Rivera Holdings Valuation Cut By 1/3rd
When I’m wrong about something – or in this case lack knowledge – I admit my mistakes, correct them, and continue moving forward.
I have no issues doing this because I’m an honest person and because it also helps me learn faster. Especially in cases where I have little to no experience in an industry like the case here.
Today I’m writing to correct the valuation I’ve put on Rivera Holdings and the acquisition talked about in the post – Rivera Holdings First Acquisition and How You Can Invest.
In our – value investment analysts – line of work putting a multiple of 10 on either free cash flow or operating profit is considered a conservative multiple.
Well in going through this process in the private equity – private business acquisitions – world I’ve learned this multiple is reserved for only high-flying tech companies with name recognition.
After talking with many people more experienced than I in private equity I’ve lowered the Rivera Holdings and target acquisition valuation by 1/3rd.
This of course not only drops the valuation of the proposed acquisition – shown below – but also cuts the valuation of the Rivera Holdings equity sale from $24 million to $18 million.This means you can now buy into
This means you can now buy into Rivera Holdings at an even better price with higher upside potential.
Rivera Holdings First Acquisition And How You Can Invest With Updated Valuation
Rivera Holdings has agreed to an $8 million acquisition REMOVED and both us as buyers and the sellers have agreed to a Letter of Intent on terms. This letter also gives us exclusive rights to work on acquiring the business for 60 days from when it was signed by both parties.
We still have 10 days to close or extend this deal as long as we’re making significant progress towards raising the $8 million.
- It’s growing.
It’s on track to produce $930,000 in revenue this year. And since the current owner took over in 2014 it’s increased revenues from $500,000 per year to current level in less than three full years later.
- It’s profitable.
On that almost $1 million in revenue it’s on track to produce an approximate $605,000 in net profit this year. In other words, its net profit margin is on track for an incredible 60% this year.
- There is huge room to cut expenses immediately
After meeting with the owner several times so far and doing my own due diligence I’ve found $115,000 worth of expenses that will get cut immediately without hurting sales or profitability.
This would drop to profitability margins and metrics and increase the net profit margin by 16%. Or an increase from the $605,000 projected for full year 2016 to $720,000. This is counting no further cuts we’re likely to find after taking over operations.
- It’s got valuable property and equipment on its balance sheet.
As I said above the purchase price for the entire business – land, equipment, operations, etc. – is $8 million. The total value of just the land and equipment by recent appraisal and equipment purchases is $8 to $10 million.
The most recent appraisal done in August 2016 valued the property and business as worth $6 million. Since then the current owner has finished many upgrades and the appraiser told him the value of the property is now around $7 million.
Basic Asset Valuation
- REMOVED ALL INFO
Total = $8,115,000 million to $9,870,000 million.
In essence, this means we’re buying the land and equipment and getting a valuable 60% + net profit and excess cash producing business for free.
- We’re buying the business at a huge discount to its true value.
As stated above, just the land and equipment is valued between $8 and $10 million. I value current operations around $4 million
This means we’re buying a profitable business, operations, and valuable land and equipment that are worth around $12 million for only $8 million.
In other words we can buy this great business for 2/3rds of what I value the company at now. With none of the expansion or growth outlined below.
- There is massive room for sales/profit expansion at little cost to the business.
A part of current business operations REMOVED and will increase revenues by ~$100,000 to $200,000 per year once completed. Expansion is slated to finish within the next couple weeks, or around when I can take over the company depending on closing.
Further expansions to REMOVED can and will be done within five years, we can further increase the number of space by REMOVED over time. And prices can raise within this main line of operations 26.7% in this time frame as well. This is talked about more below.
Another part of business operations REMOVED are being expanded as we speak, will begin generating revenue within next two weeks, and will increase this business sections revenue by 33% to 38%. Or from $96,000 per year to $144,000 to $156,000 per year.
And on top of this, according to the most recent appraisal of the business and property done in August 2016
“The REMOVED has a FAR (Floor Area Ratio) of 25% indicating the area that could be improved/used for more sales opportunities is 38,600 sq feet.”
The above means ~25% of current business property – total property acreage is just under 3.5 acres – isn’t being properly used by the owner.
ALL INFO IN THIS SECTION REMOVED
By utilizing this square footage – the removed plans – better it means we could produce an extra $386,000 to $772,000 on $10 to $20 per square foot estimates on commercial lease rates.
Adding all the improvement numbers above together would add $630,000 to $1,128,00 to revenues. Most of which would drop to profitability – operating and net margins and cash flow – due to low costs to add these new sales opportunities.
Adding and expanding the above business lines would increase sales from ~$930,000 projected for full year 2016 to between $1,560,000 and $2,058,000 million.
Assuming the same net profit margin of 60% and the cost cut mentioned above we would earn $1,051,000 to $1,349,800 in net profit in 2017 and 2018. Or increases in net profit of 42.4% and 55.1% respectively within two years of our take over.
At these levels I would value operations between $7.5 and $9.5 million by themselves. Plus the $8 to $10 million in property and equipment would take us to $15.5 and $19.5 million for the entire business in one to two years time.
All for an original purchase price of $8 million for the entire business.
- Plus there’s hidden pricing power within the business.
Local and REMOVED INFO. And we as new owners will be able to raise prices slowly over several years to reach competitive levels.
One price rise of 8.3% in the REMOVED in the first year will increase monthly revenue by ~$6,000 per month, or $~$72,000 per year. Again, almost all this will drop to profitability.
In the second year, we’d look to raise prices another 4% and in the third year by another 4%. Doing this would further increase revenue on the company’s major product another ~$ 6,000 per month or $72,000 over the two-year period in revenue and profitability.
Using the amounts talked about in the previous section this would increase revenue to $1,632,000 to $2,130,000 million and produce net profits of $1,091,200 to $1,393,000 million in the first year.
In the second year revenues would rise to $1,668,000 to $2,166,000 million and produce net profits of $1,115,800 to $1,414,600.
And in the third year revenues would rise to $1,704,000 to $2,202,000 million and produce net profits of $1,163,200 to $1,4650,000 million.
This is with no further cost reductions, further price increases REMOVED or adding any other sales opportunities than the ones mentioned above.
At the end of 2019, the end of the above projections, I would value the company’s operations between $8.1 and $10.3 million.
After three years the property and equipment should be worth $10 to $15 million after better utilizing the property and equipment and through land appreciation value.
Adding this value to the value of operations would make the business worth between $18.1 and $25.3 million.
At the end of three years the business should be worth between $18.1 and $25.3 million all for an original $8 million purchase price, with few added costs over the three-year period, little in the way of major new expenses, and still opportunities to grow the company’s operations and profitability further.
And these are ultra conservative estimates because I hate projecting numbers forward like this but have to for business planning purposes.
Barring a major hurricane in the area that would hamper growth, there is no reason the business and land shouldn’t be worth at least $30 million within five years and at least $50 million within 10 years.
All the while producing a ton of excess cash we can use to further enhance REMOVED and buy other businesses. And of course, compound the value REMOVED and Rivera Holdings private shares for the long-term.
But this isn’t all… The next six things protect our investment even further.
- The revenue model for the business is long-term renewing contracts.
Customers are only allowed to sign year-long recurring contracts for the company’s REMOVED operations. And commercial leasing opportunities – REMOVED – are also on long-term year plus contracts as well.
- There’s huge demand for this business in my area.
This business is a 15-minute drive from my house and there’s massive demand REMOVED. Demand is only growing too as more people move to the Tampa Bay South Shore area where I live and REMOVED is located and more people in the area buy houses.
- The business has a government/regulatory moat protecting us from competition.
- Even if a major hurricane destroys the entire REMOVED current insurance covers everything…
And when I say everything I mean everything; the full value of all property, improvements, equipment, and even revenue protection for a 12 to 24 month period as we rebuild.
- The REMOVED requires regular expensive maintenance/upkeep/upgrades but…
- We have a huge margin of safety not only in valuation we are buying at but also in a worst case scenario analysis.
In a worst case scenario analysis assuming a drop in sales of 30% – which is what sales dropped in the last recession – combined with an increase in expenses of 25% – which there’s no precedent for – and the REMOVED still produces net income of $197,000 for the full year 2016.
While this huge cut in sales and increase in expenses combine to drop net profits by 65% the company is still profitable in this dire situation.
This worst case scenario analysis also assumes not adding or doing any of the positive things mentioned above: no new ancillary sales opportunities, no upgrading of companies boat storage operations, no cost cuts, no price rises, etc.
With this gigantic margin of safety there is almost no way to lose money owning this business over the long-term.
The Short and Medium Term Plan
So why am I reaching out to you?
- Because I want you involved in building Rivera Holdings by becoming an early equity holder with super voting rights at a heavily discounted rate while we grow and build it into a billion dollar plus company.
- I’m accomplishing this by raising equity in the parent company of target acquisition Rivera Holdings.
I’m selling a 50% equity stake in Rivera Holdings at an $18 million valuation to raise $9 million to close this transaction.
This means I’m now valuing Rivera Holdings at only 2.25 times book value after acquisition. There is even more room for upside now because I still expect – barring a major hurricane – the acquired business to be worth more than $30 million within five years.
This assumes no income or appreciation from other stock market investments or businesses over this time either.
Over a one to five-year period the plan is to continue to grow the REMOVED and build as much value as possible. Invest the cash left from acquisition and excess cash flow production. Continue to grow and produce a ton of excess cash flow at the REMOVED. And continue to compound value of all investments and assets owned.
I wouldn’t look to do another full acquisition within the first two years after we close on the REMOVED unless something ultra cheap and attractive falls into our laps.
There are two ways you can make money owning shares in Rivera Holdings over the long-term:
- The first is holding Rivera Holdings private shares while they compound value until the company goes public at some point in the future and your shares become worth a lot more.
- The second is holding your Rivera Holdings private shares for a few years and then reselling them to Rivera Holdings after they’ve appreciated in value and/or you’ve earned your initial investment back plus a return you’re comfortable with.
What’s In It For You?
This is a fantastic opportunity for us all to buy a massively undervalued business for 2/3rds of its true value.
This is a fantastic opportunity for us to buy at an even cheaper price now that gives you even bigger upside potential.
This is a fantastic opportunity to buy into a 60%+ net profit margin REMOVED that already produces a ton of excess cash we can use to buy other valuable assets. That also has huge room for growth in sales and profitability.
This is a fantastic opportunity to buy into a business that has a gigantic government/regulatory moat built around it.
This is a fantastic opportunity to buy into a business with a huge margin of safety and huge protections around it that give us an even bigger margin of safety.
This is a fantastic opportunity to get in at the early stages towards building a billion dollar plus company.
And I want you to become part of this fantastic opportunity for long-term wealth creation and appreciation as we build something great.
If you want to invest in Rivera Holdings please contact me at either 605-390-3157 or JasonRivera@valueinvestingjourney.com
Jason M. Rivera
Chairman, CEO, and Founder of Rivera Holdings
P.S. If you’re interested in investing in Rivera Holdings regardless of acquiring the first acquisition target above please let me know. Whether we close the deal on the above acquisition or not I’m going to continue working, continue raising money, continue investing, and I’m going to continue looking for other businesses to acquire.
P.P.S. If you’d like to see the full detailed business information with nothing removed sign and return the below NDA to JasonRivera@valueinvestingjourney.com
As mentioned above – and I want to emphasize this – if you’re interested in investing in Rivera Holdings at this point you’re investing in me, my vision, and my ability to continue to invest like I have in the last five years.
In the first five years of my career I’ve produced 31.1% returns on average – not compounded – which is better than the 29.7% average returns Buffett produced in the first five years of his career.
Whether we acquire the first business mentioned above or not If you’re interested in investing in me and Rivera Holdings please let me know.
I don’t take this lightly and I wouldn’t be offering this if I didn’t believe in my ability to compound you and your family’s wealth over the long-term.
If the above acquisition fails we’ll keep moving forward.
No matter what happens this is just the beginning, not an ending and I will continue investing and compounding all investors capital into the future.