Society Brands, an Ohio-based acquirer with a small-but-growing portfolio, asks its founders to stick around as brand directors, incenting them with an equity stake from a future liquidity event or IPO over the next few years as the company accelerates its pace of acquisition.
The company has raised $218 million to date, including a $205 million debt-and-equity institutional round a year ago, plus a $13 million equity raise. According to Axios, Society Brands is planning a Series B round in the near term.
Michael Sirpilla, CEO and co-founder of Society Brands with his brother Justin, said his firm offers founders a kind of “second exit” in addition to cash at closing.
“We like them be able to benefit again,” Sirpilla said. “That’s a key differentiator. The typical ecommerce entrepreneur is youthful, certainly not looking to retire sometime soon. We do the occasional earnout, but ask them stay onboard most of the time as brand president, overseeing P&L. They have the tribal knowledge of what’s been done to make (their brand) a success.”
Sirpilla said Society Brands targets digital native ecommerce companies in the $1 million-$20 million range, with a 15%-20% profit margin and 10% EBITDA growth, although many surpass that last metric. Categories include sports and outdoors, home and kitchen, health and personal care, children, evergreen apparel and consumer electronics.
All of its brands are selling on Amazon as well as other marketplaces, while some do DTC as well as one that’s in wholesale.
With six acquisitions to date, all made in 2022, Society Brands is looking to step up the pace to 12-15 new companies added this year and next. Portfolio examples include Barnesmith, a licensor of collegiate apparel, screen protection firm Power Theory and Milford, NH-based Yankee Toy Box.
Through CTO Ross Salupo, brought on in November, Society Brands built a proprietary tech stack each brand is plugged into. It includes product information management (PIM), inventory management, data analytics, marketing and advertising automation, digital asset management (DAM), SEO monitoring and keyword tracking. Financials and reporting are handled by Oracle NetSuite.
“We look at return on ad spend, inventory counts, channel mix, various aspects of the business,” Sirpilla said. “At a high level, we have daily visibility into what goes on with each brand.”
While Society Brands launched in October 2020, it didn’t make its first three acquisitions until July of last year. In the midst of the pandemic lockdowns, there was a feeding frenzy of buying activity with the rise of major players like Thrasio, Perch and Berlin Brands that raised hundreds of millions from VCs. Sirpilla said he and his partners decided to wait until the market settled out, which it did as deal flow slowed down in 2022.
“I don’t know if 2020 was right the time, because with brick and mortar shut down, acquirers found highly inflated valuations,” he said. “It was when a lot of Amazon aggregators launched, buying brands at the peak of the market, which has since normalized as consumers resumed regular buying patterns in stores and ecommerce.”
That has resulted in more of a buyer’s market for ecommerce brands, he said, without the “covid noise.” While not saying what an average EBITDA multiple is these days, Sirpillo did say it was 1.5 to 2x less than a year ago, which he called “very significant.”
“Obviously it’s beneficial to us, but also to sellers, as we’re not just offering cash but rolled equity that’s worth more down the road, even if it’s less from a cash perspective,” he said. “They can enjoy that second bite of the apple.”