Acquisitions Anonymous - #1 for business buying, selling and operating - A $2.6mm manufacturer of pitching machines / a $7.5mm e-commerce retailer of firearms and accessories - e35

Episode Date: July 7, 2021

Joined by special guest Molson Hart @molson_hart, we analyze two small businesses for sale:- Spinball, a $2.6mm manufacturer of pitching machines- a $7.5mm e-commerce retailer of firearms and accessories.. and Molson concluded by asking us a bunch of questions.Enjoy!-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

All right, welcome to Acquisitions Anonymous. It is Friday before 4th of July, though this will all come out after the 4th of July. But we are excited to record yet another episode of the number one podcast bill for people or for small businesses for sale where three to four people get together and talk about them and analyze them and decide if they would be interested in buying these small businesses or not. Hey, there's riches in the niches. Midd down. We're going to own a one podcast. We're going to own our category for the eight people that care. Anyway, we're excited. Well, actually, we're up to 23, 24 monthly supporters, people donating money. So eventually we could get to the point of breaking even on this podcast, which is our goal. Since we pay to have it edited and take out the ums and Oz and sneezes. So we're excited about that.

But, well, Bill, good to see you today. I am excited that we have a special in our first return guest, Moulson Hart, who has joined us from the sunny, hot locale of Austin. And Mulsin, why don't you introduce yourself for those of you that don't know you, and then we'll talk about some deals. Absolutely. So I'm back, guys. 11 years ago, I founded a educational toy company that originally started in retail and then transitioned over to e-commerce. We mostly do Amazon. And then like four or five years ago, I also started a litigation financing firm with my brother, which I also do. And I know a lot of weird stuff. Weird is what we specialize in here. Welcome back. You're also, you're also the purveyor

of some of the coolest one-liners about businesses that we've talked about on the podcast. And for a while, your episode with us was number one, and now you've been shifted down to number three, I think, behind the dumpster haul off guys. So this is your chance, man. I saw that, man. I saw that. He really pissed me off.

I'm trying to break you. I got to do something crazy. Well, this is some controversial ones today. Today is your day. Today is your day. So Bill, you have our first deal. So let's do this. All right.

So we'll save the controversial one for a second. So that's your teaser. But this one's interesting, too. So again, we work from public teasers. have no non-public information, please don't sue us. This business for sale is called Spinball Sports. They put the name in the listing. Spinball Sports next generation pitching machines. They are asking $3.9, $4 million for $600,000 of cash flow and $2.6 million of revenue. They say they've got $400,000 of EBITDA, but $600,000 of cash flow. So I assume they've got

some depreciation, probably from all the science that went into developing these pitching machines. So they are the number two supplier of pitching machines to the Major League Baseball. They have 23 teams as customers. It says Spinball Sports builds next generation pitching machines for baseball, softball, and cricket. They have 23 MLB teams, dozens of NCAA teams, and hundreds of high schools. All Rawlings branded pitching machines are in fact made by Spinball, and the company is recognized. by hit tracks, Rapisado Trackman, and All-Star Video Simulators as a technical leader in the field. That probably means something to you if you're in baseball. They say their sales are on pace for

$2.6 million. That's up 50% from 2020. Profits on pace for $600K before salary and rent paid to owner, 400K after. So it sounds like 600K is in fact the SDE number and 400K is in fact the EBIT dot number. As a reminder, they are asking $3.9 million for the business. And of course, they say the fasting fastest growing products also generate the highest margin. So these numbers should only improve going forward. I won't go through and read all of this, but the general gist is they make Wi-Fi-connected app-enabled pitching machines. Users can select from 16 factory-defined pitchers with 121 different pitches, or they can define their own. The machines aim automatically. It's like basically the terminator of pitching machines. The two-wheel spinball is value priced at $1,700. It can pitch

100 miles an hour. They've sold 2,000 of those. The Rawlings is a mid-level machine priced at $2,100, plus it's got some more bells and whistles. And then in new in 2021, they've got a three-wheel spin ball. It's a pro-level. It's three grand. It has all these fancy bells and whistles, and they've got even a fancier one. They are in testing for deployment to 600 Dix sporting goods. The president, Steven Spatansky, was the company's first employee in 2009. He knows every aspect of the business, and it does not indicate whether he would like to stay on. Sales manager, Sam Rout, has been with company five years. It has personal relationships with many coaches, which sounds legit. And the engineer has been with the company two years, but his contributions were essential

to building the machine. So they are in Illinois. They've got 8,000 square feet of office on three and a half acres. It seems like they lease it because they don't mention real estate is included. Oh, actually, it does say the real estate is owned and included in the asking price. So that makes it a little bit more reasonable. So you'd have to appraise that real estate. And they say the market for U.S. pitching machines is about $150 million a year. And they list a bunch of competitors. So they're looking for to sell a controlling interest in the company and they'll stick around to help train you to be a Terminator pitching machine genius. It's spinball sports.com if you want to check them out. So what do we think, guys? This looks like a pretty good deal to me as far as

what I usually see on biz by sell. That's relative. This is a weird environment where what is it? It's more than six times. It's like between six and seven times cash flow. But the way I would approach this is I would just try to find anything that could be wrong with it.

Is the president like really good at sales and then people buy this thing one time and they never use it again and they never return it? Is that what's happening here? I would want to, like, contact some actual baseball players and try to figure out if this thing actually works because it's possible that this guy is really good at selling it and people buy it and they're able to generate cash flow. I'd want to know why they're selling because I, like, checked out the president or the owner or whatever. He seems to be pretty young.

And then I'd want to, like, kind of reverse engineer it and kind of, like, figure out, can China do this? It seems like no, because it requires, like, knowledge of baseball, which they have zero, knowledge of. Well, I don't know. China could do this in cooperation with someone based in the United States, but those would be like the main pitfalls I'd want to know about before I got involved in this. Other than that, it feels pretty robust and like kind of hard to disrupt. That's my thoughts. Well, it seems like they think they have a moat around this like customizable pitch ability that they have versus the competitors, right? So I think, you know, I played baseball for a couple of years as a kid, went to the batting cages and stuff.

And it's just mostly, it's just a little spinny thing with two wheels and that shoots the balls through. This thing looks like it's actually able to simulate all kinds of pitches. So if you suck at a curveball that's spinning at 2,000 RPM when it's thrown out of the pitcher's hand, this can do it for you repeatedly perfectly. So it sounds like they've created a niche, which is cool, out of these high-end customers who need to pay for what it takes to get that 2,000 RPM curveball. every single time, which is different than kind of the crappier generic machines that I think are out there. He does say Moulson that it's hidden way down here at the bottom that the reason for selling is seller never wanted to run a business, just designed cool products. This is what we talked about before. Cellar who's in his own navel about the product and doesn't

want to run a business. Sometimes can be awesome opportunities. Yeah. So he's open, also says they're open to a controlling sale. So this designer, mad scientist type guy who started it could potentially stick around and be your product portion for you because it sounds like he doesn't really want to be a business builder. He just wants to play with cool toys. Yeah. So I also did find in the biz by cell listing, there's a link to a pitch deck, a 17 slide pitch deck, which has historical financials, or at least historical sales. So they started, it looks like, in 2014 with that 250K of sales. And it's been mostly straight up from there, honestly, to about 1.5 million in 2019. They did maybe 1.6 in 2020. And then they're projecting 2.5 in 2021. So all told, I mean, this isn't that, this is pretty

interesting. The one thing that for me would worry me is the IP of this. Like, is this patent protectable? Do they have a patent? They have a patent? They do have a patent. Fantastic. And then I also wonder, you know, this is sort of highly technical. Like, you know, if I do any, in five years, is this thing going to be outdated and I need to launch a new version? And I don't know, jack crap about baseball, right? Or about, you know, engineering these fast spinning wheels or iOS connected, you know, hardware development. Like, this seems like they have probably put a lot of money into it to get here. Yeah. And I would wonder if there's more KAPX on the horizon, something that I would ask you.

I think this is a really good deal. Once you incorporate that real estate, I mean, it's in Illinois. I don't want to own real estate in Illinois. What is it in an office building? Let's see. He talks about owning an 8,000 square foot steel building in an industrial park.

And they have a full-sized batting cage with turf and a 600 square foot office area as well. Someone could buy this. And they're making it in America and just judging by their sales prices. is like you can make this in China and significantly reduce the cost, assuming that this thing can be collapsed down in some way. All right.

Let me tell you, are you ready for, I think we like this one, I'll tell you my idea to potentially turn this thing into a home run. Are you ready? Oh, no pun intended. Turn it into a home run. The way I would actually turn it into a home run is, you know, this is a equipment business they're selling one time. I would go in and try to turn it into a recurring revenue business.

Like this thing is a digitally connected pitching machine. Like that is perfect for the $999 up front, cover your cost to your machine, and then it's $100 a month as long as you're using the damn thing to keep going. And that would create, you know, as you guys know, when somebody looks at a business, if it has recurring subscription revenue like a peloton, like I would peloton the heck out of this thing, right? Like that's how you turn this into something that private equity or any generation of buyers is going to want to buy when you make it a recurring revenue business. So, like, I think you go in

with the base case of, we keep selling machines. But the upside is, like, as you dig into the business, how do I figure out how to make this a recurring revenue business? And suddenly, when I have three or four million dollars in SaaS-style subscriptions from all these major league teams, like, then you really unlock a ton of value and sell this thing for 15 or 20 million without selling any more machines. No, that was a brilliant call. What you could do is you can put some sort of like camera behind the guy who hits the ball. And then you could get it to read where the baseball actually went. You could get it to take the data in as well. And that would make it like really like a proper Peloton SaaS product. I think someone should like for real buy this.

This is this excellent, especially after Gerdley's insight. Oh, for real. I'm not, I'm not suck out. Yeah, no, no, no. I appreciate it. Well, and then the other thing we could do, we could have really fit ladies and men in a studio in New York telling you how to throw the baseball and cheering you along as you hit it. Yes, absolutely. Well, you could also peloton it by like, imagine like you go back and you watch like lots of famous World Series or whatever and then you program the actual pitches that were thrown into the machine and you could like replay the 1999 World Series Game 7 like the actual

pitches that were thrown like you could subscribe to that data too. there's a lot of fun things you can do. Baseball is the declining market before we get to too menacing about this deal. So actually, I just looked up where this is located. It's in Mount Vernon, Illinois. It is actually down by where St. Louis is. So this is actually closer to St. Louis and Nashville than it looks like you are to Chicago. You're out in the middle.

There is some out in the middle of nowhere nature to this thing. The town of Mount Vernon is 15,000 people, and it looks to be an hour and a half east of St. Louis. So pretty curious, pretty curious geography. We've run across a couple of those where it's like, where is this located? Have you considered Upper Wisconsin as a place to live? No, I haven't actually. So just what data point there. You could move it.

No reason why you couldn't. You could have the skills and the other guy just go remote. I mean, obviously, you need to have some sort of like product development base. But I'm confused about there's like an engineer who works for him, but the CEO wants to sell because he's the product guy. I'm confused about that, but I don't see why you can move this business. Yeah, very fascinating. Really good for someone who knows baseball. If you know baseball, this is a great opportunity.

I'm really bored by baseball. It's like, why is your cricket? You're at least passing. I mean, I love business, and this has business aspects to it, and I think some really interesting challenges, and it's an hour and a half east of St. Louis. So if you want to live out in the country, or move it, I think you have a really good point there.

Awesome. Cool. Any other thoughts on this one? All right. So who's putting it, who's putting in a bid? Someone should. I don't know anything about baseball.

But this is pretty cool. I think they'll sell it. All right. So yeah, so it's spinball sports. You can find it on, on buy biz sell. And yeah,

pretty cool one for sure. You guys are ready to move on a deal number two? But for real, someone should actually buy them. Because like people are passing on this because they don't know baseball. And right? So like if everyone's passing

because they don't know baseball. That's a good opportunity if it does know baseball. Yeah, just doing it. Maybe we'll wrap it up by saying, if you buy this business, come be a guest on our podcast as a follow-up. We would love to have you. Yes. And I will offer you at least one free hour of me spouting ideas

that you about how to sassify the thing. But often seeming like they were thought on the spot because I did just think of them on the spot. So, all right. Let's move on to deal number two. So this has got two things that fit with the Moulson theme as a guest today, which is Texas and e-commerce and slightly edgy. So there's like a third bonus one in there too. So it'll be great.

So this is also off of Buy Bizel. This one came from a listener. So thanks for submitting the deal that you want us to talk about. Please keep doing that. We are excited to talk about them and make it good by talking about stuff you're interested in. So the listing title is a profitable, scalable, e-commerce firearms retailer with five years growth. So this one is in Texas. And so they have a listing with a big picture of an AR-15 and some ammo on the front.

So welcome to Texas, Bill. This is how we do it down here. We're asking price is $9.7 million. Cash flow annually is $2 million. So they're asking $9.7 million. Cash flow is $2 million. gross revenue is 7.5 million. And EBIDA earnings before interest, taxes, depreciation, amortization, is the same as cash flow.

So no big ad backs there it looks like in terms of how they're thinking about stuff. FF&E, furniture, fixture, and equipment is 100,000. They have $1.5 million in inventory, asterix not included in the asking price. And they're paying rent of $4,000 per month. And they were established in 2016. So these guys are selling firearms and firearm equipment online. So here's the description. This is an opportunity to acquire a well-established, profitable high-growth e-commerce

business that is well positioned in the firearms industry. This company has successfully overcome the high barriers to entry that exists in the online firearm space, and the company has made significant recent investments in a bunch of digital go-to-marketing stuff that I won't read. These programs are all relatively new, and they've brought in industry experts to try to grow their business even further and scale it. They started in 2015 and they developed a substantial customer base. The owners have 100% customer satisfaction approach to stuff and they do kind of typical service delivery stuff that you expect with e-commerce, one day turnaround and so on. And then their

products is evidenced by the average consumer ratings and the high fours. I assume that's out of five. They have a network of vendors and they carry 400 skews ranging from complete firearms to individual firearm components. They differentiate themselves from competitors by allowing consumers to customize the assembled components they purchase. The customized assembled products are also shipped the next business day, which is unique to this company. So I guess that's like if you're buying a gun from them, you can like pick your laser site and a stock and all that kind of stuff. It reminds me of Dell computer. The Dell computer of guns. Well, I mean, my own computer of rifles.

My level of firearms knowledge is basically, you know, Pearl-handled six-shooter from the bug spouting cartoon. So that's all I know. Additionally, the company contracts with key suppliers for critical parts that are manufactured to its specifications, and the company maintains distributorship agreements for two high-quality product lines that are not widely available elsewhere. The company has recently initiated a direct sales program targeted

traditional retailers. This program supplies products through the company's website that are difficult for the dealership to obtain directly, and this program has been well received and generated over 100,000 in incremental growth in its first month. This offering presents a unique opportunity to enter the rapidly growing and highly lucrative firearms market. Proof of available funds would be required prior to letter intent, yada, yada, yada, inventory was 1.5 million, not included in the asking price. They have a lease and three employees. That is impressive. How do they do all this with three employees? Cool. Let's see. So they lease their space competition. I'm going to read this stuff because I think this is interesting how they think

about it. The online firearms retail space is a unique niche that has significant barriers to entry. There are a few large established companies and several very small companies. The business is positioned in the upper median and growing online advertising is not allowed for firearms so competitors cannot buy market share with a large advertising budget. Amazon and eBay do not sell firearms and companies differentiate themselves on product availability, customer service, and qualities, quality, all three areas where this business outperforms. The reason for selling is the owner would like to pursue a new opportunity

in a completely unrelated space. So listed by Marvin Carlo, who appears to be out of Dallas. So my guess is this is a Dallas-based firearms retailer, a retailer. So what do you guys think? So I'm going to surprise you guys. I actually know a fair bit about this space. I diligenceed it earlier this year or last year because I was looking at an investment in a business that did exactly this, not this business. But we ended up not doing it for a couple of reasons that I will mention.

One thing that has been going on recently, you know, it says that the owner wants to sell because he wants to do something completely unrelated. What it doesn't say is that we are at like the all-time top in firearms. 2020, between COVID and kind of all the civil unrest and everything led to like an absolutely massive explosion. in the whole firearms industry. Like so many people bought guns, like from little ladies to 18-year-olds. Like huge explosion. So, like, you guys an idea, this is a stat I pulled. Approximate monthly firearm sales in 2010 were somewhere around, you know, a million.

In 2020, it was two million, which was up from the same about a million the prior year in 2019. So huge spike. The industry basically doubled overnight. There's also been massive shortages across the entire firearms industry all last year, parts, ammo, just anything that touches it. It's just been super, super hot. So this guy's probably got a pretty nice TTM. Other things that are pretty interesting is most guns are map controlled, which means that

you have to set, which is minimum advertised price. So you have to sell it at the price set by the manufacturer, which leads to some very, very low margins, actually. Because the manufacturers, I mean, he even said that some of these map prices are so low that I have a friend in the space who I got to know to diligence this. And he said when he sells a handgun, he can make $5 or $10 on a on like a $7 or $800 handgun. Apparently all the money in this space is in the scopes, the optics, and the accessories. The guns and ammo have like razor-thin margins. But it's all the accessories.

So these guys, I mean, they say, just based on this teaser, they've got 7.5 million in sales and 2 million EBIDA, which is pretty good. So this leads me to believe this is probably, probably have a heavy accessories mix, which is probably good. So these are some of the things I know about the firearms industry that I learned last year online. Why are the accessories the same way with that high net pricing? Is it because you can sell like made in China unbranded accessories that don't have that map price enforcement? Yes, there's definitely part of that. And then also the optics brands, some of them overlap, some of the same brands that do like high-end binoculars and stuff also do optics for rifles. And they have set really high map prices.

It's kind of like we did last week, we did a liquor store. And he said, you know, the margins on hard alcohol are almost nothing. The kind of the dynamics in the supply chain are that the manufacturer keeps most of the margin. But the margins on wine were very good. So it's just kind of one of those things where the handguns are like the loss leader. The guns and ammo are like the loss leader and then the accessories are where you make all your money. Yeah, it is interesting now that you think about this that they don't really talk about historical financials. Now that I look at this, I'm like, oh, like that's kind of a glaring omission.

Consistent with a lot of times when you look at these businesses, what they don't talk about tells you a lot about what's going on. And that's consistent with what you're saying. like this has been, this is peak sale, peak moment for this industry. Yeah. Talk about COVID bump. The firearms industry has felt it extremely. And these guys have been around since 2016. So they do with some history.

It's not like their Johnny come lately. They just have to be the right place and the right time. The firearms industry generally is also super cyclical. The joke in the firearms industry is that Democratic presidents are the best firearm salesmen in the world. So basically, when the Democrats are in office, you do great. And when the Republicans are in office, you do terribly. is sort of the opposite of what you would expect.

Because when the Democrats are in office, everybody wants to buy guns because they're afraid that you're not going to be able to buy guns in the future. Another interesting anecdote, Gander Mountain Sports, big kind of sports retailer chain, like Dick's Sporting Goods type competitor here in the Southeast. Gander Mountain, I actually knew a guy that worked for them, and they went bankrupt when Trump got elected

because they had a huge, they were levered up and had a huge firearms business. And they had just kind of doubled down on it, expecting that Hillary Clinton was going to get elected. And then when Trump's prize won, their demand for all the firearms are sitting on all this firearms inventory and they were all levered up and their firearm sales was 40% of their business, went through the floor and they went bankrupt. So there's some major externalities when you're in this industry that you just can't control. So if you were to buy this business, I would not use a lot of debt because it is cyclical.

Well, and they're asking like a pretty penny for it. I mean, it's for e-commerce. This is nearly five times EBITDA, which, you know. I mean, I think that. So what happened in the gun industry is an extreme example of what I think, what's happening to anyone who buys a new commerce company in 2021 off of 2020 sales anyway. It's just you're not going to have the same level of sales. If you have the same level of sales going forward, it's not going to be as profitable.

The reason why I don't really like this business is so it's great that you don't have competition from Amazon, eBay, probably not even Walmart.com, but what worries me is you're always going to be beholden to your brand relationships with your vendors. I don't know, if Remington or whatever decides that they don't want to sell you anymore, there goes a chunk of your business,

and there's not really anything you can do about it. And typically the way I think about this kind of stuff, I love brands. And brands are able to survive things like Canter Mountain going bankrupt and stuff like that. Whereas these retailers, they come and go. You can get like long, 100-year-old gun or whatever consumer product brands, but the retailers come and go in part because they're beholden ultimately to that consumer relationship between the consumer and the brand.

Consumers don't necessarily care what retailer they buy a gun from. What do you guys know about like brick and mortar gun retail? Because there's some like weird stuff where if you like order a gun, you actually order a gun to a retail location, like a gun shop or even a shooting range and that's where you pick up. Yep. So the way it works is if you buy a gun online, you cannot, can't be shipped to your house for all kinds of really reasonable reasons, right? So you have to in fact have it shipped to a licensed federal firearms dealer in your area where you then go pick it up and they do all the paperwork and, you know, do your background check and all that stuff. This is still e-commerce, but you can't, there's a lot more friction because if I want to go on this website, whatever it is, and buy something from them. I can buy accessories and ship them straight to my house, but if I want to buy a firearm, I've got to figure out a local gun store and have

it shipped there and then pay an extra, pay them like an extra like 45 bucks to do paperwork. Yeah. So you have to, if you want to buy a gun online and you're the online e-tailer, you have to partner with somebody who's entirely motivated to compete with you to deliver the gun with people. Correct. Although they make money, they make money on the paperwork fee. Right?

So they're kind of happy to do it and they get you to walk into the store and they have a chance to sell you stuff. Because remember, they don't make any money on the gun. There's no margin in the firearm. They want to sell you the accessories and stuff. So if you're in the store, they'll be like, can I sell you a case?

Can I sell you, you know, whatever. Okay. And then they'll charge you $45 to do the paperwork. I mean, it is so, I mean, to go back to your point, like that there's no margin in the gun. Like, it's just mind blowing. Like these are just like such relatively simple pieces of machinery

and they're just fabricated steel with some clicky things on it. Like if the Chinese started making guns like there's no way an AR-15 would be $900 or $2,500. Correct, but no one would buy it because it's Chinese. So this is another bill. Oh, they would buy it.

I'm telling you. Oh, for sure. People talk such a big game It's like, oh, I only buy made in the USA guns, but then like, when no one's looking, I buy me a Chinese scope. Yes, true. True. By the way, this is the content I'm here for. Yeah, well, what's interesting, too, is there's, and this is another place to Chinese manufacturer would have an advantage.

If you're an American firearms manufacturer, yeah, there's the cost of the metal in the machinery. But then, you know, there's a lot more in that gun beside the cogs. Think of the insurance and the litigation and the safety and testing costs. And all the money you're given to the NRA. Come on, man. That's right. Somebody's got to pay for Wayne LaPierre to go on those vacations. Yeah, I bet the soft cost, like the insurance plus and under the table of the NRA is probably more per unit than the steel.

Yeah. It's not like the Sandy Hook parents are going to sue like Zhang Jiang Gun Manufacturing in Jiangxi province. It doesn't work quite as well. That's right. By the way, those American firearms manufacturers, the Remingtonism and cults of the world have all been bankrupt like 20 times because they get traded around private equity. They get levered up. It's sick and pulls hell. And then they go bankrupt and they just do it all over again. It's ridiculous. That's amazing. It's crazy that it's one of those businesses that's like such a big business in America, but it's such a bad business. Right. I mean, like to some extent, auto manufacturing is the same. same way. We're just like, our economy is so dependent on this thing that's so, so cyclically terrible, right? Yeah. It's fascinating. Yeah. So I will, as an addendum of this deal, I requested the book while we were talking, and the broker has already gotten back to him. So props to him. Dang. Yeah. So again, we have not disclosed to name this business. So I do just want to share the

top line revenue trend, which you guys think is going to be pretty, we'll think it's pretty interesting. 2018, 1.4 million. 2019, 1.7 million. 2020, 4.4 million. 2020, I guess, end of Q1, 2021, trailing 12, 6 million. So this business is up from 1.7 million in 2019 to 6 million TTM as we sit here in kind of Q2, beginning of Q3, 2021. So there's the COVID bump for you.

I bought my first gun on my birthday right before COVID because I was anticipating chaos, as Girdly may remember. I was ready. I was ready for society to break down about a whole lot of M-O-2. Who knows? Maybe you even bought it from these guys. You don't know? I think I do know.

I think I know what website I went to. But you don't know what website this is. I went to Dick's sporting goods. I didn't buy it all right. Here's how this works, guys. You're wasting your money. right now investing in guns and gun equipment, all you need to do is just spend 30 minutes and figure out who all the preppers are. And then you just don't know the second things go bad.

You go over there and you just open season on taking what you need. That's the way this works. Because you know why this happens. Because in every zombie movie, it's always the preppers that get hit first. Check it out. Every single one. I don't even know what that means. What do you mean? Like you go to a prepper and you're like, give me your guns. Like how do you what? No, I mean, it's just the way. It's nonsense. It's frustrating. Friday before 4th. You go to the prepper and you offer him an hour of business insights in exchange for protection. All right, prepper. We're going to sassify your preparation here. So this is going to work. That's right. I'm clearly just butt hurt as a prepper. I don't like this conversation.

Hey, nothing's real until you've dug a fallout shelter in your backyard. So call this when that happens. All right. So it sounds like we, yeah, I mean, we hate this one. Yeah, I mean, it's fascinating, though, right? Like, it's very interesting. I wouldn't touch it with 10 football. Yeah. Well, I tweeted yesterday that I think right now we're at the part in the cycle where the only things that are going to be good deals are things that look like bad deals at first glance,

but when you dig into them are actually good. It turns out this one is actually dog poop that looks like dog poop. Why is spinball still in the market? Is it because baseball is declining? It is declining. Like, young people do not. like baseball at all. It's like mostly an old person for the not-on, I think, at this point. Yeah. I don't know why it's still on the market. And I don't know how long the SIM has been

out there. But it smells to me, like, I would not be surprised if when you dig in with this seller, there's some irrationality there. That's what it smells like to me. Yeah. Like you're just going to be like, oh, this is an impossible person to reason with. What tips me to that is they listed the name of their business on biz by sale, right? Like, it's just all out there. So they clearly don't have a broker. So there's no intermediary to kind of like keep them saying and say like these are market terms. Like you know, you got to be realistic here. So, you know, sometimes you pay a higher price when seller as a broker, but also you get the deal.

So I wonder if, as Michael said, you call these guys up and then you go, oh, we're never going to be able to do a deal here for some reason. Yeah. So I have a question for you guys. I don't know what you guys do after you review the deals, but do you guys make checklists? So I've never actually purchased the company. I feel like I'm smart about this stuff because, like, I know about competitive advantages and stuff like that, but I actually bought one. So do you have like a checklist that you just run through or how do you do it?

We have one. So at elements brands, you know, we have a target. So we focus on e-commerce brands between kind of 2 and 15 million in sales. And then I've got kind of like a, I think there's 147 checkpoints, you know, in all the areas. Like what makes it good in operations and marketing, you know, all that stuff. and nothing is ever even close to 147 out of 147. But it helps you understand relatively how does this one rank versus the other ones I've looked at. Yeah.

But I think my experience is those style checklists, they get relatively easy to produce once you narrow yourself to a category and size of business. So like the stuff that Bill is buying it repeatedly that way or that Dura does, like it's easy to put together a checklist after a while in that sort of. So like Dura has a similar methodology and not. underwriting framework and all that kind of stuff. And most, most, most serial accumulators and acquirers eventually get to that point where they, they're doing a checklist. For one-offs and kind of oddball stuff where like the checklist for a two million dollar year software company is going to be totally different than the checklist for a 50 million dollar year software company. You know, you got to, you got to be doing repetitive deals to have that make sense.

Do you have two tiers of checklist where you have like kind of a I-O-I checklist, which is just like 10 short things? Like you check the boxes for scale. vertical integration, like data advantages, can I turn this into SaaS? And then you have like a later one where it's just like, okay, make sure that this guy hasn't, you know, Google the owner to make sure that he hasn't committed fraud. Like, is that how it works? So you just have like one checklist and you literally, when you're on biz by sell, you just go through all 147.

You're like, okay, check, check, no, no. You know, and then add something up to come up with a quality score. Yeah. Well, I mean, I think there's a checklist that you go through when you are a very evaluating a business before you make an offer to it. And then there is the, okay, we've agreed upon a price, diligence level stuff that is a lot of that kind of fraudy trademarks, customer validation, all that kind of stuff. So those are really two different sets of things, but the latter due diligence stuff during that kind of post-L-OI signing, price agreed to,

terms agreed to thing. That's hundreds of things, hundreds. Yeah, it's really like the 147 points for us is do we want to own this business? Like, do we want to make an offer on this business? So we'll have a couple calls with the seller, get our questions answered. You know, I mean, like, they're not all that intense. Like, one of those checkboxes is, has it been around for five years?

Right? Like, that's easy question to answer, right? So a lot, you know, is it in the right? You know, is it the size right? You know, so like some of it is, you know, are they running on Shopify? Are they running on Magento? Like, and that tells us,

are we going to have to do technology migration or not. So, like, these are things we typically can answer on the front end before we make an offer. And then when we're in diligence, diligence is really confirm everything you've told me so far is true. Right? It's like the I-O-I part is trust

and the diligent part is verified. And then, sorry, I just have like, I'm sincerely interested in all this stuff. So like, I remember last time we were on the show, we were looking at like dark shampoo. And it was like a consumable, it was a brand. And we were all like, damn, we should have bought that, right? Because it was right before 2020.

maybe it was like an older deal. Is like, is that, I know with elements, brands, that's like, it sounds like brands are your wheelhouse. And I think it's like mostly kind of consumable stuff. But would you be like, hey, man, this spin ball stuff? I feel like that could be like a really good brand in sports. Am I going to go into that category? Do you stay pretty narrow on focus?

Now, so the dog shampoo, for example, we passed on that one because of the time, our checklist said no more than 75% Amazon. And that was a deal killer for us. at the time when that business was for sale. Our criteria have evolved, and we're not so strict on that point anymore. So these documents are living and breathing. But as far as, like, would we go outside of consumer? No, we would.

Like, we would never do spinball because we're trying to, like, we have no expertise in how to manufacture that product. We have no expertise, you know, like selling a $3,000 pitching machine, you know, to an MLB team is entirely different competency than selling a, you know, a jar of skin cream to a 45, year old woman via Facebook ad. This is a totally different business. So, no, we try to stick to our knitting as far as like e-com-centric consumer products

brands. All right. Anything else we could tell you? I could keep going probably for a while. Bill, what's your opinion on Thrasia? Oh, are we still recording? Oh, hello. I'm going to have to put an explicit next to this episode when we post it.

Oh, okay. No, no, it's fine. Go ahead. All right. I would try to keep this to like one or two minutes. Down from like the hour conversation that you have right now. Yeah. So if you want to know what I really think, come North Carolina and let's go out for beers. So, I mean, this is what I really think.

So let me first say, like, those guys, you got to hand it to them. They're incredible operators. They've raised a shitload of money. And they have bolted together literally hundreds of businesses. And somehow the whole thing, the wheels haven't come off the whole thing. I mean, like, when I think of Thrasio, it is like, it's like a clown car on fire with 12 clowns inside, shedding parts, hurtling towards a clip. But like the guy driving that clown car, you got to hand it to him. He's keeping it on the road. Like, that guy is pretty damn good driver. And that's the Thrasio guys, like they saw a market opportunity to roll up Amazon FBA, EBITDA, basically, and do multiple arbitrage.

They're buying these businesses at 3x. You know, they're not paying top dollar. They're paying 3x EBITDA. and they basically don't care what it is. Isn't it still 3x who hasn't moved up to 4 or 5x now? They've moved, they're starting to move up a little. The market is moving up. They are trying to be price discipline. Most of the aggregators are because it's entirely a arbitrage game. They're not so concerned about growing it.

I mean, they'll try to grow it. But their idea is even if we paid three or four times and it doesn't grow at all, we're valued at some insane multiple to that. So it's all accretive. So I don't hate the theory of the threat. business model. My problem with Thrasio is they're at a place now where it's basically a flea market. Like they own everything from like a crappy Chinese yoga mat brand to like packing tape to like some, you know, a pet bed. Like they've got all kind. It just doesn't make any sense. It's not coherent to

anyone. And I was on the on maybe not this podcast, but other ecommerce podcasts all 2019 and 2020 going the only end for Thrasio is a SPAC because no one's going to want to buy this pile of garbage. Like they're not brands. It's just EBITDA. And sure enough, what they announced last month, Grasio is going public via SPAC. So good for them. I think they made a shitload of money, but it's a fully market of brands of Amazon brands. Yeah. And as you said, they're not even brands. It's like literally like no name garlic presses that no one has ever heard of. I think I agree. You said that the theory is good. To me, on my side, it totally makes sense that you can do this like earnings arbitrage. I mean, that earnings arbitrage shouldn't exist

without getting too deep. I think earnings arbitrage is stupid, but it's like a real thing that works. But there's no like returns to scale of combining these businesses. It makes no sense. Like in my mind, the way I think about Thrasio is like two guys come together and they're like in New York City and they're like, I have this great idea. There are 1,500. Chinese restaurants in New York that are all run by mom and pop Chinese like families. Let's go roll those up. And then what ends up happening is like you can buy them up. And then, but you, you can't kind of do a lot of the things that the small Chinese

restaurant was doing. Like you can't employ the kids. You can't, you know, take cash only payments. And similarly, Thrasio, you know, a lot of these businesses, they're buying companies that were doing weird review stuff and kind of like cheating and stuff like that. And then you're not getting kind of the benefits of a true scale roll-up. Like when you combine a bunch of Shopify businesses, you can at least negotiate better pricing with FedEx.

You can kind of consolidate stuff in a single warehouse. But when you're kind of beholden to Amazon and FBI, you're not negotiating those prices down and you're not getting the efficiencies of scale from consolidating everything in a warehouse. So I totally agree with you. It makes zero sense. Thinking of Rassio's supply chain department, like gives me nightmares. Can you imagine how many different Chinese manufacturers that are poorly performing and that they've got to work with? I mean, it's got to be a freaking nightmare.

That company is trash. Everything I see from them is trash. Like, you know, because I hear from the grapevine, like, they're using that vendor for PPC. Like, they're not doing that in-house. It just like makes me wonder, like, what's your core competency besides raising money? That is the core competency, Mulsin. It's raising money and getting deals done and then selling it to the public market. people make a shitload of money doing that in a ton of industries.

It is it is a proven process. That's the thing. Like they're not dumb. Like good for that. Like they had a plan. They worked the plan. It worked. Like you do got to hand it to them.

But it's it's a flea market of brands. Zappa approved air brands. On that note, you're going to have to add, you know, spinball, firearms. And Bill goes off on Thrasio to the odd title. I'm just trying to get my listens up, you know? Try to get some of controversy up here. Bill had a meltdown on the podcast about Thrasio,

listening in and we hear whether or not the stack is a good buy at $47. That's right. All right. I think we've figured out your hack, Wilson, to get back to the top. You're making us recorded basically a double episode. Yeah.

You got to do what you got to do. All right, guys. Well, happy holiday weekend. And I think we'll end on that note. Happy, for us. Later. Later.