discounted valuations. According to 1847 Holdings, businesses valued at over $50 million tend to command 30% more in valuation premiums compared to enterprises valued at less than $50 million, a phenomenon attributed to fewer potential buyers, constrained third-party financing options, and sellersโ€™ concerns about non-economic factors such as board preservation and employee protection, which can dilute the price. Unveiling the potential in these underappreciated assets forms just one aspect of 1847โ€™s appeal. The company takes pride in its rigorous portfolio management approach to the entities under its supervision, characterized by weekly management meetings, quarterly board meetings, and active assistance in formulating operating metrics, sales, financial reporting, governance, and best practices, ensuring lean, efficient, and profitable business operations. These advantages translate into tangible value for 1847 Holdingsโ€™ investors.

Moreover, the companyโ€™s fixed costs, acknowledged as a holding company, are diminishing in significance as it integrates additional assets. โ€œWeโ€™ve reached the scale that we need so the incremental dollars or profits added from each new operating entity that we acquire, a disproportionate amount of their profits flow through to the bottom line,โ€ emphasizes Roberts. These positive dynamics are reflected in the companyโ€™s third-quarter 2023 results, manifesting a 29.8% year-over-year revenue surge and a substantial 64.9% increase in gross profits. Roberts attributes this strength to the companyโ€™s resilient platform and its capacity to support the expansion and profitability of its portfolio companies, an encouraging sign of what lies ahead in the coming year.

With small businesses forming a remarkable 99.9% of all businesses and constituting the backbone of America, it becomes evident that many remain undervalued due to limited access to capital and business acumen required for growth and prosperity. For the fortunate few, 1847 Holdings stands poised to facilitate their transformation, all while enriching its shareholder base.

Featured photo by Riccardo Annandale on Unsplash.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.

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