Acquisitions Anonymous - #1 for business buying, selling and operating - Can a Virtual Drinking Game Empire Be Built on TikTok?

Episode Date: October 25, 2024

In this episode of Acquisitions Anonymous, Mills and Heather dive into the intriguing world of a $3.2 million e-commerce business focused on drinking games. This business, operating primarily on Shopify and leveraging a massive TikTok following of over 800,000, is cash-flow positive and offers a high profit margin. The episode explores potential risks, growth opportunities, and the ideal buyer profile for such a niche business.Key Points:Business Model: This is a direct-to-consumer brand with products sold primarily through Shopify, Amazon FBA, Walmart, and TikTok.Financials: Generating $3.2 million in annual revenue with a $1.2 million profit, the business boasts a solid 40% profit margin.Challenges: Concerns about single-product dependency, TikTok-driven customer acquisition, and potential lack of repeat purchases pose risks.Buyer Suitability: The ideal buyer is likely a creative entrepreneur experienced in e-commerce or social media-driven businesses, or another e-commerce brand looking to expand into drinking games.Why You Should Listen: This episode provides valuable insights into assessing niche e-commerce businesses, understanding the risks of a trend-based product, and tips on evaluating acquisition targets with heavy social media reliance.Sponsors:Acquisition Lab: An accelerator designed for aspiring business buyers. Created by Walker Deibel, author of Buy Then Build, Acquisition Lab offers a cohort-based program with a proven framework, tools, and resources that guide buyers from search to close. To learn more, visit AcquisitionLab.com or email Chelsea Wood at [e-mail] Business Capital: Specializing in SBA loan solutions for business acquisitions, Viso Business Capital helps secure the best loan structure to fit each buyer’s needs, focusing on speed, low friction, and access to over 30 different lenders. For a free Q&A on SBA loans, visit VisoCap.net.Subscribe 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]

I think it's a tough one. Maybe good as an add-on to somebody else's e-commerce game brand. That's the other thing. I wouldn't want to also be pigeonholed in drinking games. You know, if you're good at games, you make some games that don't involve alcohol or they involve something else. Intellectual games or whatever, you know, maybe another game e-commerce business might buy something like this. This is an Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100% here. Hey, everybody. Welcome back to another episode of Acquisitions Anonymous. I'm Mills Snell, one of your co-host.

me and Heather talk about a really funny business today. We run through a couple different scenarios, which is kind of my new favorite thing to do the last two episodes. It's just me and Heather, and I just run through a list and say, Heather, which one do you want to do? But this was an Acquire.com deal. And it is a $3.2 million revenue business that does online drinking card games. It's all kind of direct to consumer a little bit of their own e-commerce, some FBA, some Walmart, but through their own Shopify site mostly. And it's a pretty high margin business, $1.2 million net on 3.2 million gross revenue. Pretty impressive. We talk about some of the dynamics of a niche business like this, maybe a skew specific risk. Do they just have one product or do they have a few? How could you diversify that? What do lenders look for in a space like this? Will they even lend on a business like

this? Who's the ideal buyer and how do you navigate some of these things? It's kind of an interesting exercise. If you know the game, I would be really curious to hear what it is, massive TikTok audience and how they've leveraged that. Pretty cool, pretty interesting deal. So hope you enjoy. Stick around for a quick word from our sponsors. This episode of Acquisitions Anonymous is sponsored by Acquisition Lab. Acquisition Lab and their team, they've been longtime supporters of the pod and they provide a really great service for people who are looking to acquire a business. So it's created by Walker Dival, who's become a friend, the author of Buy, Then Build, How to Outsmart the Startup Game. So Acquisition Lab is an accelerator with a highly vetted, cohort-based, educational, and

support community for people who are serious about buying a business. So a lot of our listeners, like you, you turn in every week to our deal reviews, you want to get in on buying a business. You know, you're on this podcast because you're trying to learn how to buy a business. But if you're not quite sure where to start, acquisition lab is a great place to start. So they exist to help people buy a business and to navigate all those complexities of the process, everything you hear us talking about on the show. They provide a proven framework, tools and resources that support you all the way from search to close. They do it.

There's a whole bunch of educational material and support. So if you're serious about buying a business, check out AcquisitionLab.com or you can actually email the program director Chelsea Wood directly. Her email is Chelsea at buy then build.com. Hey, Heather. Good morning. I understand you have a list of deals for us to look at. I'm so excited. I don't usually plan ahead, but driving over here, I was texting and driving or I was on my phone and driving.

But I was looking back through some emails I got in about. deals lately. And so these were some of the ones that stood out and I want you to pick which direction we go. This is like what we did the other day. So one is an e-commerce business that does handcrafted coin jewelry from rare coins.

So that's option one. Option two is a refillable wellness tea blend two million in revenue. Option three is a online marriage service for international couples. $200,000 asking price,

and they do $200,000 in revenue annually. And then the last one is a e-commerce business that does unique drinking slash party card games sold on Shopify, Amazon FBA, and retailers nationwide. What a selection. Are those all interesting? I've never looked at any of these. I feel like I would like to do all of them.

Oh, my gosh. Do we have to pick one? The international marriage, I'm not going to pick it today, but I feel like we have to go back to that one at some point. That's got to be pretty interesting. So I think I'd go between the coins and the party drinks. It's Friday, so maybe we should party drinks. Yeah, that's good. Let's do that one.

It's a little bit bigger. All right, I got an email it to myself. I should have come a little bit better prepared, but I was getting close. So I'm going to email it to myself and then I'll pull it up on the screen. All right. We're going to get into the party drinks real quick here. Yeah. I've seen, I'm not a big party drinker or anything like that.

But I feel like I've seen more and more of these advertised on like, you know, Instagram and things like that where I don't really know how it works. And this one doesn't tell us like the name that would kind of be interesting to know. But I'll pull it up and I'll share my screen here. I'm going to age myself, but the party drinks, yeah, the games that we had back when I was young were like quarters. Yeah, yeah, exactly. We didn't need anything special, a quarter. Okay, so this says it's an acquire.

It's an e-commerce startup based in Michigan. It says unique drinking slash party card games sold on Shopify, Amazon FBA, and retailers nationwide. They're asking $3.5 million, which is a two point. 8 times profit multiple and a 1.1 times revenue multiple. It says with the vast majority of our sales coming from e-commerce, we believe the right buyer will have the opportunity to establish key retail partnerships and scale the business to new heights. Additionally, the brand holds valuable intellectual property, including multiple U.S. copyrights and trademarks. Trailing 12-month revenue is 3.2 million. Trailing 12-month profit, 1.2 million. Trailing 12-month profit, 1.2 million. Last month, they did $368,000 in revenue and $138,000 in profit. The description here is it

says, profitable e-commerce brand with $3,158,000 in trailing 12-month revenue and $1,241,000 in trailing 12-month profit. Specializing the creation and sale of unique drinking and party games. We primarily operate online through our Shopify site, Amazon, Walmart.com, and TikTok shop. In addition to our e-commerce presence, we're in a couple national retailers in boutiques. Our brand has built a significant social media following, including over 800,000 followers on TikTok.

Wow, I kind of now wish Bill was here because, you know, it's way more about this than we do. But they have 800,000 TikTok followers. They relist their revenue and everything. That includes $150,000 in inventory. The business has been around since June of 2021. They have a team size somewhere between two and 20, people and they just list kind of some of the the tech stack of Shopify. Their competitors are

what do you meme? DSS games, dice games, do or drink. I don't know any of those. I don't know them. Yeah. Growth opportunities, expanded new markets, increased digital marketing, social media marketing, increased content marketing and new product features, key assets. They talk about trademarks, copyright brand, domain. main inventory website, social media accounts, customers, and marketing materials. They're selling for a lifestyle change or starting a new venture, and they mention that they're bootstrapped. Interesting.

This is actually cool. Well, they have a great profit margin. I think it's about 40%. This is kind of nice. So this must just plug into their Google Analytics, but Acquire has the data, Acquire.com has the data on how many website, you know, visitors they've had. how many users and then sessions bounce rate bounce rate um session duration so there right up front yeah their customer acquisition channels um has been mostly paid social so like august was a huge

month month for them they had um it looks like about 100 000 customers um and 90 000 of those came from paid social so it they they talked about their ticto shop and the number of ticot followers So that's not super surprising. But what do you think, Heather? Really interesting business. Obviously, there's a little bit of creativity involved because you have to come up with a game that is going to be appealing on these social media channels. And it sounds like you probably have to reinvent or have a new version or you can't just stick with this one game. And I think maybe that's the hard part of this business is keeping it fresh.

But they've obviously found something that has worked at least up to. this point. And a 2.8 times multiple based on profit is really low, is really good. They don't talk about how much time they dedicate to this business. It almost feels like it could be a side hustle kind of business where they're, you know, let's just, we got this profitable. Let's just sell it off. And maybe to the right person, you know, they can continue it and grow it. But I love the profit margins and I love the simplicity, what I think is simplicity of the deal. What do you think? Yeah, I think, you know, they say creation and sale of unique drinking and party card games,

plural, but my guess is, is that they came on the market really big with one, you know, one skew, one core kind of idea or concept. And then they probably have, you know, wisely tried to diversify that somewhat. But my guess is, is this is probably one of those businesses that, you know, 60 to 80% of the revenue comes from, maybe. maybe not just one skew. Because the best games, like, you know, these kind of iconic games, like Settlers of Katon and, you know, all these different, you know, they, they have created expansion packs. And so they kind of find ways to continue to generate revenue and keep the game, you know, the game's intriguing or engaging.

I'm not really, I'm not on TikTok. So I don't, I don't know. I haven't seen this, you know, brand. Like, there's not names that are immediately jumping out at me. But I wonder, my concern. concern about something like this is not just kind of the the longevity of the one core idea, but there's no there's no like follow on revenue, you know, at least that I can imagine. Maybe they've figured out some way, but they don't really talk about, you know,

lifetime value of customer or anything like that. It's probably just a one and done purchase. The market's probably huge. You know, the Tam is probably huge. And so, yeah, you could, you could conceivably, you know, sell a lot of these and still not, you know, crack the surface of the market. But I would love, I mean, the ideal thing here is, is there some way to continue to, you know, generate revenue? Is any part of this game like consumable or, you know, need to be replenished so that you could, kind of like we've talked about with like air filtration, you know, you sell the air

filtration hardware for, you know, cost and then you make your money long term on the filters. Like I would love if there was some element like this, it would make me feel more comfortable. Razor, razor blade is not here. It doesn't seem like. Yeah. Yeah. I'm a little bit worried, too, about the, you know, the reliance on TikTok. They don't mention, you know, and we have 500,000 followers on Instagram or a big Facebook group or something like that.

But I think you priced that in to the risk associated with, you know, with this deal. And maybe it's more reflected in the structure. Because I don't think the valuation seems that outlandish, like you said. Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size fits all. There's the best rate, fastest to close, the specific loan structure that you need,

or a little of all of those things. That's why my company, Vizzo Business Capital, works with over 30 different lenders to find you the best funding in less time and with less friction so you can focus on the deal. up for a free live Q&A session on SBA loans at VisoCAP.net, then click Zoom sign up in the top right corner. That's V-I-S-O-C-A-P.net and click Zoom sign up. Yeah, valuation is good, but you do still need some protection because the longevity of this revenue is suspect at this point. It feels like maybe kind of a trendy game, right? This could be popular. Why was it so popular in August?

I don't know if that's because everybody just drinks more in August. I don't know that, but, you know, college students came back, you know, or something like that. Yeah, the college students came back and started partying again. I didn't know drinking was seasonal, but now I'm starting to think it is. And who knows? Maybe they had like without having more info, but maybe they had like a really viral post, you know, on TikTok. And yes, there is a paid, you know, maybe they're using TikTok shop. And, you know, so it's there's some kind of dynamic or correlation there.

Right. Right. And you'd have to really be a great marketer and understand what's happening there and how you would, you know, keep that going and kind of keep the revenue at least stable. If you could keep it at least stable, this is a good deal, 2.8 and stable and just keep that revenue going. Fantastic. But I don't think it's that easy when it's something like this. It's sort of trendy and TikTok oriented because obviously social media trends are fleeting. You know, they're here and then they're gone. And that is what you'd suspect maybe is the real reason or at least one of the reasons behind why someone might want to sell it at this point. You know, it's reached a great level here. Let's let's hand it off to somebody else who wants to put the time into keeping it here.

But yeah, I would love to know which game it is. I hope one of our viewers knows or has a hint at what game it might be. I will tell us. I didn't know there were so many drinking games. I didn't know. I thought we were just, you know, I'm still stuck back in the 80s. You know, I feel like there has been like a resurgence of these kind of, you know, like cards against humanity and like apples to apples. And, you know, I'm reaching the limits of the card games that I know.

But I feel like there's been a ton of them lately. The one thing that stands out to me about this, too, is I think the dilemma that most e-commerce businesses face when they think about growth prospects is that it seems appealing to go sell wholesale. to retailers and boutiques that they mention. And if there's that ageal dilemma of, you know, you get the PO from Target or from Walmart or, you know, from CVS or Walgreens or something like that. And it's amazing.

And we've talked about it a lot in the past, but you know, you're used to direct a consumer, very quick pay, great margins, and you're really only worried about acquiring customers. and you layer on a totally different business with totally different margin profile, totally different cost centers, totally different risk and reward. And so it seems like they've already made that jump,

but I'd be really curious just to ask a lot of questions of this seller. How did that process go? You know, the nice thing is if you start with all the, you know, all the traction, all the visibility, all the customer and brand awareness, you might get slightly better terms being pulled into these big, you know, big box retailers, but still, they're going to make you, you know, do slotting fees and buyback dollars and, you know, you're going to end up with a lot of returned inventory and things that are just not present in the direct-to-consumer model to the same extent.

Right. And that you may not have the skill set for it. Like you're learning another business while you're doing it. And often that leads to mistakes. We learn by mistakes as just naturally. And those mistakes can be pretty expensive. You know, I mean, the inventory, I got to believe is pretty cheap. Although I was a little surprised that they said $150,000 of inventory included.

That's a lot of cards, right? I'm imagining this giant warehouse of way too many cards, boxes of cards. Yeah. Yeah. And, you know, I guess, I mean, you're talking about really, that's, you know, what, maybe two or three months worth of inventory, you know, depending on if it's cost, you know, or kind of retail value of the inventory, we don't know. but it I just am really curious about the the revenue breakout across products and types. And, you know, if let's say best case scenario and kind of hypothesize a little bit, best case scenario, the, you peek behind the curtain of this thing and they have 10 skews.

And one of them does 20% of their revenue. But they've proved they have some model for, you know, idea generation. and bringing those new products to market, that would be awesome. That would be really cool. And then you go, okay, maybe I can't replicate that 100% like the founder does, but I at least have no product-specific risk of it just falling off of a clip. I think the worst-case scenario is you peek behind the curtain of this and you find out it's really only one skew. Maybe it comes in like two different colors or something like that.

And you have major, just single product risk. I think that makes this feel a little pricey at 2.8 times. Yeah. And I'm going to guess that's what it's closer to that one. Yeah. Because if it had all the other stuff, they would have highlighted it. And they would probably be asking a higher multiple for it. So they got one card game that's doing well.

Here, take it. And it needs to be someone who's really got, can bring those other things to bear, who can bring a creative model to it to say, you know, I know how to do that. And, you know, it's hard to. it's hard to filter for that. Who's the right person to buy this? Someone's super creative that knows how to make games. Because you can be creative in a lot of other areas,

but games is kind of its own special world. So I think it's a tough one. Maybe good as an add-on to somebody else's e-commerce game brand. That's the other thing. I wouldn't want to also be pigeonholed in drinking games. If you're good at games, you make some games that don't involve alcohol or, you know, they involve something else.

games or whatever, you know, maybe another game, e-commerce business might buy something like this. It seems like there's been, you know, some of these new, and not specific to card games and not specific to drinking, but, you know, like spike ball or can jam, like more like, you know, kind of frisbee, like beach, you know, kind of like games. And some of those, I mean, really took off in a big way. And they went from, you know, it was probably 10 years to overnight, success, you know, just, but they, they weren't on everybody's radar since inception. But I would think some of those businesses are getting into the, you know, tens of millions of revenue or maybe even hundreds of millions of revenue based on how, just how much distribution and saturation. I go to the

beach and it's like everybody's playing spike. Everybody's got. Yeah. Or the, you know, it's just interesting when one product takes off like that. I would wonder, you know, how much could this product do that? And then are there people who say, look, we get really comfortable around one product. It is a rocket ship. And we're going to hitch, you know, our cards to that. And we get comfortable with the risk. And maybe they take more of a portfolio approach and they just know how to launch and scale, you know, single brand e-commerce businesses. That type of buyer probably looks at this and says, we could do this in our sleep. And this is cheap, you know. Yeah. Right. Right. So for the right buyer could be a great deal. But the typical

searcher looking for a more diversified business. Probably not a good one. What do you think? What do you think the sticker prices for something like this? Is it $20, $25? For the product? Yeah. Probably.

Probably. You know, if it's a game that you've heard about on TikTok and it's fun, $25 is nothing. Yeah. People would pay that. Sure. That's what I think. And I think, you know, from based on some of the things that Bill said and other deals we've looked at, that's a really kind of nice place to be in terms of average order value for

e-commerce. And this is, by every indication, if it's a card game, you know, it's a very low shipping cost, very low weight. It's not an odd packaging size. So I think they probably have the right ingredients for, you know, their cost structure and their margin structure. Yeah. Yeah. Maybe they should send us a card set and let us play it on a, on a, episode. Yes, yeah, exactly. We could that we could come up with our own drinking game, you know, like drink every time somebody says EBITDA or something like that. Yeah, right. We could we could make our own version of it. That would be we should buy this and do that. That would be great. The other thing, Heather, that would be fun is a like a bingo card,

you know, uh, like a lender specific bingo card like loan to value, you know, or like I don't know, just all the hot, hot terms. Yeah. Okay, I like that. I think we could have fun with that. We should make one. All right. So I'm thinking on this deal that this company,

there's a really high likelihood that this transacts. I can't imagine something that is kind of unique with this margin profile and this size. This is not probably going to be, you know, somebody's first acquisition buying this. This is not a, you know, a first-time buyer kind of scenario. It's probably from a, lender perspective? I mean, does somebody lend the money in the SBA world to buy this?

Not for the first time buyer, I don't think. Well, let me step back. The SBA world is filled with a lot of lenders and some are better than others at, you know, thinking about the holistic risk. There's a lot of lenders who might just look at cash flow and might lend. Yeah. Is that a good idea? I don't think so. You know, for a first time buyer that's just getting a, you know, this is a standalone deal. But could they get it? Yeah, they might be able to, which kind of is scary. But the more sophisticated lender probably wouldn't say no because, you know, one skew or pretty close to that, too much risk. Yeah. Yeah. On let's just say it's it ends up being a $3.2 million purchase price. What do you think the just rough order of magnitude? How much

debt do you think gets placed on this? Is it two turns? You know, now SBA can go up to three, three and a half turns even at today's rates. But, but a smart deal here would be two turns. Yeah. That's what outside of SBA, that's what you typically see. Now, this is too small outside of SBA as a standalone. But if a strategic buyer comes along and it's an add-on, sure, you know, two times leverage. that would make sense. It's an interesting one. I've never looked at anything directly like this, but I think it's unique.

And they obviously are doing something. Their margins prove that they have a unique concept. I wonder how durable and sustainable it is. And that would be really probably the biggest thing that a buyer would have to, you know, underwrite and kind of risk adjust around is how long can this continue on the current pace? I think it's a very interesting. deal, very transactable for a lot of different types of buyers. So I like it. I'm not going to spend

the next hour Googling and searching TikTok for drinking games, but I'm very curious. And if somebody knows, you know, I would love to know what it is. Tweet us about it. Now imagine if you did do that on TikTok, what your TikTok feed would start to look like, right? Yes. Yeah, exactly. It'd be pretty fun. Well, thanks everybody for sticking around, Heather, fun episode with you. And, uh, It's got my wheels turning about why haven't I created something like this. Yeah. All right. Thanks, everybody.

We'll see you next time.