On today’s episode, Kunle is joined by Chris Shipferling, Managing Partner at Global Wired Advisors – an investment bank specialising in buyouts in the DTC segment. Together with his highly experienced team, Chris provides companies with comprehensive financial advice and strategic planning through the sales transaction.

Entrepreneurs start businesses for various reasons. For some it will come to represent their life’s work and carry on for decades. For others it is an asset to grow, nurture and ultimately sell for a profit. The latter is definitely the more prevalent scenario, especially in the DTC world. Almost every other day, we read about businesses getting bought and sold for huge sums of money.

Buyouts are becoming more common and aided by the stellar growth spurt of eCommerce, money has come flooding into the market. More VCs, PEs and Investment banks are on the lookout for companies ripe for sale. However, with more opportunity comes more noise and different challenges. It is easy for founders to take their eye off the ball, i.e. their business, while seeking out and speaking to investors.

In today’s episode, Kunle and Chris talk about the ins and outs of an exit strategy. You will get to hear about how investors screen businesses, what metrics they look at, and how transactions are modelled. This is a great episode for anyone building a business (whether or not they plan to sell it in the future).

Here is a summary of some of the most important points made,

• • Build your business with the end in mind
  • Products with high gross margins and repeat purchases should be your base
  • Cost of Goods (COGS) is always closely scrutinised
  • There is a lot more money in the DTC Equity market now, multiples can range from 3-7 on average
  • Investment aggregators tend to look at your business as a commodity
  • The sales strategy is modelled on how a product is viewed

Covered Topics:

On today’s interview Kunle and Chris discuss,

• How Global Wired differs from other PEs and IBs
• Building an exit strategy
• Metrics that matter from a buyout perspective
• When to approach an IB and how they screen businesses
• Example of a buyout
• Types of buyouts

Timestamp:

• 14:00 – Chris’ backstory
  • Comes with a Sales and Marketing background
  • Started Global Wired to provide Small to Medium businesses a better exit process
  • Work with companies in the $3-50 million revenue range
• 17:50 – How Global Wired differs from other firms in the segment
  • Partner structure instead of brokerage
  • Team has concrete financial engineering expertise
  • Also have a private equity effort
• 22:48 – Planning your exit:
  • Start with the end in mind
  • Build out products with High gross margins and repeat purchases
  • Knowing your data and metrics is critical
• 25:30 – Metric benchmarks:
  • Gross margins of at least 70% (may vary as per ticket size)
  • Cost of Customer Acquisition
  • Repeat purchase rate
  • Cost of Goods is always closely scrutinized
• 27:15 – Right time to approach Investment banks:
  • When your P&L has a consistently healthy EBIDTA
• 28:10 – Screening Process:
  • Gather financial docs
  • Look at seller central / shopify / ecommerce accounts
  • Scrutinise each function for potential gaps
• 32:00 – Example of a buyout:
  • Modeling depends on how the product is viewed
  • The range of multiples is growing in today’s market
  • “In silicon valley, companies are never sold, they’re bought”
• 38:35 – The darkside of investment aggregators
• 41:40 – “Don’t believe you’re a commodity, believe in your value”
• 42:20 – Buyout options for founders who want to retain authority:
  • Always stay majority stakeholder
  • Ensure you can never be outvoted
  • Advisory board should not be full of people like you
  • Equity vs Debt – with equity you know exactly what you’re getting into
• 50:00 – Management Buyouts:
  • When the owners want to move out of management
  • It is an amicable agreement
  • Typically happen in 1st generation companies
• 51:25 – What are Buy Side engagements
• 52:20 – Minority Buyouts:
  • Selling small percentage of the business
  • Mainly done for cash injection and bringing in a resourceful partner
• 53:25 – Advice for businesses:
  • “You deserve a better process”
  • You need a scout to navigate all the noise in the investment market
• 54:45 – Recommended books/resources:
  • How to measure your life
  • Venture Anyway mastermind

Takeaways:

• Products with high gross margins and repeat purchases should be your base
• 70% Gross Margin is a benchmark
• The type of buyout depends on how a product is viewed
• Multiples can range from 3-7 on average

Links & Resources

• Chris on Linkedin
• Venture Anyway Mastermind
• Book mentioned: “How Will You Measure Your Life”
• Justin Kan’s quote “Companies are bought, not sold”

Tweetable Quotes:

“You deserve a better process.”

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