E164: The Future of Consumer Products and E-commerce: Insights from Jason Somerville

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. I'm here today with Jason Somerville and he is the founding partner at GW Partners and has a vast amount of knowledge and experience in this industry. So I'm looking forward to this conversation. Thank you for being on the show today, Jason. 

[00:00:14] Jason Somerville: Yeah, thanks for having me excited to be here.

[00:00:16] Ronald Skelton: Yeah, and we talked about for a little while getting to know each other before the show. We always do the kind of origin stories where people can get a kind of feel for who you are. The whole vibe I want is for people to connect with you and understand the vastness of your experience. So you don't have to go too long into it.

But can you give us the scope, cause you've got a wide range of things you've done in the past. My joke is always a, Hey, you were born and now you ended up on a show about mergers and acquisitions. Can you fill out the gap in between? But, give us the condensed version.

[00:00:43] Jason Somerville: Okay. I'll do that. Yeah, I think the best way to put it is, I'm kind of a reformed investment banker back to still being an investment banker, but a little bit different than I started. It's funny,when I was in high school, I had my heart set on being a sports agent, believe it or not.

And once I realized I had to probably go to law school to do that and I didn't want to be a lawyer, I was like, okay, that's not, I don't want to do that. So I went the finance route. And started my career, with bank of America and their investment banking practice in Chicago. Where, we did deals kind of equity debt, M&A for fortune 500 businesses. Did that for a few years and then actually went and ran capital markets for a hedge fund in Miami called Bayview Asset Management. 

If I gave you the list of stuff we did there, we'd be here for two hours because just like a typical hedge fund, we did all kinds of stuff. And then, after, that period of time, that world, that kind of traditional investment banking world is it's hardcore when it comes to lifestyle and working. 

And it's a hundred hour weeks. It's all that. And to be frank, I had two small kids and I wasn't seeing a whole lot of them. And I was like, you know what? I don't think I want to keep going down this road anymore. And so I left. Actually did a little bit of a sabbatical, reset and decided, I wanted to be an entrepreneur.

And kind of went down a few different paths with that again. I did stuff in aviation. I'm actually a helicopter pilot. I had a helicopter leasing company. I went down the road of actually, home and business accessibility modifications. So we would, remodel homes and put in things like handicapped elevators and things like that at businesses to make them accessible.

That was an awesome experience. And then, also did a lot of consulting and kind of brokering and even got heavily involved in a gold mine in Panama. So all kinds of fun stuff. You know, it was through one of the exits, it was actually through the exit of the home modification business that I had, that I worked with an intermediary in particular and said, you know what? I feel like this is something I want to do.

I want to help founder owners in particular. I want to help the smaller business owneraccess hopefully expertise that I have, you know from all of my years in training and big finance big investment banking. And try to really bring that to help people that have spent so much of their lives often. So much of their time, blood, sweat, tears, building a business.

And ultimately, in my view, I felt like, they deserve the best possible outcome that they can get. That's where we started with GW partners. And, we started out as a generalist kind of firm. We helped a lot of different businesses across a lot of different industries.

But then started fairly soon, focusing heavily in consumer. Especially with a kind of an e commerce slant. We were working with a lot of founders. This was kind of the pre aggregator days that everybody knows, pre pandemic. Working with, brand owners primarily in the consumer and e commerce space and helping them grow and sell their companies.

And, we've been doing that now for, for six years. And also, last year, we are, became a joint venture partner in a, in an accelerator growth fund called South call. Same industry where we're taking, minority investment interest positions and helping brands grow to ultimately exit. So yeah, that's the short version. 

[00:04:01] Ronald Skelton: Awesome. Awesome. So a wide breadth of knowledge in, in this space. And there's a lot of investment in bankers and a lot of brokers and stuff, who have never had operator experience. And, I know a lot of CEO, previous B's and business owners don't even like to be called operators, but that's just my, that's the nomenclature we use for somebody who was in there. In the weeds of things in operating a business.

So some people call themselves CEO or owner or partner or founder or whatever, but I kind of encompass it all in that operator status. You were operating the day to day operations of the business. Many of the people never had that, never cut their teeth on that part of the business. And there's something to be said by having been in the weeds and in the muck and, wading through the swamp of business life that gives you an insight to what these customers are dealing with and what these customers need that, a lot of people in the industry just don't have.

And then, let's talk, I mean, what are some of the craziest things? I know you've did so many different things. What are some of the craziest type of deals you've done? Like, we'll get into the like really odd, crazy businesses that you never knew existed. That's my favorite thing is like, I always tell people like, I had a guy in here that bought a manufacturing plant.

I was like, what are you making? They go shrimp sorting machines. And like, I didn't even know those existed. 

[00:05:13] Jason Somerville: Well, yeah, I mean, it's interesting. I feel like we're working with new product types all the time. And I kind of going all the way back in my early days. I can definitely say now we worked on the Enron deals back in the day.

So before that company, that got crazy. I did deals with DreamWorks, the big movie company, stuff with them. Yeah, we did. We kind of, helped pioneer some of the first structured deals where you would actually sell bonds backed by movies that hadn't been made yet. So interesting. And then in kind of this world, we've sold every kind of, I think, business from Victorian night.

We sold a Victorian nightgown business, which was interesting, based in the UK. Actually sold it to a really big strategic acquirer. We've sold businesses in, in cannabis, which is always interesting. And household goods. And we sold a business in, vinyl record protection. I mean, all kinds of fun stuff. 

[00:06:04] Ronald Skelton: We were doing a marketing where we were buying marketing, a marketing roll up. We were buying marketing agencies and one of us, one of them pulled aside, it's like, we own a second company, right? And two or three of them did it most of them because they had the second company that would market cannabis shops and they didn't put it on their main brand. They didn't want their main, I don't know what those names are, but whatever it was that they wouldn't want, they didn't want them to like know that that was one of the brands they created and did.

That said, this one was like, we do a, like, some of our biggest income is from adult stuff. And I'm like, adult stuff. And they're like, yeah, like Pornhub. And I was like, ah, okay. So the problem was, is we were acquiring 20 something other agencies. Now we have to either tell everybody or make the decision that we're just not going down that path. 

And the rest of the executives made the decision like, yeah, they don't fit in with the picture of everything else. Try to explain the 20 something other, we had 20 something allies in the process, either already signed and already in due diligence.

We were active. Very crazily active and, to try to convince everybody to, yeah, these guys should be part of this, was something we just didn't want to go down that path.

[00:07:05] Jason Somerville: Yeah, it's a very, it's a narrow audience for sure. 

[00:07:08] Ronald Skelton: Yeah. And any more, it's like, you see what happened to Bud Light when they, went against their customer base.

You just don't know. It's a fickle market. So people might adopt it and be okay with it, not care. And then people might also rebel against the whole thing and not, not touch it with a 10 foot pole. It could be a poison pill. So, let's circle back around to, what are the lessons learned that you learn from all this?

Is there things that are universal from the big guys all the way down to this mid tier level now and some of the smaller companies you've helped? So what's the universal, like no matter what business you're in, X, Y, and Z needs to be in place?

[00:07:44] Jason Somerville: Yeah. I would say there's a few things that you know, we were talking earlier, obviously, before the show about how, we'll call them businesses, but also M& A markets. And they tend to be kind of tiered, they have these groupings.

And so looking at it, just from the standpoint of, any sort of acquisition, whether it be a large public company, or a small private one. The real, we'll call it the story and the future. And the risk profile around that business are the things that ultimately drive any deal, right?

I mean, look in its most simple form, an acquirer has to see the vision. And whether you're an owner trying to sell or you're an intermediary trying to help that owner sell, one of your biggest responsibilities is to try to paint that picture for the acquire. And believe it or not, this is one thing that I found quite interesting is, buyers oftentimes, I'm gonna say the word they're lazy, but I don't mean it in the traditional sense. What I mean is that they often need you to paint that picture for them. And they need you to help them see why this company, given this choice or that choice or this potential path has such a bright future.

And no matter what, whether it's again, a big public company that has to explain it to their public shareholders. Or a private equity firm that has to explain it to their individual LP investors or, the actual individual buyer market. They ultimately have to see that vision.

And that's what's universal throughout, right? So anytime there's a company being sold, somebody somewhere has to convey a vision to the acquirers of that potential business and get them to see the world through their eyes. And I'd say that's pretty universal across any type of M& A activity. Lots of other things become nuanced and specific, but that one in particular is kind of like that fundamental principle.

[00:09:38] Ronald Skelton: You know, I get it. I've been in business for years before I got into the real estate space and it wasn't until he got into the real estate space before I realized that, I'm different than most people. I can look in a space and go, okay, I'm going to do it and visually lay things out in my head.

95 percent of the people look at a space and think, that's going to be too small for this. There's a reason why homes are staged, right? The people put fake furniture and do stuff in it is because most of us, most people on the planet, they see what they see. And they just don't have any way or any method in their own mind to take something and look at what the future potential of something is.

That's not a normal behavior. And I always thought it was cause I do it. A lot of entrepreneurs do it, but a lot of these CEOs are looking to acquire something. They're going to see what their first impression is, and unless there's a story being told. Like what you're talking about, a vision. There's a story being told, painting a vision for them, unless they can see something, they can see that staged, like this is what it looks like. Then they're, you're left up to whatever their first impression is.

[00:10:33] Jason Somerville: Yeah. And a lot of people, I think they have the erroneous, I think, impression that M&A is just always about the financials and, it's always about the numbers, which it, that's a huge, huge part of it. But I'd say more than about the numbers, it's about the vision. It's about conveying a message and a view to the audience so that they're seeing clearly what you want them to see.

[00:10:56] Ronald Skelton: Yeah. And that even goes for the smaller deals because, these small deals are done built on relationships. The rapport between you and the seller. And did you paint a vision that you're a safe pair of hands for them? 

[00:11:07] Jason Somerville: A hundred percent. And you mentioned, that's another one that you just mentioned too, which is I'd say, deals get done between people. 

They don't get done between, so far AI is not doing, ChatGPT and Bard aren't doing deals with each other yet now, we might get there. But it's deals are even at, again, the largest level, when I started my career at Bank of America and, for the older people, the audience here, they might remember a guy named Hugh McCall, who was the CEO of. The thing is, he would make deals all the time. Like sitting, next to a pool or at a bar or, it's all about just that rapport that he would build with another CEO and say, it would make a lot of sense.

I think we should acquire you guys. And then getting through it, anyone who's been through a deal process understands that the people involved are ultimately going to determine if that's a successful process or not. And so building rapport and knowing how to communicate.

And hopefully everyone's treating everyone with respect and they're being ethical and cause those are the things that are needed for the, for transactions to ultimately be successful. So that's another universal one I would say. 

[00:12:17] Ronald Skelton: I don't remember how many times I've had to tell a small business owners that your attorney is going to kill this deal, whether it's with me or anybody else. 

He doesn't have personal skills or, a lot of times they bring in their family attorney to do something like, they don't know M& A at all. Even if I'm leaving, like, even if I know it's not a fit for me, I'll just tell I'm pretty bold and straightforward with people. I don't care if I hurt your feelings.

So I just say, look man, I know that guy's your family friend, but he's really hurting you. He doesn't know the space. He doesn't know how he's not, he's going to do more damage than he does good. I'm no longer interested for X, Y, Z. A lot of times it's just, it's not of the right size or something else is going on. I said, but I just wanna get here, here's a couple pointers, right?

Go find yourself a mergers and acquisitions attorney that's, that deals with transactions that they know what they're doing. I said one of the guys, he didn't even know what an LOI was. He's like, we don't do anything that's not minding. I was like, okay, brother. 

[00:13:04] Jason Somerville: Yeah, that's a problem. 

[00:13:05] Ronald Skelton: And it happens. I get it. He's the one that set up the LLC, so he should be able to help me sell it. And like, yeah, two different things, right? It's a people business. One bad apple can run the whole party, right?

I told him, say your attorney is the drunk at the party that's like too rowdy. Like nobody wants to be around him. Nobody wants to tell him it's time to go home. I'm done here. So I'm gonna tell you that guy needs to go home. The owner was a little mad at me.

That's my brother in law. So and so like, I don't care. I'm just being honest with you, being straightforward. I don't hurt your feelings and that just set with it. Let's move on. A lot of people don't get that. Like this is a people business even at the level, it's cool to know that it's even that like at the a hundred million dollar deal, billion dollar deal these things are made by relationships. And then there's teams that come into play and those teams have to build relationships and at the end of the day, I would say as many deals failed because the financials were wrong as did by one team just in jail with the other team, right?

They just couldn't see eye to eye and had different negotiation strategies or different personalities. And it just like, Hey, this is a, a culture miss, a culture mismatch. It's just not going to work. 

[00:14:09] Jason Somerville: Well, I think that's where, a lot of times that's where a lack of experience shows up. One of the places it shows up the most.

And that's why, to your point, whether it's you need a good M&A attorney, you need a good intermediary, who's got the experience to be able to identify and almost like see these potholes coming before you hit them. And be able to, whoever you're working with on your side to, Hey, by the way, look I know how you feel. 

I know what you think. But let me tell you a little bit about, how this is likely to go. And getting that really good advice, sometimes even if it's advice you don't want to hear is just super important to ensuring success. And I think that's where I see the most where, again, a lot of times you don't know what you don't know.

If you haven't been through this stuff a lot, you just, you don't know. So someone who's experienced this, has to be the one to maybe tell you and you want those people to be, again, honest with you. It's most important to be honest. 

[00:15:00] Ronald Skelton: We talked about the different tiers inside of this and for those of you guys that are listening here, we do have some listeners that are listening here that are thinking about selling their company.

I kind of want to touch bases on those real quick. I can either, you can either do it or I can do it and you can correct me if I'm wrong or however we want to do this, but I think that the different tiers, I'll just, I'll shoot at it and you tell me how far off I was. If you're doing small business, you're say you're in an SBA loan qualified transaction, meaning that your business is going to be valued at 5 million or below.

And you're doing say 1 million in EBITDA or seller's discretionary earnings profit or whatever you're going to call it and below. Chances are you can get away with a decent broker. I would still go, if you're at the top end of that, go with some of the brokers that have some of the certifications out there that have some of the, a lot of the brokers just don't have any barrier to entry.

So you'll look for some of the brokers that have the backing of some of these international certifications or whatever. You get to 2 billion or 2 million and above in EBITDA,some of the smaller investment bankers will start working with you. And the difference is that small to medium businesses, those SBA loans, they'll sell depending on the industry. Anywhere from two X to, I guess, if your software or something, you'd be a much higher, it's hard to tell because it's by industry.

But, average is two X, three X or whatever. Start working with investment bankers. You're doing 2 million in EBITDA or much bigger, $5 million in profit. Those things can, the multiples higher, they're going to, it's a totally different environment. The investment banker is going to sit down with you, really look at your financials.

There's not going to post it on BizBuySell. You'll never see those businesses on there. They're going to go out. Handpicked people that they know by businesses in industry. Cold outreach people they know that should buy a business in your business and create relationships where they don't exist, right?

I think it's the difference between the broker level and the investment banker. As the broker is going to passively market you most of the time. And that investment banking company is going to create an active marketing campaign. They're going to look at you, figure out who the perfect fit is, and they're going to go create a story about it and then go tell the story to people that should be listening.

And instead of posting the story and hoping somebody finds it and reads it. And then is there a level above a publicly traded company? Or is that still that investment banker realm? Just at a different level.

[00:17:11] Jason Somerville: Yeah, it's just at a little bit of a different. A lot of times you'll just see some differences in the processes.

I'd say we even kind of vary our processes by what's most appropriate too. But you may, you start to see things that are much more, what I'll call like very structured auction type processes as the businesses get larger. And whereas if they're more in that, we'll call it almost like the two to five ish or two to sometimes even two to 10 million of EBITDA. 

They tend to be a little more curated type processes. It's still ultimately ends up in a bit of an auction at some point usually, but it's a little bit less like super structured and formal. Whereas once you're up to businesses that are going to sell for anywhere close to a hundred million or more, you're running usually a very tight, highly competitive auction, very structured. 

You're sending out teasers, NDAs come back. You're like, Hey, bids are due on this date at this time. And very, very much, that's like a true middle market type process. But yeah, it just, it varies. And I think the point is like, what's appropriate and why. I think that really becomes, and that's what you're alluding to, which is, Hey, If you have a business that looks like X, then this sort of is probably appropriate. If it looks a little bit, then this is appropriate. And it's, I think as a business owner, it's important to know what's probably appropriate and why, and what to expect from the process. What are you going to have to do and what is your, intermediary going to be doing for you. Cause that, that varies a lot too. 

[00:18:41] Ronald Skelton: I think, one of the rumors I think I want to dispel here. I think a lot of these businesses are doing two, three, $4 million of profitable, EBITDA and stuff. They think they still need to be in the broker realm. They don't realize that investment bankers dip down into that realms. And they really should probably look around for an investment banker.

I just think, it's more of an active approach. You have more of a team looking at it. It's more of an auction and environment where you're going to get multiple bids, multiple qualified bids. My goal is to grow whatever I buy into, to make it attractive to, an investment banker like yourself and the other people.

So that I can get that. And, historically from everything I've ever seen, investment bankers tend to always play in a realm where they get higher multiples than brokers do. That's just, mainly because you're bigger and more attractive to strategic acquirers, right?

But also because it's well prepped. I think you guys do a really good job of making sure that everything's in line for those acquirers. 

[00:19:37] Jason Somerville: Yeah. And I think, there's a few things you hit on a couple of them there, as far as why those businesses tend to be valued at higher multiples.

I think, that's correct. I mean, first of all, and in general, when you have a buyer class, that's got deeper pockets, that's looking at a lot of opportunities, they're really good at assessing risk. I think they're very confident in their ability to assess risk. And so that gives them the confidence to bid higher because like, you know what, we feel really good about what we can do with this business and we've done a lot of hard work and a lot of detailed work around it.

So if you're in a competitive situation where, you've got multiple people in that boat, having done that work and feeling really confident about their ability to assess the risk and opportunity, it ultimately results in higher valuations. Because as you, I'm sure know, the more uncertain you are about the risk, the more conservative you're going to be in terms of value. Literally anything, I mean, any asset, including a business.

[00:20:34] Ronald Skelton: So, there's a lot of stuff going on right now about the market space, the uncertainty in the market and stuff. How true is that right now? Is the market still good? Are businesses still moving? Are we truly in a recession, depression, whatever you call it? Or are things still actively changing hands? 

[00:20:50] Jason Somerville: Yeah. It's obviously, it's going to be sector specific, but not to go down too long of a rabbit trail, but the last year, a year and a half has been a slower, call it M& A world.

And that's been driven by uncertainty in the macro picture. Obviously interest rates, not only interest rates going up, but also the tightening of credit. The ability for people and companies to borrow has gotten just a lot lower. And this kind of, is this recession, is it coming?

Is it not coming? What's the Fed going to do? There's been all of this uncertainty. And, if you're in M& A markets long enough, you've come to realize that uncertainty, it's bad for M& A deals, right? Because people aren't sure how to price. They're not sure how to assess, going back to that point about assessing the risk.

They feel like it's murky. It's actually a lot better for someone or for markets to see risk as being negative, but clear. Then being uncertain, right? At least negative and clear, I can price for that. I can structure for that. But if I'm unclear, like, I don't know what to do. So there's been a lot of that going on.

And so it's caused a lot of people to hold on to the wallet and say, you know what? I'm just going to wait to do deals until the picture is a little clearer. Now, there's always some activity. Even in slow markets. There's always deals. Good deals or deals that say have to happen, tend to happen.

Even in a, we'll call it a slower market. And that's, what's been happening. What you've seen is everywhere from small deals to big deals, those are the two types of deals that have continued. Either where someone, again, a company is in trouble, they really need to sell. Or a person is in trouble, they really need to sell. Or the fit is just so perfect that a deal just makes sense, right? And now what's cool about anybody who's looking at maybe selling the company is, we're starting to see the clouds open up a little bit. The clarity is coming. 

And like one of the gauges we always use is,we get a lot of inbound inquiry from a lot of different potential acquirers. Especially private equity But also a lot of strategics to saying hey guys, you know what make sure we're seeing your deals, right? We want to make sure, so all of a sudden i'd say in the last, for a few months, let's say five six months, there wasn't a whole lot of that going on. 

In the last month or two, that's picked way back up. And so, you're seeing people start to feel like the environment's getting less certain. And so what you should see is eventually that deal activity will follow, valuations will start to appreciate again, because they're down, to be, like, from the peak of, like, 21 was kind of a valuation peak for a lot of businesses. It's probably 35, 40%, even though you see the S& P 500 isn't, like, but below that sub, it's valuations are probably down 30, 35 percent from that peak right now. But it's starting to feel like we were kind of turning back up a little bit.

And so I feel like over the next 12 months, you're going to start to see things pick up a little bit. You're seeing, and we're doing a lot more, I'd say, pre market prep for deals. And, it's kind of, you can feel it in the, in the vibrations than you're seeing it in the data.

[00:24:02] Ronald Skelton: So 30 to 40%, is that because of the industry sector you guys are in e commerce and commerce and stuff? Or is that pretty much industry wide? 

[00:24:10] Jason Somerville: It's pretty much, it's pretty much across all industries. There's a couple of exceptions. 

[00:24:14] Ronald Skelton: I see SaaS take a hit, right? I seen SaaS a huge hit. And then, the e commerce like the, we're going to talk about here in a little bit, I think the Amazon aggregators and stuff. Those Amazon stores being sold took a huge hit.

They were getting crazy about, two years ago they were, I know people are trying to sell theirs for those huge valuations. Like, where are you getting that number? Oh, that's what the market's paying. I was like, sell it now, sell it yesterday. And what are you waiting for?

[00:24:35] Jason Somerville: We sold, we sold some Amazon, centric businesses for over 10 multiples. Like I would say, 

[00:24:40] Ronald Skelton: yeah, 10, 12, 15. I've had people, somebody offered me 15 X for my, for my Amazon stores. Like, what are you waiting on? Why are you talking to me? Sign the damn paper. Right? 

[00:24:49] Jason Somerville: It was a double it was a double whammy. I know we're going to talk about it later. You had the pandemic, which in and of itself just drove so much more activity online. But then you also had a bunch of capital raised specifically for those types of business.

So you had kind of the the double whammy which drove valuations way high. And they've come way down. But no the valuations in general across the board on especially private deals, across all sectors, 30, 35 is about average from the peak. 

[00:25:18] Ronald Skelton: Interesting. I've seen a lot of activity, maybe just because the level I'm playing at inside of the show and stuff and the people I interview. But in what I call safe industries or passion industries, pet, pet supplies, veterinarian services, things that like almost, you're going to take care of your pet, whether the economy is good or bad. You're going to, that type of stuff.

I think there's a few other passion industries that I think survive almost any economy. If you think about like where I'm from, the redneck neighborhood. Bass lures and bassgear and bass stuff. Economy is good or bad. If somebody comes up with a new bass lure that catches fish, you're going to buy it.

Golf, there's passion industries. There's certain things around golf. I think that probably falls in that realm that are irrational. But, I don't see anybody moving in those realms as much as I do, like a lot of stuff in pet services and pet thing, privatehealthcare type of stuff.

I see people sticking with that because you're going to take care of your own self. And that's everything from a lot of these newer type of, telemedicine and that type of, like different types of, medical. I see people moving in that space a lot. And that happens a lot during uncertain times because those industries are fairly stable, whether the economy is good or bad, right?

[00:26:24] Jason Somerville: That's right. Yeah, you get ones that are more resistant, right? And I think there's also a distinction between, what I'll call almost like a markets drip, like there's markets driven trends and then there's economy driven trends. And I think so far, what we've seen is, even though there's been a lot of recession talk, the data says we're not there.

The data says the consumer is actually still okay. Even though of course, inflation, big topic and very real, it's kind of, the silent killer right to your wallet, is inflation. So I think a lot of what's, it's much more, I would say a markets driven type of mode that we've had over the last year or so.

And another one to your list that we've seen hold up really well as beauty. Beauty holds up pretty well. Regardless of economic conditions too. And we've seen actually that's been one of the more robust deal activity, sectors. We've got a few beauty clients. We love beauty clients for sure.

Well, it's almost too, like, it's almost in a way it's weird. It's both cyclical and counter cyclical, almost at the same time, because when people are feeling the pinch in the wallet, they're looking for those little splurges. Like the little ones that make me feel good. Like I don't have the money maybe for the big but and those things that just make you feel good about yourself like that, those have to stay on the menu. 

[00:27:37] Ronald Skelton: So,let's talk about that consumer project and products and e commerce space and stuff.

Where do you see that going? I know that there's a big problem right now with the Amazon aggregators. We can integrate that into this conversation, but if somebody's in the B2C space and, they've got consumer products,maybe on Amazon, maybe on Shopify or whatever out there, and they're doing okay.

What's the market look like for them and what should they be looking, eyeballing as far as, if they're looking to exit or if they're looking to acquire something? 

[00:28:04] Jason Somerville: Sure. Yeah. I'll kind of start just like from a macro standpoint, just the consumer in general, like what we've seen, the behavior, right?

What we saw is during the pandemic, you had all of this spending shift from heavily from services into goods and a lot of those more online. And then as the pandemic was, you know easing and people were getting back to life, you saw the opposite where a lot of the spending shifted from goods into services. Like travel and eating out and all that stuff you couldn't do right when you were locked in your house. And so now we're seeing it start to rebalance again, which is good because basically, consumer products has gone through a little bit of a desert period here as they were, especially e commerce, because back to double whammies we go post pandemic. A lot of the online spending goes back to brick and mortar, at the same time a lot of good spending goes to services. So the e commerce guys got hit the hardest. They had a big party and then they had a really bad hangover. And so, so now that whole thing that's all stabilizing. And the reason why that's important is the acquirer universe knows that. And they're watching and they say, okay, cool.

Like now's a good time. Like it feels like a lot of these businesses maybe have gone through whatever darkest days they were going to have. They've gone through. There's obviously nuance at every level. But you can start to feel like maybe the trend is your friend a little bit when it comes to consumer.

So that's one thing. And granted, there's that still that little bit of the looming, is there a recession, not a recession, that's still a little bit out there. But I think that it was this big experiment, right? Like this, that hasn't really ever happened in human history because what happened in the last pandemic, the world was a very different place.

So there was all of this learning that just happened over the last, three years. Especially if we're going to focus it on e commerce and consumer products, I was like, all right, what has this told us about how consumers behave? How do they buy stuff? How do they buy stuff online?

What do they care about? What are the things that are gonna make a business successful? Knowing what you know now, right? And, specifically around the Amazon kind of experiment, let's call it, that evolution was super interesting because, we were around before a bunch of capital got raised, raised specifically in these kind of aggregator vehicles, and we knew what the mark.

So the market for those businesses was a lot thinner than valuations were lower. But also, to put it bluntly, there were a lot of people in consumer. When I say people, like private equity and other like big buyers. Who looked at those Amazon businesses as not even real businesses. They would say that all the time.

That's not a real business. I've got Jeff Bezos risk. He wakes up on the wrong side of the bed. My business is screwed. So it was fighting its way through that perception. Then all of a sudden you had aggregators. They started pre pandemic. And then with the pandemic, it just exploded. And there was a theory there that if you bought a brand that was doing a lot of business on Amazon, on the marketplace.

As long as it had a lot of reviews and good reviews, that was the thing that was going to protect your market share. That was pretty much what it boiled down to. Right now, of course, other things mattered. The actual margins, there were other things, but like, the theory really boiled down to, if we can pull all, we'll take a bunch of small things, we're going to buy them for a good price.

We're going to pull them together and that's going to make this bigger thing worth multiples of the smaller thing. So one plus one equals three. And in the meantime, we're going to put all these quote unquote, smart people in charge of these brands. And they're going to really run the much better than the founders, right?

That was the theory. Well, the theory didn't work out. And what they found out about the consumer was, you know what that market share, just because you have a lot of reviews just because the reviews are 4. 5 stars, that's not enough. That's not enough to protect your market. The competitive forces are so strong that if you're simply relying on that, like you will have a problem. If you're not building a real brand, if you're not doing real product development, if you're not actually evolving, you're, you will lose, you will eventually, and unfortunately it tends to happen quickly and precipitously.

The fall will come and that's what happened. And then with the aggregators. They just had a bunch of leverage on top of it. They were mostly debt funded, very expensive debt, right? That whole thing happened. It basically, the market for Amazon focused businesses went through the roof.

Lots of deals got done. We did a lot of those deals, on our side too. And, now, we're kind of in the aftermath of saying, what did we learn? I think we learned a couple things. One is what I just said before about you're not as well protected as you thought. I think the other thing that we learned was, and, brand is important.

The thing we would hear a lot of times from consumer private equity who would look at these businesses and like, I just, I can't stand that my competition is right next to me. And now it's like they're right next to me. Like I do not get the consumer's focused attention just on me and that's what really, that's what I really don't like. But they also like money.

So eventually they realize well, there's so much money to be made, maybe I can be okay with that. But I think it comes down to like the ability to take something and a lot of your audience, that wants to maybe buy something that's smaller, grow it to something bigger and experience that multiple kind of expansion. In e commerce, there's fundamentals you just can't get away from.

Like you just, whether you're on amazon or you're not Amazon. Amazon should just be seen as a channel. Just like a direct to consumer channel or honestly even a whole it's just a channel. It can't be your business. If that is your business, it's going to be very difficult. So the fundamentals you can't get away from.

[00:34:05] Ronald Skelton: I know some people who, did really well on Amazon. And the competitive nature on Amazon is actually both intriguing and very scary. It's a very big marketplace. But, I'll give you a good example. I know somebody who basically he made his money on Amazon.

The way you did it is he find products that were selling really well and we go through their reviews and figure out he would just look at all their two star and three star reviews and figure out what the flaws on the product were. And then he could go to third world, China or whatever the places of manufacturing and say, Hey, I'd like to order 10, 000 units of this product.

Here's a good example. You found a tactical flashlight. And one of the reviews is the, spring breaks off, after six months. He says, he was an electronics nerd by trade and he just told him, I'll order 10, 000 units of this.

I want you to start out with this, this level of solder, this type of connection. He just gave them different specs to build it on. Now, when his reviews show up. Amazon, because it's such a similar product puts them side by side and he never gets the reviews as he builds off sales. He never gets the reviews that it breaks.

Now, before long, he displaces the other guy and he made a lot of money that way. What he learned though, later on, I'll tell you is, he made a lot of money, made a few millions. He doing really well with it. He won't let me interview him and put it out public because we'll about what I'm going to tell you.

I said, Hey, we're going to want, not the tactical flashlight, but two of his other products. Is like, Hey, we're going to start selling that as an Amazon product. You can either sell us your store, compete with us. I literally wrote him a letter, sent him on, it wasn't even like a call or anything.

They sent him a letter saying, we're entering in your space. We'd like to talk to you about buying your store. You can either sell it to us or compete with us. We're going to have an Amazon product in that line. Like what are you going to do? You're going to be side by side with Amazon when you think the algorithm is going to favor you?

So you did a path to sell off two of his product lines, right? He had product lines like that, he did things like, charging cables and just random stuff that he found where, they did good, they have a lot of volume in the sales. There were a lot of two and three star rating.

He would improve upon them. And just make little improvements, order a shipping container of them and see how well they sell. And the next thing, yeah, Amazon shut him out of two is, cut his profit in a third by the way. So now he's got one or two products they don't want to be in yet, but he's just a, his days are numbered before they decide they want to be in that space.

So anytime, and I've never got into the space for that reason. Anytime a single player can change your day, I'm a little concerned about it.

[00:36:17] Jason Somerville: Well, right. I mean, it goes back to what I was saying before. It creates a risk profile that, some people can't get comfortable with at all. Other people can get comfortable, but they want to price around it, right?

Like, Hey, I'll invest in this or buy this, but I know there's so much risk. And it's binary type risk that I've got to be very conservative with how I priced that. That's how they, that's how a lot of people would view it. I think though, one of the important things that we try so hard to counsel clients and I think, kind of advice I would offer anyone who's a business owner.

I had to do this myself as a business owner too, is you have to just have an eyes wide open. I think mentality about where you are, who you are, and ultimately what you want to be. And I think that when it comes to even the topic of selling your company, it's much, much better to say, okay, this is where I'm at.

This is kind of the tier I'm in, or this is the grouping I'm in. How do I feel about that? Am I good with it? Let's translate that into a multiple. Let's say that my type of business, as much as I love my business and think it's the best business on the planet, my type of business, I probably best case might be valued at four times EBITDA.

Because of whether it's a size or a sector or risk or whatever. So if you look at that and say, okay, that's where I'm at. I'm very realistic about that. Now, what do I think about it? If I'm good with it, I keep doing what I'm doing. If I'm not good with it, or I want to be something else, how do I become whatever that thing is?

But it has to start with a very just realistic and I'd say, a clear view of what you really are. And I think I see that a lot of times, business owners, either they don't have the right people around them or they're not willing to just say, Hey, let's just be super realistic about this. It's only gonna help you because, like I said, if you really, really want to be something else, then you got to know where you're starting from. 

[00:38:14] Ronald Skelton: And that's, I think I a hundred percent agree with what you just said. And I'll add one thing to that is understanding what the next level is. Like, if you understand that my typical business sells at four X, the next question to ask is who in my space, my industry sells for more, what is that?

Maybe it's six X or even 10 or 12 X. And why are they selling for that X and not mine? That's because they got through EBITDA up to 5 million and the strategic, now they're interesting to people that are public and you can make a difference to their bottom line when they acquire you. So what's your game to get there, right?

A lot of people don't understand it. And for those who are listening, you got a small business, you got to understand that there are thresholds inside of this, that you start to open the eyes of the bigger players and they're willing to pay more for you because in order for you to have gotten to their interest level, you've got a different business.

You've got different systems and process. It takes a different business to go from, I'm going to do a million dollars a year in EBITDA, to 5 million. And especially depending on the industry, it's a totally different game, right? It's a, the system, the processes are different.

The scale of how many people you have is different. But, if you can open those eyes and know, I think of it all the time, manufacturing and brick and mortar companies, they stay in that 2X, 3X, 4X until they get big. Some of these PE firms, they don't dip down below 25 million in revenue, right?

So if you're not producing 5 to $10 million dollars EBITDA or, or 3 to 4 million dollars EBITDA, you're just not going to get the attention of the big international players that would strategic buyers that could pay more than that. So what's your game plan to get there? If you need six X or retire and hit your retirement goals.

Who you talking to help you get there because you especially the other guys are like I'm gonna double my business and sell it. It's like cool. You've been in business for 30 years. You haven't doubled it yet. Who are you gonna bring on your team to help you get there? Nah, I got this. Like no, you don't. I'm okay to tell you like no, you haven't done it in 30 years. You're not going to do it in the next two. Find somebody that has and have them help you.

[00:40:05] Jason Somerville: Yeah. And on consumer, I'll give you another one. Size is definitely like, financial, revenue size, EBITDA size is always a super big driver, but it just kind of in consumer. I'll give you another one that, that we run into a lot is, you have a product, but what, is there anything unique about it?

Is there a moat around it? Have you basically just taken something and, maybe you just put, is it a pure white label or something like. That's another thing where even at a smaller level, you can be more strategically valuable because you've done the work to develop a unique product.

Maybe you have IP around that product, patents or whatever. And you say, you know what, now I'm going to take what I've learned about this market, right? So far in my history, and I'm going to apply it to a unique product. And then when, an acquirer comes along and they say, hell, Oh, wow. You have a real unique product here that with my resources I can skyrocket it. 

And then they're saying, they're salivating to get their hands on it, even though you're not that big because they know what they can do with it. And they know there's protection there. So even something like that, that's another sort of way to think about it of how do I make myself more interesting, more valuable, given certain parameters. 

[00:41:15] Ronald Skelton: Yeah, I get that. And I had a company, I was slightly interested. It was a vitamin company of all things, subscription based. They didn't sell on Amazon and stuff, but they mostly, most of their money was through subscription. They got a monthly recurring.

And, the guy was really like, I'm talking about the uniqueness of his product and his subscription base. But what he did, they did everything in house. And I was like, you do realize that, I didn't say this to him and to my team. So you realize we can take that product.

He's charging $35 a bottle. He's saying it's cost her $10 a bottle. I know I can count 10 manufacturers right now that'll make that formulation exactly for $2 a bottle, right? Of most of these vitamin companies, they're white label companies. You basically, give your formula to some company that does really good organic or whatever you want them to do, the criteria you give them and they have all the rules and licensing and food handling and all this stuff they need to do it right and they can come in and cut your cost down because they've got to do it at volume.

And he was like, no, we have to do this in house. Like, no, you don't. It's like, do you have any patent formulas? Do you do anything really unique? Like, you have any patent where you're encapsulating the vitamins? Are you doing something cool? And he's like, no, we just, it's just formula. I was like, I don't think your moat is big as you think it is.

And his brand was built off of 20 years of selling subscriptions and, and we could continue to do it. It wasn't a bad business and stuff. Unfortunately he had some other stuff going on. That would take some cleaning up to do. I'm friends with him. I don't want to say what it was.

It's just a financial difficulties by a partner. Things that were going to show up in due diligence for anybody. He told me it in competence. Anybody that that's what due diligence is going to find that there's some money moving around, that is interesting. But that wasn't the roadblock. For me was like I know good and well if this thing really takes off, somebody with a bigger brand is going to mirror that formula and stomp on him. Because he's at that point. He's got that thing where he's not at anybody's radar yet. He's you know,he's approaching something where he's gonna get in one of the big guys radar and they're gonna realize that formula is selling really well. And then he's just not gonna be able they're gonna make it faster, cheaper and sell to his audience and he's gonna have a hard time. 

[00:43:16] Jason Somerville: Yeah, and that's a lot of you know that point about kind of really trying to know where you are. Like know what your position is in the market. I think as a business owner, it's hard if you don't have a lot of m& a experience and stuff, it's a lot of people, there are things that they don't think of just because they just don't know to think of them.

And, with that mindset, that exit mindset, as I call it, even if you're not exiting, you don't know when you're. You just know, at some point, my goal, which I would argue some people. If you own a company, that should always be the goal. You don't know when, but, and, but that should always be the goal at some point.

Granted, I'm a little biased. Just knowing exactly where you are and where you want to be and checking in on that consistently, it goes to me well beyond, at least once a year getting a valuation. Like this is well beyond it's really understanding that market position.

And especially as it relates to, where an acquirer might come from and what they might pay, right? That's the thing that you always have to be just taking the pulse of, as a business owner. At least I would advise that. 

[00:44:18] Ronald Skelton: And it gives you a roadmap, right? Like if you understand where the industry is and what they value, then you have a little bit of a guidance as to, right now, the hot thing is, recreating a reoccurring revenue, right? You get paid a higher premium on, if you get a, if you get a regular check from your customers, and it's steadied and contracted, you get a higher premium on those dollars. 

Service industries don't think about that. A lot of, big, even things like, personal service industries, they don't think about service contracts and other stuff that can get a higher multiple on it. But, if you do what you're saying, you keep an eye on what the industry is doing and what people value, then you can shape your business to, or if you ever do have to exit your, you've got what the market wants. 

[00:44:56] Jason Somerville: Yep. Yeah. Well said. I would say it's that, if you don't know, because you're making decisions every day about where to spend your time and money, in terms of your business. So it's good to be saying I'm spending my time and my money on the things that are going to matter ultimately when it comes to a sale. Again, along the way, there can be some other, shorter term motivations. But if you don't know that the time and investment in that particular thing will be worth it, you probably won't do it, right? So even that, as you probably know, if it's a product or a service business and you're trying to invest in recurring revenue, whether it's contracts or how to get my customers to repeat purchase more, that takes time and energy investment to make that stuff happen.

But the return is there. So it's much better to spend it there than somewhere else where no one's going to care.

[00:45:45] Ronald Skelton: I've got one little business I still own. It's in Oklahoma that, if I get reoccurring business, I don't think it's good. I own a pest control company. If they call me back, I didn't do something right, right?

I'd say that things come back like we get the same customers over and over every fall because ants just come back. And we're not allowed to put anything in the ground strong enough to last more than a 12 month cycle. So in the fall in Oklahoma and sometimes in the spring, we need to go back and hit it again and they call us back. But usually if you're pest control clients, unless it's a rental, like we've got a bunch of airbnbs that we do a regular quarterly check on for, for bed bugs because people bring them in. We're running out of time here. Let's make sure everybody knows, what is the target client for you? What are you looking for? What is the EBITDA size? Kind of what industries are you looking for? So if somebody is listening and they have a business that fits your criteria, they can reach out to you and get some help.

[00:46:33] Jason Somerville: Yeah. I mean, most of our clients are consumer products businesses. Some are, e commerce first, others are not, but just, I'd say consumer. Usually our EBITDA is going to be, kind of two to 10. I'd say from a revenue standpoint is usually more appropriate. We're usually kind of five to 30, in the revenue range.

And the way we engage with our clients, more often than not, our clients are engaging with us. I'd say early in their journey and we're helping them essentially grow into their goals. And then ultimately taking them to market through a, very kind of traditional sell side M and a process. That's going to feel like what we talked about before that, curated and, or kind of full auction style process.

As far as sectors, we're super active in health and beauty. We're super active in juvenile, anything for the home. I wouldn't say we specialize in any particular one, but those are the areas we do a lot of stuff in is in those worlds. 

[00:47:27] Ronald Skelton: And how do you want them to reach out to you?

[00:47:29] Jason Somerville: Yeah, you can just email me. I mean,we'll have that up, or just go to GW dot partners. So we're not a dot com, we're a dot partners. So,you can find us there and there's actually a form there. They can fill out a contact form and we'll have an intro discussion and learn more about you and your goals and, see if there might be a fit to work together.

[00:47:47] Ronald Skelton: And if anybody wants to learn from you or see other content and stuff, are you active anywhere on the social media spectrum, like LinkedIn or Twitter or anything like that? 

[00:47:53] Jason Somerville: LinkedIn. Yep, for sure. We're on there. We don't tweet or anything, so LinkedIn's the spot. 

[00:47:59] Ronald Skelton: All right. Well, we'll call that a show, man. Thank you for being here today. We really learned a lot and I appreciate your time. 

[00:48:05] Jason Somerville: Thank you very much. Loved it. Appreciate it.