Acquisitions Anonymous - #1 for business buying, selling and operating - What will make a buyer pull out after LOI with Casey Cutsail - Acquisitions Anonymous Episode 101

Episode Date: June 10, 2022

Bill D'Alessandro (@BillDA) is joined by Casey (@CaseyCutsail); we talk about 2 Auto Parts Businesses for sale. He owns a business called DIY parts in the aftermarket automotive accessories niche. He also owns a 3 PL with three separate locations. We talked about a Deal he had under LOI but ultimately couldn't move forward and a second deal in the FBA automotive space. We appreciate his second-level insights on the listing that you wouldn't see on the first read-through unless you're in the industry.-----Thanks to our sponsors!* CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a "client service first" approach. They provide a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----* 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.-----Show Notes:(00:00) - Introduction to 2 Auto Part Businesses for Sale(00:54) - Our sponsor is Cloudbookkeeping.com(02:41) - What do you need to know first about Casey's e-commerce business?(04:12) - Deal 1: Auto Parts business Deal(06:04) - What are Lift Supports?(07:35) - Did they make their gas charge struts, or were they a reseller of other brands?(08:33) - Did you learn anything post-LOI that made you change your mind?(12:20) - What did Casey start digging into first as his LOI got accepted? (13:42) - Why did the business start rolling over as soon as it was listed for sale?(16:00) - Bleeding the balance sheet: Pay attention to this seller's behavior(17:55) - What happened during Diligence? What was going on with the sales?(23:29) - Was there anything else that Casey took away from the process that will be useful in pursuing future deals?(26:06) - Introduction to 2nd Deal: Amazon FBA automotive space(29:32) - What's Casey's take on the accessories niche in the Automotive parts space generally? How do we understand niches?(32:43) - Why is surveying the competition on this deal significant?(35:10) - Why is the barrier to entry a significant factor?(37:00) - What are the two reasons why having two and a half million sales worth of business is tough?-----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:#96 From W-2 toSubscribe 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]

Welcome back to another episode of Acquisitions Anonymous, the internet's number one podcast about buying and investing in small businesses. This week, I have my friend Casey Cutsale on the podcast. I'm known Casey for probably five years. We're mutual members of the e-commerce fuel community. Casey's been in e-commerce for a long time. He owns a business called DIY parts in the aftermarket automotive accessories niche. He also owns a 3PL with three separate locations. So he is neck deep in e-com. So I had him on this week and we discussed a deal that he had under LOI in his niche, what he really loved about it, and then what ultimately caused it to fall apart in diligence. And we also had him talk about a second deal in the FBA automotive space.

And I really appreciated kind of his second level insights on the listing that you wouldn't see on the first read through unless you're in the industry. So I hope you enjoy this episode with Casey Cutsale. Hey, Michael here. Want to talk to you about today's sponsor for the episode, which is cloudbookkeeping.com. So cloud bookkeeping is actually run by my neighbor, Charlie. So I've met him in person and can attest that he's a real human being and a good person. And what cloud bookkeeping does is offer a full suite of bookkeeping services all in the cloud for you around QuickBooks and other technologies that you're using as a small business owner. So if you're interested in getting the bookkeeping part of running a business off of your plate and focusing on running your business, Charlie and his team are one to call.

They can put together a bunch of other stuff in terms of helping you manage and grow your business besides just bookkeeping, sophisticated reporting, definitely helping you get your quickbooks online set up in the right way, and a number of things around payroll as well. So definitely know them and recommend them. If you want to find out more about cloud bookkeeping, you can go to their website at cloudbookkeeping.com, reach out to Charlie. I know many of you have and see if he can help you make running your business easier and more fun by letting them help with a lot of the bookkeeping solutions.

And when you call, mention this podcast. It would help us and help Charlie know that we're supporting him as well. So thanks a bunch. and cloudbookkeeping.com as the sponsor for today's episode. Casey, it is great to have you on Acquisitions Anonymous. We've been friends for a little while, men in person several times, mutual friends through e-commerce fuel.

Great to have you on the podcast. Yeah, thanks for having me. Of course. So if you could tell listeners a little bit about who you are, the businesses you own, I think that'd be great. Yeah, that sounds good. So I have been in e-commerce for 17 years. I started out on eBay and marketing.

at places. So that's one of my personal areas of expertise. Another area of expertise is logistics. I own a three location, three PL. It's a smaller three PL, but we cater to e-commerce. So my e-commerce businesses specialize in automotive is our focus. We have several different small companies in e-commerce, automotive, a few different brands. And yeah, we were looking to add to our structure and kind of build out building brands is difficult. So I wanted to try my hand at purchasing one this time. Okay. So you got expertise and logistics. You said your 3PL has three different locations. So you're nationwide. Correct. Yeah. East Coast, North Carolina. Central is Texas. And then West Coast is California. Okay. Cool. So automotive was a space you knew well,

you know, from other brands that you'd had, you know, earlier in your career. You decided that you wanted to buy another automotive accessories brand. You know, that's something we're going to talk about today. Okay, cool. So, Casey, you brought a deal today that you actually not only looked at, but got under LOI, and it ultimately fell apart. And we're going to get into kind of what you liked about it in the first place, why you went under LOI and kind of what happened that made the deal fall apart.

So if you're on YouTube, we'll put it up on the screen. Otherwise, I'll read it now. So this is a 16-year-old auto parts business that was founded in 2005. It continues to grow in revenue year over year and has done 6.6 million in sales in the trailing 12 months. The focus is on gas charged lift supports. I'm going to need you to tell me what that is later. The products that are used in automotive vehicles, RVs, campers, boasts, kitchen cabinets, and more. With a vast selection of products, this company is able to meet the high demand for lift supports. This has contributed to a 10% revenue at 36% SDE growth in the

trailing 12 months. The business has diversified revenue channels with Amazon at 73%, their website at 19%, eBay at 6% and Walmart at 2%. The seller would like to retire, and now is the ideal time for a new owner, Casey, to take over and continue the business's history of growth. The large opportunities for a new owner exist in improving the longstanding, but parentheses not the most up-to-date online sales channels. This includes advertising on Amazon, which is currently not being done, and utilizing FBA for more of the business's Amazon listings, FBA being fulfilled by Amazon. The current owner is comfortable with FBM and has not considered using FBA, meaning probably for most of the parts, it is not prime eligible. It says the business is currently SB pre-qualified

for a $2 million SBA loan. So running through the financials, the gross revenue is $6.6 million. The discretionary earnings are $750,000 on that $6.6 million. So a little over 10%, maybe, you know, 15 margin. Their inventory is plus or minus $850,000. It is SB eligible and that works out to an asking price multiple of 3.76X. So Casey, tell us what you thought, you know, when you first read this, what got you interested in the deal? Yeah, so there was a lot to like. First of all, let's talk about what a lift support is. These are oftentimes called struts. And there are, you're, they go on hoods and trunk. So there will be one on each side of the hood or the trunk. And it helps either raise or slowly lower. It holds it in position while you're working on your vehicle or putting something in your trunk.

So it's a, we call this a hard part. This is something that gets replaced when you need it. So when they go bad. And this is not something that you would want to go for a very long time. So you would want to replace it right away. So it has a really high conversion aspect to it. So yeah, a lot to like a 16-year-old business. That's fantastic. Seems like so many businesses you see are newer and consistent growth. As we got into the business, that was further confirmed.

Very good growth. The thing that I really liked the most about this, which spoke to my area of expertise, was the Amazon. things that it was the most of their business, but they were not tapping into some of the things that make Amazon businesses really successful, namely FBA and or marketing. And yeah, the further we got into it, I saw that they weren't doing that and saw tremendous opportunity with that. So yeah, a lot to like on the surface. So was it, did they make their own gas charge struts or were they a reseller of other brands? They were, they do both. So they're not a manufacturer. They

probably started out 16 years ago reselling third-party brands and then over that 16 years transition to private labeling and building their own brand. At least for the last eight years or so, their private label brand was the majority of their business, which is a good thing. That's a great thing. So they've got solid growth. They've got their own private label brand. They've got really good penetration on Amazon, but they're really not pulling any of the levers that work on Amazon. They're not prime eligible. They're not doing Amazon advertising.

So I can see how you said, you know, man, there's a lot of upside for me here in this deal. So I assume you did a fair bit of diligence and they got the business under LOI. By the time you got it under LOI, had you learned anything that gave you? you pause or were you were you pretty gung-ho pre-l-I pre-L-OI I would say pretty gung-ho not too much came up that was a red flag probably the only thing that I learned of prior to LOI was how that it was a family business and that the family was there were multiple family members the team was small so the family made up a large percentage of the team and made up all of the leadership team. So I don't know how everybody feels about that, but that can be both a

good thing and a bad thing. As we got into it further, I felt like it was a good thing, got to know them, and felt really good about it. But that was a little nerve-wracking at first. So let me zoom in on that because I would think that is so much of the bad thing, I would walk instantly. Because the family is tied into the management team, the family's about to get a big check and become totally disincentivized. And my experience has been typically, even when you have friends or family, when one of them leaves, all the other ones leave to within six months. So how did you get comfortable with that? What I learned was that the family wanted to continue. And throughout many conversations, it was apparent that that was the mission. They made,

they would have gotten some kickback but frankly it was it was not the motive they they needed to continue in the business they they wanted to the business is in a very expensive location to live so they were the family was not going to retire on this set so I I did firmly believe that they wanted to continue and it was going to be financially a good choice for them and for the company to continue okay so they were because they were just doing the math on the multiple you know you don't have to close but you bit what you bid but the asking bid was about three million bucks seems like little little under three million bucks so i'm going to assume it's probably

you know california new york one of these high cost of living spots while three million dollars is a lot of money you know it's probably not never work again money especially yeah split amongst a couple people yeah and i don't know if this executive summary said it or not but the owner wanted to retire and that was further confirmed he was of age to retire, has had many successful businesses, has been doing this one a long time. He wants to retire. And the way it was worded, the family was not in a position to take this risk on financially and buy it up from him. So this was the alternative.

Okay. And then how did you get comfortable that the family then, you know, maybe they wanted to buy it from them, but they didn't have the financial wherewithal. Casey swoops in, hey, I'm your new deep pocketed uncle Casey. do everything I say, you know, how do you comfortable with that? It took a while. And a lot of conversations, again, to make sure that they were committed to the business. We didn't have any conversations about, hey, why are you not buying this business?

I kind of left that alone. I didn't feel like that was my business to pry into why this wasn't working out a different way. Maybe they just didn't want the risk. It is very risky. They were, they are selling the business at a peak time. And maybe, maybe they were scared of what they could do as a business operator. Because as we know, operating a business and growing one and simply being a part of leadership is very different.

So I felt comfortable with it after many conversations. Okay. So you got comfortable with it. You submitted your LOI. It was accepted. So now you've got 60 to 90 days to do exclusive due diligence. What did you start pressing on first? So I started looking at what I know, which is obviously the P&L, but specifically digging into their Amazon account, reviewing the products, looking at their supply chain and the logistics, things that I knew.

And yeah, things were both. Things actually looked better than I expected. I saw more opportunity. I saw more opportunity than I was. kind of even banking on, which was great to see. I think there's a lot of potential with this business even still. But yeah, as time went on, I started to see some things. The first thing I saw was revenue wasn't growing 10% year over year. Maybe it was if you were looking at it on an annualized basis, but on a month to month, which I look at numbers pretty closely, it was actually

flat and throughout due diligence, it started to decrease. So that was concerning. There were some other things that propped up that were concerning too. But that was the first. So before we get in the other things, were you able to, it's interesting that the business started to roll over right as soon as they basically listed it for sale. Were you able to put your finger on why that happened? I think so. So when I saw that, I was also. so very skeptical and wondered, oh, are they trying to pull one over on me and dump this thing before the wheels fall off? That did not happen. What I learned is that the operator, the owner, simply didn't pay close attention to the financials. They were two months delayed, and the time

period from when this executive summary was built and everything was submitted, there were three months that lapsed from when I looked at it and when we became under LOI. So five months had passed, and that allowed for the time for things to start falling apart. They did say that one of the things they chose to do was order less inventory to prepare for the sale. Yeah, so that came back to bite them. I didn't go so far as to connect the dots if that was the whole story, but that was part of it. I did see where average order value increase and cost of goods were going up. So what I'm guessing, another contributing factor is, hey, we have to raise our prices to maintain margin, and the market was not receptive to these price increases. There are China

competitors for this product. There are some name brands out there that maybe are more expensive. They kind of fall in between. So yet the gap was widening. Perhaps their pricing was no longer the right market fit for some of these partners. Okay. So and this was just so people know what timeframe was this? The time frame of year or was it earlier this year when when supply chain they might have been getting cost increases? Yeah. So they they listed the business for sale in Q4 of 2021. And we were under LOI right at the end of the year. And then, yes, really got into it. The numbers really started decreasing January, February 22. Okay. So a combination of maybe took their eye off the ball a little bit because they didn't

have good financial reporting. And they figured, hey, we're selling this business. I'm not going to pay attention. Seems like they classically tried to bleed the balance sheet for cash. You know, hey, why am I going to order more inventory if Casey's just going to get it? Which, by the way, comes back to my soapbox for working capital adjustments in small deals, which is a wrap hole. We don't have to go down again. But like, this is just such classic seller behavior to want to leave you with essentially zero inventory. And then you as the buyer have to say, you know, not like I'm not buying them separately. Like the inventory, the working capital is the blood of this body that keeps it working.

And so then, you know, if I immediately have to stroke a check for half a million dollars of inventory on day one or worse, I'm not going to be able to hit my sales goal because I'm out of inventory because of lead times. I need to take that out of purchase price. So I mean, that is like the number one dirty seller trick that you should be on the lookout for. It seems like these guys were trying it too. Yeah.

I don't think it was intentional that they, the decision to go light on inventory obviously was intentional. They said it was. But I genuinely don't think that they were doing anything to make this deal not to be something other than it was on the surface. Like a lot of things, almost everything checked out. Like these were good people and I hate it. It fell apart like it did. Okay. Yeah.

So, you know, maybe not. malicious, but, you know, sometimes they just go, hey, I'm not going to do it. You know, they don't realize that they're trying, they're not trying to screw you. They just say, why would I, I don't want to cut this check. I'm not going to see any money back. Yeah, just a bad decision that in the short term seems like a good thing, but in the long term was not a good thing. Yeah.

So it seems like that was sort of the first thing that gave you pause that the sales were starting to roll over. They were a little light on inventory. I assume it went downhill from there. What happened next? So another big thing that happened in diligence was one of the third-party brands that, so let me back up. So the third-party brands, they still sell those.

Those third-party brands and part numbers were part of their R&D process. So they used the data from those and sales numbers to then go and create their own. Makes sense. It seems like a fine strategy. So what I learned was that the third party brands made up more of the sales than what I had hoped. Third party brands can be low at margin, less control. I didn't love that. In due diligence, one of the brands that made up 25% of their total revenue had a overnight, 44% cost of goods increase.

No notice. Phone call. Hey, this is happening. Game 22, baby. Brutal. Yeah. Yeah. So they were, again, just to speak to their character, they informed me immediately.

They said, obviously, this is not something we could have predicted, but this happened. And this is exactly why I didn't like the third party brand portion of the business, because you don't control that. Things can change. I personally had third party brands. That's what I did in the beginning in transition, just like this company. I have had brands compete against me, cut me off, all kinds of things. You just can't subject yourself to third-party brands that much.

Yeah, you don't have, you don't control your own destiny at all. You will be subservient to their business strategies. Yeah. So in due diligence, I'm seeing a decrease in sales. It actually got to a point where sales were 10 to 20% down in the final. days as far as year over year numbers. Now we have a 44% cost of goods increase that is going to literally take probably three months to play out. Like they have some inventory. So when do they raise those prices? Is the market going to be receptive to that? Like that is just a huge mystery box.

Like they could be looking at a 25% revenue decrease if it's so expensive that they can't continue. So that was very significant. Did you do a model? So they were doing about 750,000 of SDE, this 44% price increase on one of their largest inputs. What was that going to take, hit them on the bottom line? Did you do that math? If they didn't raise their prices.

I did not. So we did not get into a deep financial review. I had my accounting firm lined up ready to do an audit of sorts or a review. and start to get some of this more specific vendor cost of goods information. We did not get that far. Because of this and the other things I saw, we kept our conversation very open and said, hey, what are we going to do? I can't pay you this for what I'm seeing.

We need to either go back to the table, renegotiate. We can extend due diligence, give you a chance to write the ship, or I guess we have to walk away mutually, which is ultimately. Yeah. So there wasn't necessarily one thing. It was just a series of body blows. And then you eventually had to go to them and say, look, guys, I either need a huge purchase price reduction or did you say that or you say there's no price at which I'm willing to this deal, see you later?

So that was the hard thing because I saw so much opportunity with their brand and what I could apply to the business and my company. Like, I still wanted to do it. But being financially disciplined, I could not do it on the terms that we had originally agreed to. But I'm not the kind of person to say, hey, here's the new price, take it or leave it. I said, what do you want to do? Like, I'm still interested, but it can't be at this price. So what are we? And they ultimately said what?

They said, we're going to pull the listing. We think there's too much here to fix in a short period of time. And that's what they did. And we've kept in touch. And I am still interested in the business if it comes back to the market. Okay. So I think that's a really interesting point to make, which is that when a deal falls apart, it doesn't necessarily mean that there's bad blood or that, you know, anybody misrepresented anything or that it won't get done in the future. So I mean, I'm really impressed with the way you handled it where, I mean, who knows? knows. I'm sure that your your optimal outcome would be over the next six months. They fix all these

things and they call you back and the business is healthy and you have the opportunity to buy it, right? Absolutely. I'd be thrilled with that. Yep. So I mean, I think it really goes to, you know, don't burn bridges in this industry. You know, a lot of deals. I mean, we may have you back in the podcast next year and you'll talk about this deal died three times and I finally got it done, right? Never know. Just never know. Never know. Was there anything else that you kind of took away from this process that will be useful to you in pursuing future deals? So something else that was that I kind of saw a different perspective on was how they operate their business. They chose to go heavily with technology. So they had a pretty hefty technology budget, a lot of software.

And so their strategy was to manage with a few key employees, this entire business with technology and software. It showed me a little of my shortcomings that how little I actually had. That's great for your bottom line, but it really hurts for growth. So that's something that I chose to implement in mine. I got a, what's called an out-of-the-box, ER. that we're working on, not something that's fully custom like they had. They had some custom net suite and some other things that I didn't really want to take on. So yeah, that was interesting to see how they chose to do it. Something I learned, I felt like they were probably a little understaffed with their team. Even the leadership said, yeah, we could use a couple more people to keep up with certain demand. The owners are still going out in the

warehouse and covering for employees that are out sick or things like that. So that has to change in a six and a half million dollar business. Yeah, it's interesting when you do add-ons, right? I mean, because you were already in this space. You were, you were pretty familiar with how the ops could or should work, just how much you can learn about your own business by doing diligence on another one. And not even just, you know, not even like, you know, stealing secrets or competitive stuff, but just, damn, look, at ERP really helps them. Maybe I should. have an ERP, you know? Like you get to see the strengths and weaknesses of another business and it can it can make you a better business just just by looking at another one. Yeah. I've also found

conversely sometimes when you're on the sell side, as you put together the materials on the business and market it, it can make you a better business even if you never sell it, right? Because it makes you step back, analyze what you're good at, what you're weak at, where you need to improve, you know, what all your opportunities are. And by the end of the process, you can go, damn i don't want to sell this thing at all right yeah okay cool uh we do have another deal anything else you want to hit on this one before we move on to the next one okay awesome um so we pick this other deal because it is right in your wheelhouse uh automotive accessories and i put it on the screen for the youtubeers um so this business is an amazon fb a auto accessories product business

um this is actually casey are both this is in our backyard it says it's in mecklenburg county north Carolina, which is where I am in Charlotte. I guess, are you technically Mecklenburg or? No, I'm closer to Greensboro. That would be Guilford, Ken. Okay. Yep. So Casey and I are about, you know, two hours away by car here in North Carolina.

So this business is an FBA auto accessories products business. It does $2.5 million of revenue and $1.1 million of cash flow. Very nice margins. They are asking $5.2 million for it. So nearly five times, $4.75. times or so. It was established in 2012. So 10 years old, it has three employees. Again, they want 5.2 million for it. So here's a description. This listing is an Amazon FBA business selling its trademark brand auto accessories. The company is part of Amazon Brand Registry. It features Amazon's

choice products. Its top selling skew has a 4.7 star rating across 5,000 reviews. The AISN's associated with the account receive automatic nomination for deal of the days. And the seller also receives information on Amazon events and promo campaigns. Basically, this means they've been on Amazon for a long time and they're part of all the beta programs. Products and packaging are manufactured in China. Additional parts are added and packaged in the USA at the seller's warehouse. And then all products are labeled and shipped from the seller's warehouse to the Amazon

FBA warehouses. So it sounds like they've got sort of an assembly slash light manufacturing step in their own facility, but most of the products are made in China. And they kind of step them through into FBI through their own warehouse. Sellers spends an average of 30 hours a week, managing inventory and delegating tasks to the employees. There are three staff, which include an account manager and two people handling packing. So I imagine, you know, all the staff here are pretty much ops staff. You know, if there's three employees and two of them are handling packing, it seems like the seller here is really the FBI econ guy. It says the staff are willing to stick around.

The key benefits, year of year growth, excellent margins, top seller, great reviews. It says, you know, the business has the ability to produce unique and higher quality products. Then it's competitors. It leads to great profit margins. You know, all sorts of generic things. Improve the marketing. Launch additional really new products. Sell products on alternative channels.

A couple other interesting things. It says the property is owned. So I would think this means the seller owns his own building and you would have to negotiate some sort of lease back. with him. So if that were not in the P&L, you would need to adjust that prospective pro forma rent into the P&L. And it also says, my favorite, the seller is selling to pursue other interests. So I would definitely want to dig in on that as to what exactly interest those are and does, is this just code for I'm burned out, which might be okay, happens all the time, or is this code for, you know, I'm selling at the top, I've had a great two years. You know, I would really dig in on

on why now. So Casey, you're in the automotive part space. You know, you saw a lot on Amazon. What's kind of your take on this category and this business generally? Yeah. So my first question is, what type of auto accessories? So there are universal accessories that can be used in any vehicle. And then there's vehicle-specific accessories like Jeep Wranglers are a popular vehicle to upfit with all these specific things, but they're designed to only work on Jeep Wranglers because it has this particular fit. So there's pros and cons to both, but that would be the first thing I would look at what type of accessories are we talking about here. It would probably be better if they were vehicle specific, if they were niche, really niche, and they have this brand that they've built and they are at least a frontrunner in their category. That would be something better because that's a much smaller market, right?

It seems like it. But you can be pretty easily if you know what you're doing and you know the product, you know the market. Maybe you're an enthusiast yourself. You can be a big fish in a little pond. Whereas on Amazon, the big pond China product can flood that if it's a universal product, especially if there's no unique aspects to it. They didn't mention anything about patents or unique designs or that being a part of the process.

So my guess is this is a private labeler and having a brand in a niche would be the ideal. Because you can kind of fly under the radar versus in your ear of this huge commodified market, you know, your supplier is going to be on Amazon. Yeah. And to the customer base, like these enthusiasts for all kinds of different vehicles, they most, of you probably don't want just unbranded china whatever like they they care about their vehicle they're enthusiasts they want to use something that the community is using and and even though that's not really what amazon is specifically known for you know it does still have some of that effect you can you

can see a china seller and product a mile away in most occasions so yeah so i think that would be ideal but hard to say what that actually is so one thing i noticed is that they've got 40% net margins, right? They're doing 2.5 million in sales, 2.6 million in sales, and they got 1.1, 1.2 million of cash flow. That to me says that this is some sort of private label brand, and they're pricing it significantly above you kind of where the commodity price in the category is. Would you agree? Absolutely. And that could be good and bad. That could be good for rolling out new products because if you have a trusted brand, you're probably going to continue that margin and have some brand loyalty.

So that sounds great. But, yeah, other competition coming into the market could spill a disaster for that being undercut. So surveying the competition in this deal would be absolutely important to do. Yeah, you have to understand these sustainability. of that margin? Yeah. Yeah, my gut take on all of everything that we're seeing here is that this person has done a really good job in optimizing this business in this size.

I don't see a whole lot here that excites me about potential opportunity. Like you said, the growth and expansion. It's all generic stuff. They've clearly focused on making this business as prime. profitable as it can be, which is a good thing, good thing for them. But as a purchaser, I want to add value. I don't see a whole lot here. The thing that I get most excited about was the middle paragraph that you pointed out about products are made overseas, brought here, but there's some type of manufacturing, assembly, or labeling done here. I would like to understand that a little

more, maybe that's a good defensible thing for their brand. What are they doing to that product, if anything, that makes it special above others? That could be another area to focus on. Yep, I agree. That was the most interesting to me, too, because if you are selling at a huge gross margin, let's just assume they're taking something off the boat from China, slapping their brand on it and just marking it up huge. Eventually, competition is going to come into that market, right, and compress your margin. Unless, you're touching it or kidding it or doing something to it because there's there's such thing as like a pain in the ass mode right especially on amazon where like so much of the amazon competition is

folks metaphorically in their mom's basement right who want to run this like internet money machine and they don't want to ever touch the inventory and and they want to drop ship it straight from china and fb a and all that stuff right so if you are willing to endure some of the pain in the ass like It's got the only way to compete with you is that, you know, maybe whatever the prep is, China won't do it. Or you've got to combine it with some made in the USA parts in your own facility. You got to employ, in this case, this business employs three people, like full time. They've got a warehouse.

There's a lot of prospective Amazon sellers would be competitors that would just go, no, I'll find something else. Right. Yeah. Yeah. Barrier to entry is, is a big factor. Auto parts in general already has. have a fairly high barrier to entry. There's with many auto parts, there is vehicle specific

data. So there's this whole subset of data you have to manage to help customers find what it is they need. There's a lot of part numbers oftentimes. There doesn't say how many products are in this company. Accessories is probably not a ton. The one that I was looking at purchasing, it was thousands. It was a lot like the barrier to entry, even if somebody looked at the that business and then thought, oh, I'm going to go do that on my own. It would take you years. Like, you're so far behind at that point. It would be foolish to even try it. Is that mostly like fitment data because there's all these different makes, models, years and you got to have skews for all those. You got to key it into Amazon so it knows which skew fit. That's the left, right?

Exactly. And it updates no less than twice a year as new vehicles are produced. Then they age and start to become into the market for you after market parts. So yeah, there's this whole maintenance program. Like if you build out more than a few products, you have to have a team to do it. Whereas a lot of small private label businesses, you can run a long time on a single operator. Yeah. Not all the parts. So speaking of a single operator, I liked your point about how optimized you think this

business must be. So they're doing two and a half million of sales, right? Over a million of SDE. They've got the owner, of course. but then you got three staff, which is an account manager and two persons handling packing. So to me, this smells like what Brand Beecher will call a hustler with help, right? Like, you know, everything here is running through the owner. So that's going to be tough for two reasons.

One, you, the new owner of this business are going to have to be as good a hustler as that guy, which means, as Casey just described, there's a serious learning curve in this industry. and many others. So you've got a not only come up the auto parts learning curve, I'm sure this guy's managing all their data, but the Amazon learning curve. I mean, this is a pure FBA business,

and I bet that guy who runs it, I bet when it says pursuing other interests, I bet he's got three other FBI brands, right? Like, I bet he is a ninja, right? And you're going to have to get that good, too. So step in and replace those shoes is no joke. Yeah, very possible.

That's how I operate. I have multiple brands, multiple companies. We are getting to the point where I need to hire people to take over some of this growth, make it the business not just about me. But yes, I see that happening very much in this business. I'm shocked that with as much FBI, we don't know exactly how much, but it's claimed that it's all FBI or close to it. I'm going to guess it's mostly. They still have two persons handling packaging. That's a lot of assembly and kidding. to not be doing fulfillment as well.

Maybe they dabble on some other channels, but they don't ever talk about it. So it's probably minimal. So yeah, they're doing something that maybe you need. A lot of touch there for sure. Two full-time people's worth of touch there. Yep.

Yeah. That's a lot. The other thing I thought was really valuable about your point, about how optimized this is, is let's even say, you know, you as a buyer can buy this, become as good of a hustler as the owner you just bought out, to scale it now, you're probably fully saturated, right? So to scale it, you're going to quickly

need a general manager. You're going to need an Amazon marketing person. You're going to start needing more overhead, right? Because up until this point, sort of the owner role is catching the fractional Amazon manager, general manager, HR manager, warehouse manager, right? He's doing all these fractional roles. But soon it's going to expand beyond one person. So this is sort of the best the margin will ever be from a from an SGNA scalability so you kind of your this business is about to enter sort of a negative scale period right in its growth where margins are going to get worse and then once you put that infrastructure in the next leg of scale you do get true economies of scale and you leverage that fixed cost and margins get better but for me I think looking at this

to double this business from here you're going to need to add several heads that are actually expensive, more managerial heads. And I would model that in. You'll see probably expected margin compression from the next leg of growth. Absolutely. I agree. To double this business, you're going to have to work 60 hours a week, not his 30. And you're going to make the same or slightly less over however long that takes you.

There's not a lot of meat left on this phone. So hats off to the seller. but buyers be careful. Well, I would say very often when you see a seller selling at this phase, it's because they don't want to do the next leg, right, which is a whole different skill set, like hiring middle management, training them, putting in all the system, probably putting in EOS or something like that

that we've talked a lot about in this podcast. Taking that next leg up, a lot of founders slash hustlers say, I don't want to do that, man. want someone else to do that. And it's not necessarily malicious because they realize it's going to be expensive. It's more just they don't want to do it. And they would rather sell, you know, maybe take something else from zero to a million in SDE and let someone else deal with the next Lego scale. So I actually do see this a lot at this size of business. Yeah. And with accessories,

your only option is to add new accessories or to add new channels. There is no lifetime value for the products themselves. There could be some loyalty value with the brand, but this is a slow and arduous build if you maintain this course. Yeah, yeah. Okay, so interesting stuff here. I mean, I don't think we hate this deal.

I think there's just a lot to kind of diligence and potentially price in. Definitely. Yeah, definitely. I think there is a right buyer out there, maybe somebody that is in this category already. It would be nice to know on the surface what that category is. It is a niche.

Is it general? Maybe it could be an overlay onto what you're already doing and level up that to find some of the growth. Okay. Awesome. Cool. Well, Casey, it was really cool to have you on to hear about your expertise in the automotive industry, the 3PL industry, you know, and the deal that you pursued.

Hopefully for your sake and the seller's sake, I would love to have you back on. if that deal does come back around, come back to life. So to kind of wrap up here, where can people find you on the internet? You know, is there anything you like to plug? This time is yours. We'll keep it simple. At Casey Cutsale, probably on Twitter would be a good place. Casey Cutsale at gmail.com is my email if somebody wants to reach out.

All right. Just drop in Casey's inbox if you want to chat FBA or Auto Parts. Thanks a lot for being here, Casey. It's great to see it. Thank you. Thank you.