E-Commerce M&A Tactics for 2024: Insider Tips with Emmett Kilduff
Jun 23, 2024Season 3Episode 63
The Amazon Strategist Show
Join us for the premiere of Season 3 of The Amazon Strategy Show as we dive deep into the world of corporate finance and strategic mergers and acquisitions in e-commerce. Host John Cavendish welcomes Emmett Kilduff from The Fortia Group, a seasoned expert with over $20 billion in corporate transactions.
In this episode, Emmett shares invaluable insights from his extensive experience, discussing the evolution of e-commerce since the late '90s, the current M&A landscape, and strategic tips for e-commerce entrepreneurs looking to maximize their exit potential.
Seller Candy is the expert operations arm of your Amazon business. We provide outcome-driven support for time-consuming and challenging Seller Central issues so you Never Have to Talk to Seller Support Again! With Agency-Level security practices and an experienced team who’s been through the thick of it, we give sellers bandwidth on demand without the hassle of hiring, training, or managing.
Join us for the premiere of Season 3 of The Amazon Strategy Show as we dive deep into the world of corporate finance and strategic mergers and acquisitions in e-commerce. Host John Cavendish welcomes Emmett Kilduff from The Fortia Group, a seasoned expert with over $20 billion in corporate transactions.
In this episode, Emmett shares invaluable insights from his extensive experience, discussing the evolution of e-commerce since the late '90s, the current M&A landscape, and strategic tips for e-commerce entrepreneurs looking to maximize their exit potential.
Seller Candy is the expert operations arm of your Amazon business. We provide outcome-driven support for time-consuming and challenging Seller Central issues so you Never Have to Talk to Seller Support Again! With Agency-Level security practices and an experienced team who’s been through the thick of it, we give sellers bandwidth on demand without the hassle of hiring, training, or managing.
Probably the thing that's frustrated me most, speaking to e-commerce entrepreneurs, is they seem to not have done their homework into what best practice is and how real successful businesses are. Cost paid for exits.
Speaker 2:
Hello, I'm your host, john Cavendish, and welcome to season three of the Amazon Strategy Show. The show that's all strategy, with no hacks, no silver bullets and no magic pills, just real, practical strategies for your Amazon business. So today we are joined by none other than Emmett Kilduff from the Fortia Group. Emmett has been involved in over $20 billion, with a B dollars of corporate transactions and deals since the year 2000. He's a strong interest in e-commerce and since completing his master's in e-commerce in 1999, we can maybe talk about that. I wonder what e-commerce was like in 1999. With over a decade of leading investments at Morgan Stanley, credit Suisse, emmett has billions of dollars of corporate finance experience. So, emmett, welcome to the Amazon Strategist Show. Thank you, john, for having me. Well, great to have you here. So yeah, I mean, actually I didn't read that before but 1999. So what was, what did you cover in your degree and is anything still applicable 25 years later?
Speaker 1:
Yeah, I did a degree in business and law and then a new master's came on. The curriculum called masters in e commerce and that just sounded incredibly funky at the time and there was no books available at that point really about all the things we now know well. So the tuition was really through speaking to entrepreneurs or people that were doing startups. As you might recall, like 99-2000 with the dot-com boom, it was one of the best periods for um powerpoint decks and startups and raising money and um, so there was no shortage of people trying to jump into dot-com and e-commerce, which, uh, made it really interesting. People were trying to really get a grip on what is e-commerce how can I get a billion dollar unicorn startup going and so it was fascinating.
Speaker 1:
And after I did that I mean it was in the midst of the dot-com boom the IPOs were just crazy at the time, the likes of Google and Amazon coming to market. I wanted to get a piece of that. So I put my hand up to join investment banking out of London and started doing commercial and ads deals.
Speaker 2:
Nice, and so since then, then you managed to escape from london back to ireland. Is that where you're based now?
Speaker 1:
uh, correct, yes, I, I left london in 2012 just after the london olympics and um I've been home, yeah, for 12 years in ormond well, that's great.
Speaker 2:
Yeah, I did london for a few years, but uh, I'm also a fan of leaving it after a while and going back somewhere else cool. So, uh, for fortia group I I know we had someone else from the Forteo Group around 18 months ago on the podcast and I think the market has changed a little bit in the last 18 months. So what are some highlights of what's been going on over the last 18 months?
Speaker 1:
Well, look to be honest, the last two years I've had declining M&A volumes in every sector and size across the world. Valuations have obviously come down, deal volumes have come down, interest rates are still high, so it's a really tough environment. And then, from an operational perspective your listeners will know margins are getting squeezed. Operational perspective your listeners will know margins are getting squeezed left, right and center. It's quite tough for operators. The good news is that we can see the light at the end of the tunnel.
Speaker 1:
From my perspective, from a corporate finance perspective, there's a good chart by Goldman Sachs which shows that M&A volumes have never decreased for three years in a row. So we've had our two years, two and a half years nearly, and we expect volumes to increase and that's important because it just increases the chances of your listeners to just get a deal done. We can talk about valuation after that, but actually getting a deal across the line is a good result right now, depending on the circumstances and when interest rates come down, particularly in the states, um, that will be a catalyst for um, increased volume but also more capital for acquirers, lenders, to put to work and therefore, you know, slightly increasing valuations. I don't think the valuations will get back to the lofty days of december 2021, when some fca brands are going for 7x. That was the highest number I've heard 7x which is, you know, incredibly high.
Speaker 1:
We're not going to get back there. We need to manage expectations of your listeners. But um uh, we should, um? A get more deals done. B? Uh have more more fair valuations yeah, I love it.
Speaker 2:
mean, I love it because as things haven't been going better, but I love the opportunity for the future and, as they say, when there's blood in the streets it can be time to make a move. So when that money starts moving around, I mean, how would any of our listeners become like a good deal to be snapped up by some of that capital that starts to get released?
Speaker 1:
Well, one maybe left-field idea for some of your listeners is don't be afraid to be thinking about acquiring another business in your space. Sometimes people think M&A is always the sell side for companies selling to others. But it is a good time to be a buyer and maybe consolidate with some of your competitors. It doesn't always have to be cash trading hands. It could be a cashless merger in order to become a bigger business. That's more attractive to bigger, more institutional buyers who pay higher multiples. So that's one thing just to keep in the back of people's minds.
Speaker 1:
If one wants to exit next year, you've got to start planning now. Let's assume interest rates do go down in Q4, touch wood in the States at the Fed. Then going off the back of I say going pricing a deal off the back of 2024 numbers assuming the accounts are annual calendar basis, that's a good time to go to market. That leaves sort of six months to do what we call um early preparation stage one and final preparation stage two, and that's that's relatively tight if you want to do it. Uh, from a best practice perspective cool.
Speaker 2:
So stage one and two you break those down a bit what early preparation and final preparation are and what's included yeah, most people.
Speaker 1:
Uh, most people don't do any early preparation. Most people go straight straight to final preparation. Are and what's included? Yeah, most people don't do any early preparation. Most people go straight to final preparation, which is listen and go I mean we don't get involved in listings.
Speaker 1:
We're more like we have a Wall Street white glove approach and we produce a two-page teaser, a 50-page deck, bespoke data room and we don't go to market until they're at a Rolls-Royce really, really high standard. But to get to that stage, you need to take a step back and have an early preparation stage, which is everything from us. If our firm's similar to ours, looking under the hood, looking for the skeletons in the closets, being a proxy for acquirers and saying that's a red flag, we need to change that, looking at short, medium, long-term changes that can be made to add to valuation. And I'll give you some. I'll give you some of my favorite quotes in m&a which will support stage one. Um, number one uh, the best laid plans don't only survive contact with the enemy. They only survive until contact with the enemy, right? So even if you think you've got a great business and got a great deck to sell it, who cares? Frankly, it's what the buyers think. They're the enemy.
Speaker 1:
So one of the things we like doing follows the whole flirtate marry approach and when we take a client on early, we like to get their business in front of buyers that might buy it next year. To get feedback what do you think of the business, how is it positioned today? What tweaks would you make? What would you like to see? Is repeat purchase rate good enough, et cetera, et cetera. And so then you can incorporate that feedback and hopefully when you go to market you've got something that's more tuned into what buyers want. That's that's really important.
Speaker 1:
The other great benefit of the flirt date marry approach is the best quote. The best quote of all time in m a is the best. Businesses get bought, not sold right and to do that you have to be prepared to sell and you've got to have your ducks in a row, your data room already, etc. When you're flirting in ready, et cetera.
Speaker 1:
When you're flirting in the flirt date marry approach, when you're flirting, we often say to people who are flirting with if you want to take this off the market and not let the 4G group start a competitive formal auction process in Q1, send us an offer, send us a bid that we'll take seriously and we'll socialize that with the entrepreneur and if it's attractive enough, you could potentially take us off the market. That's when you get bought, not sold. That's a really good result for the entrepreneur. Um, it's something we like to uh try and pull off. It doesn't happen as regularly as one might want, but, um, the smart, the smart firms, particularly on wall street, are thinking that way. We're trying to bring that, we're trying to bring that, uh, that blueprint through into our approach. John to smaller e-commerce companies.
Speaker 2:
No, I love it and uh, yeah, I love the flint egg mary and also, yeah, just people buying it. So what kind of percentage of deals do you think people actually get bought? Get an offer put in prior to you going to market.
Speaker 1:
Very little, especially in e-commerce, because very few companies are doing stage one, early preparation. They're not even aware of it as a stage. They just rush into listing on the website, which I think I, just from my background, I can't accept as a way to do it. I think it needs to be much more bespoke. It works for very small businesses, but when you get to 5 million revenue or plus, you need a more, in my view, white glove approach. And so, yeah, I think the answer is very, very small because people aren't even aware of the other seven stages of the best practice exit process. And that's something we're trying to do at the Forty Group is educate the market continuously. We have a 90-page exit guide for FBA entrepreneurs that we co-authored with 20 acquirers to do just that, to sort of um explain, explain the whole process of m&a love it.
Speaker 2:
Where can someone get that guide?
Speaker 1:
uh yeah, it's complimentary to download from our website, john okay, fortier groupcom is that right?
Speaker 2:
that's it? Yeah also, yeah, cool, thank you. You should plug that all the time. Dot com is that right? That's it? Yeah?
Speaker 1:
also, yeah cool, thank you, you should plug that all the time.
Speaker 2:
Um, awesome. So next, yeah, you say from the 42 groupcom, just head there, give us your email address. So when you say smaller businesses, how, what's a smaller business to you? Because you mentioned five million and you said you want to get bring the m&a from the bigger companies to small. What's big to you, medium and small to you?
Speaker 1:
yeah, yeah, it's interesting it, and it's changed over the years. So when the Thrasio of this world entered the space four years ago or so, they were all looking to do acquisitions of brands with about a circa 1 million revenue and above. The significant majority of those have increased that minimum threshold towards 5 million and in some cases higher, and so that makes it harder to sell smaller brands to institutional investors. And you take away the Thrasios of the world, the 100 plus aggregators, then you're left with the folks that were there before we ever heard of the term FBA aggregator, and that's typically individuals that have made money by selling, for example, in the same category, smaller family offices. So what I'm saying now, then, is to sell to an institutional investor which could be an aggregator, of which there's both fba and dtc, a private equity firm who owns a company you might want to bolt on your business to it, or a strategic, a small, a small competitor, um or or or firm in your space.
Speaker 2:
you really need to be doing, from an fba perspective, at least five million in revenue five million, and what kind of what kind of margin would they be looking for on that?
Speaker 1:
Net margins like the acquirers are looking for at least 15% net margin for FBA-led businesses and valuation depends on loads of things. But you've got in this market. Quantum of revenue is the first thing, then revenue growth, net margins, things like simplicity for integration they don't want to see 3,000 SKUs and there's lots of other factors that we could go into. The typical range we're seeing for growing and profitable FBA-led brands today, john, can be anything from 2X to 6X. Now getting towards 6x is diamond territory or unicorn territory, and that range includes upfront payment and deferred payment. It's a total consideration for a business we sold earlier this year, a business that had incubated six Amazon brands and that price for circa 5x. It was doing tens of millions of revenues 5X, which is very, very handsome. The sellers were delighted.
Speaker 1:
Right now I'm not saying I can get 6X for your listeners. You know if you want anything near 5, you've got to have, you know, a big quantum of revenue, great growth, great net margins, good net margin trajectory. You've got to be in a great category. So right now the categories of where there's the most demand are pet, baby, beauty, so it helps if you're in one of those categories. You've got to have amazing repeat purchase rates. You've got to be in brand with a capital D, not a product. There's lots of things that we can jump into. Every quarter, john, we publish a 50-page guide that details our thoughts on valuations of e-commerce brands and we go through that in detail with some guest speakers on the webinar. Your clients can go to the4tugrgroupcom and register for that webinar if that's of interest. To jump into more detail, cool, I love it.
Speaker 2:
So just for the clarity of anyone listening to this, when you say 15% net margin at these size businesses, is net margin after team, because a lot of Amazon businesses are sold on literal seller discretionary income. And what kind of size teams are you looking at for these businesses? Because I assume a private equity wants a business that operates itself as opposed to having to install a whole operating team.
Speaker 1:
Yeah, it depends. It depends what's right for the business at hand. So sometimes you need more people, sometimes you don't. I think it's interesting you say that Actually the aggregators initially were a little bit too confident maybe, and and uh, didn't think they need to retain the, the entrepreneurs and yes, very confident and very poorly confident yeah, you need everything that's in the ip in the heads of entrepreneurs because, um, to keep the business going.
Speaker 1:
so I think the aggregators learn from private equity. For the last several decades they've always kept people on to earn outs or other incentives, and so any smart buyer is going to keep people on, in my view, unless it's a bolt job or something bigger, where they have a management team that's through them and can sunset the selling management relatively quickly. But it's a warning signal If the entrepreneur says I want to head to the beach next week. That's a warning, a big red flag.
Speaker 2:
Yeah, I would agree there, and so would net margin be after team costs, and what kind of percentage would one of these businesses really be spending on team usually?
Speaker 1:
yeah, good question. So you, you can have sde plus ad backs. Then you get into the definition of ad backs. Um, three or four years ago, uh, acquirers were quite lenient into what what was allowed to be allowed in. Now they're much, much stricter. It needs to be one-off costs or founder salaries they're not being as lenient. Of course, if you can create a really competitive auction and there's five bidders, then you can start to push back on a few points and negotiate more favorably. But right now the market isn't there. We know we're not. We had one bid where we had one business, excuse me, where we had 12 LOIs, and when you have that number of LOIs you can negotiate. You know, dot the I's and cross the T's until you get exactly what you want. But we're not there today. So entrepreneurs are trying to get too creative with ad backs. I'm trying to manage expectations, you know. I think we have to be realistic, uh, given where we are in the market.
Speaker 2:
oh no, I agree, I mean, but, as the you know, if I was, if I was going to sell or if anyone else was going to sell I'm sure that they are creative as humanly possible I would add back absolutely anything, and then let's forget and move. That's where we start from. But yeah, that's great, I love it. So at this part of the podcast, we asked for a controversial take. So, emmett, do you have something you'd like to share of your most debatable or controversial opinion related to Amazon or the e-commerce industry in general?
Speaker 1:
You know, this is probably partly where I've come from, having had the lucky opportunity to work for a company like Morgan Stanley, one of the best M&A firms in the world on Wall Street, and if you're Elon Musk or Richard so Richard Branson, are any of these folks and you're looking to sell your business, you've started thinking about doing that one to two years out. And what really frustrates me probably the thing that's frustrated me most, speaking to e-commerce entrepreneurs is they seem to not have done their homework into what best practice is and how real businesses real successful businesses are paid for exits and also most big successful businesses all have a board of advisors, if not an advisory panel or a team of serious mentors. I don't see that there either. So that's what's disappointed me, frankly.
Speaker 1:
And I have other businesses. They all have boards, because I want more gray hair than I have advising me, because they've all made the mistakes. Why wouldn't you have advisors advising you? Because they've all made the mistakes? Why wouldn't you have advisors advising you? If I have a great pet business doing 5 million, I want someone who sold their pet business three years ago for 50 million on my advisory panel. I want to give them share options, you know, so that I do things right. That's my bugbear.
Speaker 2:
Yeah, and I would agree with you there. I'm sure many of our listeners who've got friends or contacts in the Amazon or e-commerce industry have seen it before. I know I have of people getting sick of their business. They've been operating and it just becomes something they don't want to do anymore. And then they want to sell, and they usually want to sell relatively quickly, and that's the problem. They're not prepared to sell and so usually want to sell relatively quickly, and that's the problem. They're not prepared to sell.
Speaker 2:
And and so, yeah, I would 100 agree with that head to uh, the fortier groups website download their 90 page guide and start working through it, because you know we still be ready to sell at any point. Because, as you said, um, if we're a purchase approached by a proactive buyer, it's great to have all the financials already up to date and in place and not be digging through a bunch of stuff. And you know, as we all know, what we report to the accountant isn't necessarily what we'd call the operating profit of the business or anything near the, actually the books you'd want to share with an acquirer. Yeah, yeah, agreed. So I think we're getting towards the end.
Speaker 2:
So that was one amazing discussion, so thank you you so much, emmett, for being a part and for sharing your knowledge and your experience of $20 billion of acquisitions. And yeah, I think you've got everyone thinking about acquisitions and exits now. So now's the time to think about it. You know, spend an hour or two just thinking about what you would do with your business if you wanted to sell it, how it would operate, what you do if you wanted to go and sit pina coladas or start a new business. So if anyone wants to contact you, follow you, get more information. What's the best way to do that, emmett?
Speaker 1:
Yeah, please send them to theforteagroupcom.
Speaker 2:
John Thank you. Okay, awesome. So we'll leave that link below. Wherever you're listening to this podcast and I hope that all of our listeners you found this episode useful and taken some insights away. So episode useful and taken some insights away. So if you'd like to leave a review for the podcast, rate us on whatever platform you're listening on. You can even do that on spotify now. Please do rate us and check back in next week for an amazing another episode of the show. So thanks so much for being here, emmet.
Speaker 1:
See you soon yeah, I really appreciate it. Thank you, john.