Chris Shipferling is a Managing Partner at Global Wired Advisors, a leading Digital Investment Bank focused on optimizing the business sale process. The approach of the Global Wired Advisors combines decades of merger and acquisition experience with online and e-commerce expertise to increase the transactional value of your greatest asset. In this episode, Chris will help us navigate the exciting but intricate puzzle of selling FBA businesses to aggregators.
Listen to Chris and learn from an ecommerce superstar!
[00:01 – 06:43] Opening Segment
- Let’s get to know Chris Shipferling
- He shares his journey to ecommerce
- How he learned Amazon’s Seller Central
[06:44 – 16:56] What Aggregators Do in Ecommerce
- Chris talks about the moment when he finally fired the man
- What does an aggregator do?
- It’s a good time to be a seller now
- Chris explains
[16:57 – 26:02] Impacts of COVID-19 to Ecommerce
- Impacts of COVID-19 to the ecommerce industry
- The positive impact of COVID-19 to ecommerce
- This is what will happen if you have the wrong intermediary
- Want some Amazon refunds? Check out GETIDA
- Promo code: FTM400
[26:03 – 36:48] The Ins and Outs of Earnouts
- Chris talks about “portfolio softness”
- What to do when you are approached by an aggregator
- The protections you can build for an earnout
[36:49 – 45:55] Aggregators vs. Private Equity
- The difference of the aggregator model to private equity
- Chris tells us why you should talk to an intermediary
- Here’s the main reason you should professionalize your business now
[45:56 – 49:17] Closing Segment
- Know more about Chris in the Fire Round!
- Connect with Chris
- Links below
- Final words
“It’s actually much scarier when you look back at it and way higher risk when you can’t control your own destiny.” – Chris Shipferling
“We wanna talk to sellers and help them get educated on what it’s like to really take their business seriously to a good process.” – Chris Shipferling
- Amazon’s Seller Central
- Kevin King
- Book: Good to Great
Email email@example.com to connect with Chris or follow him on LinkedIn. Visit Global Wired Advisors to optimize your business sale process.
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Chris Shipferling 0:46
Everything happens for a reason. So it’s one of those things that I think if I would have taken the plunge too early, I think it would have been way too premature. I don’t think I had enough of the networking. I don’t think I had enough of the good starch to really go okay, let’s take it, right? I feel more comfortable. But if I did, if I could, I’d actually go back to me in 2003 When I first started doing any business, I mean, if we’re going to go full, let’s go full, right? I’d go all the way back then and say, Stop. Here’s what you need to do. Here’s how you need to be thinking about planning out your life right now. All of this cost that’s getting added from logistics right now, you know, the operating margins are starting to come down for a lot of these aggregators at the current moment. And again, it’s all about a lot of the debt. The way they’re funded is mostly through debt. And it’s not cheap. It ranges anywhere between six to seven 8% On the very, very, very low good side, which is very few all the way up to 20% like a stinking discover credit card. So it’s very expensive. But when things are good, and when the return on capital is heavy, and it’s strong, no one cares. But when it isn’t, the thing can go backwards, very fast. And so then I would turn to you and say, Okay, now let’s talk about the next five years, like where are you going next. And it really just depends on those specific inflection points to where you can present a scalable opportunity, along with a great product roadmap and a branded business. And that’s believable and defendable on where you’re going after this international expansion, then we can kind of see where you are at that point. But it really just kind of depends on those specific time periods.
Welcome, everyone, to the firing the man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you are capable of more then join us, this show will help you build a business and grow your passive income streams in just a few short hours per day. And now your hosts, serial entrepreneurs David Schomer and Ken Wilson.
Welcome everyone to the firing the man podcast. On today’s episode, we are joined by Chris Shipferling. Chris is the managing partner at global wired advisors, which is a leading digital investment bank focused on optimizing the business sale process. Global wired advisors approaches and combines decades of merger and acquisition experience with online and E commerce expertise to increase the transactional value of your greatest asset. We’re really excited to get to share Chris’s story and knowledge with our listeners today. Welcome to the show, Chris.
Chris Shipferling 3:26
Hey, thanks guys. Appreciate it. Thanks for having me on.
Yeah, absolutely. So first things first, let’s get a quick background, your life story, your experiences, and what led you to be the MP at global wired advisors?
Chris Shipferling 3:41
Yeah, absolutely. So yep, I grew up here in Charlotte, North Carolina, which is where we’re based as well. So after college, I started working almost immediately in consumer products. I started off at a Japanese baby products company. And so that was a lot of fun. It was a, started off with the worst position in the company. And after seven years, I left as the head of sales and marketing. So it was neat to work in such a small business, worked with a lot of familiar names and unfamiliar names that are now familiar names. Like, I think I was one of those first Zulily vendors at the time. You know, I worked with Wayfair when they were CSN stores, got to watch them, you know, take over from one floor to multiple floors of the Pru and kind of see their the evolution of their business. From Combi I left and went to a larger more middle market enterprise business called Evenflow. If you have kids, you’re familiar with their products. You know, they’re basically household brands. They made everything at the time. I mean, feeding bottles, breast pumps, yes, I sold breast pumps, and it was really awkward.
Me too. And it’s been well documented on this process.
Yes, we talked about this. That’s right. Yes, that’s right. That’s right. You sold the competitor, man, you sold Medela we owned Ameda. And so we were taking them from an institutional brand into an actual retail brand. And imagine for a moment this guy walking into a very back country Georgia, Babies R Us where it’s all men that were all corn fed, staring at me while I talked about flame sizes. Very weird. So yeah, so I had a strong hand in trade marketing, a little bit of product development, but mostly Key Account Management. As a senior director, I worked with all types of you know, Bed Bath and Beyond, Bye Bye Baby, Walmart, Target, Babies R Us, etc, etc. So did a lot kind of on that side of the table working with buyers, and in wholesale and trade marketing in general, and had a lot of experience you know, Combi was actually one of the first baby vendors on Amazon, you know, working one P through vendor Central. So I’ve had a ton of experience with vendor central through my career working with you know, all the major ecommerce retail players. It wasn’t until I left and went to a premium stroller company that I was working primarily with specialty stores, and I had about a half a million dollars worth of inventory sitting in a warehouse and I had to get rid of it. So I put my head down, I learned Seller Central that was around 2015. And I listened to Manny Coates and Kevin King. And I downloaded all the white papers I could possibly find from all the usual suspects in 2015. Same as you guys. And you know, it was really, you know, Cornell and Columbia didn’t have an executive course that you can take on Seller Central, even digital marketing for that matter. And so really was a matter of putting my head down and just kind of school of hard knocks. And so I really learned how to take a widget, like many people during that same gold rush, and kind of run it through the Amazon optimization process, right, finding all the right keywords, understanding your advertising and negative keywords at the time, which have now come back. And really being able to optimize your listing for really strong conversion, and actually did it all through FBM, believe it or not. FBA was just, it wouldn’t it actually didn’t make sense for us. So anyways, from there, I really put my head down, learned digital marketing, and as well like all the other functions when it comes to say SEO and SEM, etc, etc. And I took the leap, I finally said no more w2, I’m done. And I’m going on my own. And I’m just going to see what happens. Up to this point I’d built a pretty strong network for myself. And so I had a lot of, I’d say out of the gate really good clients. But I really, I started a consulting business that helped antiquated businesses that are that were mainly in baby and toy, help them formulate some level of good digital strategy, which you know, in toy and baby, highly antiquated. Seriously. So, it was good. And then from there met up with my partners we’re all from Charlotte through happenstance. They already you know, they came from the large institutional bulge bracket investment banks, so, you know, Wells and Bank of America, Deutsche and Citi and JP etc, having, you know, a decade, at least over two decades long each of them careers within investment banking, they all did the whole firing the man too, you know, kind of took the leap, I mean, you guys know, this, investment banking is not great from a, you know, kind of lifestyle perspective. So, you know, they finally said, Okay, I’m done working 80 hours a week, and it’s time to kind of do my own thing. So we all met up together, they already had another effort that was focused more on the traditional side of business, it was, you know, investment banking for small to medium sized businesses. So more or less lower to lower middle market to touching middle market type of companies. When I came along, we talked about an effort that would focus primarily on the Amazon market, as well as just kind of all things digital consumer product. And that’s really where that effort was born, global wired advisors was born out of a burgeoning need, in our opinion, for more stronger, a stronger professional process when it came time to selling your business within this particular space, and so, you know, we started pre aggregator, they weren’t around yet. And those days were tough knowing that, you know, we saw, we saw the data, we knew where all this was headed. So it was almost kind of like setting up your shop in the wild west. Right. And knowing that the flood is about to occur, you know, the Gold Rush was about to occur. And so here we are today, we’re, you know, about 11 person growing to probably 14 by the end of this year early q1, Investment Bank, heavily focused on digital consumer.
Chris Shipferling 5:06
Yeah, that’s awesome. Yeah, Chris, you got a ton of experience. Exciting. So before we get into kind of the m&a, FBA kind of stuff, let’s talk about your entrepreneurial journey a little bit you mentioned, you know, threw out the w2, you were like. So, how long have you been, how long since you fired the man?
- Dion, Ayanna (Author)
- English (Publication Language)
- 27 Pages - 11/10/2021 (Publication Date) - Independently published (Publisher)
Fired the man back in 2016, man.
Okay, so it’s been five years. That’s awesome. Congrats. So what are some of the fears that you had before you did that and how did you overcome those fears?
Chris Shipferling 9:48
Look, you sit in a seat at a corporation where you know that a paycheck comes every two weeks, right? Or it comes every month, and you just know it’s steady, and there’s a warm blanket feeling knowing that you can rely on somebody else to provide that income for you, even though it’s actually much scarier when you look back at it and way higher risk, when you can’t control your own destiny. And at any given time, the man instead of firing the man, the man fires you, right? And so I’d say my concerns prior was just honestly, it’s getting rid of that warm blanket and not really understanding what I would do. You know, and I think a lot of this kind of came out of John A, where I was at that last company I worked for where I was really forced to become, I was forced to become more entrepreneurial. You know, the business itself was family owned it was about $120 million family owned business. Well, it was the largest baby business in Spain. Actually, it was one of the oldest baby product companies in the world started in like 1922, I think, or 23. So, you know, while I had a lot of resource from them, right, budget resource, product development resource, and they were very kind in terms of how they really gave me those resources. I was really forced to sit in a seat that I’ve never actually sat in before, which is really total entrepreneurial. And I didn’t necessarily realize it at the time, but it was grooming me for the day, when I said, wait a minute, I can actually make a lot more earnings, like I have way more earnings potential doing this by myself and consulting. We’ll start with consulting and see where that leads.
Nice. Yeah, one follow up question to that. And then I’ll kick it over to David. Knowing what you were doing back then and what you’re doing now, any advice you would give yourself now?
Chris Shipferling 11:41
Yeah, I mean, look, everything happens for a reason. So it’s one of those things that I think if I would have taken the plunge too early, I think it would have been way too premature. I don’t think I had enough of the networking. I don’t think I had enough of the gustache to really go okay, let’s take it, right? I feel more comfortable. But if I did, if I could, I’d actually go back to me in 2003 When I first started doing any business, I mean, if we’re going to go full, let’s go full, right? I’d go all the way back then and say, Stop. Here’s what you need to do. Here’s how you need to be thinking about planning out your life right now. And I mean, obviously, if I could go back, I’d give myself an almanac, just like in Back to the Future part 2, we’re all sporting bets for the next two decades, but realistically speaking, yeah, I would probably give myself in 2003 a blueprint on how to, I would tell myself, feel comfortable growing your own business. And absolutely go into ecommerce.
Absolutely. You know, you mentioned that lack of like, academic training, right. And I think that is still, there is still a huge lack there. In terms, you know, digital marketing, and, you know, specifically ecommerce is growing and growing. And just looking at my alma mater, St. Louis University, like really nothing in play there in terms of classes. And so you’re right, you know, you did exactly what you have to do, you know, read white papers, Kevin King has been a great resource and continues to be a great resource. Yeah, that sounds like you really just dug in and got going, so.
Chris Shipferling 13:22
Yeah, that’s right, man, it was a lot like the other guys, like a lot of us in that first kind of class of 2015, I was doing it for somebody else. A lot of people were doing it for themselves, you know, retail arbitrage, wholesale, private label was just starting to come on the scene in a much bigger way. Irrespective kind of even though I was doing it for someone else. I was doing it for my own brand I was working for so it felt very private label. And you got to learn a lot of the tenets of what it’s like to take a widget and sell it through Amazon.
Absolutely, absolutely. All right. Now let’s turn the corner and get into, you know, the m&a space and FBA businesses in general. Now, before we get going on this, we’re going to mention the word aggregator a lot during this episode, I would imagine. And so for the people listening that are unfamiliar with what that is, can you just give a brief synopsis?
Chris Shipferling 14:16
Absolutely. Yeah. So I mean, the way that I’d say, you know, the acquirer breakdown looks like in just any capital markets, and by the way, like the aggregator model, the roll up model is it’s not new, right. It’s been around for decades upon decades, in capital markets and all types of different sectors. But when we use the term aggregator, what we mean is, instead of it being, say, a private equity fund, or other terms or funded sponsor or financial sponsor, it is a fund that is dedicated to purchase lots of businesses within the same sector and roll them up into what we would consider, what we would call a private investment vehicle. And really, what that means is you’ve got a pretty strong operating side of the fund. And you’ve also of course, got an m&a side of the fund, right? An acquisitive side or acquisition side of the fund. Whereas private equity is raising primarily equity out of lots of what’s called LPs or limited partners. So a lot of different investors for a particular fund that has a thesis and a strategy. And they go after say, you know, something within a different industry, but they’re actually looking to buy everything, not just asset and inventory and say, a seller central account, or a website, they’re looking to buy team and infrastructure because they don’t have an operating side of the office. They need that company to continue to operate in its current form, optimize it, scale it, and then they sell it off, whereas aggregator is buying individual businesses and throwing them into the operating side of the house.
- Hardcover Book
- Lajoux, Alexandra Reed (Author)
- English (Publication Language)
Got it? Okay. Very nice, very nice. I think that background gonna be really helpful for some of the items that we’re going to get into. So what is, you know, in your opinion, what is the current state of the market as it relates to FBA businesses?
Chris Shipferling 15:59
Oh, man, lots and lots and lots of liquidity is chasing FBA assets right now. It’s a good time to be a seller, honestly, you know, coming off of COVID last year, and the monstrous year that ecommerce had in general, there was a lot of attention that was placed from venture, and a little bit of private equity, but mostly venture that were willing to, you know, invest inside of this particular market. And so from that, you know, the vehicles in which they’ve chosen to do that are these aggregators. And so, you know, you’ve had several them, and I say, several, and we’ll get into that in a moment, but a lot of them rise up, and they are chasing very hard and fast FBA assets. But there’s been an evolution there, which, of course, we’ll get into today. But as far as just answering the question, is it hot? Or is it cold? It is, it’s piping hot at the moment. But I think we’ve got some sobering news that’s gonna come down the pipe, probably in 22 23.
That’s awesome. Yeah, I can’t wait to get into some of those. Let’s see here. What do we got? Now, what specifically, you mentioned COVID on there. So what are some of the impacts that COVID has had in this space in the last 12 months?
Chris Shipferling 17:12
Yeah, I mean, I think it’s been mostly positive, I think you’ve got a lot of you’ve got a lot of sellers that were, I’d say, kind of following the macro trend of Amazon, where we’re seeing growth, at a steady clip somewhere growing, say 2018, to 2019, you know, some stronger growth, but you’d really didn’t have a whole lot of guys that were showing stamping, top line revenue of, you know, 10 15 20 million, $30 million plus, and COVID just did an unbelievable fast forward on the VCR, man, you know, it was just like, boom, and you saw a massive pop. And so it’s had positive impact in the sense of, you know, there’s been a lot of people who went from, you know, I’d say 60 miles per hour to about 180 miles per hour overnight. On the negative side of that, now you’re getting into that post COVID Hangover right now, where you’re starting to see p&ls get impacted both well, from all sides. One, you’ve got a port congestion problem, right? That’s obviously causing a lot of problems just getting supply. Secondly, you’ve got an inventory restriction issue going on at Amazon right now. So that definitely doesn’t help anything. And then you’ve also got the post COVID hang over. I mean, you’ve got a lot more people out and about, and a reallocation of consumer balance sheets, kind of where they’re spending their money over the past six months, has been away from trying to buy a bunch of prime items to let me go travel now let me get back out. Let me leave the house, let me spend it more on restaurants and experiences and etc. So you’ve had a little bit of, I would call it The Hangover, you know, from COVID. So that’s been a little bit of a negative impact. And I think, though, that we’re going to see, I think we’re going to see a massive correction come q4, for sure. I think we’re actually going to see the largest q4. And that’s a positive impact of COVID. Because you were in your house last year, you didn’t really get to celebrate with friends and family now you do throughout the holidays. On top of that we’re showing right now roughly $2.2 trillion on consumer balance sheets. And history tells us that gets spent within 12 to 18 months and guess what’s happening in three? Largest consumer spending activity of the year.
We are pumped for q4 and it’s good to hear that you’re optimistic about it because we certainly are optimistic about it. Just a quick note, back it was probably a year ago, saw, it was on some finance forum I was on, someone was talking about EBITDA C, which is EBITA before Coronavirus. And I’m curious if you’ve seen, and it started out as a joke, which is legitimate. However, if I was, and like Ken and I were looking at an acquisition the other day, and you know, we had to like back out that huge pop in April when everyone was in their house and we had an EBITDA C, and so I anyway yeah, no, it’s been strange.
Chris Shipferling 20:00
I will say this, and this is no plug, I promise. But depending on your intermediary, they can either talk their way through that. Or you will have to probably reverse back to a 2019 EBITDA, if you have the wrong representation. No plug, I promise, no plug for us. But yeah, you gotta, there’s a lot, there’s a lot there. Like we’ve had some funds, in specifically to be blunt, private equity, private equity has really we had one acquisition where they were hot and heavy on the acquisition, and these guys saw a COVID pop, but I wouldn’t say it was anything massively significant. They’re actually flat this year over last year, which is a huge win, in our opinion. And, you know, they were trying to value the business based on 2019 EBITDA, and we just called them out. Do you believe in E commerce or not? It sounds like you don’t have the stomach for it. So it’s totally fine. We had nine other bids from other private equity funds, we’re just going to move on because clearly, you’re not seeing the longer term here. And there is a longer term.
Yeah, as we’re talking about representation, that is the type of person I would want my corner is someone who would say, Listen, ecommerce is here to stay. I believe we’re probably still in the third inning of just the total ecommerce industry. And you know, from a consumer standpoint, it’s a better shopping experience. It just is. In my opinion, so. Alright, so.
Chris Shipferling 21:26
The data dysphoria, for sure it’s there.
Yeah, yeah. Now, you had mentioned some sobering news about the aggregator space. Let’s dive into that. What are you thinking?
Chris Shipferling 21:37
Yeah, I mean, I think it’s some high level nuggets. I mean, I’d say number one, there’s just too many of them, right. So you have way too much demand and too little supply. And so what’s going to happen, and we’re already starting to see this, we’re already starting to see the sins of some of their past when I say past, like a year ago, a year and a half ago. I mean, you guys haven’t been around for very long, it’s all very short term so far. They’re already seeing their portfolio, some of their businesses if not, you know, not a majority by any means. But I’d say a significant amount, start to see massive softness, or even failure, right. And so look, there’s a real return on capital here that their investor base is looking for. And when you start to see softness in a portfolio, you know, you’re going to have a lot of investors get very queasy about what’s happening, because the spreads on that return starts to go way down, right. And so they start to ask lots of questions. And then they start to turn to your operating model, and they start to go, do you really know what you’re doing? Because it felt like you got a big old fat hall pass through COVID. And now that we’re in a post, post COVID Hangover, do you really understand what it truly takes to operate these FBA assets? Right. So I think they’re starting to see a little bit of that happen within these aggregator funds, some of the stronger ones that have been through the more institutional rounds like the Series A, B, and C, and D. And we all know who I’m talking about, kind of just call him out. I mean, the Thrasio’s, the heydays, the perch’s, etc. I mean, this is all public domain information. When investors start to see real softness inside of their portfolio, they’ll just start asking questions. I think you’re gonna see a massive correction, though, through q4, I think you’re going to get, you’re going to get a massive bump again, everybody’s going to get a bump. And it’s going to be really nice. But I think that, we believe q1 and q2 of next year, it’s going to be the prove it to me, are you a real operator or not? Right, you’re also going to have a lot of anniversaries of earnouts. For the first time, in fact, it’s a whole swath, and that’s going to either be damning from a public reputational perspective, or it’s going to be just okay. But I think their investor base is going to be turning to however many are left by the time we even get to q2, because there’s going to be some level of failure, we’re already hearing about it. There’s going to be some level of consolidation. We’ve already know what’s happening. And the ones that survived have survived, again, nothing’s new under the sun. This has been done aggregator and a rollup model is no, it’s been done for in all types of sectors for many decades. But the sobering news is you get to q2, end of q2 next year, and you go, okay, who’s left? Because I think you’re gonna see a lot of folks that are started aggregators, they’re not great at operating, and it’s just going to be pure, you’re gonna have a lot more failure at that point. That’s what we’re, at the moment that’s what we’re thinking is going to happen.
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Yeah, that’s interesting and shocking and not so shocking all at the same time. Chris, can you dive into I mean, anytime there’s money and it flows freely, there’s usually you know, especially when, like you mentioned, there’s not a lot of longevity in this model in this business right now. It’s kind of 12 to 18 months maturity, right? So there’s not a ton of maturity there. And can you explain a little bit more in softness? Are you talking about like maybe inventory management? Are you talking just operators in general, or the softness of the portfolio?
Chris Shipferling 26:02
Yeah, the softness of the portfolio, it’s more macro, and really, it’s more top line. And then of course, whenever top line suffers, and you’ve got all of this cost that’s getting added from logistics right now, you know, the operating margins are starting to come down for a lot of these aggregators at the current moment. And again, it’s all about a lot of the debt. The way they’re funded is mostly through debt. And it’s not cheap. It ranges anywhere between six to seven 8%. On the very, very, very low, good side, which is very few all the way up to 20% like a stinking discover credit card. So it’s very expensive. But when things are good, and when the return on capital is heavy, and it’s strong, no one cares. But when it isn’t, the thing can go backwards, very fast. And so when I’m talking about softness, I really mean the portfolio softness I mean, you got an aggregate of, you know, 20 brands, and you’re seeing softness in 75% of the portfolio causes a lot of headache for the investor base, and for also the folks running the aggregate.
If you were a Vegas oddsmaker, and you were setting the line on how many earnouts hit their target? Where would you set that at?
Chris Shipferling 27:09
Oh man, that’s a great question. Let’s just assume there’s 200 businesses that are going to get earnouts, say this January. I don’t know you’re coming off of a good q4. You know, I think if you were to go, I think when you include q4 in there, the odds are much higher, like you’re probably going to see more folks within january february get earnouts. But then as time goes on, and those anniversary start to hit, like, include q1 and q2 of next year, and also summer of this year, and you have a little bit of a bump, I think your earnout start to get a little rocky, that’s just assuming the businesses are run, just the way the founder and owner actually ran them. So what the other piece that we don’t know, and we’re not privy to, although we do have some insight from some businesses that we’ve sold to aggregators is irrespective of macro trend, how terrible have they been just running the business once they took it over? Because, you know, we know of one, I won’t name anything, but you know, one of our clients came back to us and said, hey, just FYI, there’s going to be no earnout for me, this particular aggregator completely tanked my business, and I’m not sure it’s actually going to come back. I mean, it’s, it’s scary to talk about and no one wants to talk about this particular side of it, and I’m talking about it from the intermediary who helps businesses go through a process and find the right fit. In essence, I’m kind of not I’m not shooting myself in the foot by talking about this. But it’s very sobering for everybody involved. And honestly, what it really starts to extrapolate is, you really want to trust the person who’s taking you through this process. They know the market, they understand the aggregator base, or even way further than that, anybody that they’re going to put your business in front of they truly understand the acquire.
Yeah Chris, so we, David, and I definitely don’t mind talking about this stuff. And you know, honesty and transparency, I think, is number one. In terms of an earnout, so for the listeners, can you kind of break it down? I know you and David are from the m&a space, can you break it down? Let’s say an FBA business owner that’s grown an Amazon FBA business to a million dollars, and then an aggregator reaches out to them to buy it, can you kind of go over the earnout. And so everyone understands, like what that what piece that is, and so if you do get approached by an aggregator, you want to know what? Their history of earnout payments and such like that?
Chris Shipferling 29:24
Yeah, you want to interview him just as much as they’re interviewing you. And you know, as much as they’re pursuing you, you know, you want to understand a little you want to really dig deep and understanding their you know, who they are as an operator. Because, yeah, the earnout structure is typically part of every deal. And you know, you just do it by simply asking them the strengths of their team, how long the cert who’s taking over their business once the company is sold. You know, we’ve got enough time on our belt to actually understand now, who’s headed in the right direction from an operational perspective and who isn’t. But to answer your question directly, someone as in a million, let’s go by EBITDA or cashflow. So let’s just assume it’s $2 million of cash flow, we’ll just make it an even number and easy to do some math, let’s say, you know, a deal structure comes through. And it’s a, it’s a really good business. Now, we could talk about this for a whole other podcast and like what makes up the tenets of a really good business. But let’s just assume it’s a good business. In fact, it’s got, you know, good branding, it’s got the good, it’s got really good health to it, and a six multiple cash at close comes over, right? So it’s, it’ll be like six multiple cash at close. And then that means that on $2 million, a six multiple means you’d be getting $12 million wired to you on the day of closing. And then typically, what they put in there is what’s called a stability payment. And it’s a retained risk component, where they say, at, you know, hey, we’re not going to give you say, because sometimes the way they break it down, is they say, this is a seven multiple, but one multiple is in a stability, payment, six is cash at close. This is, by the way, a really strong trade, FYI, you know, this is done for a really good business. And then what they’ll do is, so the stability payment has its own specific transaction language inside of the APA, inside of the asset purchase agreement. That’s the legal documentation, right. So it’ll actually define how that is paid out. Right? Typically, what they say is, if the business goes down by, you know, I don’t know 40%, or 20%, and it’s all based on numbers that you negotiate, that the earnout, either it’s, it’s typically binary, it either gets paid, or it doesn’t, there is a ramp down component to it as well. So that’s the stability payment. Then there’s the earnout structure. Now, this is where they retain all of the risk and put it on the seller. So this is actually where you can go to town, because in some ways, it’s Monopoly money, right? Because it’s money that hasn’t been earned, yet. It’s all future earnings of the particular business. And oh, by the way, you’re trusting them to also earn this for you, right. And that’s what we just went through as far as like, you know, what’s the risk of that. But, you know, a typical earnout structure will probably have about a two year sometimes three year component. And it will be, usually, it’s the increase of net earnings on the business. But then again, there’s typical, there’s typical language that’s placed inside the APA, to where they just can’t tank, they just can’t place a bunch of costs inside of the company, if they’re basing it off of net earnings. And so they’ll say, we’ll give you 50% of the net earnings from year one to year two. And then we’ll take that number, which is where we increased. So let’s say it went from 2 million to 3 million, and we give you 50% in year one, you get 500,000 as an earnout, right. And then year two, it would actually start at 3 million. And then the increase from 3 million to 4 million might also be 50%. So might be another 500,000. So that’s what an example, typical earnout structure looks like. But we like to have a lot of fun with earnout structures, we typically take these guys to the mat pretty hard on it.
So I want to dig into that for sure. Because like, for instance, if I had a one year earnout right now, I would definitely want a contingency on there that they’re in stock. Ken and I have had shipments this year where we assume a 90 day lead time out of China. And it’s ended up being 150 days. And that’s one thing with q4, I think those that are in stock are going to win. We placed our q4 order at the end of June, just because we were like we have to get ahead of this. Or we’re gonna you know, you miss Black Friday and the Christmas rush, that’ll kill you. And so what are some, like, if someone is selling their business and say they come to you, and you’re kind of helping them build the strongest deal possible? What are some protections they can build into that earnout?
Chris Shipferling 33:41
Yeah, I mean, it’s all case by case for sure. I mean, we’ve actually, not for the earnout. Because it’s again, it’s a little bit difficult to say securitize the earnout, there’s probably a better way to put it. So it’s difficult to kind of securitize it in a way that like guarantees, because again, it’s all retained risk. And that’s where you can play around with it a lot. Usually, where you know, the step up from cash at close is going to be a stability payment, that’s usually where we spend more time trying to protect, because it’s just really difficult to protect an earnout, especially when you’re looking two years out. So for instance, if you said, hey, you need to be in stock. Well, they would say, well of course we do. We want to sell product. But you can’t foresee if you were selling your business in end of 2020, or whenever, maybe a bad example, but no one really foresaw the fact that oh my gosh, the congestion at the ports were gonna get gummed up this much. You know, no one saw, including the shipping companies that container prices would go all the way up to $30,000 a can, like no one saw any of that. So it’s unseen forces that it’s really difficult. But with the stability payment, I’d actually probably turn our attention more there. You know, we’ve done some things in the past for our clients where we’ve, again, you can’t securitize it because you just can’t. But we got pretty close to the line of almost securitizing that particular stability payment. And that’s where I think you can probably have a little bit more stern conversation and firm discussion versus the earnout. It’s just too difficult.
Chris Shipferling 35:18
But you can play around the earnout, for sure. I mean, we’ve gotten some, we’ve gotten through some earnouts that I mean, if they hit, it’s gonna be awesome for our client.
Right. Right. Well, very good. Very good.
Chris Shipferling 35:31
To answer your question directly. It’s tough. I mean, look, you can ask for whatever. And I mean, you can come with some pretty intelligent basis on everything you just said, like, hey, if I’m gonna trust you to run this business, well, we’ve got to put some specific factors. I mean, the least they’re gonna the worst they’re gonna do is say no. But you can at least try for sure.
Absolutely. And, you know, one thing that I’ll add to what you’re saying, and this is to any of our listeners that are thinking about selling their business, I would be very wary, and this, let me say that this is my opinion, this is not Chris’s opinion. Be wary of the company that can close in 30 days. Be wary of the company that is going to give your buddy a Tesla, for referring you. This is a very complicated, the transaction is very complicated. And having someone on your team who’s been through that before and has seen where things go wrong, is very helpful. And so I would, you know, this is anyway, that’s what I think is I get very wary when I hear a company say, yeah, we’ll spit you a number in seven days. It’s like, oh, man, that’s so many moving parts. What are you doing?
Chris Shipferling 36:48
Oh. I’ll tell you a quick, quick story. We were privy to a specific potential clients books and numbers. And we were friends with another this aggregator who was really chasing this particular client pretty hard. We knew the real number. They offered him an LOI didn’t even see the numbers. And the basis of the EBITDA that they were using was verbal from the client. We knew the real numbers. And it was almost double what the real numbers were. And so they were basing their whole loi on vaporware on just stuff that just didn’t exist, like an EBITDA that was completely fake. And I think it just goes back to I think you nailed a point that, you know, and when you start to look out into 2022, and 23, in this space, the institutionalizing of the space has already started, the professionalizing of the space has already started. You know, we like to pride ourselves in being one of the helpers of that, really trying to bring, you know, a professional process to this particular market, because it needs it. It’s been laced with, I would say, bad process over the past call it even 5 4 or 5 years, you know, since business brokers have been in the space selling Amazon based businesses. And I think, you know, the aggregator model is so far diabolically opposed to how a private equity would even approach a strategic that they want to purchase, right? I mean, coming from your background, you understand that when a PE shop would approach a middle market company and say I want to, you know, we want to pursue an acquisition with you a merger and acquisition, etc. The intelligent corporate finance team raises their hand and says, we need to hire a banker. It’s time to hire a banker, we got to go through a process. And oh, by the way, sure, well, you know, private equity makes all the sense of the world because your platform is our competitor and this roll up it’s one plus one equals three and all the business phrases. Okay, we’ll give you first shot, we’ll give you kind of first look, but anybody in the Fortune 100, 500, 1000 the way aggregators are approaching sellers, right now. They’re exploiting the fact that there’s not enough education in the space. And they’re exploiting the fact that they know that these business owners in that kind of first wave of FBA class almost did like a holy crap I can’t believe I have a business someone wants to buy. And so they almost in themselves struggle to take their business seriously. And so aggregators understand that job. These guys aren’t, these guys aren’t dumb. They come from very strong institutional investment banking backgrounds. They’re exploiting it. That’s what they’re doing. And so we’re here trying to educate like you and say, pause, at least talk to an intermediary, at least have a conversation. Take yourself, signal to the market that you’re serious.
Yeah, absolutely. I agree with that.
Yeah. So Chris, I think it’s a great time to pivot into, you know, global wired advisors. And so how can you know you and your team there help the listeners who are running FBA businesses?
Chris Shipferling 39:57
Yeah, look, we try to pride ourselves on being altruistic, and really just trying to help this market just understand a bit more of what’s happening behind the curtain. And it’s not an expose of Oz, it’s just more like, hey, let’s just walk you through another Wizard of Oz analogy, but the yellow brick road of what’s happening, right. And so, you know, if your listeners are sitting there just going I’m highly confused because my inbox is blown up every single day by all these aggregators, they all say the same thing. They all claim 30 days close. Now I’m getting spam, because my friend signed me up on a stupid list for a Tesla, you know, I’m absolutely tired of this nonsense. There’s a lot of noise, because there’s now oh, we know of at least 70 strong aggregators, and there’s many more out there that are pursuing FBA assets. And also, you know, I’d say, direct to consumer assets, digital consumer products, just go to our website, contact us, my email address is on there, my phone numbers on there, contact us, let’s have a conversation. We’re not we don’t pitch at our bank. You know, we love to give advice, guidance. And just if there’s alignment there, great, awesome. But for the most part, we want to sit there and we want to talk to sellers and help them get educated on what it’s like to really take their business serious through a good process, and really what’s happening in the landscape, and in good analysis of that landscape.
Is there an approximate size in terms of revenue or EBITDA that would, is kind of your sweet spot? Or are you looking to talk to anyone who’s interested in selling?
Chris Shipferling 41:32
No, that’s actually a really good question. I mean, so our engagement criteria typically starts most seller speak in revenue, not EBITDA. And so really, it starts, I’d say, around the five to $6 million, you know, we work only with private label sellers, branded sellers, and I’d say branded versus private label. And that’s a nuance within itself. But you know, we’re looking to take to market you know, strong brands, good growth, you know, scalability, etc. But, you know, look, if they said, I came from firing the man podcast, and they shoot me an email, I have a guy right now, I’m going back and forth with you know, he’s way too small. But he just really is looking for good advice. He’s like, I’ve gone everywhere. I just need someone to help kind of, kind of give me some good insight and what, you know, from your perspective, and I just, I’ve emailed him a few times, and he’s just been very thankful for the fact that, you know, we took a pause just to give him some good advice. So that’s our engagement criteria is that five to 6 million plus of revenue and a branded, you know, company, but we’re always willing to help.
Excellent, excellent, very nice.
Chris or David, is there anything else you guys want to touch on before we move into the fire round?
Chris Shipferling 42:39
No, I think I’m good. I mean, look, I would say, as parting ways, and kind of where all this is headed. I think the good news for sellers is this. While the space is professionalizing I think it’s time for you to take your business seriously and professionalize your business I think you need to look to become a brand, put brand first, focus, literally focus, if you’ve got three or four, you know, different categories sitting in one seller central, that’s fine if you want to cash flow your business, but a year from now, that’s not going to be sellable. Aggregators have been purchasing those types of businesses, and they have provided lots of hickeys, as we call them. They’re not they’re not, you know, businesses that have longevity. And so I would say that, you know, take this time where the space is getting growing up and maturing to also grow up and mature your own company.
Absolutely. Absolutely. One last thing and asking for a friend, of course, say you had two operators that had podcasts, and they had three portfolio companies. And they were just starting to get into international markets, as well as Walmart and felt like they’re going to grow very quickly, but haven’t quite like realized the full return of the international expansion as well as penetration into WFS. Would you advise them to, you know, wait a year, wait two years? What do we think the future of multiples is going to look like?
Chris Shipferling 43:58
Yeah, for a branded company, the future of multiples is stronger than what it is today. Let’s take us all back and the listeners to what have been the average multiples for middle market consumer product companies over the past two decades, it’s been seven to 14, well, the average right now is like 4, 5, 3 if you go alone, by the way, just got to throw that out there. You know, and if you actually have a good intermediary, you can juice that a little bit further. And again, even the multiple is nuance but you know, if you look at the past to inform you of what’s probably going to happen, you know, consumer product multiple seven to 14 to answer your question directly, man, it’s very much tailored to your growth and where you believe your growth is going to go. So for instance, if your next iteration is international expansion, and you see a lot of growth from there, then you are handing over a company that has already started to maybe mature its growth potential with the current product set inside of specific channels. And so then I would turn to you and say, Okay, now let’s talk about the next five years, like, where are you going next. And it really just depends on those specific inflection points to where you can present a scalable opportunity, along with a great product roadmap and a branded business. And that’s believable and defendable on where you’re going after this international expansion, then we can kind of see where you are at that point. But it really just kind of depends on those specific time periods.
Okay, I’ll let my friend know you said so.
Chris Shipferling 45:31
Okay, good. Thank you. And tell him thank you for letting me be on his podcast.
Yeah, for sure. For sure. Good stuff. Ken, let’s get into the fire round.
Yeah, absolutely. I mean, I think Chris and David, and I think we could chat m&a for hours. But yeah, we’re coming up on time. So we’d like to kind of keep these shorter if possible. So let’s get right into the fire round. Chris, are you ready?
Chris Shipferling 45:55
What is your favorite book?
Chris Shipferling 45:57
Good to Great by Jim Collins.
- Great product!
- Hardcover Book
- Jim Collins (Author)
Nice.What are your hobbies?
Chris Shipferling 46:01
Spending time with family and watching NFL on the weekends.
Awesome. It’s coming up, right? What is the one thing that you do not miss about working for the man?
Chris Shipferling 46:12
Worrying about my job.
Nice. What do you think sets apart successful ecommerce entrepreneurs from those who give up, fail or never get started?
Chris Shipferling 46:20
Focus focus, I’d say understanding who you actually are. And understanding where you really want to be so focus produces plan. What do they say in the army? Proper planning prevents piss poor performance? Right. So I mean, I think focus and planning, I think those are the differences. I think, you know, when it comes to consumer products, it’s innovation all day long. You just start me to and you’ll die on the vine.
Excellent advice. David, you want to close out the show?
Yeah, absolutely. Chris, how can people get a hold on you?
Chris Shipferling 46:48
Yeah, go to our website. So for the 3% of users that are using Yahoo, go there and do global wired advisors for the rest of us on Google, you can do the same, we come up. So you can click on our website, it’s www.globalwiredadvisors.com. We’ve got a valuation tool, which, you know, some people would say, Oh, well, that seems weird. You’re an investment bank, why would you have that? We’re just meeting our founders and owners where they’re at. They like plugging in numbers, and they like to spit out kind of a 90,000 foot view of where they’re at, you know, type of thing and really help start a conversation. We have a consultation forum, you just simply fill out your information, it comes to me, we set up a time to chat, or my email address and phone number are both on the website, so you can just contact me directly.
Excellent. We will post links to all that in the show notes. Chris, I want to thank you for being a guest on the podcast and looking forward to staying in touch.
Chris Shipferling 47:37
Thank you you guys. Great. All right. Take care.
Thank you everyone for tuning in to today’s firing the man podcast. If you liked this episode, head on over to www.firingtheman.com and check out our resource library for exclusive firing the man discounts on popular e commerce subscription services. That is www.firingtheman.com\resource. You can also find a comprehensive library of over 50 books that Ken and I have read in the last few years that have made a meaningful impact on our business. For that, head on over to www.firingtheman.com/library. Lastly, check us out on social media at firing the man, and on YouTube at firing the man for exclusive content. This is David Schomer
and Ken Wilson. We’re out.
Before you go, fun fact for all you Amazon sellers out there when you start selling an international marketplaces, all of your reviews come with you. At the beginning of this year, Ken and I sat down and talked of ways that we could double our businesses in size and landed on international expansion as our number one initiative this year. We partnered up with Kevin Sanderson from maximizing ecommerce and he has made the process an absolute breeze walking us step by step through the process. If you want to grow your revenue and reach new customers head on over to www.maximizingecommerce.com/fire and connect with Kevin Sanderson today. Now back to the show.
Transcribed by https://otter.ai