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Build a Business Worth Buying brings you candid conversations with industry leaders, M&A experts, and successful founders. Learn advanced strategies to scale, optimize, and prepare your business for an acquisition—because building a business worth buying starts with smart decisions today.
Ilya Seglin (00:00)
cash used to be free. Now everybody wants free cash flow.
Aaron Alpeter (00:38)
Today's episode is meant to be a definitive look at what it means to exit a beauty business at scale. Not the headlines, not the hype,
but how strategics and private equity firms actually evaluate brands, what they will and won't touch and how deals really get done once you're north of $100 million in revenue. To do that, I'm joined by Ilya Seglin, who is the managing director of Cascadia Capital who focuses on beauty industry. He's an investment banker
and M&A advisor with deep hands-on experience in the beauty industry.
In this conversation, we went behind the curtain. We talked about why so many beauty brands look the same, whether that's a requirement or a limitation, how buyers think about channel mix and positioning, and what internal constraints inside strategic
actually shape acquisition behavior and how influencer and celebrity brands are underwritten once the personality is removed from the equation.
And with that, let's dive in
Aaron Alpeter (01:25)
Ilya, thank you so much for being on Build a Business Worth Buying.
Ilya Seglin (01:28)
Thank you for having me, Aaron.
Aaron Alpeter (01:29)
I have really, really looked forward to it. We met a couple of months ago at Beauty Connect and you just had such a great command of the beauty industry and the deals that were happening and that should happen and I just, had to have you on here. And I just want to dive right in because when you look at Beauty M&A today, what kinds of brands are actually getting acquired?
Ilya Seglin (01:50)
the M&A landscape is definitely going through sort of a recalibration period and there is no simple answer to what brands are getting acquired because every time one gets acquired, everybody thinks there's a pattern and there is no pattern. I think the biggest challenge that's happening in beauty is how do you engage with the consumer and how do you sustain that engagement? And how do you actually have metrics to demonstrate that you have that sustained consumer engagement?
And the ones that can demonstrate that, I think are the ones that are getting acquired. And that's on top of, having scale, probably doing, you know, 50, 100, 150 million of revenue where it actually moves the needle for the buyer.
businesses that have good unit economics, i.e. good gross margin profile, businesses that are profitable. So all of those things still matter. But I think the most important question is, how do you in the attention economy, in the world where there is no attention span ⁓ among the consumers, how do you actually get in front of them and how do you keep staying in front of them?
Aaron Alpeter (02:56)
Well, even that, I feel like it's changed just in the last couple of years. I was at another conference last week I listened to a speaker and they talked about how it used to be that you went to Sephora to discover new products. And now people are not going to Sephora to discover, you're going there already knowing what you're going to buy. And it's really been TikTok shop is where all the discovery is happening. How are you seeing that playing out? And it feels like the rule book has been changed for a lot of these brands that we're hoping to be acquired soon.
Ilya Seglin (03:07)
Yeah. Yeah.
Yeah.
Yeah, and I feel like in beauty you kind of every six months you have to go to, you know, back to school for continuing education because whatever works six months ago, is not working anymore. But I totally agree with you. I think the consumer is on TikTok. They're obviously on Instagram and, to a lesser extent Facebook as well. But TikTok is the main driver of, where a consumer discovers products and more importantly, where they learn about products.
You know, they form opinions about efficacy of products, how to use them from other influencers on TikTok, YouTube, whatever the platform may be. And so Sephora is definitely less of a...
even also less of an education and discovery platform. It's more of a, sort of transaction platform. ⁓ And I think it's a real challenge for them. But with that, whole playbook that we had of brands like Drunk Elephant, like Tatcha, that, you know, partnered with Sephora, did exclusive deals with Sephora, and Sephora really helped them build their business and their brands. I think that playbook is gone. ⁓
So the challenge for the brands today is how do you, know, in the world where Sephora still matters, there's still tremendous foot traffic at Sephora, but it's not necessarily where the discovery happens. How do you optimize for that world on digital and in physical? And it's hard and it's costly. So it's just, for now it's a completely different playbook
Aaron Alpeter (04:53)
I mean, to say that that playbook, which is not that old, to be honest, is gone. I mean...
Ilya Seglin (04:59)
We do
live in a digital world, things move just so much faster.
Aaron Alpeter (05:02)
Well,
yeah, I if I'm a founder and I'm thinking about like, hey, I want to have an exit like Tatcha did and I'm trying to do everything they're doing, what you're saying is like that's not going to work. One, you won't get to the size that Tatcha got to, but then two, like an acquirer probably isn't going to care about you as much the same way.
Ilya Seglin (05:20)
what Tatcha did amazingly well is, she was coming of age, when DTC was the name of the game. had, incredible engagement with her core consumer. On the back of that, she went into Sephora and, know, with that partnership, scaled the business further.
But I think if you take not copy and paste of Tatcha, but the concept of how Tatcha built the brand, i.e. that connection with your consumer and ask yourself, where's my consumer today and what are they engaging with? And if you're Tatcha of today, your consumer probably is on TikTok. She's probably on YouTube.
So you have to figure out what is the content that I need to have there to engage with her and then drive her either to my DTC, to Amazon, to Sephora. That's how you need to completely think differently about the world. But the concepts of how to actually build her brand and her business are still relevant. It's just the tools are completely different.
Aaron Alpeter (06:17)
Yeah, the concepts, the principles are the same, but the playbook is different. So it almost seems like you need to understand what those core principles are, and then you build your own playbook.
Ilya Seglin (06:22)
Yeah.
You do, but with that comes complexity complexity of managing different channels of distribution, different marketing channels. You need people to help you manage those channels, so you need to hire people and then you need someone to manage the people that you hire. So I just think the complexity of the beauty business has increased exponentially.
Aaron Alpeter (06:50)
Yeah, it was funny. was with a group of founders a couple months ago the apparel people were like, man, I wish I was in beauty. It'd be so easy if I was in beauty because it's growing and it's just, you you just throw it up on there, you get in Sephora and I got a hundred million dollar business. And the beauty people kind of took that personally and was like, actually no, beauty is the most competitive. It's the most difficult. And
I don't know, I feel like the truth is probably somewhere in the middle where yes, a rising tide lifts all boats, but because there's so much attention going in there, like it is difficult to stand out.
Ilya Seglin (07:20)
Yeah.
It's so funny that you bring up ⁓ apparel people because I, a year ago, we were talking in the office about kind of like macro trends. And I said, my biggest concern about the beauty industry that it's, it's going to go the way of the apparel world. I eat the market is still pretty big. The consumer still buys apparel. Like we all buy clothes and we care about brands. We care about certain.
brands for the value, we care about certain brands for the brand name, but the consumer still shops, but loyalty has decreased significantly. The consumer is looking for ⁓ real value proposition. ⁓ It's really hard to be in a luxury world. ⁓ And then you have all the competition and kind of like mass, mass stage, entry level prestige.
And I feel like the year later, that's where the beauty world to a large extent has ended up, particularly with all this competition that's coming from, K-Beauty 2.0. They're great products at a great price point out there. And Sephora has no issues throwing a ton of brands on the floor and see who survives in those hunger games. They are introducing more and more brands, just like, in the old days, the department store would.
I think that we we kind of have ended up where the apparel world is. Now, the great news is unit economics are much better. know, gross margin, I'll take gross margin profile in beauty any day over the apparel world. And I think the supply chain is still more manageable. I don't have to worry about sizes for moisturizers and syrups. But the dynamics from the consumer perspective, I think are very much similar now.
Aaron Alpeter (09:03)
That's interesting. beauty has become so competitive, it's almost becoming more of a commodity, right? So that brand name is very difficult to hold on to because if you have a great product, somebody is going to copy it and they're just going to charge 15 % lower. I mean, look at MetaCube and how big they've gotten with how cheap their products are.
Ilya Seglin (09:22)
Some of the K-Beauty brands, they're good products that have got a good value. Are they brands like capital B brands that you can say, yeah, they're definitely going to be here 10 years from now? I don't know, but it's good product and they manage to stay in front of a consumer on digital and you kind of go on Amazon and buy it, then they work just fine. But is it sustainable? I don't know. So it's a little bit like...
your alo outfit for the gym. Like it's great. ⁓ Decent quality. You you look good. It works. how sort of unique is it?
Aaron Alpeter (09:56)
It almost sounds like you're describing
beauty has become a lot more easy come easy go. Like it's easy to start a beauty brand these days. It's easy to get big, easy in quotation marks. But then it's just as easy to kind of lose efficacy and to not be, I mean the product will be fine, but from a brand relevancy you can erode pretty quickly.
Ilya Seglin (10:10)
Yeah.
Thank you.
Yeah, I think that I totally agree with you. think it's fairly easy to start again. Unit economics are great and there's sort of the infrastructure with contract manufacturers, with formulators where you can develop product and launch product. You do need capital for it, but you don't need tens of millions of dollars. if you play the social media game right, you can get in front of consumers. I think the biggest challenge is how do you sustain that growth?
That's the real issue, I think, in the industry. otherwise, true innovation is really hard to come by. So truly innovative brands are few and far in between. So everything else becomes a little bit variation on a theme. ⁓ And it all, to me, becomes the concept of how do you engage with the consumer and how do you bring them back?
Aaron Alpeter (10:57)
Hmm.
It felt like for the longest time as I would see new brands come up or I'd see who got acquired that everybody was doing the same thing was basically some variation of Mastige Selling at Sephora and like that was just what it was Do acquirers care about mass or value oriented beauty brands anymore?
Ilya Seglin (11:18)
Thank you.
Yeah, absolutely, particularly, in this economic environment where, the consumer still remains, under pressure. Absolutely. I think this year we'll probably see more deals in sort of that mass, mastige ⁓ world. And it really is has become more about kind of like the price point as opposed to channel of distribution, because, Sephora has brought on a ton of products that I would characterize as mastige not really prestige. And, Target had
sort of their partnership with Ulta now that's going away but there's going to be a prestige offering coming to target in the not too distant future so I think of it as more price point positioning as opposed to channels of distribution I think there will definitely be continued interest in that mass mastige world.
Aaron Alpeter (12:11)
When an acquirer is looking at a mass brand versus a prestige brand, how does the acquisition math change?
Ilya Seglin (12:19)
From the acquisition perspective, always have to think about how big can the business get? ⁓ I think on the prestige side, historically it's been, I don't want to say pretty easy, but there was kind of like a roadmap for taking, growing the business domestically and taking it to foreign markets.
I think on the mass side, you have more doors because Target and Walmart and CVS and Walgreens have more doors than Ulta and Sephora. But historically, you've had limitations on foreign expansion. So, to the extent the evaluation reflects the growth potential of the business, that's how, buyers typically think about it. So historically, kind of mass brands.
traded at lower valuation compared to prestige brands, just given the growth potential limitations. I think that's evolving as well, particularly as you see some of the mastige brands that are actually going to international markets and succeeding there. ⁓ So that sort of that dynamic may change.
Aaron Alpeter (13:18)
Got it. from an acquirer's point of view, what are some of those biggest sources of variability across the different options that they have? I'm wondering what is it that founders always underestimate, whether it's the category, the price point, the channel, a hero SKU, like what is it that acquirers, if they could speak through you, wish that all the founders would pay attention to?
Ilya Seglin (13:39)
Yeah, and I think the list only, it's only increasing. It's definitely not shrinking. I think it's definitely, what problem are you solving? Do you have a reason to exist? ⁓ And that, you know, that question is answered from the product perspective, but also from the, again, consumer engagement perspective. Don't underestimate, you know, if a brand has a very good product, maybe not totally proprietary, sort of, unique breakthrough signs, but has incredible ability
to engage with a large portion of consumers. There's value in that. ⁓ I think you need to have right unit economics. You need to be profitable. You need to be growing. ⁓ But particularly when you have conversations with strategics, I think you need to demonstrate that you have the potential to be a forever brand. ⁓ Private equity buys businesses if they make majority acquisitions for three, four, five years, and then they would want to exit.
⁓ I always joke with founders, a deal with private equity is a marriage that's guaranteed to end in divorce. strategists think about it differently. They look at it as a forever acquisition. So, as a founder, you really need to demonstrate that the brand has potential to be around for the next 10 years, at least.
Aaron Alpeter (14:58)
What separates a brand that could be a forever brand versus one that couldn't?
Ilya Seglin (15:03)
do you have a product that the consumer really needs, not just wants? Do you have distribution channels where you can continue to grow? do you have kind of like the execution potential? do you have the team that can that that can make the business grow? I've seen a lot of great ideas that, at one million sound amazing and they
they can barely get to 3Million and it's like, you think everybody should know about this product, but if you can't execute it, the world's not going to know about it.
Aaron Alpeter (15:31)
Yeah, you mentioned something that people need versus want. if I'm an acquirer or a founder, how do I know which side of the the triangle I fall on?
Ilya Seglin (15:42)
the consumer will usually tell you. if you have a clinical skincare brand that has, real proprietary innovation and has demonstrated efficacy and can demonstrate that a consumer comes back and buys it again and again and again, that to me seems like a neat product for that consumer.
Aaron Alpeter (15:44)
Okay.
Ilya Seglin (16:02)
if you're cycling through constant innovation and your consumer engages with the brand and maybe you constantly have to bring in a new wave of consumers because you're just cycling through them, that to me feels like a want brand. And I think it's harder to prove that a brand like this can be around for the next decade.
Aaron Alpeter (16:25)
makes sense. one of the things I've heard people talk about over the years is trying to make sure that you've got a brand platform and not just a product that is known as a brand. And so, you how do you develop that master brand? How important is that today? Or is that something that an acquirer should that be their job?
Ilya Seglin (16:43)
Nothing is the acquirer's job anymore. I think the all sort of all responsibility falls on the founder or, the brand. I always think of sort of the evolution. You start with a product, then hopefully you become a brand and then hopefully you become a business. And so by the time the acquirer comes around, I think what they're looking for is a business that's built around the brand with really good product.
You always need to think about innovation on the product side, but you also need to think about marketing and brand building for the longer term, but also consumer engagement in the short term. it's,
It's a constant kind of like 360 management of your business. And sometimes when you're an independent founder, you will do things that are right for the brand longer term and maybe are not as beneficial from the financial perspective that often flips when you have a financial investor.
that will be looking to monetize their investment. ⁓ They may do things that are beneficial from the financial perspective in the short term, but maybe it will shortchange the brand in the long term a little bit. So it's always a delicate dance.
Aaron Alpeter (17:53)
I want to talk a little bit about
your perspective of brand building. And I remember a story with the founder I had five or six years ago, and we were kind of going through their P &L and we're trying to find cost elsewhere. And they said, OK, is this is what we have for Facebook's we have for Amazon. This very specific ROI, very specific cac targets. And I well, what's this? What's this 200K here? It's like, oh, that's brand building. Like, what is it like? it's just what it whatever it is. So what does it actually mean to have
Ilya Seglin (18:19)
what we do, yeah.
Aaron Alpeter (18:24)
Brand building marketing spin is it is it money that you're flushing out a toilet and calling brand building or in your mind? Is it something that's actually? ⁓ More to do can you have a real ROI when it comes to brand building?
Ilya Seglin (18:36)
I think that's harder and maybe if you do that, you probably need to take a longer term time horizon so it's not monthly or annual type of ROI. But I think it's different for every brand. If you're a skincare brand, maybe that means investing in relationships with dermatologists and other kind of like skincare authority figures. I think it could be events, billboards.
whatever it is. I think if you're a color brand, maybe it's investing in fashion week events or partnerships or things like that. So I think it's truly
differs by category. To me, it's just I think of brand building and I wouldn't necessarily put it as a separate bucket. That feels a little bit odd. But to me, it's marketing dollars that are not generating immediate returns. And they can take a form of
Real cash spending or products or, participation in like social events or even podcast, right? You getting awareness out there. It doesn't necessarily convert into sale that day, but you are building awareness for the brand. ⁓
Aaron Alpeter (19:44)
Yeah, that's helpful.
think this particular founder was just trying to say anything that they didn't have a good excuse for from a CAC point of view. They just lumped it into brand building, which was probably not the right way to look at it.
Ilya Seglin (19:56)
They should probably have another session with their financial person.
Aaron Alpeter (20:00)
Yeah. One of the things I appreciate most about you is just how many different deals and acquisitions you've been a part of and been around. And you've kind of seen the things that private equity will look at, things that strategic will look at, things that other startups will look at. And I kind of want to talk about the edges of what's out there. And so is there anything that a strategic or a PE just won't touch regardless of how fast a brand is growing?
Ilya Seglin (20:29)
Sure. I think what we learned over the last two years is that businesses that have gotten too big too fast became a little bit radioactive for both buyers and financial investors.
Again, going back to the question of sustainability, it's like proving a negative. How do I know that because you've grown this fast in three years, you're going to continue to grow for the next five, 10 years? There's no way you can answer that question
one of the reasons I think rare beauty, did not get a deal done is, it was a big business with a big price tag expectations that was three years old. ⁓ And it was attached to, you know, a significant influencer, however you want to refer to Selena. And it had, decent channel concentration with Sephora.
doesn't make it a bad brand, make it a bad business. It's just a challenging acquisition target for people. And then I think things that are just me two products that are truly just driven through kind of like, you know, digital engagement, whether it's on DTC or, on Meta or on Amazon.
where they're basically buying sales. It feels like there's a business, but it's just a digital game. Those businesses have come to market in a variety of categories, and I think that there's very little appetite for businesses like that. I think they're fantastic privately owned businesses, founders. There's nothing wrong with making cash flow, ⁓ but I just think for strategics or financial investors who ultimately want to sell to strategics, those are challenging.
Aaron Alpeter (21:57)
It almost sounds
like where the pendulum is swinging right now is like a good vintage, like slower growth is kind of preferred. Am I hearing that correct?
Ilya Seglin (22:08)
It's like medium growth, right? You want a brand that's gaining share, that's engaging with the consumer, that has some diversification in ⁓ its distribution, but has good product that where you can demonstrate that the consumer buys it again and again and again, that is of scale where for the strategic it moves the needle. And we're probably at this point talking about 75 to 100 million in revenue that makes money.
⁓ That's where the interest is. And those, there's some businesses like that out there, some brands out there like that for sure, but that's not the vast majority.
Aaron Alpeter (22:47)
Yeah, makes sense.
What are some of the characteristics that would push a brand to probably be better suited for a PE exit versus a strategic exit? Or is it such that if you can get a strategic, you should always take a strategic?
Ilya Seglin (23:01)
I don't think so. think it depends on what your objectives are as a founder. What do you want to do? I think it's also about where the brand is. Some brands are great candidates for financial investment from private equity firm, but they're not big enough for strategic to acquire them.
So if you're looking for that growth capital or you may be looking for a partner to execute the next phase of growth for your business, you you may be better off with a financial partner and then everybody sells to strategic. if you've built the brand to a certain scale and it's a nice profitable business and you just want the strategic to take it over from here and you'll stay through the transition, but you're doing over 100 million revenue and you're ready to hand off the keys to somebody else.
Sometimes the strategic is the right answer. confidence in the ability to grow the business also plays into it. I think obviously with a financial investor, you'll always have a stake or most of the time you'll have a stake in the business, which can be monetized down the road and sometimes can be significant value creator. With a strategic, you will typically
you know, your sale event will be the main monetization event. You can stay on for earnouts. Maybe you'll stay on as an employee and, you know, and benefit that way. Depending on what your confidence is on the growth, for the growth potential of the business is, that should also factor into your thinking for the buyer.
Aaron Alpeter (24:27)
That makes sense. You do a lot with the buy side devising too, right?
Ilya Seglin (24:33)
Absolutely.
Aaron Alpeter (24:34)
Can you just talk a little bit about some of the internal conversations or tensions that a buyer looks at when they're evaluating deals? Because, by and large, there are lots of deals out there or there are attractive companies out there. you know, I don't know to what extent it's like, hey, if we don't get on this one, the guys in Cincinnati are going to get it. And so we don't want that. So there's competitive edge or they look at and say, OK, well, this doesn't overlap with our portfolio whole line or
Ilya Seglin (24:48)
Yeah.
Aaron Alpeter (25:02)
we think we take an initial, just walk me through what does the calculus look like for a buyer when they're assessing a deal that should be acquired by somebody and they figure out if it's theirs or not.
Ilya Seglin (25:12)
Yeah, think if you're strategic and you're looking at acquisition opportunities, I think first and foremost, the question is, does it make sense for my portfolio? And what can I do with this business that others may not be able to do? if the first answer is, got to have this because we can really accelerate the growth of this business.
Or it solves a problem in our portfolio, maybe that, you know, we're not addressing a certain market that we should be addressing. If that if the answer to that question is yes, then I think you go through all the, you know, all the valuation exercise and what's it worth and, you know, where's the market and then you do the calculation. Well, what's it worth to us with all of our synergies? And then you get into competitive dynamics and sometimes you need to step up,
the evaluation if you don't want your competitor to get it. But I think it all starts with that portfolio question. ⁓ Thus, do I need to have this brand? ⁓ If the answer is yes, they become, I would say, more flexible. think, look, certain strategics have real financial discipline. Others can underwrite very aggressive cases ⁓ if internally they decide that they have to have those brands.
And we've seen this play out recently.
Medik8, think at a certain point, L'Oreal just said, you know, we got to have this business and, it's done very well in its domestic market and we think we can do a lot with it internationally, particularly in the US. And we have the infrastructure for it and it's exactly the type of brand that should be in our portfolio. And they got aggressive on the multiple.
So that's the dynamic that you see.
Aaron Alpeter (26:52)
When they're looking at their portfolio,
how much of it is, hey, this brand is actually taking share from our existing brands. so, you know, either it's gonna go to a competitor and they're gonna accelerate and take more share. And so it's a defensive posture versus it is a, wow, like we, know, K18 with peptides, wow, nothing like this exists. Like this is a truly new dynamic that we wanna include. How often is it one versus the other?
Ilya Seglin (27:03)
Sure, yeah.
Look, the reality is it's usually a combination of both. And let's not forget, most of these strategic are publicly traded companies. So they have to report earnings either quarterly or, you know, every six months in Europe ⁓ and managing, they're all managing their stock price in addition to managing their businesses. So ⁓ absolutely, if they're emerging brands that are eating share in the categories where they're active, they got to act defensively. ⁓
You know, the ones who are coming in from the position of strength, and I think L'Oreal is a great example of that where they've been approaching M&A for the last decade plus very much ⁓ from an aggressive forward looking perspective. They see where the market is going ⁓ and they're getting more aggressive in those categories. Other companies you'll see buy things because they need to buy growth.
very much both come into play. Also, with some companies, they look at diversification of their business. when Elf buys Rhode it was definitely not just a brand diversification, but it's a channel diversification. Elf is very much a mass business. growth was slowing
There was an opportunity in prestige and they saw how much runway Rhode would have, which was fundamentally DTC brand. hadn't even launched it before when else bought it. It was on the horizon. ⁓ They wanted that growth. So, you know, they stepped up for it.
Aaron Alpeter (28:44)
You know, one of the things I've
heard over the years is that that strategic's have treated M&A as their innovations process and they're really not creating, they're certainly not creating any new brands these days. And to some extent, they're not even creating new products. And I've always wondered about that because if you think about the resources that some of these strategic's have and their ability to do R &D or to, bring these things to market,
Ilya Seglin (28:53)
Mm.
Aaron Alpeter (29:11)
you would expect them just to be these hubs of innovations and these startups trying to catch up. I guess one, do you agree with that framing? And two, why do you think it is that way if you do agree?
Ilya Seglin (29:26)
Yeah, I think I agree with some of it. I think they are definitely not great at incubating new brands. ⁓ I just think at this point for all the multinational guys, if they are good at something, it is at scaling businesses globally. I think from the product innovation perspective, some are still good.
within their brands, they can still introduce interesting and really differentiated products. But I think what they're not good at is creating new brands that really talk to the consumer in the world that we live in today in this attention, start the economy. And they'll just buy that as those businesses grow.
And in some instances, they buy because they want to learn from them.
Aaron Alpeter (30:07)
Yeah.
Why do you think that's such a hard thing for multinationals to do? I mean, is it just the fact that their talent has not grown up in this space? And as we talked about, every six months the playbook is changing and so they're just not exposed to that level of steel on steel. Is that more of the issue?
Ilya Seglin (30:26)
I think they're just set up, they're fairly large organizations set up in matrices, with a lot of, internal buying that needs to happen. So by the time you actually agree on what action a brand should take, months can go by. Whereas if you are a founder with a brand, you can make that decision. If you think something makes sense on Monday, you can, you know, you can act on it by Tuesday.
I'm saying it, it's sort of, you know, in the extreme way, but it's just, just think the decision making processes is much more streamlined. If you're an anti brand, ⁓ this was a long time ago. Someone told me at 1 of the large multinationals, 1 of their regions was re evaluating how they approach their social media management.
And what they have and they hired a consultant to assess that and what they found out was it took six months of internal decision making, thinking and approval processes to kind of dramatically shift their social media strategy in a given market. That would never work. That would never happen with a founder own brand.
Aaron Alpeter (31:36)
Yeah, you're dead after six months.
Ilya Seglin (31:38)
You did it.
And by the time you do what you're doing in six months, like the rules of the game, the rules of game have completely changed. There's a new platform that everybody's exploring and, you know, and the eyeballs have moved.
Aaron Alpeter (31:48)
Yeah. Have
you ever seen a deal fall apart because the brand or the acquirer couldn't move fast enough and they kind of got in their own way and they just, missed their opportunity.
Ilya Seglin (32:01)
Yeah, look on a strategic side for sure, they may get distracted, but their internal issues, management gets sidetracked with some internal problems or it may not be the right time from, again, they're publicly traded companies and whatever's happening with, you know, with earnings releases, they may not be in a position to announce an acquisition. for sure, those internal dynamics are very...
you know, very critical to know when you're trying to sell a business to strategic. Private equity is fantastic from that perspective because they're set up to do deals. They respond to deadlines. they have teams of advisors, consultants, accountants ready to evaluate deals and to do diligence. Strategics get sidetracked. ⁓ Plus all the internal buy-in that often needs to happen.
Aaron Alpeter (32:48)
Yeah, that's interesting. there's this that I've noticed is that strategic's will buy a startup, fast growing indie brand, because they are nimble, because they're speaking to the consumer, because they're growing quickly. And yet these are all the things that the strategic is bad at.
And I wonder, do you feel it's inevitable that eventually these indie brands that had so much promise will kind of plateau or become a little bit commoditized? Or have you seen examples where they can make that acquisition and the strategic knows enough to stay out of the way from the areas that they should stay out of the way from but help where they should?
Ilya Seglin (33:29)
Yeah, and I think most of the time what happens is the first scenario that you describe is they just, they become corporatized and they, they innovate at a slower pace. And all the strategic does is they just roll them out and in new distribution where they have presence and are their salespeople are targeting those markets.
I think a few examples of where that did not happen is when you look at a brand like Charlotte Tilbury, which was acquired by Pouge. I think it's very much still run.
like an indie brand and there's real innovation and you know the founder is incredibly engaged. To certain extent it's a credit to the owners that they kind of let her do what's right for the brand and what's right from the product perspective and what to do from the marketing perspective. But I would say those examples are few and far between. More often than not you see the first case.
Aaron Alpeter (34:19)
Yeah.
What is it about Charlotte Tilbury or some of the other examples that you think they did well that other strategic should be or even founders should be thinking about in order to not ruin the special sauce that made the company unique to begin with?
Ilya Seglin (34:35)
Well, I think what they did well is one, they a little bit left her alone and two, she sold a majority of the business, but she didn't sell the entire business. So she had the incentive to continue to grow the business. I think to your other question, what should the founders be aware of? To a certain extent, when you sell the house, the new owner can paint it whatever color they want. So as unfortunate as it sounds, but like if you sold 100 % of your business and the strategic is going to completely
screw up your business over a three year period. Sometimes that presents an opportunity to buy that brand back. And maybe exactly, and maybe you can sort of reinvent it, but there's not much that you can do. The reality is somebody else owns your baby. ⁓ And you have to be, you have to go into it with eyes wide open.
Aaron Alpeter (35:08)
We've seen that before,
Yeah. Let's talk a little bit about the due diligence process. This obviously an area that you are living in all day every day when you're not on making podcasts. What does the diligence process look like for a brand? What should they be expecting? What is it that most brands maybe underestimate or overestimate when it comes to the deal cycle?
Ilya Seglin (35:47)
I think if you're doing a deal for the first time, think most founders underestimate how much information, whether it's an investor or buyer, want to see. It's a full proctological exam. Again, to go back to the house analogy, nobody buys a house without doing a full inspection and not just walking through the rooms. ⁓
First time founders who are doing deals for the first time are often surprised how much financially intensive diligence there is. ⁓
But they should also be prepared for diligence on their DTC cohorts, on their products to understand whether formulas are owned or if the manufacturer owns the formula. ⁓ How much diligence there is on pipeline of new innovation. Buyers care about what's in the pipeline. They want to see, do you have a pipeline, a couple of years of innovation that you've been thinking about? So they're not just buying the business for what it is today, but where it's going. ⁓
I think people are surprised by how much diligence is done on the executive team and kind of, you know, the back channel that happens on people who work in the business. ⁓ Those are the main things. But, you know, if you talk to other founders who've gone through deals, nothing should really surprise you. But I just think the intensity always surprises people.
Aaron Alpeter (37:11)
That's interesting. Is it something where it's intense no matter what and either you spread out that intensity a little bit over a long time because you're pulling all this information together or if you're really well prepared it can be very intense and very quick. Is there a certain amount of intensity you have to get through and you either decide if you're gonna rip the band off and do it quickly or if you're gonna drag it out for a year.
Ilya Seglin (37:30)
Yeah,
my advice is always get prepared. So go into, you know, if you really are ready to do a deal and you go into a process, spend time to prepare for that process. So get your financials in order. And again, advisors can always guide you what questions are going to come, what people are going to zero in. ⁓ I would always recommend people prepare for that process because let's not forget, you have to run your business in the meantime.
nothing, you know, and if you take the eye off the ball and you start missing numbers throughout the process, they'll kill the deal faster than any diligence finding that, that can happen throughout the process. So get prepared before you go into conversations with investors. That's the most important thing. if you have an attractive business and an attractive brand, with the help of an advisor, you can run a competitive process where you can keep sort of,
Keep everyone in check as far as the timeline so things don't drag out through that competitive tension, but don't start organizing your diligence after you start conversations.
Aaron Alpeter (38:35)
And so it almost sounds like part of the preparation is that your CEO and probably your CFO need to almost delegate 99 % of their day-to-day tasks just so they can focus on this element. I mean, would you agree with that? Or what would this be the sorts of things that they should be relying on an advisor like you as they go through that process?
Ilya Seglin (38:55)
Yeah, when you start working with an advisor, know, a good advisor will walk you through where the pain points are going to be and kind of what's needed from the company and where the advisors will actually help for things like financial information. Initially, the advisor will need to get it from the CFO.
but then how it's massage, how it's put together, how it's presented to investors or buyers, the advisor can definitely help on that front. And if you spend time with your advisor upfront to really understand the business and think about the growth strategy and the products and the distribution and all those aspects, then if you're working with a good advisor, they can take off a lot of the investor conversations that you would have had to do off your hands initially.
as they kind of go to the market and market the business. So educate your advisor and then they can do a lot of work for you.
Aaron Alpeter (39:51)
That's great. I know we're coming up on time, but I gotta get your take on celebrity and influencer brands. I feel like these are popping up all over time. I just, look at these things and they can get very big very quickly, especially if it's a big celebrity. I think Taylor Swift could probably sell anything on the planet if she chose to. Actually, that's probably the most interesting thing about it too. But like,
Ilya Seglin (39:57)
lord.
Yeah.
Surprising that she hasn't.
Aaron Alpeter (40:19)
When you're an acquirer and you're looking at an influencer-led brand, do they see these as structurally more risky or less risky to purchase?
Ilya Seglin (40:28)
I think all things being equal, they are more risky because if the brand really is tied to that one person, you are exposed to the risk to what happened to that person. You know, they may go mental, they may get hit by a bus. ⁓ It's definitely much more risky proposition. At the same time, they're an amazing marketing megaphone.
they have a huge audience and they can talk about their brand and their product to a larger base of consumers. But fundamentally, it's a more risk on type of acquisition. And that's why I think you've seen strategists to a large extent stay away from just like celebrity brands. think whether it's a dermatologist or makeup artist brand, I think to me that's a different category. They may be a celebrity, but they're an authority in their field.
Aaron Alpeter (41:21)
Yeah. Do you think there's a version of the influencer model that could be generally sustainable and generally attractive to buyers?
Ilya Seglin (41:29)
I think it's very buyer specific. I think some of these brands are really good cashflow generating businesses. And there's nothing wrong with that. But it doesn't mean that L'Oreal has to buy Cindy Crawford's business that Guthrie Ranker runs, it's great cashflow generating business. I don't think Unilever anytime soon is calling up Guthrie Ranker and saying we'd love to buy it. But it doesn't mean that it's not a great business.
Aaron Alpeter (41:54)
Yeah, at the end of the day, cash flow is what everybody wants eventually. So, yeah, not a bad thing to hold onto that and just collect dividend checks.
Ilya Seglin (42:02)
Exactly. flow, know, cash used to be free. Now everybody wants free cash flow.
Aaron Alpeter (42:07)
Yeah, that should go on a t-shirt somewhere. ⁓ mean, just like thinking about beauty M&A and the space in general, do you expect PE firms and strategic to widen the scope of what they're interested in buying? Or have we entered this phase where beauty M&A is all about, we want very specific types of brands that are doing very specific things that are going to see demand from these acquirers?
Ilya Seglin (42:09)
Totally.
I it's definitely widening. think to the extent that the consumer thinks of beauty and wellness, then longevity and health kind of like all in the same bucket. Like the consumer doesn't say, ⁓ I think of my face serum as beauty, but I think of my supplements as health. It's all just wellness. They want to feel good. They want to look good. ⁓ think strategic will evolve.
into the same mindset, probably slower than the consumer will. But financial investors have definitely evolved into that. yeah, I think the sort of the what beauty is, you know, what's considered a beauty investment, ⁓ that field is definitely getting bigger. But as far as what makes an attractive investment, I think it goes back to what you and I were talking about at the beginning. Do you have a product that has efficacy? Is it truly an innovative product? ⁓
Can you demonstrate that the consumer is actually buying the product again and again? All those fundamentals still have to be there. Just think what form the product takes will definitely expand.
Aaron Alpeter (43:42)
I can't believe where the hour has gone. I feel like ⁓ I could talk to you for a couple hours about this stuff. Thank you so much for being on. I've got one question I always like to ask our guests on Build a Business Worth Buying. It is, what is the best example of a moat that you've seen a business build?
Ilya Seglin (43:45)
I know it's crazy. You're a great interviewer.
Yeah, Aaron, I knew you were going to ask that question. so there was a stat and I looked up the stat to confirm that it's still true. There are more prime members in the US than there are people who vote. last year, were at the end of the year, there were 180 million people with prime membership and 155 million voted in the 24 election. So I don't know if there's a better mode out there.
Aaron Alpeter (44:29)
America. What can he say? Oh man, is wow. That it's not like it was 155 and 156. It's like, no, there was basically the the whole
Ilya Seglin (44:30)
Exactly.
No.
It's
literally 20 % more shopped with Prime than both.
Aaron Alpeter (44:45)
whole population of Canada
you know and I don't know maybe the numbers are looking at Canadian then and that's why they didn't vote. This is great. Well Ilya thank you so much for being on and thank you listeners for tuning in. I've learned a lot about beauty in the M M&A space. If you are a beauty brand and you're looking to go through a transaction reach out to Ilya. He's got even better advice than what we shared here and we'll see you next time on Build a Business Worth Buying.
Ilya Seglin (44:50)
Hahaha
Aaron, thank you for your time.