investor in services businesses (B2B, financial and tech services) ex-Investment Banking at BAML | ex-PE at HGGC | ex-operator at Integrity Marketing Group
Dallas, TX
Joined February 2009
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@ProfPaulNary thought this post was your’s at first!
Pepsi paid $2bn for Poppi and now says it won't pay the $300m earnout. Everyone's acting surprised.
What happens when a giant buys a challenger brand, with the receipts:
- Honest Tea, Odwalla, Zico: all bought by Coke, all discontinued. Zico's founder bought it back.
- Bai: Dr Pepper paid $1.7bn, wrote most of it down.
- Bodyarmor: Coke paid $5.6bn, took a $760m impairment three years later.
- Rockstar: Pepsi paid $3.85bn, has lost share every year since.
- Freshly: Nestlé paid $1.5bn, shut it within three years.
- Dollar Shave Club: Unilever paid $1bn, sold it for a fraction seven years later.
- Bonobos: Walmart paid $310m, sold for $75m.
- Mirror: Lululemon paid $500m, wrote it off and shut it.
- Ballast Point: Constellation paid $1bn, sold for pocket change four years on.
- Reebok: Adidas paid $3.8bn, sold for $2.5bn fifteen years later.
- Snapple: Quaker paid $1.7bn in 1994, sold for $300m in 1997. The original.
The pattern isn't bad luck. The brand was bought to protect the original and core portfolio, not to grow. Once it's off the market, the job is done.
If you ever sell to one of these: the cash on day one is the price. Everything else is a promise from someone who is incentivized is not to keep it.
Do incumbents buy challengers just to shut them down and protect their core brands? Most of the time the answer is no, at least not quite. “Killer acquisitions” only make strategic sense in a small number of cases.
More often, incumbents tend to buy because their core portfolios are stagnant and they need growth. If a new type of a challenger is doing great, buying it to kill it off is silly, because it just frees space for a new challenger of the same type to step in.
The more common reason for these failures is that incumbents may have the right intent, but they often fail to understand the differences and nuances of the seemingly related adjacencies and can’t manage those businesses competently.
Quaker mismanaging Snapple is a great example. Quaker had great success with Gatorade, but it turned out that Snapple required a very different approach to sales, distribution, marketing. It’s a classic case and there are many similar examples.
I’ll be posting some new long-form content about this mismanaging of strategic moves into seemingly attractive adjacencies and fast-growing segments in the next couple of weeks after I’m back from my travels.
As far as the price and earn outs, for all of the reasons above, this is totally correct. Don’t trust the incumbent to execute, and get as much up front as you can.
💯
Wowee @SteveYoungQB
Shout out to my old HGGC posse where my BYU and PE worlds collide.
Good luck at the offsite @rlawson and crew.
🚨BREAKING NEWS🚨
@SteveYoungQB will be the @CollegeGameDay guest picker this Saturday at BYU #PMSLive
Wait! Can AI please organize my warehouse with all our Amazon returns?
Please figure out if someone sent me a bag of sand instead of a same-weight correct sku.
AI is going to get very painful before it gets useful.
Reviewed dataroom docs for 90 minutes to build a follow up question list. Send questions and got a 16 page pdf back 20 minutes later with an email that said “answered all your questions here”
Took 25 minutes to read the pdf and determine they did not in fact answer nearly a single one of my questions.
What a waste
Been hiring this week for service managers in a home services business. A few takeaways:
- don’t answer the opening question “how are you?” with “life’s pretty good being semi-retired”😂
- surprised with high quality of candidates from Indeed
- it’s unreal how much “energy” impacts an interview. 6 of 7 candidates is low energy and comes across as an energy vampire
- wild how gruff and apathetic some of our best candidates are (will they accept an onsite final interview or not). Guess they’re a hot commodity
Got a CIM this week and it’s clearly put together with AI. The funny part is that it might have over disclosed a couple of items. Paraphrased below.
- FAQ states that “yes we have revised down Ebitda from the beginning of the process because another buyer found errors that needed to be updated, which resulted in a 25% decrease in marketed EBITDA.”
- one of the growth opportunities is converting the staff to W2 from 1099 and thus “reduce the discount that future buyers will pay for a business staffed with 1099s”
Maybe these AI processes aren’t so bad after all 😉
Garrett Shipp retweeted
Hey, I’m looking for someone to help us with acquisitions and integrations at Big Rock.
Basically someone who can walk into a 30-person company where the owner has done everything his own way for 25 years and get the team onto our systems and processes without causing half of them to quit.
Between deals, they’d be plugged into our operations.
Please forward this to anyone you know that might be a fit!
Garrett Shipp retweeted
From his name to his number, there are many unique facets to Bear Bachmeier.
After growing up in a football family, Bear and his brother Tiger Bachmeier are now teammates at @BYUFootball
#feature
Me buying a new wardrobe and growing out my goatee to fit in with our staff, customers and community in an ag-focused business I bought with my brother in law.
@ClintFiore
Huge news for my friends @StevenHartC @stevenbn83 and the crew at Kelso Industries.
Showing all of us in the independent sponsor world how it’s done!
“Day 1” as Steve Carroll likes to say.
finance.yahoo.com/small-busi…
Excited to see @rlawson leaning back in on X. Great group of investors at HGGC that I had the privilege to work with for almost 8 years.
Be sure to follow for the brighter and partnership-focused side of private equity.
I joined X back in 2009 but haven't spent much time here in recent years. I'm going to change that. I've spent more than 30 years investing in and helping build businesses, and I still find the people, deals and markets surrounding private equity as interesting as ever. I'm planning to share more of what I'm seeing and learning here — on private equity, deals, markets, leadership and the people behind great businesses. And probably a few things that have nothing to do with private equity along the way. Looking forward to reconnecting with old friends and making some new ones here.
NEED QOE FOR SMALL ADD-ON.
Cost at or under 10k. Who should I speak with?
Scope is basically revenue reconciliation with bank stmts / tax returns / financial stmts. Some reconciliation of costs (ADP payroll). Some pro forma adjustments for synergies when they join our platform.
Will use qoe with lender process so it need be professional.
Calling my manufacturing homies (and well networked compadres)…
What’s your sense of multiples across different sizes of manufacturing businesses?
Core question is this:
- Manufacturing portco with $1M of EBITDA wants to acquire a similar business with ~<$3.5M of EBITDA but no succession plan. How reliably can we get multiple arb and what’s it take to get close to maxing multiple (not talking about manufacturing parts for SpaceX or a data center, just normal but niche products)?
@BoringBiz_ @OneManLBO @paulswaney3 @Will_Schryver
Ever wondered why members of The Church of Jesus Christ of Latter-Day Saints seem to pop up as leaders and influencers across a bunch of different business categories?
If so, check out @kwharrison13 new article that just dropped.
arenamag.com/articles/anxiou…
ARPANET set up its fourth node in Utah. That's not a coincidence.
From Pixar to Adobe to Bryan Johnson, Latter-day Saints have shaped generations of American technology and progress. @kwharrison13 explains why in @arenamag
