Subscribe
Share
Share
Embed
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.
Ghassan (00:00)
Emerge went down.
to one cent a
December of 2023, right before we sold
pet business for 13 million Canadian roughly to Tiny.
And that was like a big lifeline for us. We took all that money, we paid down the debt, we announced a refresh plan.
Few years later, we're about
Aaron Alpeter (00:53)
We've got a great guest today.
Halazon is the founder and CEO of Emerge Commerce, a company built around a bold idea that swept through the consumer internet over the past decade. What if you could acquire dozens of profitable niche brands and scale them faster together than they ever could alone? Through Emerge, Ghassan pioneered one of the earliest public roll-up platforms for digital consumer brands focusing on Canada.
The company acquired businesses across food, sports, pets, and enthusiast commerce, all with a thesis that shared infrastructure, marketing leverage, and operational scale could unlock additional value. Emerge had their share of ups and downs before going public and
and having a $150 million valuation to seeing everything crash down to only one cent And yet their story of being able to put this together and come back is one that's really fascinating. Today's conversation was really enlightening for me. We explored what the roll-up wave got right, what it misunderstood.
and what founders building consumer companies need to know if they want to build something truly worth buying.
Aaron Alpeter (01:49)
Ghassan, thank you so much for being here. I've been really looking forward to this interview.
So you've done so much. I mean, you've built and scaled some companies in your own right. You've got this roll up. ⁓ I want to kind of talk a little bit more specifically about Emerge Commerce. Why don't you first, in your own words, tell us what Emerge is and kind of how it came to be?
Ghassan (01:53)
Likewise, thanks for having me, Aaron.
We are an acquirer and operator of profitable e-commerce brands and technologies.
originally founded about 10 years ago with this notion that
building e-commerce companies from the ground up was a very expensive proposition back then. And even till today, a lot of e-com companies have really challenging climates, low margin, high churn, and sort of a rising custom acquisition cost.
lot of competition, a lot of reliance on the big giants, the Metas and the Googles. And so it was always really tough to crack that code. I think they emerged from my perspective, having been in this space for 15 plus years was sort of a smarter way ⁓ to build profitably. And that's to say buying kind of small to medium sized ecom businesses that already had EBITDA today, not tomorrow,
was potentially the way we wanted to approach the scale up. And we've been through a lot of iterations, but as I said today, we're sort of really zoned in on this sort of profitable niche portfolio.
Aaron Alpeter (03:20)
Yeah, that makes a lot of sense. mean, the joke in startups is if you raise $10 million, you're giving $9 million to Google and Meta And so I can imagine how difficult it would be. Were you able to find a large selection of brands that had good EBIT numbers? Because I feel like that for a long time was always such a fleeting metric that people had. And was always, ⁓ we'll be profitable tomorrow.
Ghassan (03:26)
Right.
Right, and you know, the essence of Emerge coming up when it did was this idea that suddenly there were these e-commerce enablement companies, obviously Shopify being the poster child, but a lot of other tech out there was starting to make it possible for seven people in a basement to run a million dollar EBITDA business on Shopify or in some cases on Amazon, et cetera.
And so for us it was timing. We sensed that, you know, at that moment in time ⁓ that there were, I would call it hundreds if not thousands of profitable bootstrap.
e-commerce businesses, but had you done that, had you looked at that in the early 2000s, that wouldn't have the case, right? Because you needed a huge tech team, you needed to build your own platform, et cetera, et cetera, and that was very costly, and margins were extremely low, and there was the big kahuna, Amazon, and then there was everyone else, and I think to some extent that's still the case, but there's no shortage of mean, lean, profitable businesses.
Now the bigger question becomes if you are a million dollar EBITDA business and you're focused on profit, when you look at the economics of that sort of business on your own, it's a little challenging. Like where do you go from here? It's either a lifestyle business, but then it's not really a lifestyle because it's a lot of work. Everyone knows e-commerce is a really sort of hands-on industry. So that's the allure is like from our perspective to go acquire these.
You know, kind proven businesses, they're not growing crazy, right? Because if they're growing crazy, they think they're worth a billion and that's not our game. Like it may be someone else's game, but for us, we wanted to buy stuff where you could, we could foreseeably.
and plausibly see that there's a market leadership position on the horizon, if not already achieved in a particular niche. So, true local market leader in Canada in meat and seafood subscription specifically, right? Not in all of grocery. Same thing with golf. Like it's a very niche specific sport with a diehard community. We acquired the market leader in golf experiences in Canada, a brand called Underpar. And we've now sort of leveraged that to expand into other businesses, both organically
and through acquisition. So I think the more, you know, the moral of the story, would say over time, because Emerge broadly started as a diversified portfolio of all sorts of stuff. We were in pets, we were in outdoor gear, we were in experiences, we were in travel. So we were sort of an aggregator of sorts. And we made mistakes like many others did and the tide turned on that broad diversified model. What we found is that going focused and going niche,
is the way to go. within golf, we're going deeper and deeper. Within grocery, starting with meats and seafood subscription, we're going deeper and deeper. So that would mean potentially acquiring competitors or adjacent businesses like pet food, things that really make strategic sense rather than just going broad and expanding and acquiring EBITDA for the sake of it.
Aaron Alpeter (06:41)
Yeah, I want to dig in a little bit more because that's so interesting because you're right. mean, the aggregator model was one where enormous sums of money were brought to bear and it seemed that people were fighting with everybody about what they could get. And I imagine it was quite the bidding war. And so I'd love to understand what was it like trying to buy businesses in that environment when it was kind of the go-go days of aggregation. And then
Ghassan (06:51)
About 20 billion or so, think. ⁓
Aaron Alpeter (07:07)
what was the maturation looking like on your side where you guys said, you know what, let's just do a couple things really, really well instead of trying to chase these things.
Ghassan (07:14)
Yeah, you know what? I have a very interesting take on this because we didn't really follow the trend of aggregation, i.e. the Thrasios of the world that were the poster childs of ⁓ really Amazon FBA aggregation was the primary theme that raised a lot of money to go acquire these little Amazon stores. There was some Shopify roll-ups as well, but to a lesser extent, we were neither. We wanted to take our experience, our prior experience in building
a venture-backed e-commerce company, which by the way, I didn't mention, but my original foray into the space was at the tender age of 25, I left my banking job in New York to co-found basically what was the Groupon of Canada at the time, the deal space, very difficult space, but we grew it from like zero to 50 million ⁓ in our mid-20s. It was a lot of fun, it was an adventure, but it was venture-backed and as the space fizzled, we were forced to of retrench and tuck it in with another sort
business and so forth and that does never end all that well. ⁓ But we came out of it thinking, look, there's a smarter way to do things and that's to go acquire profitable businesses. The reason I don't pair what we did with the the Thrasios of the world is because we were really always, and I think by the way, that's why we're still here and kind of reinventing ourselves and still alive and kicking and now playing offense again. We just acquired a company last week. ⁓
I think the reason is that we really zoned in on a brand and community. So what we bought wasn't just EBITDA and wasn't just a bit of financial arbitrage. Because a lot of these little Amazon stores, three-person shops, ⁓ you you're potentially competing with Amazon itself sometimes, there's SEO problems. It's really not...
The same as buying the number one meat and seafood subscription business in Canada true local, right? True local is a brand. It has a die-hard community. It has pricing power It has amazing CLTV to cap two thousand bucks versus a cac of 125 bucks, you know so there's certain things that we did that I think put us in a position to withstand the storm that came and
to your viewers that aren't aware of the storm or really the double storm, it's a lot of this happened during the pandemic highs. So everyone was buying businesses at the peak pandemic, right? 2020, 2021. And we all know that that not just e-commerce, but the Zooms of the world, the Pelotons of the world, all of that sort of came crashing down at the same exact time.
interest rates on debt went up to historic, you know, went up at a historic clip. So that's now suddenly you're dealing with EBITDA portfolios of EBITDA shrinking while interest rates are going up and that's a recipe for disaster. And that's how 98 % of the space got eliminated. What we had to do at Emerge,
and how we survived this and sort of why we moved past it was we said, look, like we're sitting, first of all, we always bought stuff that was profitable. We always bought real brands. We always bought either market leaders in their particular niche. So I think even within pets, we had a wholesale B2B pet platform, very specific thing in the U.S. And so when the time came to have to make decisions around where do we double down, you where can we win big, let's say, and where can we, you
to kind of offload some assets to pay down debt, that the underlying assets in the portfolio were real. Like there were $2 million EBITDA businesses, there were $3 million EBITDA businesses, and that's essentially how we knocked down 30 plus million in debt down to 4 million in net debt.
Aaron Alpeter (10:52)
That's amazing. When you're thinking about pairing back a portfolio, and so, I mean, you have such an interesting perspective because you're simultaneously buy side and sell side. When you think about these assets that are performing and they have positive EBIT, how do you determine which ones you're going to keep and which ones you're going to liquidate?
Ghassan (11:11)
Yeah, so it starts with a couple of things. We had to really look inwards, right?
And when we say we look inwards, it's about where is our core competency? What have we been able to do well through the years? I don't want to only say well, disproportionately well, right? Where do we have an edge? And the answer quickly brought us back to Canada. So first of all, our assets in Canada, our assets where we had deep expertise. So we went back to our roots, essentially. I didn't say this earlier, but we started, the first verticals we had were in golf and grocery.
after the deal space and all of that. We kind of went into golf and grocery. And then when we went public, we started buying up, you know, all the pets, the outdoor gear, adventures, et cetera. So we kind of, we went beyond our comfort zone in part because capital was thrown at us, you know, and we made the mistake like everyone else to go out and start buying a bunch of stuff, right? But essentially what we really did was we unwound.
the buying that happened during the PubCo and we kind of brought everything back to basics to the businesses we understood in the country we have an advantage in and market leadership position. And then underlying that was we also really believed and saw signs from a data perspective that true local on the one end, i.e. the butcher box of Canada and under par.
Some call it the the golf now of Canada. It's not exactly apples to apples, but you know, we kind of compete in the space of discounted golf. ⁓ Both of those businesses had terrific customer bases, great CLTV to CAACS. That's the holy grail. In the end, when I say brand, community, ⁓ good unit economics, all of that in the end boils down to two words, CLTV versus CAAC, right? If you have a good model, people are sticking around.
They're spending more, they're telling people, and you have a great CLTV, and by that same token, relative to your customer acquisition cost, you are favorable. If this is favorable, everything else is manageable. Because suddenly, what is it a game of? It's a game of, any of these categories has a decent enough tab, right? If you're the market leader in any of these categories, name a category. If you're number one, it's worthwhile. And then,
B, you're SGNA, you need a certain level of discipline. That was never our problem. That was never our problem. Today we run on about a million bucks per employee in revenue. That's one of the most efficient ratios in all of e-commerce, right? I know there's a lot of talk about AI, one person companies. We're not there yet. No, no, we wanna be one person company. But I definitely see us.
If we were a $500 million company, I don't know if we could be a 500 person company only because of the facilities and infrastructure, but I think we're be really sort of zoned in on keeping that as close as possible to a million bucks in revenue per employee. And so SG &A has never been an issue. So it just becomes a matter of do you have, can you spend the marketing dollars in such a way where customers are gonna stick around, buy more, tell people, and do so early on in a way that you can have your ROI, you know.
early on within months not years.
Aaron Alpeter (14:22)
What I'm hearing from you is it sounds like you guys have spent a lot of time really understanding who you are, you want to be grow up. You you just you have a very clear thesis of what problems you want to solve. Where do you think that confidence as an acquirer comes from?
Ghassan (14:38)
Yeah, to be honest with you, Aaron, like it really has been a whirlwind ⁓ and maybe in some ways we could argue more complicated than it should have been, right? Because I think this conviction now in many ways comes from just having made those mistakes. And it's kind of like sometimes they say you gotta make those mistakes. Sometimes they're very expensive.
In many cases, people have gotten wiped out by making those types of mistakes, i.e. too much leverage or buying things that they didn't fully understand or in the wrong time. Those are very costly mistakes. We're very fortunate to have made it through the storm. But I have to also say, because it's not just luck that we survive, like this credit to the team, A to Z, ⁓ in terms of the group that said, no, we're going to clean this up.
We're not bailing here, like we're gonna fight this out, we're gonna rework. And by the way, like I personally rolled my sleeves up and had to make a choice to say, no, no, no, I'm not bailing on the investors that put the money in here. Many bailed, the entire space bailed effectively. You know, we were here, I said, I'm gonna renegotiate with the lenders. We're gonna be very transparent with our team and staff and employees. And we're gonna double down where things are working and then we're gonna.
we're gonna really incentivize the stars that stuck around that we think are the future of this company. And so it's a big sort of incentive realignment and org realignment around what matters, what are our goals, what if this company 10X is from here, how does that all add up? And we had to really think about those tough choices. The conviction in my voice that you hear is because we've been through hell and back, right? We've been through hell and back. And now that we're back,
Like we're going at it with a vengeance, right? Like we don't have to be negotiating debt, like, you know, with back against the wall. I'm negotiating debt now to save four or five more points in interest, by the way. That's a different negotiation. Before it was just let me breathe, let me live, let me try to sell some businesses. I promise I'll pay you. Well, now 25 million senior facilities down to 5.9 million. You know, now I'm like, they're saying thank you. Why don't you stick around with us? Don't leave us to go to the back. ⁓ Right. So that's a very different vibe right now. So you hear the energy and the excitement is because we just
bought a company last week. It's because the company that we bought last year, we made our money back on it in 90 days and we announced it. So things are exciting now because we're like, finally, we've learned from our mistakes. We've learned from a lack of focus. We've learned from too much debt. We'll never make those mistakes again. Now we're really excited to get going, play offense again.
Aaron Alpeter (17:11)
Yeah, I mean when you say those things, of course, like to the casual list, you're like, well yeah, of course, you don't have too much debt. Focus on EBIT, and those things are there. What was it about going to hell and back that you think you had to learn that made it kind of a core part of your DNA and soul, as opposed to just something that you casually went through? And do think you could have gotten there a different way?
Ghassan (17:33)
Yeah, excellent question.
I think that some of the big learnings that came out of this was like, look, we were in a close to zero interest rate environment. Because of COVID, e-commerce became the hottest space on Earth. Every sector at some point becomes the hottest space on Earth for a minute, right? And that was our moment in e-commerce. ⁓ And so the learning there was like, think...
I always say the moment you think you're invincible is the moment you no longer are. That's my saying by the way, if you like it. ⁓ But it's so true. You start getting this vibe that you're untouchable. People throwing money at you. You're supposed to buy companies, so let's just buy and grow it. And we did grow it. We grew to 120 million in GMV at the peak.
⁓ And we had, you know, five, four million EBITDA instead of six, seven million EBITDA. Still good EBITDA, but what does that matter if your debt's 30 million and your interest cost on the debt alone is six, seven million, right? So what mattered was like this movement ⁓ to shift our focus on optics and vanity to like...
Like really, really hands-on combat and stuff that really mattered. Like genuinely at our core, what really matters in business, cashflow matters in business. Not EBITDA, not adjusted EBITDA, certainly not just revenue.
cashflow. That's where we're focused. That's why a company we acquired last week, not only did we offer adjusted EBITDA, sort of figures, but we talked specifically about the cashflow that it delivered last year. And that's how we're sort of, sort of eyeing this, this new phase where Emerge is now a cashflow positive company. could we have gone into it in a different way?
The most obvious answer in hindsight is, yeah, we raised all this capital at the peak. We could have just said, no, screw you, we're gonna be disciplined. We're gonna take our sweet time. We're only gonna buy companies very opportunistically. People around us wouldn't have liked it. We had a lot of transactional folks around us. had bankers, we had investors that were rushing for us to grow and their other.
this aggregator is already at a billion, this aggregator is raising 100 million, you gotta go, right? And so there was all that pressure. So it's very easy to be like, now no, I could have just taken the capital and hung around for a few years and then picked everything up, dirt cheap. But by the time we had the debt problem and the declining revenue problem, it was kind of like, no, there was no other way to do it. Honestly, I look this up because Emerge went down.
to one cent a share in December of 2023, right before we sold our pet business for 13 million Canadian roughly to Tiny. And that was like a big lifeline for us. We took all that money, we paid down the debt, we announced a refresh plan. Few years later, we're about 10X where we were there, but we're still nowhere near where, you
we're looking to go, but that was sort of like, there was no other way to do it. You had to negotiate with everyone at the table, everyone and everything was negotiable as I like to say, and that's what we did.
Aaron Alpeter (20:44)
Yeah, that makes a lot of sense. And I can certainly appreciate the pressure of looking around and wondering, are they gonna eat my lunch? Are they gonna go around me? I have to kind of go with the tide, so to speak, just to keep up with what's going on. Do you get the sense that...
that pressure of growing and acquiring and just pushing yourself to keep up with the Joneses, was that more from a thought of like, hey, we may want to sell this company one day, or we may have a big payday our way, or was it more of a, this is just a new paradigm in that these valuations are crazy and it'll work itself out in the future?
Ghassan (21:21)
Yeah, you know, I don't think we specifically in our mind at least had a sense of selling the company because I always in the back of my mind knew that a hold call or an aggregator model.
was more so the buyer than the seller, right? Like it's hard to imagine someone buying grocery and golf and pet, like there aren't, unless a bigger aggregator were to do that, right? Except we didn't look like the other aggregators. They were more like, here's a bunch of Amazon stores or there was a bunch of Shopify stores. Like we're an oddball, like sort of aggregator, if you wanna call us that. not, we weren't playing by anyone's rules. We were making it up.
think the pressure was more what I said, which is like, a lot of people gave us capital with the expectation that we were gonna be a powerhouse acquirer. And so we had head of M&A and he was bringing deals and we were signing LOIs and people were asking, well, why aren't we deploying the capital, right? even some people were giving me shit for not deploying the capital. You're like.
in a particular month, like, IE, like, why, you said you might do a deal by mid-year, like, why hasn't that happened by, July now, like, deals don't work that way, like, you need to make sure you have the head space and the breathing room to think through and structure and negotiate. Compare that to this now, just to give you a sense, our last two deals, which are now public.
In this new cycle, what we call Emerge 3.0, because Emerge 1.0 was the diversified portfolio, Emerge 2.0 was the turnaround for a few years, the cleanup and the redo around grocery and golf, we focused inwards. And now 3.0, we're back on offense, but we're only acquiring opportunistically and strategically. What does that mean? The last two businesses we've picked up, we've acquired it two to three times EBITDA. They're both cash flow positive on day one. Compare that to the prior cycle where we were acquiring companies
for five, six, seven times EBITDA, right? So A, we're acquiring lower, B, we're not only focused on EBITDA, we're focused on cash flow, and C, they have to be synergistic with what we're already doing, right? So golf, last year we acquired a company called Tee 2 Green. It fits perfectly in our golf portfolio. We have one experiences business, one marketplace business, and now we have an offline business. So the trio with 400,000 members is a big reason why the company that we acquired last year is now
not only fully cash flow positive, but we've grown it by 30%. We made our money back on the acquisition. You know, talk about a return on investment. You know, we dished out the capital last year. We made our money back within 90 days on the upfront payment and we've since cash flowed way more than that, right? So that's the winning formula. Buy low, buy with synergy and buy opportunistically. In that case, it was a retiring.
a founder, he'd done it for 30 plus years, he wanted to make sure his team had a good, you know, kind of landing and he did and they did and he made money and he, you know, he's happy, he's also taken some shares in Emerge and that's pretty much double since he's taken it last year, right? So that is a winning formula and now it's like all about rinse and repeat that very, very specific thing that we've landed on versus buying big picture sexy, with multiples that...
By the way, five to seven times EBITDA is not outrageous by any means. But for us, it mattered a lot because when it came down, suddenly that probably feels like 10 times EBITDA 15 times EBITDA right? Because everything came down.
Aaron Alpeter (24:44)
Yeah, I mean, what strikes me with what you're saying is just you guys have such a intentionality to how you pursue these deals and how you vet them out. I kind of want to go into that direction a little bit more. When you have these...
these criteria, whether it be a segment or the fact that it's EBIT profitable or it's Canadian first, are these treated as hard filters for the deals that you look at? Or are these things where you look at everything and these would be excuses where you might have a higher multiple you're willing to pay?
Ghassan (25:16)
No, no, we have a very, very specific criteria. the business has to be organic revenue positive. It doesn't have to grow fast, but it has to be slightly positive, at the very least stable. Like we're not looking to fix things. We're not looking to turn around things. We just turned around a few, it took a few years out of our lives turning around Emerge itself.
We want to buy stuff that's stable. So that's the starting point. We want to buy stuff, in and around, we call it 700K to 2 million in EBITDA. That's kind of a good sweet spot. Really right now, last few deals are more like 800K to a million EBITDA. Those are the last two. So we're kind of probably focused there. Eventually we'll make our way up to one and a half to, but we say we're open to opportunities in and around that zone. It has to be cash flow positive. in general, we like asset light.
businesses or at the very least an ability to prove that not only are you EBITDA positive, but the way you handle your inventory, your timing, your overall model, you've been able to cash flow, right? Which is rare. I will say it is rare, especially in e-commerce. That's what attracted us to Viral Loops. That's a recurring revenue model. It's a B2B enablement business for referral and customer acquisition. And it comes with 500 B2B clients, but more importantly, it comes with cash flow today, right? Like it's not just EBITDA.
EBITDA to cash flow conversions through the roof. It's like 86%. That is never the case in e-commerce almost. So in consumer, mean. So we want it stable, we want it ⁓ EBITDA positive, we want it cash flow positive. We want a long-standing track record. We don't want something that just started two years ago. So like five to 50 years, say. T2B was 38 years, old school business. True Local just celebrated its 10th year. Underpar, I think, is on like 12 years now, a bit more maybe. ⁓
for the sexiest and highest flying stuff. We're looking for stuff that works, that has an underlying customer base, that is loyal, that is supportive, and that spreads the word organically.
Aaron Alpeter (27:12)
Yeah, that makes sense. When you're evaluating a potential deal, what are some of the triggers that would encourage you to maybe go higher from a multiple perspective? We're like, you know what, we would be willing to do four or five or six or seven. Is it more of like the fact that it's a competitive deal? Is it, you're saying that synergistically like, hey, I can plug this into my golf network and we can triple this thing in 90 days. Talk to me about how that analysis goes on inside of Emerge
Ghassan (27:41)
Well, right now we're not looking to do deals at much higher than what we've been finding though for this whole reason that we're finding them at these levels. So we're happy with what we're finding. It's a buyer's market in many ways. And I think it'll continue to be a buyer's market, frankly. If we were to move higher, it would be the latter. It would be more like synergistically, we knew that we could plug something in and right away again by applying our audience or ad tech.
and sort of fill a gap that we're missing maybe geographically or something of that nature. ⁓ But we wouldn't go much further up because I'll tell you something, in all my experience in e-commerce, the number one indicator of the success of an acquisition, this is probably gonna be a fact worldwide in all of acquisitions, not just the e-commerce, is the price you pay. When you buy low,
Chances of you making a return on that investment are just so much higher. The risk is so much lower. And like a lot of people tell me, I've screened a hundred companies and I didn't find a single one that made sense. And my vantage point on that is,
the problem is probably you in that case, because it's not really that there's a hundred companies that aren't worth selling. It's that you're not figuring out what the right price is for those, right? So in an extreme example, if something ⁓ had, I don't know, 500K in EBITDA, so really small EBITDA, ⁓ would the deal be good if you did no upfront and a million over three years or five years? Like maybe, right? Like, I don't know. It depends on the deal structure. Now some people might argue that's not worth the hassle.
maybe it depends on whether you have the infrastructure to handle it or not right like if something landed on my lap that was a bit smaller than we wanted and wasn't growing maybe shrinking a bit but I could get it for no upfront and and you laugh but like I've seen that I've done that in certain cases like there's ways to get you know creative with structure so it's really a structure question I wouldn't say all deals are worth making at any price even there's some deals that are just not like too much of a headache especially turnarounds
that even at zero, like you couldn't pay me to do them, but mostly, you know, if you can structure it the right way, a deal can make sense if you have a platform.
Aaron Alpeter (29:54)
Say a little bit more about kind of what things you would see that kind of kill your appetite for a deal.
Ghassan (30:00)
It starts with people, right? So someone I don't trust.
That's the starting point. Someone that doesn't want to share information, doesn't give me a good take, or someone that is dishonest about the information. Once we're looking at it, if we find in our data, for example, that while revenue numbers look good, or COGS and all of that looks good, but we look through the data and we find that it's off and they give us some bullshit answer, and we've lost that trust, the problem with that then becomes we don't know what we're buying. Even if they don't come with it, we just don't know what we're buying anymore.
he or she's lost credibility with what they presented to us. So what's to stop them from suddenly, the accountant's not even on the books, stuff like that, right? So it starts with the trust piece. The second thing is very weak EBITDA to cashflow conversion. We need to see how that EBITDA converts to cashflow ultimately. If it's very weak, it's not real, EBITDA doesn't matter, honestly, right? The whole point of EBITDA is that it's a good proxy for cashflow. If it's a bad proxy for cashflow,
it's not gonna work. Number three, and this is something more of a learning for us, we're probably gonna shy away from totally seasonal businesses. We're happy with golf, is a seasonal business, but there's no, like unless...
Like we would rather less lumpy, especially as a public company would rather less lumpy revenue. And that's what, you know, viral loops does. It's like pretty stable software across, you know, the quarter. So that's another reason we like it. Like it kind of reduces the lumpiness. ⁓
But beyond that, if it's EBITDA positive, if it's stable, if it's cashflow positive, I mean, I guess the other pillar is also like disruption. There's a lot of talk about AI now, right? You gotta make sure that your bases are covered and that you're tech and AI forward in a world like today's. But I think for us, we take
an optimistic view on the world. Like when we look at a company, we're excited. Like, you know, if we like the math, if we like the EBITDA, the cash flow, the stability, then we're more interested in what we can do to make it better. Right. ⁓ But, you know, certainly I think for us, people is at the front of that list of the no-go. If something's wrong with the people, then like we really shy away from the deal. And we don't go for competitive. We don't go for overly competitive deals. Like it's okay if it came to a broker, but it's not our forte. Like generally every single deal we've done to date, except one.
⁓ has been direct, has been through my relationships, our relationships, ⁓ and we've just done it with no finder fees, which is also something you save on over time if you're able to.
Aaron Alpeter (32:31)
That's great. When you guys are assessing...
what you can do to make a potential acquisition better. I feel like those are always rose-colored glasses and people tend to overestimate what they're able to do, either from a bandwidth perspective or capability perspective. What's the framework that you use? Do you kind of say, right, if the team thinks we can triple this business, let's cut it by half and say, like, that's probably what will happen? Or are you organizing so there's specific teams, specific bandwidths that, you know, you're going to ignore the other businesses for a while and focus on this one? Like, how does that actually come to fruition?
Ghassan (32:41)
Yeah.
I've done this enough to agree with what I think you insinuated, which is that synergies are really ⁓ tough word to believe these days. Exactly, exactly. So you bring up a good
Aaron Alpeter (33:15)
It's what you put in the Excel sheet to make the math work, right? Like, that's those are.
Ghassan (33:21)
The math has to work with zero synergies the way we model it. And not only that, and I'll give you a concrete hard example. ⁓
Aaron Alpeter (33:26)
Mm.
Ghassan (33:32)
the math even has to work if you sensitize it down 10 or 20%. I mean, that's a little extreme, but like let's use viral loops as an example, our latest acquisition, we just announced it. It's an 800K EBITDA business. It's a 700K cashflow business. So really, as I said, 86 % EBITDA, cashflow conversion.
and we bought it for 2.3 million, so about 3.3 times cash flow. and very opportunistic. The seller had some debt issues, they're focusing in another area, kind of what Emerge went through a few years ago.
So we jumped on it, we acquired it very efficiently. And right now when I look at it and I say, technically, if nothing changes, nothing, we should make our money back in three years. That's extraordinary, by the way, right? don't know, T2Green was a whole nother level. We made our money back in the same year. I told my board not to get excited about that idea. We can't replicate it. It was a very unique situational.
But in terms of where we are here, essentially when we looked at the rather viral loops or latest acquisition, we said okay if this thing goes down a half a million would we be okay with it? And it's like so you make your money in four point
whatever times. And it's like, okay, yeah, like, like that's still good. That's still 20 % a year, you know, hurdle rate, like, I mean, at 700, it's like 30 % potentially, right? And so we've already said we expect to exceed our return on invested capital of 25%, which is best in class. Like, you know what I mean? Like private equity is like 18 to 20 at best, and those are the best in the world that do it. So, so I think that that's kind of how we view it. Like we're not putting pressure on just the growth element now. However, do we think there's growth opportunity? Yeah.
Like they don't do a particularly great job with SEO Lately, we think there's opportunity there. We obviously think there's opportunity in taking their customer referral technology and Applying it to true local under par Just golf stuff, etc ⁓ And so that's all I you know sort of ⁓ icing on the cake But for us, it's more like it's that's why I said stable It has to be stable has to be cash flowing then it has to be a good price that you buy it at then
it's okay, maybe there's some upside here as well on top. But the upside, we can't factor into our budgeting at all.
Aaron Alpeter (35:56)
That is such a refreshing take to hear because I feel like so many times when you are a hold co or you're an aggregator, the pressure is not just to maintain the cash that you have. It's not to maintain the cash flow. It's like, no, we exist because we need to 10X these things over some period of time. And so it's nice to know that you can bring on these brands, bring on these teams potentially and just say, keep doing what you're doing. Let us know where we can help and your board, your investors are okay with that.
At the same time, I'm sure that you would love to 10X them. And so I'd love to kind of understand a little bit more about how do you integrate these companies? And do you keep the team? Do you swap people out? Is it kind of an asset purchase and you're plugging them in?
Ghassan (36:33)
Yes.
Right.
So you bring up some good points. To be clear, the reason we're OK with it is the price. If we bought it for $5 million,
or seven million, it wouldn't be okay. You'd need this pressure. This goes back to my point about price being so key, right? Because when you buy low, you can make your money back in three years and you'd be very happy with a 33 % return on invested capital, right? Because that's extraordinary. But if you bought it at five million or seven million, that math doesn't work anymore. Suddenly, you might as well put the money in an index if you're not gonna, right? So that's number one. ⁓
I do think that ⁓ I'll be clear too with Tee 2 Green we bought it and also modeled it in a flat. It was a million in EBITDA.
Over the first few quarters, we grew organic revenue from 3 % historically, right before we bought it, to about 31%. So like a 10x in organic growth. Again, I don't want anyone to get too used to that magic, right? Because it was a situation that really worked well. And it tied into the fact that we brought our audience.
Imagine 10 stadiums worth of golfers announcing to them, here's the all these, you know, new pop-up stores, new equipment, discounted equipment from, you know, TaylorMade, Callaway, Adidas, Puma. It worked like magic, right? And then lo and behold, because we bought this boring old school cashflow business, Tee 2 Green, 38 year old business, they never really deployed any advertising dollars on Meta and Google. Imagine that there is still such a thing in today's
So we look like magicians. We come along, right? We buy low, 2.2 times EBITDA. We apply our ad tech, we apply our 400,000 members. What do you got? You got a 10X in organic growth.
So those are the types of deals I like these days. I like deals that make me look like a genius. I know I'm not, but I like ones that make me look like one. And credit to the team by the way, just to be super clear, because I'm not operating that business. So when I say I, I mean we.
Aaron Alpeter (38:49)
Yeah.
Ghassan (38:56)
and the golf team under Morris Finn and the amazing leadership and drive that he's brought to the team.
Aaron Alpeter (39:02)
Yeah, that's such a great story.
Talk to me about kind of, you've been a founder, you've sold businesses or exited in general, and now you're kind of sitting across the table from
sellers. What is some advice that you would have for someone who is thinking to sell their business? What are some aspects that maybe they are underselling or under-emphasizing that actually make a big difference to an acquirer like yourself?
Ghassan (39:30)
I always feel that there's a premium that goes back to the authenticity and that relationship side of things. Never underestimate the emotional side, even with ourselves. If I feel good about you, I'm more likely to pay a little more or listen to you on certain things that matter more. So I feel like it's not all numbers. It really isn't. I know we're also trying to be like,
We're a buyer that's gonna care for your staff, your brand, and we do. We've never changed a single brand in our lives, and I mean it, and I always bring that up. And in Emerge 1.0, we stood true to our mantra, which was at the time, we're gonna be founder-friendly, let them run the business through the earnouts. It wasn't our damn fault that everything came crashing down. And then a lot of them abandoned ship, because it wasn't interesting financially for them, and I get that, right? They're missing their earnouts. But we let them run their ships.
And when came time for the hard work, we had to roll our sleeves up and we did the heavy lifting on cleaning these things up and bringing them back. So I would say from a seller perspective, I think integrity, I think like under promising, over delivering, I think transparency, like, you know, no one's perfect. Like I like.
folks, always, I'll say this like just because like this, I really value this point as I think of it. I really, really admire founders or managers that you know, we're looking to buy a business and they'd call me say, I really want you to know about this thing. I don't think it's a big issue but I need you to know this is a concern of mine. I never say I'm not doing the deal and I actually never use it against them, right? But I love the transparency and it just makes me feel like, okay, well if he's telling me this stuff voluntarily,
then I'm gonna trust everything he's telling me or she's telling me about the future of this business way more. So if I had to boil it down, it's really just that trust factor, that integrity and that communication and clarity. That is number one above all else. The numbers are the numbers. The business is the business. I can do all my research. I can bring the experts. We can do a quality of earning. But then it's that integrity piece and that clear communication and the under-promise over-deliver thing, man, that's so invaluable.
Aaron Alpeter (41:44)
Yeah, you can't undersell that enough. mean, I think that the interesting thing here is that...
Oftentimes people just look at EBIT as if that is the end all be all and that's the only thing that matters. But EBIT is an input, right? And kind of what I'm hearing from you is that it is a relationship. It's a conversation. It's a understanding of like, you I understand what you're trying to do. I'm sure we're going, is there a fit here? And so I think that's like the finer part of deal structure and diligence that doesn't get a whole lot of attention. And so maybe you say a little bit more there, because I feel like when most people think about due diligence, it's a, I put together a secure
Ghassan (42:15)
Right.
Aaron Alpeter (42:21)
data room, here's all my financials, here's my trademarks, here's my formulations, etc. Whatever I need to do and go look at it. Let me know if have questions. How do people think about going beyond that to really figure out what matters and how do you balance between wasting time and actually making it valuable?
Ghassan (42:39)
Right, I think the other point that ties into all of this is, I'm putting my ⁓ advisor hat to sellers, is to really figure out what's super important for you yourself and for your shareholders in the process, and to relay that as early as possible. Because at the end of the day, at least in our case, I can't speak for all buyers, we're all ready, I always say we're ready to roll our sleeves up and get creative if we're in the same...
you know, zone here, broadly speaking. If we're from different planets, there's nothing to talk about, right? But if we're big picture...
aligning around say a valuation or a structure. We've been so creative in figuring out how to bridge gaps as long as we have a willing seller that communicates clearly what they need, why they need it, or if there's special circumstances or any of that. There's always room to bridge but we can't guess this stuff ourselves, you know. So I feel like a lot of folks, a lot of deals would have died, I will tell you, even on my end, on our end, if I just said
Okay, fine, we can't do it, let's move on. But always asking that extra question, like what if, like how can we? Using words like this puts everyone in that mindset. So same thing from a seller perspective. Say, okay, I see you revising your offer, it's not quite what I need, here's why. Is there a way to do it this way? Is there a way to do it that way? Like always, if I'm a seller, I'm always putting it back.
I never understood sellers that just walk away, right? Like I'll put it back till the buyer says I'm not, maybe they're afraid of rejection, but like what's the point? Like why not push the buyer to figure out what you need and keep pushing them in that direction. ⁓ And then worst case, even if you don't do a deal, at least you've set a new benchmark for next time. If you're gonna revisit it with them, say a year or two down the line.
Aaron Alpeter (44:26)
Yeah. One of the things that's impressive about your career and what you've done is that you've seen this M &A space play out over several years in several different epics of e-commerce. What sorts of things have been consistent in terms of what is valuable in building a business that someone else wants to buy? And what do you think is new or getting more attention today than it had in years past?
Ghassan (44:36)
Yeah.
Look, I think the truth of the matter is it sounds like businesses in general, startups, I'm sure e-commerce especially, but a lot of startups are starting to zone in on this idea that the bottom line is the top priority and what counts the most. We always...
viewed that lens. That's why we always, there was not a single company that we bought that was not profitable ever, despite all the issues. Like we really never said, we'll just buy a loss making thing here or there. And so I think that's a new wave and it's a healthy wave and it's more grounded, know, valuations in general, I think are more grounded.
And that's better for the ecosystem because you don't want sellers thinking their businesses are worth way more because of their emotional attachment or excitement about broader comps. Well, if a comp is 500 million in revenue, you have nothing to do with that. A $5 million business has nothing to do with a $500 million. Don't even compare. the market leader in our space is five times revenue. Like it's irrelevant. Like that's a company with scale and ⁓ defensibility and technology and like don't compare it, right? At the same time,
gotta look at not just your EBITDA as an owner, you gotta look at what are you taking home? And like you gotta look at that math, right? Like, million in EBITDA, but then after tax and then after reinvesting in inventory, what is your take home and how long do you wanna do this and why do you wanna keep doing it? And the alternative is, if you have a good brand that's growing reasonably and it's profitable, then...
You know, you gotta ask yourself, you want, do you take this to somewhere interesting? Or how do you exit it, get a reasonable sum for it, and potentially earn out or sweetener that keeps you in the game somehow tied to the long-term performance as an upside if the thing actually makes it one day bigger. And then you get to do something else eventually. So I mean, I think you're just being grounded and realistic. know, likewise from Emerge's lens, like, I think we...
One thing that hasn't changed, even though it wasn't as popular, is brand and community win. In an ever changing world and all this chaos, at the end of the day, someone could come and tell me, we can replicate the true local site with AI in four minutes or whatever. It's probably true by the way. But then I'm going to say, where are you going to replicate those farmer relationships over 10 years? Where are you going to replicate our golf course?
⁓ partnerships and relationships and banking partnerships to promote these deals and integrations with all these different platforms and workspaces for professionals. So it's a full thing that we've built out and it's a relationship business. That's why retail and e-commerce for all the shit we've taken as being a cup throat industry and low margin industry. It's a people's business and it's a relationship business and brand and community above all else always. Everything can be replicated but not at end of the day.
the way people feel about your brand. And that's why we've invested in Double Down where we have.
Aaron Alpeter (47:52)
Yeah, that's helpful. The last topic I want to touch on with you is how eMERGE went public itself, because that's a very unique thing that you don't hear all the time. You guys went public via a reverse merger, a SPAC. Can you talk to me about what was the rationale for going public at that time in that way, and what advice would you have for people who might be considering something similar?
Ghassan (48:13)
Yeah, you got to be ready for some gray hairs along the way, that's for sure. think, you know, ⁓ it's one of those things that somehow was baked into our DNA, the folks that had raised the early capital, Republic market type folks on Bay Street that had lot of connections. And there were a lot of investors interested in Emerge as a Name being public. And we got a lot of outreach from bankers and investors and news outlets. ⁓
Aaron Alpeter (48:18)
Marty way out of you.
Ghassan (48:43)
And you know, early on we were piecing together on a per deal basis. We would sign a little LOI, know, million dollars, go shop it, raise the capital, lot of stress to do it that way, know, bit by bit, deal by deal.
And so the allure of us going public at a really exciting valuation, I think the peak valuation for Emerge was something like 150 million ⁓ when we went public and right after we acquired our first few businesses being public company. So there was a lot to be excited about. It's pretty common in Canada, the reverse merger structure, the mini SPAC, if you will. ⁓
And my advice in general is like, first of all, understand that these sort of venture exchange style public companies, they're not an exit in the middle of themselves, right? If you're doing a multi-hundred million or billion dollar IPO on the NASDAQ or New York Stock Exchange, those can be considered partial exit. Like a lot of times the capital raised for secondary and here you're still like proving things out.
And so it's not a real exit. So why would you do it? There's a few reasons you would do it. In my opinion, now kind of coming back and looking at this, I'm imagining myself outside of Emerge, would I do this again? There's a few reasons to do it. Number one, if you have a business that does not need the market right away, so you're cashflow positive, you don't need the market, you're not beholden by the market, you can operate the business with a long-term lens, then the advantages become, so that's an if, by the way. So first, if,
you're at a point where you have strength, then it could be very powerful to have a public currency that you can leverage for ⁓ &A, for capital raising, and that's opportunistic, not to save your company or anything. It's more so you wanna go at it with strength. So you look at the constellation softwares of the world that have built over 20, 30 years, they were always profitable, even when the market didn't rate them well, didn't matter, didn't even bother to do earning calls. I'm not saying that's the way to do it, but you know.
At the end of the day, if you can build sustainably a curve of cash flow growth over 10, 20 years, then being public, you get the benefits of it. I mean, there's some overhead and there's extra cost and it's waste of time. In many cases, a lot of ⁓ paperwork and that sort of thing. It's very annoying, I must admit. And when you're down, it's really painful because the thing that people don't talk about is, you know, a private company could raise venture capital and
borderline be bankrupt two days from now, yet there could be an article on TechCrunch saying it's worth 200 million or whatever the next day it goes bankrupt. There's no recalibration of your share price publicly, right? But here if your debt's too high, you can go down to close to zero. And that's a public thing, like from a psychology perspective, you have to deal with people around you that look at your stock and then it's one cent to share. But yet when it's exciting.
which is again, lot of people say, why didn't you go private during that downtime? And I said, you know what, we were just too focused executing the comeback. And now we're in a position of strength. Now it gets exciting because if we execute, the market will reward us handsomely. Our share price is up 10x from the low, but it's still 10x plus below where it once was. And that's what excites me now because we're building a model that's leaner, that's more profitable, that's cashflow positive, that acquires only synergistic stuff.
And now the market's on our side in a way because they're like saying, OK, so you've dug yourself out. Now let's see, can you do this again and again and again? Because if you can, you're going to get a premium very quickly. Suddenly, we can get way higher valuations than a private company can. So the ultimate arb in being public is being valued at 15, 20 times EBITDA, but buying stuff at two, three times EBITDA. That'd be
Ecom heaven, essentially.
Aaron Alpeter (52:38)
That'd be pretty sweet.
So I hope you guys get there. Well, Ghassan, this has been a fascinating conversation. Thank you so much for being on. I've certainly learned a lot. I'm sure our listeners have as well. Before we wrap up, we've got one question that we always like to ask our guests on build a business worth buying. And that is, what is the best example of a moat you've seen another business build?
Ghassan (52:58)
I'm gonna say something a little contrarian right now, because I think they're in the heat of it with this AI eats software narrative out there and the company's constellation software.
Constellation was at its peak, a hundred billion dollar company. I think it's 40 to 50 % below its peak as a result of these AI scares. Yet, you know, their growth, their cashflow, all of that continues, but there's a sort of narrative right now that AI might crush software. And in some cases it is crushing software. The thing I like about Constellation is the way it's been built. It's been built very methodically, very disciplined
focus on return on invested capital that like I said with some of my examples, really high thresholds like 25 % I believe is their threshold. They've done it over 20 plus years, they've acquired hundreds and I think three, four, 500 companies already of different niche software companies. No one really cares to disrupt these small niche type businesses that are very like old school government type contracts where I think it's being mischaracterized.
And I just think that as a Canadian story, it's still so quiet. It's still so covered.
in the tech space now knows it because it's one of the largest tech companies. But the way they've built it, the consistency, the discipline, the transparency, these are things that make it very admirable and make this sort of like, you know, it's quite a moat. Like tech can come in the way and whatnot, like the cash flows at the end of the day, that's my big word these days, right? If you haven't noticed the cash flow on this thing, the discipline, the diversification, the decentralization
but this was always designed to be the ultimate mode. And it's sort of a mini Berkshire Hathaway in a way. That's sort of the mantra here is that you're buying businesses that collectively are way better than the sum of the parts. So I'm just a big student, a big fan of the space, and I believe they're gonna thrive and come back from this as well themselves.
Aaron Alpeter (54:59)
Yeah, what a great example. We usually hear the Apples or the Amazons or stuff like that, but I love them. I'm gonna learn more about Constellation. Thank you so much for being on, for sharing your wisdom, sharing your time. Wish you and the rest of the Emerge team nothing but success. Hopefully you guys find lots of great companies to buy. If there is a listener here who has a company that might be a good fit for you, what's the right way to get in touch with Emerge?
Ghassan (55:23)
⁓ Easiest is LinkedIn, Ghassan Halazon or my email, ghassan@emerge-brands.com.