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Ismael Wrixen 0:46
I think we’re probably two or three years away from seeing the same thing with aggregators ultimately, and I think it’s because they tried to save a little bit on the way in but ultimately ended up with businesses that may not be taught here. You don’t want to be buying a business where the economy can go take a bit of a pause or a downturn, suddenly you’re buying a business or x and you have to sell it why for example, there’s just been a steady increase in growth over time. And I think that is the dynamic of the multiples on the level. They’re at this particular point of the market.
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Welcome everyone to the firingtheman podcast. On today’s episode, we have the privilege to interview Ismael Wrixen. Ismael was on the podcast way back in episode 88 And he is back with us today to cover the state of the market 2022. If you miss anything or want to review the entire report in depth you can download the report at firingtheman.com/FE2022. Ismael is the Executive Chairman of FE international the market leader in the sale of SaaS, ecommerce and content businesses. Over the past decade Rickson has overseen 1200 successful acquisitions totaling more than a billion dollars in value with a B. Rickson was also a NACBA 2018 40. Under 40 award winner Rick’s previous background was in large cap M&A, investment banking, where he executed several high profile public deals, namely in the tech sector, founded in 2010. ft International is known for its extensive network of pre qualified and international investors, with headquarters in New York and regional offices in Miami, San Francisco and London. FE is an international company serving clients worldwide. It was named one of the America’s finest, fastest growing companies in 2021 and 2020, by the Financial Times, and also is a two time us Inc. 5000. Company. We’re really excited to get to share his mouse story now to the listeners today. Welcome to the show, as well.
Ismael Wrixen 2:59
Thank you very much appreciate you have any back.
Yeah, absolutely. We were chatting before the show. And it’s been a little bit over a year since you were on last. So yeah, and then on and
Ismael Wrixen 3:09
I’m impressed that how many of these you’ve done since that as well. That’s quite an achievement.
Yeah, I love it. I love I love chatting, I could talk all day. And so you know, sharing, getting to interview smart, successful people like yourself is what I enjoy every day. So thanks for the listeners that didn’t listen to the last show. Can you share a little bit with everybody your story? You know a little bit about you? Yeah, absolutely.
Ismael Wrixen 3:29
So yeah, appreciate the introduction there. So I am the Executive Chairman of Fe International, which basically means I have a fantastic team of people who make my job very, very easy. So but before that, I mean, my experience is really founded in both bracket investment banking. So Morgan Stanley Citi Group, mainly in the technology sector, doing large scale IPOs, your rights issue, lock trades, those kinds of things, as interesting as it sounds, quite frankly. So I left that about 1112 years ago. Now I then joined Thomas Smail, who is the founder of FE International and we basically didn’t look back didn’t look back since so yeah, I mean, ultimately, we we started as two people in a very small co working space in a very drab, dingy part of rainy London, and like now managed to migrate out to our, you know, eight or so years ago moved to the US and I now have the privilege of sitting in our Miami office associate. That’s, I guess, a little bit about me, but the majority of my experience really is founded in SV in the work that we’ve done helping people that sort of time. Now. That’s
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awesome. Thanks for sharing. And yeah, but Miami is, I don’t know to Miami. Did you guys get hit with any of the weather lately? Yeah. So
Ismael Wrixen 4:42
well, so it was meant to come to Miami and then it kind of you know, swung around and then went off to the to kind of West Coast of Florida instead. So we did have to prepare in the same way that fortunately we weren’t hit. I mean, obviously tragic, what’s happened and it’s going to be a very long process. So I would imagine for in terms of people recovering I don’t know my And he was some mainly avoided this time round.
Yeah, yeah, that’s kind of crazy. Well, awesome. So today we got you on the show there’s a 2020, mid year report for 2022 that Fe international publishes. Can you speak a little bit about that? And is that like a, an annual report? Or? And where can
Ismael Wrixen 5:18
people? So So yeah, so we do we publish at least two reports per year. And I think, you know, the reason that we’ve done that I’m quite done that for the last, I’d say two and a half, three years is that, as you know, with, you know, the internet and blogs and threads and forums, and everything else, there’s a lot of very good information out there. But sometimes they can either be a little bit convoluted or, you know, just a lot to go through. So we we have tried to distill that down as best we can, in the form of market reports. And with my kind of background in investment banking, research notes, tend to be a very good way of communicating what’s going on as kind of a in terms of a State of the Union, if you would, but yeah, I think, you know, that’s what was the main purpose behind it. And then we have just a huge amount of data internally, I mean, we’re a very data driven organization in terms of the way we look at deals, I mean, we valued over well over 25,000 companies at this point in time, and we sold them 1200 companies with a very high success rates. So we have a lot of data that isn’t available in pitch book, or CrunchBase, or those type of places and what’s going on with businesses, I would say, in the kind of one to 100 million range that often just isn’t available elsewhere. So the idea is that we want to we want to kind of put as much that data out as possible, give people the information, they need to make informed an educated decision. If you’re on the sell side or the buy side, I’m going to give a real view into what’s happening at this level of the market. So yeah, that’s now a biannual report that we publish. And we do actually separate ones. So we do one for E commerce, specifically one for SAS, and then one for content, as they all have their kind of different nuances and different things that are relevant to each, but that’s something that we spend, at least, I would say, to publish a report, it takes us at least, you know, three, two to three months of work to kind of go into that. So they aren’t usually they’re very in depth and quite considered once we actually put them out.
Yeah, no, that’s awesome. And again, for the listeners, if you’re driving write this down or come back and listen to it later. It’s so you can get the the download report at firingtheman/fe2022. And like Ismail said in the report, there’s different reports, they break them all down into SAS, ecommerce and content, which I think is pretty awesome to kind of divvy those up. Because yeah, they’re very different markets and very different data. I really like how, you know, the scale, like, for me, I’m a numbers guy, data guy. And so by talking to someone, you know, maybe a smaller, smaller outfit where they don’t have as many data points, I don’t really I take it with a grain of salt, like, Okay, well, they might have done 50 deals or 20 deals, but you’re talking 1000s In aggregating all of that data, you get a really good trendline of what’s happening in the overall market. So I really liked that you’ve taken all of those data points, and that you guys have that many to go from. So the data is that should be very highly accurate, because it’s very broad. So awesome. So let’s dig right in. Now, it’s been a couple of crazy years, you know, there’s been ups and downs all over the place. So are people still buying businesses?
Ismael Wrixen 8:08
Yes. I mean, the good news is that they are, I would say that this part of the market is relatively isolated from what you see on a macro economic basis. So I mean, I completely very aware that, you know, interest rates are skyrocketing, skyrocketing, you know, as as inflation and you know, a lot of nervous people out there. And it goes for a lot of people. I mean, some a lot of the conversations that we’ve been having, or I’ve had, specifically, especially on the sell side, is that exact, you know, are people still buying? Because instinctively, you know, if you were a ultra high net worth individual looking to acquire businesses, you may take, you know, you may pause for a second and say, Well, you know, maybe I want to see it multiples come down, maybe I want to see you know, how deal structuring, you know, looks going forward. But the reality of it is the ultra high net worth individuals make up a very small percentage of the first in the people that we sell businesses to and I stepped out some depths of of the rest of the market as well. So, I mean, we mainly deal with strategic private equity, institutional capital, family offices, those kinds of acquirers. And for them, I think an important thing to keep in mind is that during the financial crisis of what 2008 to more or less 2012, a lot of them were heavily criticized by their LPs and investors and effectively places that are borrowing money from for not deploying quickly and just not deploying during that period. And I feel like a lot of them probably missed out on opportunities. And that’s something they don’t want to repeat this time around. So I think that, you know, well run profitable growing businesses, there’s always going to be buyer demand, and it just so happens that there’s more we go we do dive into this in the report, there’s close to what are $5 trillion dollars of private equity dry counsel out there at the moment. So if you just think about that as kind of one buyer category, then you have the strategic Yes, all getting a little bit nervous in some cases, because they’re starting to think about okay, you know, listen Look at the big tech firms. For example, let’s look at NASA and Apple and Google starting to identify, you know, potentially who they’re going to be letting go. And you know, these things are some strategic are following suit in the sense that, you know, maybe they’re taking a bit of a pause. But you know, the private equity and institutional capital is more than filling that, and you know, a lot of the strategics, if there is an opportunity where, you know, it just makes sense, it doesn’t make sense for them. And they realize that, hey, this may not exist in six to 12 months, and they would prefer to acquire the business and have it go to one of their competitors, they are still doing deals. So yeah, I think that at the moment, in terms of our own pipeline, extremely healthy, I think we have at least 20 deals, either in escrow or very close to going in escrow at the moment, which is pretty standard for us in terms of overall volume. So I would say that we’re not seeing kind of buyers pull out of deals we’re not seeing, we track data very heavily, we’re not seeing, you know, any major swings in the metrics and KPIs of businesses going to market amount of initial interest, amount of management calls taking place and amount of offers that were then receiving, and then obviously, through to close. So I would say the market is still strong, and it anything, what we tend to see in markets where the macro status is doing slightly worse than it has done previously, is there’s more money coming out of equities, and being put into private equity firms and being put into hedge funds and institutions that often batch strategics as well. So if anything, you know, slightly more money is going into those areas, and that is causing a bit of pressure, which is just pressure coming down market. And I think that’s helping cheeps the multiples are at least stable, and in some cases still growing as well.
Okay, now, that’s interesting. So it sounds like deal flow, like everything is the wheels still moving forward? It’s just certain pipelines of money is pausing. But other ones are still available, you had mentioned, you know, with 5 billion, and then
Ismael Wrixen 11:49
has a 5 trillion supply pipeline. And and, and that’s global private equity, you know, capital that’s available for acquisition, so and that number, and there’s a really good chart and the report, actually, but that number has been growing year on year. So I mean, there, there is a pressure on private equity on the institutional stuff carry on deploying, and you know, that a lot of strategic get caught up in that as well, because often they are borrowing from the same sources of capital. So yeah, I mean, we’re still seeing a lot by site demand. Okay, now, that’s good.
So digging into EECOM M&A A little bit more. So a couple of questions that I had is our deals. Now it sounds like the deal flow is going now is it is getting more expensive to get capital, but I guess if you’re going with family office or somewhere else, and that really doesn’t matter. But are the deals taking longer to close? Or is there anybody like, you know, doing more diligence? Or is that about the same?
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Ismael Wrixen 12:42
Yeah, I mean, I would say it’s pretty consistently, you hit nail on the head, that it does come down to the source of financing, ultimately, because if you’re gonna have more on the private equity, or let’s say, aggregator, or I’m sure we’ll get into them, but institutional, I mean, you have pretty much locked up your money much earlier in the year where you’ve taken it from LPS or those kinds of things. So it doesn’t necessarily affect you so much. Those financing, and I know kind of SVA is quite popular in the E commerce space, particularly those financing those models. I mean, they’ve always taken a long period of time to get deals done. Anyway, that’s one of the reasons we generally say that, you know, cash at a cash deal kind of buyers that are kind of independently financed, you know, as opposed to sto, because those deals just invariably take them longer. I wouldn’t say it’s been a huge shift in terms of in terms of the appetite from an SBA side, I mean, if anything, you know, obviously rates are moving, and they have gone up, but I mean, they are there, boy, and to help you, similarly, they’re helping there to help, you know, American business owners get at the kind of footing and obviously, you know, lead to hopefully successful successful acquisition. So, me yeah, we’re not seeing not seeing a demand dry up. And I guess, people are instinctively you know, I guess this comes down to the buyers. But again, you’re a high net worth individuals are probably taking a little bit of a pause, but the rest of them not so much. So that’s my earlier point. I mean, it’s not really, there’s not really anything that’s changed in terms of what we’re seeing. And I think that this part of the market, if we’re kind of looking at multiples for a second, which I think invariably is where people think, oh, you know, the economy is now so in multiples must be down. I mean, there isn’t there enough individual components coming in to create enough of a critical mass to kind of at least keep them steady. And like I said, rising in some cases as well. I think ultimately, it’s a good thing for everybody. I mean, you don’t want to be buying a business where the economy can go take a bit of a pause or a downturn, suddenly you’re buying a business or x and you have to sell it, why, for example, there’s just been a steady increase in growth over time. And I think that is the dynamic of the multiples and the level there at this particular point of the market. And there’s only really room for the longer term to go up. Whereas, if you’re looking at the public markets, where deals trade for, you know, 1520 30 times forward looking multiples of companies that may or may not be profitable, you know, that is something where there is obviously a lot of headroom to come down and you can expect that you know, buyers will be very nervous in those situations because they will It’s not really a dynamic that affects this part of the market, I’d say,
Okay, now that’s interesting. And I definitely want to dig into the aggregators. I’ve got some news this morning that I want to cover. But I have one more question before we pivot into that, like we were chatting before the show, and I was in San Diego last week for a Traffic and Conversion summit, I was chatting with a group in a mastermind and, and a lot of the same the valuations are so Rocky the last couple of years was kind of an anomaly. And so what I heard was like a lot of people are kind of like trending from like, 2018, to 2022. And kind of taking that trendline and almost like removing 2021 2020. And just kind of seeing where that trend line goes and see if it lines up properly. When your staff is doing like valuations. Are you guys doing bad? Or how are you guys adjusting for the anomaly of the
Ismael Wrixen 15:45
COVID? It is a great question. I think, you know, not to get too technical and boring, but the way we do valuations, is to look for different models. And some of them are forward looking some backwards looking at some of the rights here right now. So for example, the DCF model is a bit more forward looking, you know, we also use historic price regression and revenue regression, which are a little bit more backward looking. And then we use comp analysis, which kind of right here right now, so and then what you effectively do is you take those four models, your football field them, and then you’ll remove the extreme highs and lows and find a way to consent for sort of what’s there. So by taking that, and you know, certainly, you know, using assumptions, especially on the DCF, and the comp analysis, there have been situations where you do have to exclude certain parts of the data sets and make it statistically significant. So, I mean, on that basis, there have been situations where we’ve lost and gone, okay, well, ecommerce, I think is the big one here. I mean, SAS and content businesses weren’t affected in the same way. But there were so many, I mean, we’ve kind of roll the clock back to April, or so, you know, 2021, you know, Amazon wasn’t taking deliveries or this, there were just lots of issues. And then obviously, the supply chain kick issues, you know, started and some of those were, you know, situation, or some of those were, you know, massive cargo ship got stuck in the Suez Canal. So it was a little bit hard to predict a lot of cases. But I think that with a lot of those businesses, you know, you do have to say, Okay, well, that was an extraordinary event. Yes, that may happen again. But is it going to happen in our lifetime is going to happen in the next 1020 30 years? Probably, hopefully not. So we there are situations where we marks 2019 versus 2021, for example. So but again, very specific to Business Law, we’re very specific to the business as well. And you know, I was talking to somebody the other day, for example, and he was telling me, he’s now getting containers for I think, was $5,000 versus $26,000, at the peak. So, you know, that’s something that you have to kind of historically go back and remove unless, you know, you think that’s going to happen again, in the near future. So yeah, there have been situations where from a valuation perspective, we look at, well, what’s the underlying trend of this business, this business has been around for 10 years. Or we can mark, you know, let’s say 2012, through to 2022. And there’s this little blip in the middle. But otherwise, it’s a very consistent trend going up, that’s, you know, somewhere where we can start to make adjustments. And then it’s just a case of, you know, explaining that on the buy side, and then ultimately negotiating around it. And in those situations, sometimes you may end up with a bit of structuring to help alleviate any kind of, you know, potential acquirer concerns that exist. But I think that most people have been working extremely hard, since the pandemics diversified themselves in terms of supply chain, and ultimately, in terms of, you know, types of products as well, because, you know, consumer behavior has changed and the types of things people are buying today versus buy five years ago, you know, are very different because we’d like to see we’re getting back to normal, but it’s a new normal now. So I think, you know, companies that have shown the ability to pivot Well, they’ve been resilient, that are in more evergreen spaces, yes, are definitely an argument to say that we can fully ignore the blip in the middle, but certainly take a little bit of a longer term view in terms of how that trend may be migrated.
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No, that’s a good point. And for you know if there’s sellers are out there owners are out there and they’re wanting to go to market. I think that what you just kind of said was hopefully it’ll make them feel a bit safer. Okay, hey, my valuation is not going to be deemed too bad. They’re going to kind of smooth it out and make it look right. Especially if the business has been operating for four or five years and you can kind of get That trend line is to newer business might be little bit harder, but a business as four or five years old, you can probably smooth it out. So not good point. One other point that you brought up too is and I really like it, it’s like if business owners, founder, operators, wherever you are, if you know these last few years really hard, if you kind of hit it head on, your business should be more valuable. If you’ve, you know, got better supply chain, you know, and if you’ve done all these things to kind of pivot and strengthen your business, are you seeing a lot of businesses that are coming in that have done that over the last two years? Are you saying yeah, like, distressed businesses?
Ismael Wrixen 20:33
Yes, just great question. I mean, I think generally speaking, we’ve always prided ourselves on the fact that we have, we only take the very best in the system market anyway, and steal your data point around that of all businesses that will ever come to us, and can be valued in the sense that they meet certain growth metrics or other metrics that that we look for, depending on the business model, only 1.8% of those will ever go to market. And that may involve an Exit Planning process before we get there anyway. But I think in terms of the businesses that we’re seeing, a lot of them have become a lot more resilient over the last one to two years, they’ve diversified. Definitely their supply chain, they’ve, they’ve diversified, where and how they’re selling products, I think as well, that’s been a big one, we’re seeing more people move off when they are adding to their Amazon repertoire, for example, by going more on the Shopify, or big commerce and WooCommerce routes, trying to own their audience and a little bit more, I think one metric that, you know, has come out to be extremely important in valuations, especially in E commerce over the last year or so is repeat water rates. So I think that’s something that’s, you know, people are starting to think of customer acquisition costs, and how can they drive that down further over time, and you know, that that does make you a lot more resilient to, you know, swings you’re going to see in the market be those are forced swing, as we saw with COVID, and the pandemic, or whether that’s more of a trend swing, you know, over time as well. So, I think that is something that, you know, those are some elements that we’ve definitely noticed. And you know, by and you know, business owners are more focused on everyone kind of owning that audience. And ultimately, in some cases, that’s going away from Amazon, and Apple, and other pieces. And that’s been very well received in the buyer community as well, I think because a lot of buyers, what we tend to find is a lot of buyers, they’ll look, let’s say you have an FBA business, for example, a buyer will come in and say, okay, you’ve built a fantastic base here, you have good products, well reviewed, etc, we’re going to take that and we want to, you know, take it off platform, you want to kind of create it. So continue creating your own brand, the shop fight and the search. In theory, that sounds fantastic. That sounds great. And something that everybody should be doing in practice, it’s a lot more difficult. So anybody that can actually can demonstrate that they’ve started making progress in that area is thinking you’re gonna get higher multiples, and I think we sold a business. Well, definitely earlier in the year, I think q1 or q2 called foxy Bay, I think that ended up going to boost did something similar and they in that particular context. I mean, I think the split was pretty even between FBN Donovan, and that was a real kind of winning point. And there’s a lot of demand around that particular business just because they’ve built such a strong brand off platform, they still had those revenues, and it’s still our critical mass that is being achieved through that. So yeah, I mean, ultimately, buyers will continue to search for businesses that are very well diversified. And anybody that can show that started to make steps in that progress, the progress in that direction ultimate will be rewarded by slightly higher multiples over time as well. You know, that’s
very interesting. That’s I think, at least a lot of people in our network, you know, in the FBA space, kind of looking to take our FBA native Amazon brand and go and shop fire, you know, DTC now without getting into the weeds and specifics, obviously, but what do you think a straight FBA multiple, let’s say, for 1 million, let’s say a 500k? And EBITA? What kind of a multiple would how high? Would the multiple go if they if the brand showed say 10 20% 30%? Need to see sales channels on Shopify?
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Ismael Wrixen 23:58
Yeah, I mean, so there’s two elements to it. Firstly, it impacts the multiple and it impacts the deal structure, because there’s less perceived risk if you’re running that profitably, as well. But yeah, I think that most wise, we haven’t seen issues marked down in terms of you know, what was happening. I think, last time, last I was on the show, we’re still looking at somewhere in that kind of four to six times range, trailing 12 months, I would say. And then in terms of deal structure, I mean, the more you can kind of move away from Amazon as a pure brand, the more kind of cash consideration you’re gonna get up front for a business like that. But ultimately, it comes down to the business and you know, the usual caveats of forward looking, you know, projections and all those bits as well. But if you looked at two businesses side by side and one of them had 30%, deep sea, and one of them was 100%, Amazon. So, in one context, one of them had figured out the deep sea supply chain has figured out how to make a solid return on adspend through that particular channel as well and you own more of the customer data you are nearly always going to trade how to similar business is purely FBA. So but again, I mean that comes with time that comes to the effort that customers are indeed comes with no ad spend, and some of it and you may get back some of the not may not go back. So it’s really risk for war. So that’s really what you’re looking at there. And businesses that have managed to make a pivot into that area will attract more buyers, they’re much more likely to attract more private equity and institutional money as well as just strategic interests, which means that if anything, there’s going to be a greater critical mass of people looking to acquire that particular business, which doesn’t mean multiples, go out the window, but it starts to mean you are going to get into that more competitive process where the multiple and the ultimate offer in terms are more likely to get pushed up in a business that is just purely FBA.
Gotcha. Yeah. And you hit the nail on the head when you had said the business had figured out how to utilize profitable advertising. And so that is crucial. And it is it’s like R&D, I call it the Education Fund, you know, you try. If it doesn’t work, well, then you’re you know, it’s risk versus reward. If it doesn’t work and you kind of market then it’s, you’re not in a good position. But if it does work, then you know, you get
Ismael Wrixen 25:58
that. So that’s the thing. And if, I mean, if I were a buyer, and I was looking at a pure FBA business, and one of the growth opportunities was, okay, well, you can take this, you know, got a good brand, take it off platform as well, great. That’s easier said than done. And quite frankly, I’m not going to pay you a premium for me having to do that work and me having to put the money in, but I’m, well, if you do it, so what are you going to do that 12 months, come back, and I’ll pay you more? That would be the way I would look at it. Because, you know, we see, and I’m not trying to be served. But well, we’ll see, you know, all sorts of businesses, all sorts of growth opportunities, and this and that, and it’s like, well, on paper. Yeah, that’s, I’m sure that’s a great idea. But the actual execution of it is going to be a lot harder than that. So I think that’s why you would end up trading at a premium if you managed together, let’s say 7030 balances, as you mentioned there, I think you’re always going to trade at a premium to those businesses that are 100% reliant on FBA.
Absolutely. Well, awesome. So let’s pivot a little bit into aggregators. Everybody loves to chat aggregators, and beat them up and everything else. And so we like aggregators, there’s a need for them. And anyway, there’s been say, a tornado of activity in the last, say, six months with aggregator. So just this morning, I had read a quick bit on one of the aggregators had some legal issues with, you know, seller, and on an earnout, or it was not good. And so can you speak to a little bit like, what’s going on the aggregator space? Are you seeing a lot of that? Or is there what’s going on there?
Ismael Wrixen 27:19
Yeah. I’m very interested in more about more about that as well. I’m not shocking, I would probably say, but yeah, it’s but I mean, aggregators. I think the first thing say about aggregators is they are ultimately a very small part of the market. And if you look at our you know, I think the report goes into this as well. But I think currently the report we published two, two or so months ago now, the current stat is we have about $46 billion of buyer demand in our across our network. So if you’ve got to think about, you know, obviously, there are lots of great success stories and aggregators, this aggregator raised 50 million, 100 million, 200 million, those are very big numbers we’re talking about, but when you put it into the greater context of how much money is out there, it’s a small percentage. So I think the aggregators have had their part in the market. And they’ve been, they’ve actually been very helpful in the sense that when everything was, you know, taking a bit of a downturn, there’s a lot of uncertainty with COVID, everything else has been crazy. They were supporting the market in a sense that they were continuing to acquire, and they kept multiples, pretty high, in most cases, and now you’re starting to see the private equity and institutional capital step back in. And I think that, you know, in a lot of cases, they are becoming, let’s just say less relevant, but they’re not the only buyer at the table. So I would say, you know, that’s the first thing, I have absolutely nothing against aggregators, I think that the mistake that they have made, in some cases, and we have seen this happen in the SAS space, we’ve seen this happen in the content space, you know, company over the last 1012 years, they started out by working with advisors. And the good thing with advisors is we do a lot of the weeding out for them. So I’ve never seen a business in the E commerce space, tried to go to market and had a firm grip on their financials. And you’ll speak to somebody and they’ll say, oh, and we’ll say, listen, we’re gonna value your business. Here’s what we need, we need org chart, we need P&L, we need balance sheet, and there is always a why’d you need the balance sheet. And it’s like, well, we need the balance sheet, because I can guarantee you’re doing cash flow accounting, even if your accountant tells you otherwise. Or even if you hit the little button in QuickBooks that says, switch to accrual, you’re doing cash flow accounting on some level, and therefore we need to start backing that out. And we need your inventory and multiple time points so we can start to figure out what it actually is. And the challenge is that you know, aggregators were so intent on buying businesses and quickly to gain market share, and some of them did very well through that. And then you’re dealing with people who, you know, through no fault of their own, you know, representing numbers that may or may not have been, you know, overly accurate, the deals are just getting done. And, you know, I’m not surprised that there’s going to be some fallout around the fact that some of these businesses may be underperforming or maybe you know, more but not kind of where the acquirers thought they were. And I guess, I mean, to kind of think back maybe a year and a half, I had a conversation with a particular seller who had unsuccessfully tried to sell their business, and they were talking to me about and also the need perceived and the aggregator. In that case, instead of actually doing any due diligence on their, on their court, they just applied a flat percentage based on other deals that they had seen. So they were they basically said, We believe your shipping expense is X percent of revenue, therefore, we’re just gonna apply that and it’s like, that is I mean, beyond lazy, I don’t really know, even know where to start with that. So then fast forward two years, if that’s the approach you were taking, then I’m not surprised that there are going to be around issues around a bit. And you know, for a lot of sellers in those situations, they were getting approached, they were getting offers that were maybe a little bit higher, higher than the market, they were getting promised all we can close in 30 days, which is almost an impossibility of anybody actually wants to do due diligence on your business. But I think, you know, the mistake that some of the aggregators made was they were so intent on going direct in these deals, because they thought they were going to save money, or they thought they were gonna get slightly lower multiples, which in some cases they did. But that’s a very short term, you know, look at it, if you start to think, Okay, I actually, I’m an aggregator I have debts and obligations, and I have investors, I have LPs, I need to run this business for five to 10 years, that one times your saving on the multiple by going direct to the store owner is nothing compared to the potential long term effects of what you’re going to have to deal with it. So I think I’m a little bit biased because we run an advisory firm. But I think that where we have advisors, the good thing is that they ultimately weed out and, and hopefully bring the very best deals to market and at least do it in a way where the information is organized. This borders ball is a clear trail of what has happened. And we saw a very similar thing in a SAS base, you know, five or six years ago. And if we start to look back at some of the companies that were some of the firms that were aggregating at that particular point in time, I’m not going to go into names specifically, but a lot of them aren’t doing very well. So I think that there’s been a bit of turmoil with some of those recently, with people leaving New CEOs to be brought in to clean up portfolios, etc. I think we’re probably two or three years away from seeing the same thing with aggregators, ultimately, and I think it’s because they tried to save a little bit on the way in, but ultimately ended up with businesses that may not be taught here in southern Tehran, some have done very well. So it’s a mixed bag out there. And I think that, you know, if you are a seller, and you’re still getting approached by aggregators, just even go and speak to your M&A attorney or an attorney, if you don’t want to hire an advisor, just speak to somebody or have a professional out that could guide you in the right direction with things like financials. In other words, you don’t leave yourself exposed to them running it poorly, which, if you’ve gone from zero to 100, businesses under management in two years, I mean, nobody can pull that up. They just can’t, I mean, the best will in the world and the most skilled people, it’s just not something that’s realistic. And you look at SAS and constellation software and other companies, they’ve managed to do it over a 20 year period, not over a two year period. So I think that you know, what the Senate wants to protect themselves as well and make sure they’re agreeing deals, that it’s actually realistic that they’re going to get paid out on all these elements. And I think aggregators are just so keen to deploy that it was kind of a mess, kick the can down the road. And ultimately, we’ve now caught up with the term. Yeah,
not it’s a good point. And you had mentioned it’s kind of like a mixed bag. And so you know, there’s some good aggregators, there are some that scale too quick. And now I’m very old. And so it kind of reminds me of the.com Bust. And so if for anybody that’s old as me, like you remember that there was a two to four year period, they’re the.com, where everything was just insane, crazy. And the last, you know, I don’t know, probably 18 months with aggregators kind of reminded me of that it was like just fees, fees, fees. And now you kind of probably seen the effects of that. And there’s likely some distressed sales going on in the back room. And you mentioned some leadership changes and stuff like that. And so now, I think the free markets will kind of shake out over the next six to 12 months. And we’ll see some aggregators shine and some kind of fade away and go there. Well, yeah,
Ismael Wrixen 34:05
I think to your point, there actually is a great point. I mean, we’ve actually heard of aggregators selling to other aggregators, and it’s selling parts of their portfolio. And I think that’s a known secret. It’s just staged. But yeah, I mean, that’s kind of indicative of where the market is. But the positive thing here is that anybody who is thinking about exiting and kind of oh, well, I’ve been reading, that’s, you know, aggregators aren’t buying any more, you know, this company has started laying and has been layoffs and other things. But positive news is kind of the key takeaways, for me, at least, are they always a very small percentage of the market in general, in terms of buyer demand, and there’s a lot of, you know, capital, private, institutional, and otherwise, that’s coming back into the space that just couldn’t invest over the past couple of years and aggregates. So the way I look at it is the private equity and strategic and institutional capital is the longer term, you know, piece of the pie. They had stepped out for a couple of years. Just when aggregators really filled the gap, but their back and they have a lot more money to spend an accurate ever had who probably ever will. So I think from that perspective multiples haven’t been moving because of aggregators stepping out of the market some deal structuring has changed. I think you know, what we’re seeing specifically with aggregators is on the sell side aggregators are having to justify themselves more and more to sellers as to why should we accept your offer? What? What are you actually going to, if you’re going to accept the performance element or stability elements with deal, you actually need to prove that you have the ability to run this business? And it’s not going to become one of the 100? And but ultimately, you’re not going to focus on it. And we’re going to have to have a legal conversation for as you need to then use that you read about this morning.
Yeah, that’s totally awesome. So kind of pivoting a little bit in I saw something not actually I think it was probably last week, it was actually a Facebook ad, they were targeting me. And it was it was a shop, it was a Shopify roll up or Shopify aggregator. So are you seeing a lot of those things? I’ve
Ismael Wrixen 36:00
seen the same one. Yeah, I’ve seen that. I’ve seen that as well. I can look what the actual ad was, but it was one of those more, buy your business almost instantly kind of things, you know, I mean, I mean, they all still there. I mean, they’re still around, they’re still looking to do deals. But I think that the six times multiples, they were paying lined have started to come down to more kind of, you know, four to six, which is the tip. I mean, they’re starting to look at businesses and the way they probably should have been looking at it before. It was just a land grab. But I think that, yeah, there are lots of these were, I think the one I specifically saw was, you know, will help you, you know, value and exit payment, and you kind of click through a little bit, and you’re like, Oh, you’re actually an aggregator got it. Okay. But no, I think I’ve seen a very similar thing to that.
Yeah, no, I thought it was interesting. And I don’t Yeah, I didn’t look to deepen into it. But I thought, yeah, you know, maybe it’s some aggregators, like thinking out of the shop of five, maybe it’s more stable, maybe we’re gonna kind of float some money over there and kind of go up from there. But now that’s interesting that you saw the same ad. So well, awesome. I know, we’re coming up on time. So maybe you can describe a couple of key takeaways on the report for everyone?
Ismael Wrixen 37:05
Yeah, absolutely. So I think the kind of key takeaways that we’re seeing is that the market is still very strong, I think that’s the thing we tried to get across. And not just us saying that, you know, we’re actually putting data behind that in terms of how much buyer demand there is out there, I would say that, you know, for people looking to sell or, you know, exit plan, the advice is always, you know, very similar from us, it’s kind of keep running the business if you weren’t going to sell it, because I mean, our success rate is 94.1%. So, it’s very high three, artificially high by the fact we only take 1.8%, you know, businesses that get value to market anyway. So we kind of, you know, the ball is kind of in our court in that perspective. But yeah, so but I think that there is still a chance that you may go through a process, you decide, no, it’s not for you. And ultimately, you want to carry on running the business, and you don’t want to be tied into kind of short term decision making in longer term. So I’d say, always run the business, you know, with a sensible level head, and you know, as if you weren’t going to sell it, I think that, you know, one of the things that definitely comes out of the report is that buyers are becoming, you know, I mean, they always were very niche specific, they kind of, you know, digging here kind of doubling down on on a lot of that. So, you know, if you are, you know, I think businesses, especially if you kind of look at E commerce and sell too many product to what just don’t really have a focus, there’s no mean, there’s a brand in the sense that you have a name, but if you started looking at somebody was selling, you know, on one side of selling this on the other side of selling that, and we use using one FDA account, for example, for authority, or whatever else, I think brands are really starting to focus on. Okay, the longer term trend, it is going to be moved continuing to move off platform and continuing moves, shop, find those kind of places, can we find businesses that are very well set up to do that, or have already taken steps to make that happen? So I think that, you know, those are things to kind of keep in mind as people kind of go through a longer term business strategic planning, if more than anything, and I think that, you know, knowing your numbers is always very important. You know, in terms of, like I said, especially in E commerce, I’ve never seen a set of financials that have been 100% accurate, and whether you need to hire an advisor to do that, or you know, anything else. But I think that generally, you know, it’s easy to get dragged out by that a macro sentiment at the moment. And I think that, you know, and what we’re seeing, certainly, as the market is very strongly, we’re busier than ever, q4 just tends to be a very busy time of year in terms of deals getting, I mean, some of that’s going to bleed into q1 of next year, too. But I mean, I think that from our perspective, we’re, I mean, we’re at what 150 people globally now across all functions we’re continuing to hire because we see the market as robust and something that’s going to see more demand come in as the kind of billion dollar etc IPOs start to fade and deal starts fade away. There’s got to be more deal making that’s happening at that level of the market as
well. Now that’s awesome. That’s good to hear. You know, Mark, strong market, you know, being a founder and operator all the people listening. Yeah, that’s good to hear that there’s demand. So it’s exciting. So if for anyone that’s listening, who is a good fit for FDA international tell about Yeah, so
Ismael Wrixen 39:58
like you said earlier me We deal with E commerce, SAS and content businesses. And the reason we deal with all three is that, you know, oftentimes, you know, founders, especially successful founders may kind of go between different business models or try different things over time. But yeah, I would say that for us, I mean, our deal size is usually somewhere between one to $100 million. And, you know, we are looking for what kind of we best serve, I should say, you know, businesses that have strong track records and a precedent of being able to deliver on continued growth year on year. Now, that said, most businesses that come to us will require an evolution level of Exit Planning. So that’s perfectly normal. I mean, I think the one thing that’s kind of important to get across is that most businesses, you know, go through at least three to 12 months of Exit Planning before going to market. So if you’re thinking, Okay, actually, next year, you know, this time next year, I’m thinking of exiting may not be right to have a conversation now that you will never be wasting our time we want to get in early because typically speaking, and this is a stat that we have only published this yet, but we will we definitely will. And our net support, businesses that go through at least I would say, six to 12 months of Exit Planning tend to see multiples that are about 14% higher than businesses that don’t. So the earlier we can get in and have those conversations with you, the better off you’re going to be from a probably a multiple perspective, but definitely deal structuring and other types of elements. So anybody who’s running an E commerce, SAS or content business that is on a stable or growth trajectory, and it’s kind of a good level of profitability. It’s going to depend business by business, I just have a conversation with us, you’ll know it’s always worth that because no two businesses look alike. And ultimately, there’s value beat up strategic or otherwise in every business that we ultimately take to market.
That’s awesome. Yeah, makes a strong point to that. 14% is pretty cool. Awesome. So let’s, let’s close out the show. We close out the show with a fire round. Are you ready?
Ismael Wrixen 41:50
Yes, I am. I remember this. What is your favorite team prepared this time? Tony a Checklist Manifesto, bringing a butcher their neighbors, but still windy? Yeah, check this manifesto. Title. We’ve actually implemented that across our organization. And from anybody scaling. It’s fantastic.
Awesome. What are your hobbies?
Ismael Wrixen 42:09
I? Personally, I’ve actually lost 81 pounds since the start of the pandemic. So I’m gonna say Chimp is a hobby and is incredibly boring. But that is that is the hobby of late.
That’s awesome. Well, congrats. That’s huge. Thank you. Yeah, what is the one thing that you do not miss about working for
Ismael Wrixen 42:28
the man? Lack of meritocracy, I think is the thing. I mean, I worked in banking and that linear trajectory of no matter how good or bad you are, you’re on that path, it tells me so yeah, I think that being in a very narrow autocratic organization now is the thing that kind of gets me up every day. Perfect. What do
you think that sets apart successful entrepreneurs from those who give up fail or never get started,
Ismael Wrixen 42:52
I think it’s a it’s a shiny coin syndrome, I think that’s the key thing needs to be very focused on what you want to do. And also, this advice somebody gave me a long time, doesn’t matter what you want to do in life, or in general, if you plan to be number one out whatever it is that you want to do, the money will find you. So I think that’s kind of, you know, be very focused and very diligent on one thing, and then expand from a position of dominance as opposed to, you know, splitting your time too thinly in the earliest stages. So I think, yeah, if you can avoid that kind of shiny coin syndrome, then I think you’re much more likely to succeed.
Awesome, excellent advice. So for all the listeners, how can they reach out and get a hold of you or your team if they’re looking to get evaluation or Exit Planning help?
Ismael Wrixen 43:32
Yeah, so as I said, I mean, the team is much more useful than I am these days, I just tend to ramble. So I would just go to Fe international.com. And there’s a bunch of you know, forms and ways to get in touch there or Yeah, kind of squint. Se in iron TL. My business partner, Thomas is always very active on there as well. But yeah, the website has a bunch of resources and like a whole research section where you can find you know, reports about specific business models and other things. Always happy to have a conversation.
Awesome. Well, really appreciate you coming on the show is male, and it’s been over a year. And thanks for coming on. And maybe we’ll have you on in another year to go over.
- Ankney, Joel (Author)
- English (Publication Language)
- 196 Pages - 01/30/2017 (Publication Date) - CreateSpace Independent Publishing Platform (Publisher)
Ismael Wrixen 44:06
Yes. Fantastic. Really appreciate it. Thank you.
Thank you everyone, for tuning into today’s firingtheman podcast. If you liked this episode, head on over to firingtheman.com And check out our resource library for exclusive firingtheman discounts on popular e commerce subscription services, that is firingtheman.com backslash 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, or that head on over to www.firingtheman.com/library Lastly, check us out on social media at firingtheman in on YouTube at firingtheman for exclusive content. This is David Schomer and Ken Wilson. We’re out
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