The State of Ecommerce M&A in 2025

Josh, thanks for joining me.

0:13 Josh Robbins

Yeah, good to be here. Excited to share some thoughts and insights.

0:17 Stephen Brown

So you've got a very unique background in ecommerce. Would you mind running through your experience in ecommerce up to the Premara Group?

0:26 Josh Robbins

Yeah. So right out of school I started an apparel brand, and I did that full time right out of school for the first four and a half, five years of my career. And after doing that for about five years I decided to get an MBA. So I moved to upstate New York, went to Cornell for an MBA. And upon graduating I moved out to Seattle and worked for Amazon.

And when I was at Amazon, I was part of the tools and home improvement team, that whole category really. So I managed three subcategories on the site. I managed power tool accessories, garage storage, and test and measurement tools.

1:00 Josh Robbins

I was largely working with these big tool manufacturers such as DeWalt, Makita, Milwaukee, et cetera, but there were also several other smaller ones. And with the categories that I managed, some of these products have a really long life cycle, where it's a drill bit or a blade that maybe doesn't change for years and years.

It was a good contrast to what I was doing at Kaie, the apparel brand I started, because Kaie was apparel and so we were coming out with new product constantly, every three months. And so I got to experience that short life cycle type product, and then I got to experience this longer life cycle type product at Amazon.

1:40 Josh Robbins

And the other thing about Amazon was, I was there during their huge growth, and they're still growing a lot, but when I was there we were growing like crazy. And it was really fun to see all of the principles that were built into the Amazon platform, all these guidelines. I learned a lot about pricing and promotions and all sorts of things. So really good experience there.

After Amazon I left, I spent some time in the SaaS world at Qualtrics and Lucid Software, I ran partnerships for those companies. And then I made another stop playing as COO for a consumer brand called Rags. So back to the apparel space, back to consumer, and did that for three years. And it was shortly after that is when I started Premara Group.

So we've been around for five years. We focus on SaaS and consumer, and have done a lot of deals in the consumer space from an M&A standpoint over the last five years or so.

2:29 Stephen Brown

And you guys got going, what year did Premara get started?

2:32 Josh Robbins

Yeah, we started in 2020.

2:35 Stephen Brown

So you jumped in in kind of just the craziness of M&A for consumer.

2:39 Josh Robbins

Yes, timing was perfect. We jumped in, got going, and really what helped get things going was there was this massive effort and opportunity for these companies to do these Amazon roll-ups. So there were billions of dollars, I think there was like seven or eight billion dollars raised by private equity earmarked to go do Amazon roll-ups.

And so the thesis was, hey, you're on Amazon, you're selling, it's a great product, clearly people like it. The private equity firm wants to come in and professionalize your products, turn you into a real business, give you a marketing team, give you a finance team, take you to Target, Walmart, stand up a site so you're doing direct to consumer as well. So that was the thesis.

3:20 Josh Robbins

So we sold a ton of companies. Given my experience at Amazon, we could go in and add a lot of value to these companies, and we sold them to these aggregators.

That thesis and business model has since mostly come and gone. There's still a few out there, but largely that opportunity is pretty much gone at this point, and people are looking for different opportunities now in the consumer space.

3:49 Stephen Brown

Yeah, it went from a crazy hot market to almost a dead market, I'd say.

3:54 Josh Robbins

Yeah, that's right. I think 21 and 22, I don't know the exact numbers in terms of number of deals relative to prior years, but significantly more than standard. And 23 and 24 were basically the lowest year for M&A in like 15 years. So high interest rates, concerns about the economy, effects post COVID were all factors. But for the most part M&A activity really slowed in 23 and 24.

4:10 Where the market is now

Stephen Brown

So here we are in 2025, early 2025, we're recording this in March. In a few words, how would you describe the M&A market?

4:28 Josh Robbins

It's definitely warming back up. Uncertainty is one thing that makes it challenging for M&A. And so with tariffs going on, tariffs was a big topic we had in a consumer deal recently. But with tariffs coming on, and interest rates maybe not dropping as quickly as some hoped, and some concerns about the economy, it's still a little bit slower than what we had originally anticipated.

We do think the latter half of this year could be really strong, and especially we think 2026 will be really strong. There's just some short term things that might slow things up a little bit. But we're definitely seeing more activity now than we did in 23 and 24, and the general appetite is that more needs to happen.

5:10 Josh Robbins

And the last thing I'll say on this is, private equity has raised a ton of money over the last several years to make acquisitions, and not much happened in 23 and 24. And private equity, when they raise capital, they have a fund and they basically have to deploy that capital within a certain time period. And so some of these private equity firms are bumping up against those time periods where they need to start getting some deals done, or they have to return capital to their investors, which would make it so you would never raise money again.

So really what we're seeing is there's significant demand for private equity to put capital to work. And so there's demand out there, and a good business can sell for a premium, but people are still a little bit cautious on businesses that maybe have a few things that are not ideal.

5:52 What makes a brand attractive

Stephen Brown

So the biggest change is people with money have been sitting on the sidelines so long that they need to start making some movement.

You mentioned there are issues. What are the issues? Or maybe let's start with, what makes a consumer products business attractive these days?

6:13 Josh Robbins

Yeah, good question. The biggest thing I'd say is that they're spitting off some EBITDA or some cash flow, that it makes money.

All of us are consumers, we buy products. And there are a lot of investors out there like, hey, I want to be in a space where it's tangible, I can see, touch, feel the products. And the business is making money. So that's the biggest thing.

6:40 Josh Robbins

So for right now, there are a couple of factors that make a business more attractive for M&A, and one of them is revenue growth. A lot of companies in the consumer space have just had a harder time with revenue over the last couple of years. There were those iOS privacy changes that happened that have made tracking and paid ads a lot more challenging. There are some effects post COVID. There have been some supply chain issues. And then most recently tariffs are causing an unknown on profitability.

7:15 Josh Robbins

And so all these are headwinds. But if a company can keep growing through this time period, I think that's one of the big things. There are several good companies that have just had some headwinds the last couple of years, and they'll get through them and they'll figure it out. But as of right now, for the last couple of years, there are a little bit trickier challenges, and it doesn't seem like anyone has a silver bullet on customer acquisition at this point. I'm sure there'll be some solutions that come up. But if you could grow over the last several years and are doing well, that is a really, really good story. Because it's been a challenging time.

7:49 Josh Robbins

So revenue growth would be a major factor. And then, like I said, if your revenue growth is high but you're still losing money, those are less appealing. There was a time when people were less concerned about profit and just more concerned about, hey, is this a good product, is it growing, is there a lot of demand? Now that has certainly swung back to say profit matters. Can this thing spit off cash? Can your business sustainably provide a return to its shareholders or investors?

8:20 Stephen Brown

Let me ask you some specifics, because everybody wants the specifics. And I already know the answer is not going to be a number, and probably a range. But let's talk about growth. What is good growth these days? When is an investor going to be like, this is an interesting brand?

8:37 Josh Robbins

Yeah. If you're growing at 20% or more, I think that's kind of that metric mark. Obviously higher is better, but a 20% growth on a decent sized business, if you're 10 million or more and you're growing at 20% or more, that's a good size. If you're growing at 20% and you're 50 million, that's a lot bigger dollars you're throwing down, which is great.

9:07 Josh Robbins

But like I said, if you can get to the point where you're growing at least at 20%, and ideally a little bit more, then that's showing a really good trajectory for the business. If you're growing at five to 10, that's still good, but with 5% it can be very little and it can waver year to year. So maybe you're up, maybe you're down. It's just not quite big enough to show the trajectory.

9:30 Josh Robbins

I think a business really wants to, as you think about M&A, you want to think about, your off-ramp is their on-ramp. So maybe you've done a really good job with direct-to-consumer, you've started doing some wholesale, but wholesale's not your expertise, then you sell to someone who has wholesale expertise. And so your off-ramp becomes their on-ramp. They say, okay, we can plug you into this wholesale network and immediately we get this growth. And so they really just want to have confidence that the revenue will continue to grow, and that there's some leverage still left to pull to see that growth continue.

9:57 EBITDA, SDE, and add-backs

Stephen Brown

What about profitability? What are kind of the magic numbers that you see, or ranges, that buyers are looking for?

10:06 Josh Robbins

Yeah. Ideally you're in between 10% and 20% of EBITDA. So EBITDA is earnings before interest, taxes, amortization and depreciation. Essentially it's kind of your operating profit.

If you can have that between 10 and 20%, that's kind of the ideal range. Obviously more is better. And preferably if you're in that 15% to 20%, that's kind of the target. 10% is kind of the floor. If you're less than 10, a lot of investors are like, there might not be enough margin. It just doesn't give enough wiggle room on the business for potential downturns, or for any potential experimentation.

But if you're at that 15% to 20%, it leaves a buffer. And again, there are some that have a 30% EBITDA margin. That's fantastic, that's kind of world class.

11:05 Stephen Brown

Now, there's a concept I'm familiar with with some of the smaller businesses, called seller discretionary earnings. What is seller discretionary earnings, or SDE, and when is that used versus EBITDA?

11:19 Josh Robbins

They're kind of, for the most part, can be used interchangeably.

With seller discretionary earnings, what happens sometimes is someone's running a business, they've got some personal expenses that are running through. And oftentimes they'll say, hey, my salary is part of seller discretionary earnings. Meaning, if I sell the business, I'm going to remove my salary as an expense, I'm going to remove a bunch of personal expenses that run through the business as an expense, and they try to show basically a higher operating profit, this SDE.

11:55 Josh Robbins

But for the most part EBITDA, operating profit and SDE are all about the same. It's just, SDE has all these adjustments. And the reality is, whenever we take someone to market we're making adjustments. We usually call it EBITDA, but it's basically operating profit. Seller discretionary earnings are all the same.

But we will go through and say, all right, what costs are there that you're incurring in the business today that will not need to be incurred in the hands of a new owner? And so we'll add all those back, and then you'll get a multiple. Your valuation is based on a multiple of your SDE or your EBITDA or your operating profit.

12:35 Josh Robbins

So the higher you can make that operating profit or EBITDA or SDE, the more your company is worth, because that multiple is being applied to that number. So for example, if I have $500,000 of seller discretionary earnings and I get a multiple of five, versus I have a million dollars of seller discretionary earnings and I get a multiple of five, you can see that that's a significant change in value. And so the more that you can show this higher SDE, the higher the valuation is.

13:02 Stephen Brown

And you mentioned this term more or less, add-backs. Really to add back to your profits.

I see this a lot. I run a car through the business, because it's legal, they legally put it in there. And so you'd say, that's not core to the business, I'm just using it for tax treatment, add it back to increase my EBITDA or seller discretionary earnings amount. Those are the kind of things that would go into add-backs, right?

13:31 Josh Robbins

Yeah, that's right. A couple other examples would be like a legal cost. Basically anything that's a one time cost. So you pay an attorney this year to help you draft some sort of agreement, or to help correct some issue or whatever it is. You pay that attorney $20,000 this year. If you don't need to pay that attorney $20,000 next year, we'll classify that as an add-back, the next owner does not need to pay that, therefore they can expect a higher profit.

14:05 Josh Robbins

And so legal fees, any kind of one time fee, is in there. Oftentimes people maybe run through vehicles, or maybe they're doing some extra personal travel through their business. And so we go through and identify all those, so that when we present the financials to a buyer we basically say, this is exactly what it takes to run the business. And here are these things that were part of the financials. We've added them back so you can see them, you're fully aware of them, but they're not necessary to run the business in the future.

14:30 Stephen Brown

Do you see those, when you get into deals and people are like, well, I want to add this back, do you see those tripping up or causing issues when sellers get really hung up on add-backs?

14:45 Josh Robbins

We've seen a buyer will be skeptical if there's, normally we're spitting off a million dollars of EBITDA, but with your add-backs it's now 3 million. You tripled the profitability. A buyer is going to be like, hmm, are these really add-backs? Are you really running that many expenses through the business?

And sometimes a seller might say, hey, we tried this marketing initiative and it failed.

15:04 Stephen Brown

Therefore I'm going to add it back.

15:15 Josh Robbins

Therefore I want to add it back. And generally a buyer's perspective is, listen, you're going to be doing experiments every year with what works and what doesn't. We can't wipe out anything that you tested that didn't work out well and only give you credit for everything that worked phenomenally.

So the general categories that you can add back are more standard. And again, there are always exceptions to rules obviously, but it's hard to do add-backs that are marketing related or product related.

15:45 Josh Robbins

Now, the exception would be, let's say you get some big cost decrease, or you change the way you've engineered your product and the cost to manufacture is going to go down, but it isn't reflected in your financials. You can run that through as kind of an add-back to say, hey, it used to cost me $50 to produce this product, now it's going to cost me 40. And we've flowed that out and say, okay, we do have this add-back of $10 per unit because we've redone the manufacturing. And you just have to validate that during diligence, but something like that would be okay.

Like I said, generally speaking it's categories like, if you're doing charitable donations, some excessive meals and entertainment, some excessive travel, car. Those are the main categories.

16:33 Why deals fall through, and unit economics

Stephen Brown

Okay, let's take a different direction.

I'm just bringing this up real briefly. There's a guy on LinkedIn that's become kind of LinkedIn famous, Jeremy Horowitz. He's been trying to buy an ecommerce or a SaaS business. He put this post up a couple of days ago where he talked about the 10 reasons, other than price, why he passed on 200 plus ecommerce deals.

I don't want to get into this too deeply, but everything from key man risk, basically too much dependence on a founder, not enough diversification of supply chain, books. So it's a pretty good list. But what I'd love to do is to hear your list of reasons why deals aren't getting done today.

17:24 Josh Robbins

I'll touch on a few of these, because he's got some great ones on that list.

And that first one is interesting. If you are the face of the brand all over social media, if you personally are kind of the marketing engine, and you sell your company for $100 million and you make a ton of money so you kind of don't want to work anymore, they're going to be like, hey, we need you to continue being part of this brand. And so that is definitely a challenge. If people are buying your product because of you, your personality, something like that, that makes it a lot harder to get a deal done because there's risk.

18:00 Josh Robbins

And if you think about it, with M&A it really all comes down to perceived risk. So there's real risk and perceived risk, and your buyers are going to have different perceptions of risk. And so really when you sell, it's all about managing those risks.

So if a buyer says, hey, we're just not sure if people will keep buying if you're no longer on our social media channels, then we're going to discount the price, or maybe we pass altogether because it's too scary. And so that's really the way that everyone's looking at it for each of these categories. When a buyer passes on your deal and says, you know what, I'm not interested, it's because they see that there's too much risk associated in some part of the business, or maybe multiple parts of the business.

18:40 Josh Robbins

So that key man one I think is a good one, because there are a lot of consumer brands that have a really outgoing founder and they have fantastic social media presence and it's great. But then if that person were to go away, would people keep buying, or would they just find something else? And so that's a huge question. That's a big one, one that we see time and time again.

18:58 Stephen Brown

Do you still see a lot of that? Because I think we saw the rise of the Instagram, I saw so many brands that were built on Instagram off of their founders' social media savvy. Do you still see that a lot?

19:12 Josh Robbins

We're not seeing it as much. There was a time period when Instagram was just getting going where you could start a company and you could get a tremendous following really quickly, basically for free, organically. And social media has stopped that.

You might be getting some of that on TikTok these days. But Instagram had this heyday where you could start a brand and get a following, get exposure to all these customers, and Instagram's algorithm really got you all this free exposure and it was amazing. And as long as you had a good product, people would buy.

19:45 Josh Robbins

Well, they've made it so much harder to do that now. And so we don't see it as much now. Again, TikTok, you might be able to get some people who are TikTok famous who are helping to push a product. But those who got a big rise on Instagram, call it 10 years ago, whatever the timeline was, a lot of those businesses are struggling because they're just not getting the reach they once did. Because now they're having to pay, and they're having to pay a premium, to get that reach.

20:22 Stephen Brown

So social media wants you to pay for that exposure now, and the algorithms aren't necessarily promoting people for free anymore.

20:34 Josh Robbins

That's right. And let's say that the latest and greatest social media comes up, they're going to give you all this free exposure. But then at some point they're going to turn that faucet off and say, if you want this exposure you've got to pay for it. And so that's the challenge with just only being social media.

20:51 Josh Robbins

Honestly, one that we see time and time again, people don't really have a good understanding of the unit economics of the business. And it's largely their cost of goods sold, and what goes into that. There are varying thoughts on exactly what goes into cost of goods sold.

But the point is, you as a brand owner should really know, if I sell each of my product lines, let's say I've got 10 product lines, I should know what my profit is if I sell one unit of product A, B, C, D, E down the line. I should know if I sell one unit exactly how much it costs me to buy it, to bring it in, on a per unit basis. To buy it, bring it in, put it in the warehouse, ship it out to the customer, and land on that gross profit per unit shipped.

21:31 Josh Robbins

COGS accounting is just challenging. No one knows better than you. I mean, your business at LedgerGurus probably has a never ending [unclear].

21:42 Stephen Brown

It is hard. We've done some recent episodes on this and we've lived in this pain for years.

21:59 Josh Robbins

You can't just click and say, I paid this much money, just take COGS and that's it. There's a lot that goes into it.

22:06 Stephen Brown

Yeah. I talked about this in an episode with Brittany, my partner here at LedgerGurus. The challenge is, it's a very operational thing with a lot of steps, and you've got to convert this purchasing of inventory, turn it into a landed cost where you layer in all the import costs, the shipping, the insurance, now tariffs are bigger than ever. And then that lands on your balance sheet and it moves over to your cost of goods sold at the time of sale. And there's just a lot of complexity, and a lot of places where it can go wrong.

22:45 Stephen Brown

And people don't appreciate why it's important to understand that, or why it's important to invest to get that number right. I like to think of it as the Shark Tank question. If you ever watch Shark Tank, they do a lot of consumer companies, they always are like, so how much does it cost to produce each unit?

23:04 Josh Robbins

Yeah, that's a basic question that every business owner needs to know.

And to your point, you mentioned the balance sheet. So when you sell your company, you're going to have inventory on your balance sheet. And usually the price of a business includes a certain amount of inventory. And if you've got extra inventory then you're going to sell them that inventory, usually at your cost. So you're kind of getting money back, you're not getting a premium on it.

23:30 Josh Robbins

But knowing in detail that your inventory balance is correct, the dollar amount matters, because it definitely affects how much you get paid. And if you know that well, you can get paid more. If you don't know it very well, or if it's understated, then you're leaving money on the table.

23:49 Stephen Brown

So here's an accounting question. One of the things I don't think you mentioned is that you also have an accounting degree, if I'm not mistaken.

What is cost of goods sold to you? What is in cost of goods sold and what is not in cost of goods sold, according to Josh?

23:54 Josh Robbins

I do, yes.

So this is a great question. I actually, we see it different all over the place, and I've done some research, talked to friends who are still in the accounting world at some of these big four accounting firms.

But certainly it is whatever you paid the factory for your product, so that goes in there. Whatever you paid for inbound freight, whatever you paid to get it from the factory to your warehouse. There's debate about if you put outbound freight in COGS or not. I don't know what your thoughts are on that, Stephen.

24:39 Stephen Brown

Yeah, our belief is outbound is not. We've got a bunch of GAAP nerds, a bunch of CPA nerds. But it is part of, there's a concept of contribution margin.

What I see a lot of brands doing is they put all the variable sales costs into their cost of goods sold, like outbound shipping, merchant fees. I'll see that in there a lot of the time. Our take is cost of goods sold is just your cost of product. So what you said, the buy price of the product, the import fees, tariffs, duties, all that. The cost of getting your product from manufacturer to warehouse is cost of goods sold. Everything related to the sale is separate.

25:10 Stephen Brown

And we would say that cost of goods sold minus your revenues is your gross margin. And then any other additional variable sales costs minus your gross margin becomes your contribution margin.

And these are some kind of complex concepts that people, if they took an accounting class, probably forgot about. And if they didn't take an accounting class, they're like, this is dumb. My take on why it's good to be consistent is, smart people understand gross margins and they understand contribution margin. Usually people with money who are buying your business are smart. And so being able to articulate those differences just shows that you understand your business in a way that a lot of people don't.

26:08 Josh Robbins

That's right. And I think you've nailed it in terms of what goes in there. Because if you think about it as a buyer, the buyer wants to understand what it costs to make this product. And there's very little room. Can your buyer come in and maybe bring your product in for slightly cheaper? They have some magic rates with some freight forwarder that brings it in slightly cheaper, possibly. But generally speaking, a buyer is going to think, hey, there's probably not a whole lot of room for improvement in your cost of goods sold. So they'd like to see what your cost of goods sold is.

Now, they might be able to get a deeper discount on manufacturing, because you just sold to a company that's a billion dollar company and they've got stronger manufacturing contracts or something.

26:55 Josh Robbins

But generally speaking, a buyer is going to say, hey, once I know what your product costs are, so that's the product, the cost to get it to the warehouse, then there's a lot more flexibility in the rest of the P&L. So all the other expenses, you can have a lot more control over. There's just less you can have control over to get your product made and brought into the warehouse.

And so that's why a lot of buyers focus on that. They want to see those high gross margins, because they want to say, I can play around with what it costs to acquire a customer, I can play around with the expenses for people, I can play around with the expenses to get me into new channels, but I don't have a lot of wiggle room for actual product costs. So that's a key one that everyone looks at, is your gross margin, your gross profit.

27:29 Supply chain, channel risk, and inventory

Stephen Brown

So understanding your unit economics sometimes sinks deals. What else do you see that is causing problems in getting a deal done?

27:42 Josh Robbins

Yeah, so supply chain concentration is another one. It's risky if you just have one supplier, and I think it's on the list that you just showed as well.

27:55 Josh Robbins

And if you think about it, here's a perfect example. Let's say you have one supplier and that supplier is in China and you just got a tariff put on it. You don't have a lot of options to do anything in the short term. But if you've got one supplier that's in China and one supplier that's in India, you can shift more of your manufacturing possibly over to India. You can play the two off each other in terms of price negotiations.

So supply chain concentration is certainly a factor as well, because it can be quite detrimental if there's something that pops up like tariffs and you're only in China and you don't have options. You can find other options, but it might take you a year or two years to get everything in place. And so having that diversification in the different countries, so you can negotiate price, but also be able to play around with different tariffs and duties that get put on.

28:59 Josh Robbins

Another big one, and it's the same thing, but it's lack of diversification in sales channels. So if you are an Amazon only business, it's scary.

And the reason why it's scary is because Amazon, for those who aren't on Amazon, Amazon increased FBA fees, and fees to get the product into the warehouse, and all sorts of fees over the last year, 18 months, significantly.

29:16 Josh Robbins

Amazon used to basically allow you to ship your products into one fulfillment center and Amazon would, for free, distribute it across the country. Now Amazon's charging you to distribute that product, and it's significant.

And so when you're tied to just one channel, it's risky. Especially if it's someone like an Amazon or a Walmart or even some other big retailer, because they have a lot of control. And if they want to change a policy and it significantly impacts your profit, then you're going to be in trouble.

29:50 Josh Robbins

So most buyers want to see that, Amazon's a fantastic place to be, there are people who are there who are looking to shop, so you want to be on Amazon. But we want to also see you have your own website. We also want to see you in other retailers as well. So if any one of those retailers, call Amazon a retailer for a second, if any one of those retailers changes policy, slows down, has issues, doesn't promote you as well as they should have, et cetera, the business doesn't suffer dramatically. You can shift it around to different channels.

30:17 Stephen Brown

Yeah, it feels like a really difficult time to be an Amazon only seller. Is there even a market for an Amazon only seller to sell their business these days?

30:34 Josh Robbins

You can still sell, but your multiple is significantly lower if you're just on Amazon. So let's give an example. If you're just on Amazon, you might get a three times EBITDA. Maybe it's four, but no one's really going to pay more than four times EBITDA for a business that's Amazon only, because there's a lot of risk.

30:49 Stephen Brown

Amazon seems to be taking more and more of the profitability of those sales every year.

30:56 Josh Robbins

Yes. And so it'd be hard for someone to justify. Honestly, it's hard to justify spending more than three if you're just on Amazon. There might be a scenario where a buyer says, hey, I have all these other resources and I like the product, I can get you in these other places easily, so I want to buy your business still.

But generally speaking, no one wants to buy a business just for it to continue on Amazon only. People need the diversification because it's just less risky. And Amazon, especially in the last 18 months, has shown that they are going to start to really optimize for profit, and it's going to be at the expense of the seller.

31:35 Stephen Brown

What about Shopify only? Is there more strength if you're having a lot of success just on your own website?

31:42 Josh Robbins

There certainly is more strength. Shopify only is way better than being Amazon only. But what's even better than both of those is if you have both plus wholesale.

And the reason why is, if you're Shopify only, you're fairly reliant upon paid ads to acquire customers. Now maybe you're doing other things, but you're still reliant upon Meta, Facebook or Instagram, to drive a lot of your traffic. So great, that's one channel, maybe you're really good at that, it's great.

32:20 Josh Robbins

But if you also are on Amazon, and you're also in retail stores, you're going to trade shows, if you're doing all these different things, then as soon as one of these channels makes some changes that are basically not in your favor, you can still react and still be in a good spot.

Where you run into issues is, again, if you're just Shopify, you have fewer options to acquire customers than you would if you're on Amazon and retail. So it's way better to be on Shopify only than Amazon only, but really you want to be on all channels. Omni-channel is the way to go.

32:49 Stephen Brown

What else? We've talked supply chain diversification, we've talked channel diversification, key man risk, unit economics.

32:56 Josh Robbins

Yep. Another one would just be marketing in general, like how you acquire your customers.

As much as you can really understand how you acquire customers and what your cost to acquire a customer is, the better. And we've seen the cost to acquire a customer in general increase over time.

33:20 Josh Robbins

And so as a business, if you think about it, if I'm going to pay a multiple of your earnings, in theory, if someone gives you a four times multiple on your earnings, that's essentially saying the business stays exactly the same, I'll be able to pay my purchase price back in four years.

Now, most people will say, hey, if I'm going to give you a six times multiple on your earnings or a 10 times multiple on your earnings, they're giving you a higher multiple because they think that they can accelerate the earnings and pay that back quicker than 10 years. So if you're going to sell your company and you're doing 10 million in EBITDA and you sell that for 10 times your EBITDA, it's a hundred million dollar business. The buyer thinks, hey, I'll pay you 10 times because I think I can actually ramp your business up significantly.

34:10 Josh Robbins

So as they're thinking about these valuations that they're giving, especially from a marketing standpoint or new customer standpoint, a buyer's willing to pay more if they think they can get you new customers for a reasonable price. If it's expensive, if your cost to acquire a customer continues to go up, there's just more risk there. So people can't pay as much from a multiple standpoint, because they don't have the confidence that they can keep growing at that same profitability.

34:36 Josh Robbins

So that's one. I think a couple others on here. Another one would be inventory management. Especially when you're smaller, but this is the case at any size. Inventory is your biggest consumption of cash generally.

Demand planning is really hard, and you've got factories that have minimums that you have to hit in order to place the order. And so a lot of brands, they don't spend as much time thinking about how many units to order, and they're making purchases and they get too much inventory. Not enough leaves money on the table where you didn't get as much sales as you wanted. Too much ties up all your cash on the balance sheet.

35:25 Josh Robbins

And so we've seen several companies where they have way too much inventory, and a buyer in their head is like, you've had this inventory for two or three years, you're selling it but it's going quite slow, you're going to have a hard time getting some of that money back.

Now, will they still do the deal? They will still do the deal. But if you have a really buttoned up process for how you do demand planning, how you do your inventory ordering, that goes a really long way. And again, it gives confidence that you as the executive team have a really good running business. The more confidence you can give them that you know what you're doing, that's a great business, the more they're willing to pay, the less perceived risk.

36:20 Josh Robbins

If it's like, yeah, we ordered a bunch of stuff, we were kind of off and didn't look at stuff as close as we should, that just doesn't instill confidence. And so it shows a little bit of risk, and their thought is, hey, if you're not as buttoned up in some of these areas, there's probably other areas you're not buttoned up in.

And to some buyers it's an opportunity. They're like, hey, we can fix all this. To others they're like, hey, is there something in the business that we just don't understand, that you know, that maybe is not being shown through the financials or the numbers or other data we're looking for? But it instills a confidence level that is good. And when a buyer has to question something about the lack of professionalism or the lack of something that was done, they start to think that there are other areas in the business that probably have an issue as well.

36:58 Stephen Brown

Yeah, if there's one area for improvement, that can be the opportunity for the buyer. But if there are lots of areas of improvement, that just creates more risk for the buyer.

37:02 Josh Robbins

That's right. And what you can do is you can position that. It's like, hey, we've just dipped our toe into wholesale, but we don't really have a team with expertise in that. And so that's a good story. When you're talking to potential buyers, you want to find a buyer that has expertise in wholesale. And that's a great story for everybody.

So those opportunities where you haven't done everything perfect, that's great. But you just need to have a good story about how it's like, we're experts in this, we know this part of our business really well, and here's the next level of growth that we don't have the expertise in, you do, and that's why we think you're a great partner for us. That's a good story. If it comes across more of, hey, we're just not running the business that well, then people might be like, hey, what else is there that we don't understand?

37:41 How to prepare to sell

Stephen Brown

So let's change topic real quick. If somebody has a desire to sell their business in the next one to three years, what should they be doing today?

38:06 Josh Robbins

It's a good question. One thing is, if you have an idea of what number you want to sell for in mind, then you can start to back into what the profit needs to be. And then what you can do is you can bridge the gap.

Let's say today you want to sell your company for $100 million. Today you've got $5 million in EBITDA, you're a little ways away. So you can basically start to think, okay, if I want to sell for 100 million, what does my profit need to be? And then once I figure out that number, to get that profit, what do I need to do?

38:45 Josh Robbins

So I would start thinking about what you really need to be to hit that number that you want. The reality is the goalposts change all the time. Depending on what day it is, people will sell for a dollar, because they're like, I hate my business, I'm sick of dealing with problems, I'd sell to anyone for a dollar today. And the next day something good happens and they're like, I wouldn't sell for less than 100 million. So you get this wide range of emotion on what to sell for.

39:15 Josh Robbins

But if you have a general range you want to get to, it's good to start thinking through and planning for that. And then there's a checklist of things that we could provide, but it's like, start to go through looking at your revenue all the way down through the P&L. Do we have revenue diversification? Do we have proper cost of goods sold in place? Do we have the right team in place?

39:30 Josh Robbins

So you can start thinking through really all these factors. But the biggest thing is, you should start thinking about it. You don't want to not think about it and not prepare.

Preparation takes time. And especially in a consumer business, let's say you make changes. You say, you know what, we want to have a better gross margin on our business. And if you want to change your gross margin, let's say your gross margin is 50% and you want to get to 60. 60% gross margin is way better than 50%. It might take you well over a year to start to show that through the financials. Probably even longer.

40:15 Josh Robbins

The reason is because you launch your product, or maybe you change your pricing, and then you place your order and it takes six months for your product to come in, then it takes another six months for those to start to roll through your P&L.

So it's way better to sell when what you've done has actually flowed through the financials. You can tell a story to a prospective buyer about how you've just made these changes and they're going to be great, but they haven't necessarily manifested themselves in the financials yet. That works, but it only works so much, and there has to be something to validate what you're saying.

40:45 Josh Robbins

It's better if you're like, two years ago we implemented this price increase, we launched this new product, and we did these things to improve our gross margin. We've placed those first rounds of orders, they've come through, they've sold, they've done well, you can see it manifest in our financials. Then it's like, this is great. So that's the ideal scenario, is give yourself time to make the changes and have them manifest through the P&L before you start thinking about going to market.

40:57 Stephen Brown

Got you. What else can somebody do to prepare?

41:00 Josh Robbins

We get a question a lot, actually, about who do you tell? Who do you tell when you're thinking about it? And it depends on your management team. If you're the sole owner, then generally you're not telling people on the team that early.

It is always worth, if you've got trusted advisors, maybe you've got an attorney, a wealth manager, an M&A advisor, it's always good to get someone's perspective. And usually if you talk to an attorney they'll point you to an M&A advisor, or you can talk to your wealth manager and they'll help you get some things in place. There are some things you can do as a business to help mitigate taxes and things like that.

41:45 Josh Robbins

But definitely to prepare, I would at least start talking to professionals in that space and they'll give you a lot of good advice. And really what we'll do is, we'll talk to someone, we'll say, let us look at your financials, let's do a quick audit of your readiness to sell. And we'll come up with a list of things that are great and a list of things that could be improved.

And so then you can start to plan for how you mitigate some of these risks. Some of those things maybe you can't mitigate immediately, but oftentimes you can mitigate some.

42:20 Josh Robbins

And so I would say definitely start talking to others. And if you know people who've sold, that's great, talk to people. You can be like, hey, I'm not saying I'm going to sell right now, but I want to start thinking about it.

Talk to people who have sold. Be careful about talking to people who haven't sold or don't know your industry, because you can get some advice that isn't relevant. If someone sold their construction business, fantastic, but what worked for them probably doesn't work for you in your consumer business. And so you do want to get information from people who actually are experienced in that space, because it varies dramatically. A tech company that sells for 15 times revenue or 10 times revenue is a very different process and very different outcome than someone who's selling based off of a multiple of EBITDA.

43:00 Josh Robbins

So I would definitely say, do not go on your own. And I'll say this as well. One thing that we're seeing a trend on right now is AI.

There are a bunch of AI tools out there that help private equity firms and other potential buyers target companies. And so they're like, hey, find me a business that's in this industry, that's approximately this size. And AI comes back, gives them these lists of contacts, and they start sending out all these automated emails. And we're hearing of people doing deals, signing an LOI, a letter of intent, to do a deal without talking to anybody else. And these private equity firms are sophisticated, and they're savvy in how they do deal structures.

43:45 Josh Robbins

So the last thing you should ever do, basically, selling your company is a team sport. You want your accounting team involved, your wealth manager, your attorney, an M&A advisor. It's a team sport. If it's not a team sport, chances are your buyer's super savvy and they recognize you don't have a full team, and they'll take advantage of that.

So that is the big thing. Talk to your accounting firm, your law firm, wealth manager, find an M&A advisor, friends who have sold. Don't do it alone, because there are so many ways that a deal can go sideways, and there are so many ways a deal can go amazing, and you just want to make sure you're on that amazing side.

44:14 Stephen Brown

That's a great place to wrap up. Josh, if somebody wanted to connect with you, what's the best way to do that?

44:19 Josh Robbins

Yeah, I think email would be great. It's [email protected], and that's spelled P-R-E-M-A-R-A group.com, kind of a weird spelling. Find me on LinkedIn as well, Josh Robbins. Again, the name of the company is Premara Group.

44:37 Stephen Brown

Awesome. Thanks for joining us today and we'll catch you another time.

44:40 Josh Robbins

Yeah, thanks, Stephen.