319 – Understanding The Amazon FBA Acquisition Industry With Korion Morris
In episode 319 of the AM/PM Podcast, Kevin and Korion discuss:
- 04:20 – A Spicy Story From Kevin And Korion
- 10:00 – Korion’s Backstory And How He Got Started In The E-comm Space
- 15:00 – Talking About His Company, Unybrands
- 20:30 – Adding Value To Existing Brands
- 25:20 – Where Is The Acquisition Industry Headed To?
- 28:00 – How Do Today’s Macroeconomic Factors Play In Their Strategy?
- 29:30 – Dealing With Common Issues In The Aggregator Industry
- 33:45 – “Avoid Catching A Falling Knife”
- 36:00 – What’s The Play For Unybrands? What Does The Future Look Like?
- 36:45 – Three Things You Need To Sort Out Before Talking To Aggregators
- 38:50 – The Due Diligence Process
- 40:45 – Good Personal Relationships And Good Numbers
- 42:20 – What Is An Earn Out?
- 44:10 – Where Is The E-commerce Industry Headed?
- 46:00 – How To Get In Touch With Korion Morris
- 48:15 – This Week’s Golden Nugget Advice From Kevin
Transcript
Kevin King:
Welcome to episode 319 of the AM/PM Podcast. In this podcast, I’m speaking with Korion Morris. Coron is one of the main guys over at Unybrands, one of the big aggregators in the space. He keep your low profile, so you might not be too familiar with him, but he’s got a lot of great information to share. This is gonna be a really fun episode, and I just wanna apologize in advance if my voice is a little bit shaky. I’m recovering from having pneumonia, so my voice might be a little bit shaky in some parts of this, but enjoy. Welcome, Korion to the AM/PM Podcast. I’m so excited to have you here. This should be a pleasant one to the ear for everybody, because you have the voice built for podcasts.
Korion:
Kevin, I appreciate it. First off, super excited to be here, and second, I’ve always kind of said if all this Amazon stuff doesn’t work out, I think I’ll either end on the radio or with podcasts.
Kevin King:
Exactly. I think you’ll have a good future with that <laugh>. I, I think we just last saw each other just a few weeks ago at the AMZ Innovate. Right? You guys were there sponsoring that.
Korion:
Yeah, I feel like we’ve seen each other on a few occasions now. So we had a big presence at AMZ Innovate just a few weeks ago in New York, and was a tremendous experience. I’ve been incredibly impressed by just the quality of people in the Amazon community. And I kind of selfishly am the only one that tends to these experiences. But it was great to pull our CEO and several members of our team to come in and experience the innovative event.
Kevin King:
Yeah. You know, that event was a great experience while I was there for me. But the experience afterwards was horrible. I actually ended up getting pneumonia at that event. I came back that event was on a Monday on, flew back on Tuesday, Tuesday night, started feeling a little funky Wednesday, lost my appetite, having some dry heaves, starting to get a fever. By Friday, I was down and out in, in the bed, and I was like, man, I must have got a bad flu. A few other people were posting online like, Hey, anybody else gets the flu to innovate? A few other people were saying, yeah, I picked it up. I don’t know if it happened at Innovate it could happen anywhere along the way, but several people that were there were reporting that they got something and I did a Covid test.
Kevin King:
I did the whole nine yards, and it’s like, man, this is just something not right here. And one of the things about Covid is that your blood oxygen level goes down. So you use those little pulse meters that measure your pulse, you put ’em on your finger and also give you your blood oxidation level. So I grabbed one of those, had my wife bring me one, and the number was like 80. And anything below 88 is like go straight to the hospital. So I was like, holy cow, that’s not good. So I was like, I think maybe I just need to hydrate here, and maybe this is just the flu. So I started hydrating. I had one of those mobile IV surfaces come out, infused me with vitamins and everything. And the next day it wasn’t getting any better. And so I was like, I called my doctor, and he is like, yeah, you need to get to the ER. Going to the ER. They run a bunch of scans and say, you got pneumonia, you got water on your lungs, in fact. And so I ended up being hospitalized for the last four days after that.
Korion:
Holy cow.
Kevin King:
Yeah. And running all kinds of tests, and had they put me on some supplemental oxygen to get it back up, it was a mess. No fun for anybody. So hopefully now I know there’s pneumonia shot and I’ll be getting that shot. But yeah, that wasn’t pleasant. But speaking of unpleasant we were at another event together in Austin, the Collective Mind Society event back at the end of October during the F1 raises. And at this event, we decided we had a, you were there, you were one of the 12 that was there. And we decided to have a little contest in our, we had a little cabana inside the track, nice little experience. And one day we like, let’s run a contest. Who wants to compete?
Kevin King:
Who thinks they can handle hot, spicy stuff? And I think there were like about six of you actually. It raised your hand. Yes. You ended up backing out after they found out what it was, and then four of you, including yourself, decided, Hey, I’ll participate in this. You know, we put a little bit of cash on the line, and it was the one chip challenge. So what this is if those of you listening, it’s a single chip like a single potato chip or a corn chip, basically. But it’s super spicy. So you eat this single chip and you see how long you can last without drinking. And if you can go for an hour without drinking, you’re considered like a stud. I know there’s different levels. If you make it 15 minutes, 30 minutes, or an hour, I think an hour is invincible, is what it is?
Kevin King:
And so four of you did this, you handled it really, really well. Two of the other guys, and one of ’em was Howard Thai. He was like, ah, this is no big deal. Gimme I could eat these all day long as a snack. Two of the other guys were like, tearing their eyes were tearing their watering, they were just like, I don’t know. But they stuck it out. All four of you made it the hour without taking a shrink. And during that, that first hour, you were just totally like, I got this. No problem. And then after that, we left to go to a concert and we’re going to see Green Day which is at the track there. And I think something happened as we left to you, and I’ll let you explain it. As we were going to that Green Day concert, I think your life changed a little bit for a while.
Korion:
Yeah. I would say that’s the understatement of the year. So I think I’ll preface with, I love spicy stuff. I love hot stuff, right? And so there’s never been a challenge that I wouldn’t take on. And I was an athlete in kind of a prior life, and so I’m competitive, so I’m like, okay, let’s do this thing. And to be fair, I hadn’t done any research on the One Chip Challenge. I didn’t know what I was in for. So to your point, the first hour, no big deal. You know, it’s hot, like my mouth is burning, but you know, it’s manageable. And then I hear two of the other guys start to say my stomach doesn’t feel so great. And I’m like, huh, okay. Well, like they did two chips.
Korion:
So maybe that’s why generally I feel fine. And when we are waiting for the shuttle on the track, I’m sitting there and I’m like, starting to feel like something’s not quite right. And I’m like, I’ll just ignore it. I’ll try to like, take in the views. We start driving on the track and the turns get my stomach acid, I think to kind of go side to side a little bit. And I’m like, okay, something doesn’t feel right, but I’ll keep pushing on. And then we get dropped off at the concert and I see one of the guys on his knees, and I’m like, that’s not good. Okay. But like, I’ll keep pushing. No big deal. 30 yards later, I get like this sharpest pain ever in my stomach, and I’m like, oh my God, I’ve gotta stop.
Korion:
And it just feels like somebody’s taking a hot knife and just taking it through your stomach. And so I probably stopped for a good minute or two. And while I’m bent over, I’m thinking to myself, I’m in the middle of circuits of America track. Like I have no refuge, you know? And so that’s going through my mind. I’m like, okay, we’ll just push on. Everybody stops. I may get probably another 50 yards. And again, the pain comes back and it’s three times as bad. And I’m like, I’m just at my knees. I’m like, this is the worst pain that I’ve ever felt in my life. And I think that time I take a second break, probably a good five or six minutes, the second go around. And then slowly but surely we make our way over to the concert. And those two waves are the worst. I think I had some discomfort you know, for, honestly for like another 24 hours. But the worst was behind me, fortunately.
Kevin King:
Yeah, it was interesting to see it. You’re a big guy. You used to play football, and so you’re a big guy. And to see you hunkered over on the ground, taken down by a little tortilla chip was a sight to see.
Korion:
I’d be lying if I said that my pride wasn’t hurt a little bit. One unsuspecting chip and when I think of hot, when I think of these hot challenges, my default is like, oh, how bad is it in your mouth? Like, maybe you’ll sweat. Like no big deal. I don’t assume that you’re gonna feel it in your stomach 24 hours later. And that’s ultimately I think what did me in.
Kevin King:
And you’re a man and I just, I don’t wanna get too graphic here, but I wanna paint a picture. You said it actually hurt when you went to the restroom too, right?
Korion:
Yeah. So like, it’s weird cause it wasn’t any like issues with like number two or anything like that. But like, it burned significantly when I got up the next morning to go to the restroom. And that was a unique experience. One that I wouldn’t wish on anybody.
Kevin King:
Oh, man. I can only imagine that feels hard for you.
Korion:
Well, I would say probably nothing compared to pneumonia. And I’m so glad to hear that you’re on the man and you’re doing a little bit better now. I did actually receive a notification on my phone stating that like, I was in close proximity with somebody who had Covid, and it was from that week. So I was fortunate to escape it. Glad you’re on the men. But yeah, would certainly never wish the one-chip challenge on anybody. I think I’ve, we’ll have to raise the purse next go around. I’ve gotta be closer to probably five or 10 k to make it worthwhile
Kevin King:
Now we first met, I think at the Billion Dollar Seller Summit, is that correct? You came out to representing the company that you work for Unybrands. Tell me what is Unybrands?
Korion:
Yeah, absolutely. So Unybrands is a strategic acquisition of Amazon and direct and consumer brands. I think a lot of people will refer to us as an aggregator. We are founded in September of 2020, operating in stealth mode until February of 2021. And have since just seen tremendous growth. And so I kind of wear two hats. I certainly focus on the acquisitions function for Unybrands, but also as somebody who was a part of kinda the Amazon ecosystem in a prior life, understand how much valuable insight and knowledge and relationships there already be had. And I heard tremendous things about Billion Dollar Seller Summit. And so as soon as I learned about Billion Dollar Seller Summit in Austin, I wanted to make sure I came down and connect with some of the community.
Kevin King:
So what is your background? I mean, I know you went to college, you played foot football in school. What happened after that? What’s the progression to get you to Unybrands? Were you as e-commerce seller or can you walk us through that pro through that?
Korion:
Yeah, so it, it’s a long story, but I was a track and field athlete in football, player in college. Truck and field. You kind of have no delusions of grandeur, right? It’s like, hey, college is paid for and then you’re gonna have to get a real job at some point. And so it was pretty clear to me that I wanted to pivot into the world of entrepreneurship. And so, right, actually out of undergraduate I discovered a love for automobiles. And I started a small kind of auto customization shop, essentially, initially doing high-end car stereos but eventually over time pivoting into comprehensive restoration. So I was working with somebody in the Middle East I would customize a car, ship it over to the Middle East and then they would essentially sell it to a client who had a lot of money and had an affinity for American muscle cars.
Kevin King:
This was like a workshop, like a garage?
Korion:
Correct? Yes.
Kevin King:
And it was all yours, or you had partners with that?
Korion:
It was all mine. Really my background, I did a lot of kind of electrical work and different things like that. But you could essentially think of me like a general contractor. So I had a paint shop where I would work. I would do kind of all the design and creative for the build the customer management, and put everything together. But I worked with the best upholstery shop called Davis Brothers Upholstery here in the Pacific Northwest. I’d work with a really great motor builder and just bring kind of the best people under one umbrella to deliver really kind of beautiful cars. And so I did that for several years. Thoroughly enjoyed it, and at that time I was actually a track and field coach in college and in high school as well.
Korion:
Just as a fun way to give back to the community. And I would come back after practice, I’d go work at my shop for a few hours, and I noticed that I was just feeling increasingly tired and lethargic. And over the course of noticing that for several months, I also started to notice some lumps in my neck. And I went to my mom’s house and I said, Hey, does my neck look kind of weird to you? And she says, yeah, I think so. I think you need to go to the doctor. And so went to the doctor and found out that I had two masses in my neck. My lymph nodes were enlarged. And spent the next month trying to diagnose exactly what it was, and ultimately discovered that I had cancer.
Korion:
And so at that point, went immediately into got a port installed, had it staged and went into chemotherapy and eventually kind of closed the business cause I just didn’t have the health or the ability at that time to continue to run the business. And so spent about a year going through chemotherapy, and radiation. And then once that was all done took another probably six to eight months to try to get kind of recover. You know, essentially chemo is poisoning your body. And so it took a lot, even though I was only at that time, 27 years old it took a lot to get, get my health back. And so at that point you know, it’s like, okay, what’s next? I have this entrepreneurship bug. I know what I’m really excited and passionate about.
Korion:
You know, eventually, I want to get into business at kind of a larger scale. And so I joined up with three older gentlemen who were very seasoned entrepreneurs and launched a company in the gift novelty in the souvenir space. We built out a, a very robust IP portfolio and, and started selling initially into brick and mortar retail here in the Pacific Northwest. And then over time started to expand into retail nationally, and internationally, and then also broke into e-commerce. And so spent several years doing that, scaling that company. And then in 2019 we were fortunate to sign an exclusive licensing agreement with a private equity firm to leverage our intellectual property. And so we exited that company and kind of the rest is history as it relates to that.
Kevin King:
So how did you hook up with Unybrands then?
Korion:
Yeah, so after this exit kind of when we were in the tail end of running the company, I knew that I wanted to go back to school. One of the things about being an athlete in college is your entire life is athletics. And so it’s difficult. I actually love to learn. I love being in college. And so I always knew I wanted to go back. And so in kind of our last year as we were preparing to exit I did my MBA at the University of Washington and learned about this idea of roll-ups, and I thought that was really interesting. But I also had kind of an appetite to transition into the corporate world for whatever kind of odd reason. So directly after the acquisition, I went to Zulily. I spent about two years there doing strategic partnerships, working with some of the biggest brands, and pretty quickly fell out, fell out of love with the company.
Korion:
I thought the model was pretty archaic. And so started looking at like, okay, how can I marry this interest in e-commerce with this idea of rollups? And was kind of lucky, I was just searching around for different companies. One day came across Unybrands. I think at the point, at that point in time, there were four people in the company who sent over an email and said, Hey, you guys are looking for somebody for your acquisition function. Let’s have a chat. And they love my background. We immediately hit it off. And so I ultimately joined the company as I wanna say, like number seven or eight pretty early on.
Kevin King:
How many are there now?
Korion:
So I want to say all in, we’re over 150 people. So it’s been quite the growth story. You know, and that’s part of, I think what what really got me excited, right? It’s one thing to take a company and go from nothing to a few million dollars but to have a hyper-growth story, right? To go from five people to let’s say 500 people in a few years, I think is a really interesting process. And I think it takes certainly a skill, but a little bit of luck as well, to be in the right place at the right time to be a part of that type of story. And so it’s been tremendous you know, really proud of what we’ve built. I’m proud of the culture that we’ve established and the brand that we’re starting to build in the ecosystem as well.
Kevin King:
And what’s your exact role there? Are you in the acquisitions? Are you in business development?
Korion:
Yeah, absolutely. So I wear like any startup, I wear a lot of different hats. So my technical role is I’m the director of growth for the US so I really focus on identifying world-class assets for our team to acquire. My team will do the initial pre-LOI due diligence, and then we’ll hand it over to our investment function that will come up with an evaluation for the asset, and then really kind of own the diligence process. But as somebody who was a seller, I feel like part of my role is to be a representative of sellers, right? So whether it’s from a transaction structure perspective, whether it’s from how do we actually build this thing so that it’s sustainable and that it’s around in 10 to 15 to 20 years? I really pride myself in, in sharing kind of any and all insights that I have as somebody who was a seller, and then that I have from great conversations with people like yourself.
Kevin King:
So are people coming to you directly or through brokers, or are you actually also out there beating the payment, looking for opportunities, and approaching them?
Korion:
Yeah, all of the above, right? So we absolutely partner with brokers. I’ll be the first to tell you if you’ve never had a liquidity event before it probably behooves you to work with a broker because there’s somebody who deals with us kind of day in and day out, and they know how to maximize your exit. But we also have technology that enables us to go out and identify world class brands. And so we build direct relationships that way. And then I attend phenomenal events like Billion Dollar Sellers Summit, and Amazon Innovate, and innovate to go out and meet people as well. So I think we pride ourselves in leaving no stone unturned and really trying to go out and find great brands. And I think the other thing that’s worth flagging with us is it’s never about pressure, right? Like, it’s really about supporting people in their journey when the time is right if you’re looking to exit, like, Hey, let’s have a chat. I’m happy to answer questions. And if you work with us, that’s great. If not, that’s okay too.
Kevin King:
So is Unybrands just doing Amazon businesses or any kind of e-commerce business?
Korion:
So the answer I think is going to change over time. So if you ask me that question a year ago, it’s like, Hey, strictly Amazon, we want, let’s say 90% of revenue coming from FBA. And then we’ll entertain kind of 10% coming from elsewhere. I think today as we’ve built an actual platform that can operate the brands, we’ve demonstrated the ability to grow our brands and scale I think we’re a little bit more flexible. We’re still Amazon-centric, so let’s say it’s a brand that’s doing 60% on Amazon and 40% off we’re much more willing to entertain that than we were a year ago. And we might even look at a 50-50 split. And I think that that will continue to evolve. So let’s say six months or a year from now you know, we might look to make our first outright D2C acquisition. I think our kind of our view on this is most of our brands will at least have some component of Amazon. Many of them will have direct-to-consumer components. And then I think there will also be a subset of brands that have stayed in power and are well-positioned to go into retail as well. What’s
Kevin King:
The biggest value you guys can add to an existing brand by taking it over or taking it in house?
Korion:
Yeah, I think that’s a great question. I think the answer varies on a brand by brand basis, right? So there are brands out there where cash flow has been really tight and we can provide a tremendous cash flow, and we’re essentially just adding fuel to the fire. Or there are transactions that we’ve done where the founder has stayed on board with us and we’re able to take all the things that they aren’t interested in or that they’re not the best at, and we can put that onto our platform and then free them up to do what they do really well, right? So how do those founders specifically create value for their organization, whether it’s new product development or new partnerships? So I think there are instances of that as well. I think a few things about us is we are transatlantic.
Korion:
So I’m seated in Seattle, but we have offices in New York, Miami, London, Berlin, and Shanghai. And so one of the first things that we evaluate when we acquire a brand is whether can we grow this brand internationally. Can we move it into new marketplaces? Beyond that, we really look to understand, I think at a very granular level, what is the founder has done well, and what are they excited about? What are the growth opportunities that they have? And then we really incorporate that into our growth strategy and our plan. But I think for us it’s really about we’re not going to overextend ourselves. We’re gonna buy high-quality brands that we know that we have the ability to operate well in order gonna deliver. So we’re gonna pay our earn outs where we’re going to you know, ensure that the seller has an experience that they’re, that they’re proud of.
Kevin King:
How much money is Unybrands raised to finance all this?
Korion:
Yeah, so we’ve raised over 300 million in growth capital to date. So that’s a combination of some debt as well as some equity that we’ve raised.
Kevin King:
What’s the range typically that you’re spinning? Is it half a million to 5 million, or what type of range or size of businesses or what’s the largest one, for example, that you’ve done?
Korion:
Yeah, so we’re, we’re pretty flexible, right? I think we’re incredibly well-capitalized. And so if there’s an exciting opportunity out there, we always wanna take a look at it. I think early in our life cycle we would look at the kind of, let’s say a million dollar top line minimum asset up to let’s say 5 million dollars. I think that threshold now is a minimum of a kind of 2 million dollars top line. And we’re happy entertaining upwards of 20 million plus. I’ve looked at a 50 million plus dollar asset. It just wasn’t the right fit for us. So we, we certainly have the capital to deploy, to be aggressive, acquire large assets. But it’s really a matter of does it fit into our portfolio. We think a lot about portfolio concentration. So how does that play into everything? And then ultimately, like, is this a business that’s really growing in a category that we feel is growing as well?
Kevin King:
For portfolio fit, do you focus on certain categories, are you open to anything or how’s that work?
Korion:
Yeah, so we, we definitely are category-focused. So there are eight specific categories that we play in. Those are personal care, pet care, home care, baby, juvenile sports and fitness garden, and outdoor and home culinary lifestyle and arts. I kind of joke that feels like everything with the exception of maybe apparel and, and electronics. And kind of our view is generally we look to acquire really high-quality differentiated brands that are anchor brands in each of those categories, right? And once you’ve acquired a great anchor brand, which typically is gonna be a little bit larger, has great infrastructure, then we can start to look at, okay, what are Bolton opportunities in those specific categories as well? And so I won’t mention the specific brand, but we own a tremendous brand in the pet care space and we’ve added a really phenomenal anchor brand into its portfolio. And so there’s some synergies there and we can continue to bolt on really great brands that support that anchor brand, but also standalone on their own.
Kevin King:
So where do you see this whole acquisition industry going? It kind of came from nowhere. I mean, it started with like 101 Commerce that they crashed and burned. And Tharsio kind of led the way and got a lot of media attention, brought a lot of other people into the space by some estimate, 130, 150 aggregators out there. Now multiples went way up, now they’re coming back down. Like you said, a lot of ’em have pulled back. They’re financing’s been cut off. They’re not buying anything anymore. Where do you see this going? Do you think this is still gonna be a really robust market, or is it gonna be more choosing out from both your point of view as an aggregator and the seller’s point of view?
Korion:
Yeah, absolutely. So I, I think kind of a combination of everything, right? I don’t know that this model is going anywhere because I think that there’s a tremendous opportunity. One of the things that our CEO Ulrich talks about you know, he spent over 25 years selling businesses at Goldman Sachs, and nobody has really demonstrated an ability to build a platform and sustainably operate and scale kind of micro brands. And I think consumers have really demonstrated an appetite for micro brands where if I can buy or purchase a product from a brand that resonates with me and my values and more directly addresses my needs, I think that’s huge. I think that my appetite will continue to grow. And so I think we’ll continue to see micro brands establish and grow. Some of those micro brands will turn into household brands as well.
Korion:
And I think people will continue to try to acquire and kind of roll those up as well. I think kind on the market side, from the aggregator side I wouldn’t, I don’t have a crystal ball, but I wouldn’t be surprised to see more consolidation where I think to your point, there was 150 plus aggregators, right? And a lot of people have struggled to raise rounds following the rounds that they raised last year. And so I think you will see consolidation, I think you’ll see people become a little bit more niche-oriented. So for us, we are across eight different categories, right? You’ve seen this happen a little bit already. Maybe more people will start to focus on specific categories. Maybe they’ll focus on babies and juveniles, or I’ve heard of other ones that focus strictly on supplements, for example, right?
Korion:
To where you can build very specific expertise, which I think helps from an operational standpoint, but also I think as it relates to interacting with sellers I’m gonna be really excited about selling my brand as somebody who only does supplements if I’m a supplements brand, because I know that’s what they know, right? And so I, I wouldn’t be surprised to see more of that as well. I think for sellers, we’re certainly in kinda a buyer’s market at the moment, so you’ve seen multiples decline a lot. That’s not to say that there are some of us that will still pay a really fair valuation on your business, right? Like, if you have a quality business, especially in this environment, I think that’s that much more impressive. And we really pride ourselves in offering a fair value for your business. And so that’s not to say that you won’t get fair valuations, but I think it’ll likely take for the economy to start to recover for brands to start to grow consistently. And then for a handful of aggregators to feel like, Hey, we know that we can operate these brands well before you start to see multiples really start to climb back up.
Kevin King:
Do you factor that in, that we’re headed towards a recession and things are down a lot of Amazon sellers year over year, down 20-30% right now, do you factor that in because they’re not having this massive growth, they might have flatlined a little bit? How does that factor into when someone goes to sale or when you’re evaluating a company?
Korion:
Yeah, absolutely. So for us, I, I think one of the first things that we, we like to think about is we, we look to buy businesses that are growing. We look to buy businesses that you know, have momentum. I think a year ago we might look at it in a very kind of black-and-white way of saying, Hey, in your LTM period, are you seeing margin compression? Are we seeing category compression? Or things like that. I think now we’re looking a little bit more at what’s momentum look like in the recent three to six months. And I think something that’s really important for us is people that, that are operators and as people that were sellers at one point as well, is to we want to hear the founder’s story, right? Like, I think it goes beyond kind of the quantitative part of all this, right?
Korion:
Where it just numbers in an Excel sheet, but it’s about like, tell me the story, tell me what’s happened. And I think there are instances where maybe I can move the needle, but at a minimum, we want to have a really comprehensive understanding of what are the drivers in your business. What are the challenges that you faced? And then we can make an informed decision on, okay, is this something that we feel comfortable if it’s maybe a little bit outside of our typical kind of boundaries? One of the things that my colleague Mark likes to say is, we have guard rails, but our guard rails are made of rubber, not steel, right? They’re, they’re intended to be flexible, they’re intended to be able to listen and pivot when and where needed.
Kevin King:
A lot of aggregators that came into this space came with a lot of money, a lot of financial backing, a lot of smart people, a lot of Harvard MBAs, and really good finance people from Wall Street. They come into this, they buy a bunch of businesses and they say, holy, how do we execute on this? Because the guy, these operators are like little mom-and-pop shops for the most part, and the gorilla marketing, they’re nimble as a fly. They’re not coming from a corporate world with all this structure. And when these aggregators come in, they try to execute. A lot of ’em have had serious, serious problems and hiring good people and even training good people that can take this over. How do you guys deal with that issue?
Korion:
Yeah, so I think this is where as somebody who was a seller I was able to share some insight kind of internally with our leadership team. Our view and really the thesis coming into building Unybrands was we actually want to acquire the brand. We wanna retain the founding team and enable them to be that much more successful with their brand. And our first handful of acquisitions, we found that the market didn’t really have an appetite for that. I think people were looking to kind of cash out and move on to whatever’s next, which is perfectly fair. But we ultimately did do some transactions that we retain the founders. And so we were able to capture that expertise, we were able to capture that knowledge and insight.
Korion:
And then I think ultimately like we were able to capture some of the cultures that they have and how they operated their brands and let that flow into how Unybrands operates. And so that has been a tremendous value add for us. I think we’re always thinking about what else can we learn, and that’s why we come to events like Billion Dollar Seller Summit to learn to rub elbows with founders to make sure that we’re staying close to that. But I think to your point, there were a lot of people that came from outside of the industry and assume this was strictly kind of a financial play and underestimated the challenge of operating on Amazon. One of the things that I recall is Amazon is an ever-moving target. Things are always in flux. They’re always changing. So you can’t necessarily just build a model and run with it. You, you really have to be agile and flexible and able to move kind of at the drop of a dime.
Kevin King:
How do you deal with the risk factor? I mean, you could have a hero product on account that you buy, and just suddenly something happens. Somebody attacks the listings, just something goes awry and you lose that whole thing. How do you mitigate that risk? What do you get? How do you factor that in? Because stuff can, like you just said, can change overnight on Amazon. You’re cruising for three years, just doing well, and all of a sudden there’s a supply chain issue, or your account gets hacked and the pictures get replaced with nasty pictures or whatever. How do you mitigate that risk as an acquirer?
Korion:
Yeah, I don’t know that there is a foolproof way to mitigate that risk, right? I think this is where having those Harvard MBAs and those people that come from that world can really start to become beneficial for us is we do a tremendous amount of work in the pre-LOI and in the post-LOI phase to really dig in deep and understand everything that’s at play in the business. One to just understand like, what are we buying? And one thing that we do kind of in our acquisition process is we’ll essentially once we’re in diligence, kind of run the brand alongside the founder to understand, Hey, this is happening. How do you act? Right? What would you do here? And in instances where we retain the founder, obviously, we have that for quite a bit longer, but let’s say the founder wants to go off and do something else. We want to try to capture as much of that knowledge and information as possible so that we can make the best kind of decisions, but I think there’s no way to actually control that. I think kind of the best option on our end is to as thoroughly vet the business as possible, to understand it as well as possible to understand how the founder would, would act in certain situations as well as possible, and then respond accordingly.
Kevin King:
So you guys look for any kind of product, or what if it’s a commodity? Do you prefer to not deal with commodities and to deal with something that’s more truly unique and differentiated, or how’s that work for you guys?
Korion:
Yeah, so, so that’s actually a part of our analysis, right? Like one of the sayings that we use internally is we wanna avoid catching a falling knife, right? And so part of our analysis is understanding the specific asset that we’re looking to acquire under understanding kind of adjacency. So who are the competitors? Who are the kind of incumbents in the space that is maybe slow into e-commerce, but that is gonna be moving there eventually because that’s a potential risk? What’s the likelihood of Amazon coming in and introducing Amazon basics or leveraging one of their other kind of in-house brands? And so we’re looking at kind of all of that to really have confidence around, okay, we feel like this is a category that let’s say we’ll face competition, but we’re not facing Amazon basics or some other major brand coming in.
Korion:
So there’s a, a tremendous amount of work I think that goes into that for us to feel confident and feel comfortable. We do typically look to avoid commoditized products. I think we like to say we’re looking for high-quality differentiated products. I think differentiation can show up in a number of ways. And some instances maybe that’s a really strong review mode in others, maybe it’s really tremendous branding. It can be a really strong repeat purchase rate. Maybe they’re driving traffic from elsewhere onto an Amazon listing. That’s doing incredibly well. I think there’s no kind of single definition for that. But we absolutely look for high-quality differentiated products and brands.
Kevin King:
And are you taking ’em into retail as well now or just helping them expand in the US and internationally?
Korion:
So currently we’re focused on the US and international expansion. Amazon we’ll do a little bit of direct consumer as well. I think we’ve really assembled a world-class team and as they continue to get up to speed, we’re starting to roll in other parts of it. So do we evaluate expansion beyond just the US and Europe? Do we start to think about retail at some point? I think for us, it, it’s never been a rush. I think it’s really about to let’s build a platform that’s sustainable that will be here in 20 years, in 50 years. And I think in order to do that, we have to be, we maybe move a little bit slower, a little bit more methodical but that ensures that we build a really solid foundation that we can continue to build on.
Kevin King:
So what’s the play for Unybrands? Is it to IPO, is it to, and continue running? Is it to sell to a larger company and exit as a roll-up? What’s the play there?
Korion:
Yeah, I would say the play is to build a world-class CPG company. You know, we’re not at all focused on liquidity events, whether that’s in the IPO or a role into somebody else. I think it really is about let’s build a special platform. Let’s acquire the best brands in the world. Let’s ensure that founders feel like they’re well cared for when they interact with us. And I think the rest will kind of take care of itself.
Kevin King:
So if I’m a seller and I’m looking to sell my business and I come to you, what are like three main things I need to make sure I got my ducks in line for before I talk to you?
Korion:
Yeah, absolutely. I love this question. I think the first one is to think about what you want out of an exit early on, right? Like, I think about what are you comfortable with, and what are you not comfortable with. And so what I mean by that are you comfortable negotiating because we’re not that we’re, we’re gonna take care of you and we wanna be fair, but we’re also professional buyers, right? And so are you comfortable kind of managing all of that, or would you rather have somebody else such as a broker or a banker come in and kind of represent you? I think having your financials in order is incredibly important. I think a world-class accountant is worth their weight in gold. You would be amazed at the number of brands that I’ve seen that the founder just doesn’t have a hold on kind of where the money’s going.
Korion:
The margin we have a call on, hey, the margin is XYZ, and then we actually dig into the PnL and it’s a quarter of that. And so they can’t speak to where things are going. And so I think having a really strong kind of accounting and finance team is tremendous. I think that applies to having a really great lawyer as well. I think that’s incredibly important. And then I think the last thing, one of the things for us when we think about the valuation typically what are your earnings. And then that’s multiplied by some type of multiple. And the multiple is really where you have an opportunity to create added value. And the multiple, let’s say, between three and four times and five and six times often is going to be about some of the other kind of intangible parts of your business. So have you really kind of outlined the SOPs for the business? Have you built it to where it’s turnkey ready for us to take it, hit the ground running, and to start scaling it? Have you left some meat on the bones for us to continue to scale the brand? Have you laid out a plan for what we need to be able to do that successfully? I think those are all things that can create added value for us. But we’ll also help to increase your valuation when you’re looking to exit.
Kevin King:
I hear from a lot of sellers that have sold that they say the due diligence process is kind of a pain in the. It takes 60 to 90 days in some cases. Some people say they can do in 30, but typically it takes a little longer than that. And you guys are just asking for every document under the sun and every support thing, and they’re scrambling around trying to find it. It’s almost like a full-time job to sell your business on top of continuing to run your business. Any advice you have on that aspect of things for a seller?
Korion:
Yeah, of course. So I think first and foremost it’s never too early to start thinking about selling your business. And this kind of goes to my prior point, right, of having a great accounting and finance team is, let’s say you’re looking to exit in 2024, start thinking about that today. Put the pieces in place. Shoot me an email, and let’s have a chat cause I can tell you what we need so that you’re ahead of the eight ball. And so when you’re actively starting to entertain offers, let’s say in the middle or end of 2023, you’re ahead of the eight ball, you’ve got what you need. And I think it kind of streamlines that process. I think that’s the first and most important thing. One thing I can kind say about our experience is we actually really try to front-load our diligence process.
Korion:
So I would say we probably ask for more than most others in the pre-LOI stage. And that’s because we really wanna understand the business so that when we send you an loi, that’s a valuation that we feel confident in that we can stand behind with. Without the introduction of kind of new information that’s not gonna fluctuate or change. And so that’s key. I think, again, you can leverage a broker, this is what they do day in and day out, and they, they can kind of act as that buffer when you’re going through the process to ensure that you’re again free to focus on your business and they’re kind of dealing with us outside of obviously calls and different things that you have to take like.
Kevin King:
That. How important is the relationship between you and the seller when you are approaching a business? Is it all just about the numbers on a piece of paper or is there something to it where you like this guy or this gal or something? And is there any personal things that come into play when you’re selling your business? Or is it just strictly black and white numbers?
Korion:
Yeah, so I’ll kind of talk speak out of both sides of my mouth. I think if we don’t have a great relationship, that doesn’t mean you’re gonna get a lower valuation of multiple, right? Like, that’s not fair. That’s not us sticking to kind of the fundamentals of our business where we’re gonna treat all sellers fair. We’re gonna pay a fair valuation of your multiple, whether we like you or not. I think that’s core to kind of who we are. But I think having a good relationship certainly adds value. If nothing else, you just have another advocate that’s pushing to get the deal done that understands your business maybe a little bit more closely than it might have otherwise. And so I absolutely think it’s beneficial to have a relationship. And at the end of the day, like we’re buying your business typically there’s gonna be an earn-out component to that. And so I think having a strong relationship just makes it that much easier cause we’re gonna be tied together in, in some capacity. And then all of the transactions that we’ve done where we’ve retained the founding team, I think we have tremendous relationships with those founders. Again, they’ve contributed to Unybrands beyond revenue but from a culture, from a quality, and from a people standpoint as well.
Kevin King:
So when you say earn out, let’s explain what that is. So when you sell your company and let’s say you sell it for $3 million, there’s a certain amount of that’s wire transferred in cash on the day of closing and the rest is considered, what’s an earn-out to where, where you have to stay on advise or manage it for a certain amount of time, or the company has to hit certain sales targets and then you get paid the rest of that, maybe even a little bonus if it goes over a certain thing. What is typically the splits? I know every deal is a little bit different, but what’s a typical split between cash and pocket percentage and future earnings or earn-out percentage, and how long is that earn-out usually?
Korion:
Yeah, absolutely. So I think it’s gonna vary with, with kind of every acquire. For us, typically I think you’ll see cash at close between 70% and kind of 90%. It varies. I think we tend to be a little bit heavier on the cash and close side. And then typically we have two earn-outs. So we have a binary and a pro-rata. So binary is based on hey, do you hit this threshold? Let’s say hypothetically 20% growth then you’ll receive that first earn and then you’ll receive the second earn-out on a pro rata basis between let’s say between 20% and 40% growth. And so we feel like that’s a pretty fair structure, haven’t really received pushback on that. But I think, again, it’s gonna vary. I’ve heard of others where they’re doing 50 or less percent cash and close and then you, you see more heavily weighted towards, towards an earn-out or there are other mechanisms you can use stability payments. There are deferred payments. I think we have certainly kind of a standard structure we like to use, but we’re also always open to what does the founder have in mind. Like, this is a partnership, this is about creating a transaction we both feel really good about. So let’s have that conversation.
Kevin King:
What’s your general feeling on where e-commerce is going? Do you think it’s gonna continue to grow? You know, there’s in the press, there’s the Covid bump, and then there’s all this negativity now Amazon’s laying off people, everybody’s laying off people, and so there’s this new and gloom kind of thing that but I think some of that’s just, just overhyped a little bit. I think e-commerce is still where it’s at and it’s still gonna be continuing to be where it’s at. So what are your thoughts on where this whole industry’s going?
Korion:
Yeah, I would echo your sentiment. I think things are never as bad as they seem and things are also never as good as they seem, right? I think the covid bump pulled a lot of demand kind of forward for E-com. I think consumers have demonstrated that there are certain items that they wanna purchase that are tangible, they want to touch, feel, and smell kind of has direct access to before making that purchase. And I think that’s a good thing. I think if my wife and we’ve been looking at buying some new furniture for our living room for the last like, let’s say six months, we’ve been looking online. We went down to West Elm last weekend and it was just that much more effective to actually like, sit on stuff and touch it and feel it and all of that.
Korion:
And so I don’t think retail’s going anywhere. I certainly don’t think e-commerce is going anywhere as well. I’m super, super bullish on, on E-com. I think I touched on this a little bit before, I think the emergence of micro brands where people that have maybe historically been underrepresented as it relates to like products that capture who they are or that are for their specific use case or their need, I think the emergence of these brands that actually have stories that align with these consumers is tremendous. I think that will only continue to see growth in the number of micro brands. Like I think the barriers to entry to build brands is lower than it’s ever been. Obviously, it’s competitive as well, but I think you’ve got more people interested in entrepreneurship, more people interested in starting their own companies. So I think the future is incredibly bright for e-commerce.
Kevin King:
And if someone that’s listening wants to reach out and talk to an incredibly bright aggregator or someone like yourself, how would they do that?
Korion:
Yeah, so more than welcome to shoot me an email. My email is [email protected]. And I’m happy to send my cell number that way. I’m always happy to chat, shoot me a text, or gimme a call. We can connect on LinkedIn. I’m here to support people through their journey. I’m happy to share insight on my own experience, what I wish I’d learned or wish I knew or just talk or maybe I won’t do the one chip challenge with you, but I’ll at least talk you through how to manage it.
Kevin King:
Cool. Korion, I really appreciate you coming on today and suffering through me trying to speak here as I’m recovering from pneumonia. But this has been great. It’s been fun.
Korion:
Likewise. I really appreciate you having me. Really, really glad to hear that you’re on the mend. And looking forward to seeing you again in person here soon. And wishing you and the family happy holiday.
Kevin King:
I appreciate it. Same to you.
Korion:
Awesome. Thanks, Kevin.
Kevin King:
Korion’s a really smart guy, so if you’ve got questions about the exit process or you’re thinking about exiting, or maybe it’s now, or maybe it’s in a few years, feel free to reach out to him at that email address he gave. Also, don’t forget, Helium 10 now has a new course called Exit Ticket. That’s right. There’s the Freedom Ticket, which I do, and now there’s Exit Ticket and it’s a really good comprehensive like six intensive modules with subsections, and each of those modules that breaks down the exact process and everything you need to think about when it comes to exiting your business. It’s hosted by Scott Deets, along with Bradley and Carrie. Scott is from the northbound group. He’s one of the smartest guys out there in the space, so be sure to check out Exit Ticket.
Kevin King:
You can find that under the tool section and the educational materials under your Helium 10 account. It’s free for anybody that has a Helium 10 account. It’s a really great course. Really, really good information for anybody considering exiting their business. Until next week, I hope you have an awesome December, an awesome fourth quarter. Hope things are going well for you. And I just wanna leave you with one little thought as I always do at the end. Do you know wealth, freedom, and security come from what you own, not what you do. Think about that for a second. Wealth, freedom, and security come from what you own, not what you do. We’ll see you next time.
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