Summary
In this episode of the Ecommerce Finance Podcast, host Stephen Brown interviews Josh Robbins from the Premara Group to discuss the current state of ecommerce mergers and acquisitions.
They explore Josh’s unique background in ecommerce, the evolution of M&A in the sector, and the factors that make consumer products businesses attractive to investors.
The conversation delves into the challenges faced in M&A deals, the importance of understanding profitability and valuation, and the key factors that affect deal success.
Josh emphasizes the need for preparation when selling a business and the significance of financial clarity, supply chain management, and effective marketing strategies.
Takeaways
- The M&A market for ecommerce has seen significant fluctuations, with a recent slowdown in activity due to economic factors.
- Consumer products businesses that demonstrate revenue growth and profitability are more attractive to investors.
- Understanding unit economics and cost of goods sold is crucial for business owners.
- Key man risk and reliance on a single sales channel can deter potential buyers.
- Preparation is essential for business owners looking to sell, including understanding financials and market positioning.
- Engaging trusted advisors can help navigate the complexities of selling a business.
- Diversification in supply chain and sales channels reduces perceived risk for buyers.
- Effective marketing strategies are vital for customer acquisition and business growth.
- Selling a business is a team effort, and having the right support can lead to better outcomes.
What We Cover:
- 00:00 Introduction to Ecommerce M&A
- 02:39 Josh Robbins’ Ecommerce Journey
- 05:40 The Evolution of M&A in Ecommerce
- 08:45 Current Trends in Consumer Products
- 11:49 Understanding Profitability and Valuation
- 14:30 Challenges in M&A Transactions
- 17:24 Key Factors for Successful Deals
- 22:06 Understanding Cost of Goods Sold
- 27:34 Supply Chain and Sales Channel Diversification
- 38:59 Preparing to Sell Your Business
Connect with Josh Robbins
- www.premaragroup.com
- Josh Robbins on LinkedIn
- Josh@premaragroup.com
Work with LedgerGurus
If you are considering an ecommerce exit and need help with your ecommerce accounting, reach out to us at LedgerGurus. We are an ecommerce-specialized accounting firm, and we can handle all your numbers so you can focus on growing your business and preparing to get the best possible selling price for your business.
Transcript
Stephen Brown (00:00)
Welcome to the Ecommerce Finance Podcast. I’m your host, Stephen Brown with LedgerGurus In this episode, I have Josh Robbins with the Premara Group to discuss the state of ecommerce mergers and acquisitions. Josh, thanks for joining me.
Josh Robbins (00:13)
Yeah, good to be here excited to share some thoughts and insights.
Stephen Brown (00:17)
So you’ve got a very unique background in ecommerce. Would you mind running through your experience in ecommerce up to the Premara Group?
Josh Robbins (00:26)
Yeah, so right out of school, started an apparel brand. And so 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, decided to get an MBA. So 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, part of the tools and home improvement team.
that whole category really. So I managed three subcategories on the site. So I managed power tool accessories, garage storage, and test and measurement tools.
I was largely working with these big tool manufacturers such as DeWALT, Makita, Milwaukee, et cetera, but there was also several other smaller ones. And again, with the categories that I managed, some of these products have a really, 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. And the other thing about Amazon was, mean, I was there during their huge, huge growth and still growing a lot. But when I was there, we were growing like crazy. And it was just really, 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. And so
Really good experience there. After Amazon, I left, I spent some time in the SaaS world at Qualtrics and Lucid Software. ran partnerships for those companies. And then I made another stop playing as COO for a consumer brand called Rags. And so back to the apparel space, back to consumer and did that for three years. so 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 last several years, five years or so.
Stephen Brown (02:29)
And you guys got going. What year did Premara get started?
Josh Robbins (02:32)
Yeah, we started in 2020 and.
Stephen Brown (02:35)
So you jumped
in and kind of just the craziness of M&A for consumer.
Josh Robbins (02:39)
Yes.
Yes, timing was perfect. We jumped in, got going, and really what helped really get things going was there was this massive, 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 of 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 more 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. And so that was the thesis. 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.
Stephen Brown (03:49)
Yeah, the, went from a crazy hot market to almost a dead market. you say.
Josh Robbins (03:54)
Yeah, that’s
right. 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, know, effects post COVID were all factors, but for the most part, M&A activity really slowed in 23 and 24.
Stephen Brown (04:10)
Cheers.
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?
Josh Robbins (04:28)
It’s definitely warming back up. Uncertainty is one thing that makes it challenging for M&A. so there are, with tariffs going on tariff 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 maybe 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. 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 for 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.
Stephen Brown (05:52)
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’s issues. What are the issues? Or maybe let’s start with what makes a consumer products business attractive these days?
Josh Robbins (06:13)
Yeah, good question. A consumer products business is attractive. The biggest thing I’d say is that they’re spitting off some EBITDA or some cashflow, that it makes money. so clearly, all of us are consumers. buy products. And there’s 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.
So for right now, I’d say that because of a couple of factors that make a business more attractive for M&A and one of them is growth, revenue growth. So a lot of companies in the consumer space have just had a harder time with revenue over the last couple of years. There was those iOS privacy changes that happened that have made tracking and paid ads a lot more challenging. There was some post effects from there’s some effects post COVID.
there’s been some supply chain issues and then most recently tariffs are causing an unknown on profitability. And so all these are headwinds, but if company can keep growing through this time period, I think that’s one of the big things. There’s 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. And 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, really good story. Because it’s been a challenging time.
Stephen Brown (07:43)
you
Josh Robbins (07:49)
So revenue growth would be a major, major factor. And then you’ve got, 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, knowing, you know, can this thing spit off cash? Can your business sustainably provide a return to
its shareholders or investors.
Stephen Brown (08:20)
Let me ask you some specifics because everybody wants the specifics and I know I already know the answer is not going to be a number and probably a range. what is like let’s talk about growth. What is good growth these days? When is an investor going to be like, this is an interesting brand?
Josh Robbins (08:37)
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, so like I said, if you’re 10 million or more, 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. But like I said, if you can get to the point where you’re growing at least at 20%, and ideally it’s a little bit more,
Stephen Brown (08:45)
Yeah.
Josh Robbins (09:07)
at least 20, then that’s showing a really good trajectory for the business. If you’re growing at five to 10, those still good, but like I said, with 5%, it can be very little and it can waver year to year. And so maybe you’re up, maybe you’re down. It’s just not quite big enough to show the trajectory. think a business really wants to, as you think about M&A, you wanna 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. say, okay, we can plug you into this wholesale network, and immediately we get this growth. And so they really just wanna have confidence that the revenue will continue to grow, and that there’s some leverage still left to pull to see that growth continue.
Stephen Brown (09:57)
What about profitability? What are kind of the magic numbers that you see, or ranges, that you see that buyers are looking for?
Josh Robbins (10:06)
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. There just doesn’t give enough wiggle room on the business for potential downturns or for any potential experimentation. It just doesn’t give enough opportunity for that experimentation.
But if you’re at that 15 % to 20%, it leaves a buffer. And again, if you can be, there’s some that have a 30 % EBITDA margin. And I mean, that’s fantastic. I mean, that’s kind of world class.
Stephen Brown (11:05)
Now, there’s a concept I’m familiar with with some of the smaller businesses called seller discretionary earnings. When is that? What is seller discretionary earnings or SDE? When is that used versus EBITDA?
Josh Robbins (11:19)
They’re kind of, for the most part, can be used interchangeably. With seller discretionary earnings, you know, 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 say, hey, 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. But like I 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, basically what costs are there that you’re incurring in the business today that will not need to be incurred the hands of new owner. And so we’ll add all those back and then you’ll get a multiple, your evaluation is based on a multiple of your SDE or your
EBITDA or your operating profit.
So the higher you can make that operating profit or EBITDA or SDE, then the more your company is worth because that multiple is being applied to that number. So for example, if I have $500,000 of, of a, seller discretionary earnings and I get a multiple of five versus I have a million dollars of seller discretionary earnings, 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.
Stephen Brown (13:02)
And you mentioned this term more or less, addbacks. Really to add back to your profits. Say, well, 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 earning amount. Those are the kind of things that would go into addbacks, right?
Josh Robbins (13:31)
Yeah, that’s right. A couple other examples would be like a legal cost. Like let’s say you paid an attorney. It 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 ad back, next owner does not need to pay that. Therefore they can expect a higher
profit.
And so legal fees, any kind of one time fee is in there. Oftentimes people kind of maybe run through vehicles or maybe they’re doing some extra kind of 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’s these here’s 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.
Stephen Brown (14:30)
Do you see those, when you get into deals and people are like, well, I want to add this back and do see those tripping up or causing issues when people get really hung up, when sellers get hung up on ad backs?
Josh Robbins (14:45)
we’ve seen a buyer will be skeptical if there’s like,
Normally we have a, you know, normally we’re spitting off $100,000 or a million, let’s just say a million. Normally we’re spitting off a million dollars of EBITDA, but with your ad backs, it’s now 3 million. Like you tripled the profitability. A buyer is going to be like, hmm, you know, are these really ad backs? Are you really running through that many expenses through the business? And sometimes a seller might say, hey, we tried this marketing initiative and it failed.
Stephen Brown (15:04)
Yeah.
Therefore, I’m going to add it back.
Josh Robbins (15:15)
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 kind of 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’s always
You know exceptions to rules obviously, but it’s hard to do ad backs that are marketing related or product related
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 price is gonna, and the cost to manufacture is gonna go down, but it isn’t reflected in your financials. You can run that through as kind of an ad back to say, hey, it used to cost me $50 to produce this product. Now it’s gonna cost me 40. And we’ve kind of flowed that out and say, okay, we do have this kind of ad 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 kind of main categories.
Stephen Brown (16:33)
Okay. take a different direction. I, I’m just bringing up real briefly. There’s a guy on LinkedIn that’s become, think kind of LinkedIn fame famous Jeremy Horowitz. He’s been trying to buy, e-comm 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 I want to kind of go through Josh’s list of like why, some of his very from key man risk, basically too much dependence on a founder, not enough diversification of supply chain, books. So it’s pretty good list. But what I’d like, what I’d love to do is to hear what your list of
Reasons why deals aren’t getting done today.
Josh Robbins (17:24)
And 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 are kind of the marketing engine, you personally, and you sell your company for $100 million and you make 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 you are the face on 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. And if you think about it with M&A, it really all comes down to perceived risk. So there’s, I guess, real risk and perceived risk. And your buyers are gonna 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. And so when a buyer passes on your deal and the buyer 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. So that one key man, one I think is a good one because there’s 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.
Stephen Brown (18:58)
Yeah.
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?
Josh Robbins (19:12)
Yep.
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.
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, when was it? 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.
Stephen Brown (20:00)
Yeah.
So
social media doesn’t want to, they want you to pay for that exposure now and you’re not seeing the free, the algorithms aren’t necessarily promoting people for free anymore, is what I’m seeing, yeah.
Josh Robbins (20:23)
That’s right.
Yep. 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 got to pay for it. And so that’s the challenge with just only being social media. And so we’re not seeing that as much to your point as we once did, because there were a lot of brands that started back when Instagram got going and it was phenomenal for them. So that’s one. Honestly, one that we see time and time again are
Stephen Brown (20:34)
Yep.
Josh Robbins (20:51)
people don’t really have a good understanding on their unit economics of the business and it’s largely their cost of goods sold. so, cost of goods sold and what goes into that, 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 this, 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, it’s 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.
Stephen Brown (21:29)
Yeah.
Josh Robbins (21:31)
ship it out to the customer and land on that kind of gross profit per unit shipped. it’s, Cogs accounting is just challenging. so it’s, okay. No one knows better than you. I’m sure, I mean, you guys could, I mean, your business at LedgerGurus, I mean, it probably has a never ending.
Stephen Brown (21:42)
It is hard. We’ve done some recent episodes on this and we’ve lived in this pain for years.
Josh Robbins (21:59)
limit of supply 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
Stephen Brown (22:06)
Yeah.
Yeah. mean, and we talked about this in a, I talked about this in an episode with Brittany, my partner here at LedgerGurus that the challenge is you’ve, it’s a very operational thing with a lot of steps and you’ve got to convert this purchasing of inventory, turn it into it, a landed costs where you layer in the, all the import costs, you know, the shipping, the insurance, now tariffs are bigger than ever.
And then that lands on your balance sheet and it becomes, moves over to your cost of goods sold at the time of sale. And there’s just a lot of complexity in a lot of places where it can go wrong. 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 though. If you ever watch shark tank, they do a lot of consumer companies.
Josh Robbins (22:54)
Yeah.
Stephen Brown (23:01)
They always are like, so how much does it cost to produce each unit, right?
Josh Robbins (23:04)
Yeah.
Yeah. I mean, 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 it’s at your cost. So you’re kind of getting money back. You’re not getting a premium on it. But
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.
Stephen Brown (23:49)
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. And 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?
Josh Robbins (23:54)
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 again, friends who are still in the accounting world at some of these big four accounting firms. But certainly it is, you know, whatever you paid the factory for your product. So that goes in there.
whatever you paid to a kind of 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.
Stephen Brown (24:39)
We,
yeah, we, our belief is outbound is not got a bunch of GAAP nerds, 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 time. Our take is cost of goods sold is just your cost of product. So, you what you said, the buy price of the product, the import fees.
Josh Robbins (24:43)
Yep.
Stephen Brown (25:10)
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. And we would say that, so the 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 gross margins. 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.
Josh Robbins (26:08)
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 again, what it costs to this product. And there’s very little room. Like 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, but generally speaking a buyer is gonna 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 wanna see those high gross margins, because they wanna 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.
Stephen Brown (27:29)
Yeah.
So understanding your unit economics sometimes sinks deals. What else do you see that is causing problems in getting a deal done?
Josh Robbins (27:42)
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, if you have just one supplier.
Stephen Brown (27:52)
Yeah.
Josh Robbins (27:55)
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 just, 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 a supply chain risk is certainly, or supply chain concentration
Stephen Brown (28:00)
Yep.
Josh Robbins (28:25)
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 really 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. that’s certainly one, 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.
Stephen Brown (28:59)
Yeah.
Josh Robbins (29:16)
I know inbound freight, 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. And so most buyers want to see that, Amazon’s a fantastic place to be. There’s 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. So most…
Stephen Brown (30:17)
Yeah, it feels
like a really difficult time to be an Amazon only seller. Like, do you see, is there even a market for an Amazon only seller to sell their business these days?
Josh Robbins (30:21)
Yes.
You can still sell, but your multiple is significantly lower if you’re just on Amazon. So let’s just kind of give an example. But 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. But if you’re going to be…
Stephen Brown (30:49)
Amazon
seems to be taking more and more of the profitability of those sales every year.
Josh Robbins (30:56)
Yes, yep. 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 wanna buy your business still.
But generally speaking, no one wants to buy a business just for it to just 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 gonna be at the expense of the seller.
Stephen Brown (31:35)
What about Shopify only? Is there more strength if you’re having a lot of success just on your own website?
Josh Robbins (31:42)
there certainly is more strength and that is, 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 Shopify, 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. But if you also, again, are on Amazon, you’re paid on Amazon, 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, it’s way better to be on Shopify only than Amazon only, but really you wanna be on all channels. Omni-channel is the way to go.
Stephen Brown (32:49)
What else? we’ve talked supply chain diversification. We’ve talked channel diversification, key man risk, unit economics.
Josh Robbins (32:56)
Yeah.
Yep. Let’s see. 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, better. And we’ve seen the cost to acquire a customer in general increase over time. And so as a business, if you think about it, if I’m 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 gonna 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 gonna get a 10 times, if you’re gonna sell your company and you’re doing 10 million in EBITDA and you sell that for 10 times your EBITDA, it’s 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.
So anyway, as they’re thinking about that, as they’re thinking about these kind of 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, 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. Does that make sense?
Stephen Brown (34:35)
Yeah.
Josh Robbins (34:36)
Yeah. So, so that’s one. think a couple others on here. Another one should be inventory, inventory management. So especially when you’re smaller, but this is the case at any size. Inventory is your biggest consumption of cash generally. And so
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 you wanted, too much, ties up all your cash on the balance sheet. 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 gonna 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 kind of just gives confidence that you as the executive team have a really good running business. know, the high, I said this before, 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. If it’s like, yeah, we ordered a bunch of stuff, we were kind of off and, you know, 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. 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
again, when a buyer has to question something about just the lack of professionalism or the lack of something that was done, they start to think that there’s other areas in the business that probably have an issue as well.
Stephen Brown (36:58)
Yeah, if there’s one area for improvement, can be the opportunity for the buyer. But if there’s lots of areas of improvement, that just creates more risk for the buyer.
Josh Robbins (37:02)
Yep.
That’s right. And what you can do is you can position that. Again, 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 anything 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?
Stephen Brown (37:41)
But you do.
Gotcha. Yeah. Okay.
So if somebody wanted to, 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?
Josh Robbins (38:06)
Today, so 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 kind of 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, let’s say 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 need to do? 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 anyone for a dollar today, and the next day something good happens, 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.
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 again, there’s like a checklist of things that we could provide, but it’s like, do you have, start to go through looking at your revenue all the way down through the P &Ls, like do we have revenue diversification? Do we have proper cost of goods sold in place? Do we have the right team in place? And so you can start thinking through, you know, really all these factors. But the biggest thing is you should start thinking about it. The biggest thing is,
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 wanna have a better gross margin on our business. And if you wanna do that, if you wanna change your gross margin, let’s say your gross margin is 50 % and you wanna get to 60, 60 % gross margin is way better than 50%. So you wanna get it to 60. It might take you well over a year to start to show that through the financials. Probably even longer.
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 gonna 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. 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 a manifest through the P &L before you start thinking about going to market.
Stephen Brown (40:57)
Gotcha. What else can somebody do to prepare?
Josh Robbins (41:00)
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 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’s some things you can do as a business to help mitigate taxes and things like that. 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 come in,
We’ll talk to someone, we’ll say, 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 will be not headwinds in a deal, but things that could be improved.
And so then you can start to plan for how do you mitigate some of these risks. Some of those things maybe you can’t mitigate immediately, but oftentimes you can mitigate some. And so I would say definitely start talking to others. And if you know people who’ve sold, that’s great. Talk to people. And again, you can be like, hey, I’m not saying I’m gonna sell right now, but I wanna 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. And again, if someone sold their construction business, fantastic. 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. And again,
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 multiple EBITDA. And again, there’s a wide range of things. 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’s a bunch of AI tools out there that help private equity firms and other
potential buyers, target companies. And so we’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, they start sending out all these automated emails. And we’re hearing of people doing deals, signing LOI, a letter of intent, to do a deal without talking to anybody else. And because these private equity firms are sophisticated, and they’re savvy in how they do deal structures. And 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 is talk to your accounting firm, your law firm, wealth manager, find an M&A advisor, friends who have sold because don’t do it alone because there are so many ways that a deal can go sideways and there’s so many ways a deal can go amazing and you just want to make sure you’re on that amazing side.
Stephen Brown (44:14)
That’s a great place to wrap up. Josh, if somebody wanted to connect with you, what’s the best way to do that?
Josh Robbins (44:19)
Yeah, think email would be would be great. It’s it’s josh at Premara group.com 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.
Stephen Brown (44:37)
Awesome. Thanks for joining us today and we’ll catch you another time.
Josh Robbins (44:40)
Yeah, thanks, Stephen.