Acquisitions Anonymous - #1 for business buying, selling and operating - An ecommerce supplements business we either love or hate - Acquisitions Anonymous 285

Starting point is 00:00:00 Hey, everyone. Welcome back to another episode of Acquisitions Anonymous. My name is Bill Dallisandro. I'm one of your hosts. And on this episode, I'm here with Heather Anderson. And we do an e-com business that I either love or hate. And I can't tell which one it is without signing an NDA. But this is from our friends over to acquire.com where we've been seeing some cool new e-commerce deals lately. It is an Ayurvedic kidney supplement business with an information product business attached to it. So we kind of dig in about why this is either an awesome business or a terrible business. I hope you enjoy this episode of Acquisitions Anonymous. Today's episode is brought to you by IvyWorks, a Boston-based software engineering firm dedicated to crafting tailored solutions for SMBs. Are you tired of off-the-shelf software that doesn't quite fit your needs? IvyWorks understands. Specializing on operations and client-facing software, they guide you from discovery to design,

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Starting point is 00:01:17 complete with systems, architecture, design, and feasibility study. And even if you don't choose IvyWorks, you'll walk away with a comprehensive project scope. Don't settle for generic software solutions, visit IvyWorks today, and mention Acquisitions Anonymous, for your free project discovery walkthrough. Let's build the software your business truly deserves. Hey, Bill. Hello, Heather. I'm excited to be here for another episode of Acquisitions Anonymous.

Starting point is 00:01:41 Me too. I'm happy to be not on the road at this moment because it's kind of conference season right now for me. And I just came back from two back-to-back weekends of conferences and then have another conference and two more ETA classroom visits coming up in the next three weeks. So it's busy. The people can't get enough of you. I'm on my tour, my road show, I guess. I love it.

Starting point is 00:02:06 It's fine. I also just came back from a couple of conferences, also the e-commerce fuel live conference, and I actually sent several people from that conference your way for SBA loans. So you should have some leads on the way. Let's just both keep going to conferences then. It's going to be great. Yeah.

Starting point is 00:02:21 I talk about podcasts. I talk about the podcast in my conferences, so that's good. It's good. Yeah, I don't know. I have made some folks may know I have three kids under four years old. So sometimes I don't know, which is more crazy in my house or a conference. It's kind of back and forth. It's a conference of children at my house. Yeah, right. You probably get a break when you go traveling. Yes, exactly. But I'm, I'm home now and we're back on the show. So we have a good one today. I will put it on

Starting point is 00:02:51 the screen. Will you read it for us? I will. This is an e-commerce startup. It says it's in Australia. By the way, this is from McIre. Health and Nutritional Supplement Business, kidney health. $4.8 million asking price. Multiple's 5.6 times profit, 2.6 times revenue. Brand history, growth, brand history, growth, low-hanging fruit of adding subscriptions, multiple streams of revenue, are the reasons for the asking price. TTM revenue is 1.9 million. TTM profit is 852,000. Monthly revenue is 183,000.

Starting point is 00:03:32 And monthly profit is 145. Wow, this is huge margin. The overview. Profitable e-commerce company with $1.85 million in TTM revenue and 851 in TTM profit that is dedicated to providing support for individuals diagnosed with kidney disease. with one in seven Americans and one in ten people worldwide affected by kidney disease, there is critical need for information and resources to manage and treat this condition.

Starting point is 00:04:00 Unfortunately, many individuals are not aware that kidney disease is preventable and treatable. Even for people on dialysis, there is an opportunity to improve kidney function and in some cases come off dialysis altogether. So they just restate the revenues and they say the competitors are, oh, I'm going to get to not be able to say this right, but Ayurvedic. Ayurvedic. Yeah, it's a category.

Starting point is 00:04:23 It's like Indian medicine. Okay, kidney care, DTS therapy, and good reads. Looks like there's maybe more than that. Growth opportunities, increased digital marketing, social media marketing. The business has a key online program that launched in 2009. That offers a comprehensive guide to naturally support and potentially improve kidney function through a combination of diet, herbal medicine, nutritional medicine, meditation, exercise and mindset practices. In addition, they produce high-quality nutrient herbal-specific supplements

Starting point is 00:04:55 recommended with the program. Supplements were launched in 2021. So the supplements are fairly recent. It's sort of the coaching through this different alternative method of healing started a lot before that in 2009. Turning on supplement subscriptions is another growth opportunity, promising area for generating long-term revenue and customers, launching new products. Clinical studies, this is interesting, supported by interested parties willing to cover expenses. Clinical studies offer an exciting opportunity to increase visibility and trust among potential customers and physicians alike.

Starting point is 00:05:31 SEO, significant opportunity to improve search engine optimization efforts could be employed here. And quizzes. Supplement, oh, I lost it, quizzes. Sorry. Implementation of interactive quizzes could lead to increase email subscribers. So this is just basically a collection of like do better e-commerce under the growth opportunities. Yeah, a big list, a long list.

Starting point is 00:05:59 Yeah. Owners are a husband and wife team that have divorced and are moving on to own their separate business ventures. Owners are Australia-based, but the business is not Australia-specific and can be operated anywhere in the, you know, from the U.S., 90% of the customers are from the U.S. Interesting. interesting yeah so the final metrics are 10,000 to 100,000 customers that's a pretty big range annual recurring revenue 400,000 annual growth rate 30%. What do you think, Bill? I don't put much stock in those metrics considering they don't really add up with all the other the growth metrics or all the other financial metrics. So this is an interesting one. So they claim it's e-commerce,

Starting point is 00:06:44 But I think it's a little bit more, I would say, complicated or at least diverse than that, which is part of what's driving their good margins. So they've got $1.9 million of revenue and $850,000 of profit. A couple things that tells me. Thing one, they are not just selling physical products. And as they mentioned kind of in the description, I think there's a lot of information products, you know, knowledge group memberships, things like that, which can be good businesses. And it also tells me that both of these people are working in the business and they're not, their salaries are not accountable in this P&L. So I would be, my SDE and Tadas go up pretty quick because this is a husband and wife team that's now divorced and both of them are leaving the business. I would want to understand do I need heads to replace those folks?

Starting point is 00:07:35 Pretty much right away. Yeah. And I always jump at the husband and wife divorcing as part of, you know, what's happening. here because that can that can open a can of worms once you kind of find out what's going on. A lot of times, whether it's a husband and wife divorce or a partner divorce, you can find later that there's one party that maybe doesn't want to sell, one wants to sell more than the other, they can't really agree on price. Like you may come to one side of the equation, one side of the seller equation likes your price and the other refuses to accept it. I just, whenever I see that,

Starting point is 00:08:09 I think the odds of the deal coming together kind of go down. Yeah, you got basically two sellers instead of one. Who aren't in agreement about much of anything at this point. Right. So a few things I like about this and a few things I don't like about this. So one of the things I like is it's been around since 2009. So it has some longevity. There's a brand here.

Starting point is 00:08:33 I also like that there seems to be a community. They say that it's a comprehensive, a key online program. which offers a comprehensive guide to naturally support and potentially improve kidney function through a combination of diet, herbal medicine, nutritional medicine, meditation, exercise, mindset practices. And now they also started doing supplements in 2021. So that's relatively new. So my first question, of course, is, you know, break down the revenue of business for me,

Starting point is 00:09:00 you know, between selling supplements and, and this course. It's on my course. The other thing that just jumps screaming off the page to me is that this is an FDA. nightmare. These folks are in Australia and probably, you know, either are totally unfamiliar with the United States FDA or believe themselves to be beyond the reach of the FDA, either way or are willfully flaunting it. But the amount of stuff that you cannot say is probably their entire website. I mean, even this listing to naturally support is probably okay, but potentially improve. Like, I bet all of their claims are FDA.

Starting point is 00:09:39 disallowed. Because I mean, these people have kidney disease, right? And they're selling, and I quote, diet, herbal medicine, nutritional medicine, meditation, exercise, and mindset practices. There are not very many clinical studies. Now, I'm not saying these things are ridiculous or that they might not help. But what I am saying is that these things are not prescription medication for kidney disease and are not approved as such. And the FDA takes a very dim view of people using words like treat, prevent, and cure for anything that is not rigorously clinically studied. So I would have major worries about acquiring this business. It would just shock me if it's buttoned up from an FDA compliance perspective.

Starting point is 00:10:25 And if you're in the United States and you buy this, this is just like a giant sword dangling over this business. Like you're just waiting for the FDA to find you. Yeah, I kind of caught that as I was reading it, saying a disease like kidney disease is preventable. I don't think that's necessarily true. I'm no expert, but I don't think that's necessarily true. Maybe in some cases, but plenty of cases, it's probably not. And these are the kinds of claims. That's why the FDA doesn't let businesses make these claims.

Starting point is 00:10:55 You know, and you don't want to give false hope to people and tell people that you can cure something, maybe take them away from something like dialysis and have them jump over to drying these supplements. So that's sort of the reason that FDA is sort of protecting people from that. So I agree with you. there's probably a really big problem with the way that they're advertising the product itself. And even the information. Yeah, like, I don't know. Like, maybe I'm not even trying to throw their product out of the bus.

Starting point is 00:11:20 Like, maybe it actually does help. But a huge problem is it can be very hard. Even if you have something that does help, the FDA does not like you to say this helps unless you have rigorous, rigorous clinical trials. And it's been approved by the FDA and nominated and blessed as a thing that helps. for this condition. So if you don't have that, whether it works is sort of moot because you're severely handicapped in your ability to market. I also, speaking in marketing, just be interested to learn how they are marketing this.

Starting point is 00:11:53 You know, I wonder if this is Facebook ads driven. You know, when you make claims, you can occasionally get slapped by the major ad platforms, the Facebooks, the YouTube, et cetera. I'd be really curious to know where the new customers are coming through from, the stream of new customers. Maybe it's a big content business. Maybe they put out a ton of stuff on YouTube and people find it organically through YouTube.

Starting point is 00:12:16 You know, maybe there's a, you know, I've seen businesses like this where there's an influencer behind it, like a nutritionist influencer, right? And they put out a ton of content in the end of their video. They say,

Starting point is 00:12:24 also I have my course, right? And then you come into the course and then there's, you know, upsells in the course. I have a hunch. These folks are rather sophisticated marketers. And the reason I think,

Starting point is 00:12:37 think that is that this right here, business model, multiple streams of revenue, supplements, online program, upsells, affiliate sales, sales, third party sense, YouTube channel, and also shop by stripe and they're also using ClickBank. ClickBank is like a classic affiliate marketer kind of funnel building piece of software. So I bet you've got, you know, there's a lot of email marketing here. There's probably a lot of, you know, buying placements and other newsletters. There's There's probably a lot of marketing here that some people may find distasteful, I would say, or aggressive to use a different word, especially given the nature of the products, given the nature of, you know, an audience that really wants hope.

Starting point is 00:13:23 I would just, I'm highly questionable. I would want to see. I reserve the right to love this business if they're on the up and up, because if they are, this is a potentially fantastic business, right? I mean, great margins, knowledge products, subscriptions. The supplement thing is nascent. Like, they don't even offer supplement subscriptions, you know, optimizing that all out. Like, there's potentially a lot here to really like.

Starting point is 00:13:52 There's just this massive checkbox that's got to be checked is, are you compliantly market? Yeah, and I think it's interesting, you know, teaching us about which kinds of, in their tech stack, which kinds of marketing might be kind of the more aggressive types. I did, you know, even lenders will look into that kind of thing. So lenders will take a deal and they might start out with reviews, you know, online reviews and that's something as simple as that. And within those, find people complaining, you know, this is, I can't get out of the subscription and then it'll cause the lender to dig deeper.

Starting point is 00:14:22 What kind of marketing are they using? And a lot of times a lender will actually back away from a deal from what they will call reputational risk. That's just kind of the category. that they'll put things in. But like this one kind of feels like a lender would be shying away from reputational risk, maybe on the aggressive marketing stack if they dug that deep, but initially just on that whole FDA piece and whether this is compliant. I don't think this would work with an SBA loan in particular because of that, because SBA is a government program. And this seems

Starting point is 00:14:55 to be running afoul of the FDA. So that would limit your options. You probably don't really have great financing options for this one. It could be tough. So they listed a couple of competitors here, which I'll put on the screen, this one called DTS Therapy.co. And this appears to be a Japanese. It's called Japan Campo health supplement. So this is a supplement of some kind, made in Japan that claims to help with kidney and liver

Starting point is 00:15:22 health, right? And they've got some product details on the page. So this is, again, not the company that's for sale. This is a competitor of the company that's for sale, which they list it. So I'll just read you a little bit about this. With over 500 years of history, Japanese Campo is widely used for health maintenance in Easter culture, often used for health protection and chronic health issues. These natural ingredients produce fewer side effects while providing essential health benefits.

Starting point is 00:15:45 There's got ginseng in it. It's got some other things. It's herbal. It's Ayurvatic. So it's herbal remedies. It's not, I don't, I'm, people are going to be so mad at me when I say it's not medicine. but it's not prescription medication, right? Like this is not chemotherapy.

Starting point is 00:16:04 This is not something your doctor is going to prescribe you. So, which by the way, supplements are awesome businesses and supplements really help people. You just have to be very, very careful in how you position them. And then also, by the way, it can be tough to defend them because a lot, they're not really patentable. So like a lot of supplements will all have the same ingredients. But this is something I really like about this business. is that they've kind of fenced around it with the community, the content, the memberships, right? All this stuff, it's more of like a knowledge subscription as how to have healthier kidneys,

Starting point is 00:16:41 which I really like that business. And this is the weird thing. You can say almost anything you want. Like this coaching program will help improve your kidney disease, but as soon as you're selling like a product, you know, you're going to have a problem. So it could be that the supplements are their biggest liability. Well, yeah, I agree with you. I like the coaching aspect of it because when I look for supplements and I, you know, there's so many new supplements and new ideas about how to use them and I look online for supplements. The ones that are complying with the FDA, you can't really tell what they're good for. You need someone to educate you. If you want a supplement that's good for this, that or the other, you actually need the information product, you know, to your point. To teach you what to go look for and then go buy the supplements with those ingredients because FDA won't let them make them make. those claims. So that part of the business makes a ton of sense. It's when they kind of leap over

Starting point is 00:17:34 into the supplements and they're already saying these things like, you know, this is preventable and curable. Yeah, that's, like you said, they're from Australia and maybe they just don't realize the challenge there. Or maybe they do and they don't care. Or maybe they're doing it totally compliantly, in which case I really like this business. Yeah. Right. So it, because supplement marketing is such a razor's edge. I mean, you, you, have you guys seen that like the disclaimer on everything, right? These statements have not been evaluated by the Food Drug Administration. These products are not intended to treat, prevent cure, or diagnose any disease or condition,

Starting point is 00:18:08 like all of these things. But then you can't just put that in the back and on the front say it cures cancer either. You've got to, it's a very fine line of being a good marketer and kind of conveying what you want to convey without making claims, which is exciting if they have this good content business because if you have a trusted person saying turmeric helps with your kidneys. And then, like, also they happen to be selling turmeric, but the turmeric supplement itself does not say helps with kidneys. Right?

Starting point is 00:18:39 Like, that's your bifurcation that I think can help protect you because the content sites enjoy a lot less scrutiny than people actually selling a pill that you take. Right, right. I mean, like you said, it's a great business if they're compliant. Margins are huge, but back to your point on SDE, that's probably without salaries. They're showing rapid growth of 30%,

Starting point is 00:19:03 so that sort of tells you that the SDE was a lot lower when it was just an information business. Like maybe there's been a lot of growth since the supplements. That's my guess, just because of them saying that they started that in 21. So yeah, very important to kind of figure out that mix of revenue and the different margins. So whenever I look at a business that's got pretty distinct

Starting point is 00:19:25 different revenue channels, then I want to break down, you know, not just what percentage of revenue is it, but what percentage of EBITDA is it? You know, there's probably different margins on these two channels. And one is probably driving more of the growth than other because, you know, they've been around in the information product business. By the way, I really like that term. I'm going to use it more now for a long time.

Starting point is 00:19:47 And now they're rapidly growing. So that, you know, that sort of says it's maybe the supplements. But really interesting business for somebody. The other thing I wanted to point out for financing, even if all of the other things were great and we didn't have any problems with the stuff we've already talked about, the fact that this is in Australia and does not have U.S. tax returns currently poses an interesting question. I have a lot of people ask me about all kinds of online businesses that are not currently domiciled in the U.S. can I get an SBA loan?

Starting point is 00:20:18 You could, by the rules, the rules say, look, if you're going to take a business like that that's virtual. And as long as you're going to, you're a U.S. citizen or a green card holder and you're going to domicile the corporation in the U.S. and start paying taxes here, you could get an SBA loan. But no lender is probably going to take that on these days because they really don't have a good way of verifying the income. They could try to do a Q of E or something, but it's going to be an outside the box, outside the normal process kind of thing. And it's very hard to ask lenders to take something like that on in a time where the volume for these lenders is pretty high. Like, lenders are lending a lot these days. The growth of the market is sort of taking

Starting point is 00:20:58 care of them. So these sort of offshore businesses that you might want to onshore and get an SBA loan, most lenders won't do it. It's just too hard. It's just too hard. So it's not, they can't. It's that they've got enough other loans going and it just seems too complicated. Correct. Yeah. I've tried to help people get those. Yeah, exactly. So it's always interesting what you can and can't do depends on are we in time, are we in lean times where people are hungry, let banks are hungry to lend, or are we in abundant times, which is where we are right now, where banks have plenty of easier deals. And that really dictates a lot of what you can and can't do. So would you say this is abundant times in the SBA lending market, more so, I guess,

Starting point is 00:21:39 more than the last couple years? Yes, absolutely. It's kind of booming. If you talk to any of the lenders that are in the space of doing business acquisition. Because, you know, out of the hundreds of SBA lenders, there's really only about 30 to 40 max that are banks that are really okay with doing cash flow deals without real estate collateral for acquisitions. And of that limited pool, they are booming. Yes. They're all busy. They're all looking at lots of deals all the time. So, and this is a little bit harder working group than the real estate SBA lenders. I love to compare M&A to real estate sometimes. The real estate SBA lenders that do owner-occupied commercial real estate, obviously they are in lean times. Commercial real estate is really struggling. But when those times are good over there,

Starting point is 00:22:28 those are easy kind of cookie cutter deals. And, you know, when something gets into escrow, the odds of it closing are pretty good. It doesn't get blown up. In M&A, small business M&A, we have to look at a lot of deals at the top of the funnel to get a few to close because of all the different reasons it might fall out. Buyer finds out things in diligence, backs away from that, maybe gets even further into the deal in the Q of E, it blows it up, or goes all the way into closing on a good deal, seller backs out, or seller's attorney, I just tweeted about today, has just ridiculous, unreasonable terms in the PSA, and you can't sign that. So a lot of, the pull-through of SBA acquisition loans, business acquisition loans, is a lot lower than, for example, SBA real estate loans. A lot of work. Yeah, makes sense. So no SBA loan for this one, likely. And they want 5.6 times profit for it. And we're pretty sure that the true profit of this, if you add back employees to take over the husband and wife's role is.

Starting point is 00:23:38 probably less. So this is probably six plus times profit. I think that's going to be tough if this is a supplements business. I think if this is a really well-buttoned up kind of content machine, online membership type thing with growth potential, I think they might get it. What do you think? Yeah, I agree with you. That's recurring revenue. You know, the information side would be worth it, the six. But if it's the supplement side or it's 50-50, I think it's back down to three-fours, you know, because it's small. The EBITDA is small. The other problem they have is they want five million bucks for this thing and there's no SBA loan. So there's a fair bit of equity going in from a buyer. Or, you know, you've got to find some alternative financing. I think,

Starting point is 00:24:29 I think the combination of no SBA loan and international, you know, there's a lot here. I think it's going to push this multiple down. Yeah, I agree. Yeah, financing is a big part of it. If you don't have readily obtainable financing like SBA, it does definitely affect the value. Yeah, but I do like, I would sign an Indiana in this one. I would get the book. I would really want to understand how much of this is information product, membership,

Starting point is 00:24:59 because that's, that's, you know, renewable, it's sticky, recurring revenue. more people, presumably, according to them, are getting kidney disease every day. There's new people coming into the market. And especially if you really help them, that would be great. That sounds like a good business. The mirror image of that is they're slinging white label kind of generic supplements with health claims that are not allowed. And it feels like a kind of scammy online supplements business.

Starting point is 00:25:27 That business I'm not at all interested in. This business could be anywhere between those two. So I would definitely be interested in finding a more. Yeah, check it out and find out. Someone let us know. All right. And I guess we forgot to mention at the top, this is from our friends at Acquire.com. So anybody can go on Acquire.com and pull this teaser and check it out and request more information from the sellers.

Starting point is 00:25:50 All right. Heather, anything else on this one? Not for me. All right. Well, wrap it up. Thank you for joining us this week on Acquisition Anonymous. We will see you next time.

Acquisitions Anonymous - #1 for business buying, selling and operating - An ecommerce supplements business we either love or hate - Acquisitions Anonymous 285

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