The Cashing Out Mergers & Acquisitions (M&A) Podcast | E30 | Rob Emery
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Rob Emery
So I would definitely encourage people to be prepared for the fact that somebody is going to try and re-trade them at the one yard line for a better deal. And they have to be ready to kind of, you know, at those points, it's usually whoever needs it the least is going to win.
00:00:18:01 - 00:00:39:17
Todd Sullivan
Welcome to the Cashing Out podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. Today, my guest is Rob Emery, a serial telecom and pet industry entrepreneur with two exits under his belt.
00:00:40:06 - 00:01:06:07
Todd Sullivan
Early in his career, Rob started selling cell phones through his own retail outlets. After merging his retail locations with a franchise partner. Rob sold off his retail locations and founded Protect Sell to focus on selling cell phone protection and replacement service plans through operational excellence and great business relationships. Protect Cell became one of INC magazine's 500 fastest growing companies in the country.
00:01:06:22 - 00:01:33:12
Todd Sullivan
Rob was looking for a financial partner to grow the business further, but ended up selling the majority of the business in 2012 and then selling the remaining equity two years later. Today, after investing in the pet industry as a hobby, Rob is now the owner and CEO of Encompass Pet Group, which distributes high quality pet foods and products, manages pet retail outlets and sells the hugely popular pet Comfort product, Snuggle Puppy.
00:01:33:23 - 00:01:57:23
Todd Sullivan
In our discussion, Rob advises business owners to; 1) build your data room every day so you're ready to exit when a buyer comes calling, 2) conduct real due diligence on your buyer if you're going to roll equity, and 3) how installing operational excellence and infrastructure can allow a business owner to grow by buying other companies. I hope you enjoyed my conversation with Rob Emery.
00:01:58:21 - 00:02:20:18
Todd Sullivan
Rob, thank you so much for being here. I am particularly excited to chat with you because of kind of the variety of background M&A experience as you had, but you've been in multiple industries, just kind of entrepreneur at heart, and I think you got so many lessons to share with our our listeners and our fellow founders that frankly, Mark Cuban had this spot.
00:02:20:18 - 00:02:26:06
Todd Sullivan
And when you said you were ready, I said, All right, he's bumped, you're in. So I'm really looking forward to this.
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Rob Emery
All right. Well, you know, there's no way I'd rather bump a side than him. So I appreciate the opportunity, Todd
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Todd Sullivan
All right, well, you know the best place to start. Let's. Let's start from the beginning. You know, you start as entrepreneurs, entrepreneur selling cell phones, and. And why should. Why don't you take us from there?
00:02:43:15 - 00:03:29:00
Rob Emery
Sure. So I started my career basically out of high school, pretty much selling cell phones and actually installing them back in the day and ended up opening my own location in 1993. That was my first store. It was what eventually became Verizon Wireless stores. I think they were called CellularOne back then and then Air Touch and then Verizon ran those stores and grew locations over time and was able to get up to I think I had about seven or so and I was asked to join a franchise organization and 2001 or 2002, which I did, and learned a lot of good lessons in that thing of what to do and what not to do
00:03:29:00 - 00:03:58:09
Rob Emery
and what not to do in life. And throughout that experience, we started to learn about different types of products that you could sell at wireless locations, one of which was kind of a warranty or insurance product. Turns out the company that was our franchisor ended up going out of business by violating its Verizon Wireless contract. We had to go back and negotiate with Verizon to get our agreement back, but we did take which idea was successfully did.
00:03:58:09 - 00:04:26:16
Rob Emery
One of the things that we took from that arrangement was that we had learned about selling warranties or insurance products inside of our stores. So when we got out of this agreement and back on our own, we started to sell warranty products at our locations. And in 2006 decided to make that into its own entity and start selling warranties and insurance products to other cell phone retailers, primarily Verizon retailers.
00:04:27:03 - 00:04:40:08
Rob Emery
We had a pretty good run there. We ran that from 2006 at zero revenue to 2012 where we were up to about $93 million in revenue and sold it to a publicly traded insurance company.
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Todd Sullivan
Rob Okay. So I think that you just packed in a ton there and you know, I started with you are selling cell phones out of high school, right? So how do you go from selling cell phones to opening up your first store? And I think as you describe it, it eventually becomes a Verizon store. How how does that happen?
00:05:02:02 - 00:05:26:08
Rob Emery
That was just, I think, a desire to kind of be on my own and see if I could make it work. The guy I worked with at the time was kind of doing cell phones and car stereos. I didn't really have much desire to stay in the car stereos space. At that point, I kind of just would like to be in cell phones because I thought that that was a future thing that was just going to continue to grow and we could see it growing at our location.
00:05:26:08 - 00:05:33:05
Rob Emery
So we thought it would be a growth opportunity to just do a smaller footprint and only focus on that.
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Todd Sullivan
Got it. And so that's successful enough that you grow that into into multiple retail locations. And then do you do you license the Verizon brand? How do you become a Verizon, an official store?
00:05:48:12 - 00:06:05:11
Rob Emery
You know, it was like a reselling agreement, basically, you know, because the store I was at before prior to opening my own sold Verizon, I already knew most of the folks that were local in the Michigan market. So I was able to connect with them and get a get an agreement on my own.
00:06:05:21 - 00:06:17:21
Todd Sullivan
That's great. Okay. So now you're asked to go into this franchise agreement. Did that feel like you were selling part of the business? Was that a growth strategy? Any liquidity around that for you personally?
00:06:17:21 - 00:06:41:12
Rob Emery
It was it was an interesting liquidity. I don't know if the is the right phrase for it, but basically my stores needed renovating and the guy offered to renovate my locations if I kind of came along with him. From a personal perspective, it was kind of nice because I was able to step back from running the day to day of all the stores, and I sold off a bunch of my existing stores.
00:06:41:12 - 00:07:03:06
Rob Emery
I think at 13, at the time I started selling them off. Kept the main ones. And then my agreement with the franchisor was that I got 50% of the franchise revenue in Michigan for any units that I developed. So the unit was paying 5% or 6% to the franchisor, I was getting two and a half or 3% of the revenue of all these different cell phone stores.
00:07:03:18 - 00:07:15:19
Rob Emery
So it's just an easy, easy deal to look at something else from a career perspective, you know, like being in a franchise business, learning a little bit about that and working for the franchisor so.
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Todd Sullivan
Okay. So that's awesome. And you structured that contract yourself, which obviously became very lucrative for you to open stores and keep selling.
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Rob Emery
Right? Yeah, it's made it, you know, the more stores I opened, the better I did and the better the corporation did. At the same time. So it was a win-win for sure.
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Todd Sullivan
Well, when you say better for the corporation, it sounded like they ended up running into some trouble, right?
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Rob Emery
Yeah, it wasn't really financial trouble. I think it was more of a you know, they were doing something that they're selling other brands, like they were selling T mobile when they had an exclusive contract with Verizon. So Verizon terminated them. So they were just kind of not operating above the table.
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Todd Sullivan
But they had the other product you talked about. Right. The product protection plans.
00:08:02:18 - 00:08:21:18
Rob Emery
Yes. So they they had the protection plans at these franchises. When they got shut down by Verizon, there was about 85 stores. So there was a lot of people that were impacted in that. Wow. In that deal. And, you know, it was a real shame for a lot of those folks because I think most of them weren't able to just kind of go back and renegotiate with Verizon.
00:08:21:22 - 00:08:42:08
Rob Emery
Like, fortunately, I was able to because I had maintained a nice relationship here in the market. But yeah, we learned all about selling these kind of warranty or insurance plans and the in the locations and then the people that we were selling their product just was not very good. It was bad for the end user. It was bad for the stores.
00:08:42:08 - 00:08:45:15
Rob Emery
It was just not set up well. So we just set out to fix that.
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Todd Sullivan
You had a little bit of a start, right? How potentially how, how not to do it right And and then this becomes an enormous business for you, right? This hits the the INC 500 list and you're growing this year after year and eventually is that a first business that you really you truly have an exit on it?
00:09:04:03 - 00:09:23:22
Rob Emery
It was yes, it was a crazy, crazy ride from literally nothing to $90M in six years of which most of that happened in year four or five and six. And we ended up selling that business. Exactly. And our busiest month ever.
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Todd Sullivan
Oh, man. Okay. So a lot of founders ask us, right, what is it going to take to actually sell a business? And we're always explaining, you know, please, if you have set of projections, you got to hit those projections. Do not get distracted. You know, keep your eye on the ball and build the business and you sell in the month that you're the busiest ever.
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Todd Sullivan
And I remember reading about this, right. I think you had sold your millionth plan at some point, maybe. Was it in 2011? I don't have the exact date, but you guys were on it.
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Rob Emery
I don't remember exact dates, but went right before we sold. I think we sold 70,000 new customers that month. Something along that lines.
00:10:02:19 - 00:10:09:19
Todd Sullivan
That's crazy. So how did you manage the M&A process and this kind of extraordinary growth?
00:10:10:10 - 00:10:29:10
Rob Emery
The growth part first was something that I had never done or my partner with. Neither one of us had ever done anything like it. I can clearly remember a day walking into his office and saying, Hey, man, have you ever done this before? He said, “done what?”. And I said, You know, “ran a business that's like $20 million in revenue and growing.”
00:10:29:10 - 00:10:55:03
Rob Emery
He's like, now. And I said, Well, me neither. So maybe we should probably look for some help. So in that business we turned to we did an EOS process. I'm sure you've heard of that. Sure. So we did EOS. We kind of felt at that point like we had good executive people that could can make decisions, but we were literally running so fast that it was getting in our way to, you know, making sure, like, when do you hire your key people?
00:10:55:10 - 00:11:06:21
Rob Emery
Do you hire them when you have enough revenue to hire them already hire them because you know you're going to get to enough revenue to support them down the road. So we were dealing with a lot of those types of things at that speed that we were growing.
00:11:07:08 - 00:11:21:11
Todd Sullivan
All right. But but you're successful. You just keep growing. You're managing the growth, the cash flow, and you know, what prompts you to decide to sell the business Is somebody knocking on the door or did you think it was time to run a process?
00:11:21:20 - 00:11:46:11
Rob Emery
Kind of a two part answer to that, I guess So in 2007, we got a call one day at our office just randomly. There's probably about ten people that worked there at the time, and we got a call from the assistant to the president of Marsh McLennan, the world's largest insurance broker, who basically said, you know, I've been trying to get my iPhone insured and nobody will do it except for you.
00:11:46:19 - 00:12:05:10
Rob Emery
So my boss wants to buy you guys. So it was that was crazy because we went down the path of doing due diligence with them. And you talked earlier about the the business plan, I mean, projections. We had written a nice business plan and we had an outside guy come in and do all the projection work for us.
00:12:05:10 - 00:12:26:10
Rob Emery
And we just kept, you know, we looked at what he put together. We were laughing at it because the revenue growth was so high. And then every quarter we're feeding it, beating, heart beating every minute. And it was like, oh my gosh, this is really happening. So when these guys called from Marsh McLennan, it really made us step back and really dig in and get the business kind of set up.
00:12:27:00 - 00:12:38:14
Rob Emery
We didn't end up selling to Marsh because it was literally at their board of directors meeting on the day AIG collapsed in 2008. And they were the largest AIG broker in the world.
00:12:38:22 - 00:13:02:06
Todd Sullivan
Wow. You know, bringing up that point, right, Getting ready to sell. I know when you and I have chatted, that's really important, right? Having that data room ready that that I'm sure what EOS puts you through as being incredibly organized and diligent about your processes and recording that. Right. So a buyer can can step in and understand what they would be getting and it gives you a huge advantage.
00:13:02:06 - 00:13:12:11
Todd Sullivan
Can you talk a little bit about how you created, you know, getting your house in order and potentially, you know, what were the benefits of doing that when it came to exiting?
00:13:12:23 - 00:13:35:18
Rob Emery
Sure. I think that, you know, we were a company that was pretty disciplined in making sure that we had all our data in order all the way along because, you know, we were a insurance business, that we were kind of collecting the money upfront for two years from a customer. So you couldn't just spend all that money, You had to reserve some for claims and you had to manage your expenses for your claim expense.
00:13:36:12 - 00:13:55:09
Rob Emery
So we were doing all that type of stuff anyway, and we were very disciplined about doing that on a month to month basis. And then when our original process that we went through was actually to raise capital, it wasn't to sell. And one of the people that was in that capital raising process ended up wanting to buy us.
00:13:55:09 - 00:13:58:11
Rob Emery
So we went down. That ended up diverting and going down that path.
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Todd Sullivan
That's interesting. Can we jump into that a little bit? So you're going out to raise capital to to grow it Was was any of that to kind of take some chips off the table?
00:14:09:18 - 00:14:30:09
Rob Emery
Yeah, we would have done a little of both. I think we're out to raise like $10 million and as we went through the process, there was so much interest in our deal. We you asked earlier how we went through it. We hired somebody to help us out. So, you know, when we set up our day to room, went through all that kind of stuff with that company broker.
00:14:30:09 - 00:14:47:17
Rob Emery
And then, you know, when we put out our our books to see if people had interest, we had like 200 different voices that looked at us and we got so many kind of Indications of Interest (IoI) and so many meetings set up that the whole process took probably ten months. And and.
00:14:48:06 - 00:15:07:18
Todd Sullivan
That's great. Okay. So you decide, right, that you're going to raise some capital. You go out and hire an investment bank. Right. To to do this and they are willing to run a dual process or was know strictly were fundraising and at some point they call an audible right to sell the business because that's where the interest is.
00:15:08:03 - 00:15:27:10
Todd Sullivan
You mentioned, you know 200 or 100 venture capital firms. So traditionally. Right. Venture is buying a minority interest, right? They're investing in a business and getting a percentage that isn't controlling. So how does a buyer step up out of this? It's not a venture firm, but maybe a private equity firm.
00:15:28:04 - 00:15:48:18
Rob Emery
Right. So there was both. So, you know, there were people that were willing to buy a minority interest and invest money because and there were people that wanted to do majority interest. And then the particular company that we ended up selling it to was really one of the only ones that was a strategic buyer. So everybody else was kind of an investor.
00:15:48:18 - 00:15:55:18
Rob Emery
And these guys were very strategic. So that's why they were positioned to own it because it fit into their portfolio.
00:15:56:04 - 00:16:02:03
Todd Sullivan
And were they willing to pay more because they were strategic? Like what made you really decide to go with them?
00:16:02:19 - 00:16:21:06
Rob Emery
Yeah, I mean, most of the capital folks, you know, if you're asking to raise $10 million, they're they're telling you, you know, here's what we can do for $10 million. These guys did come out with, you know, substantially more and and just said, you know, we want to own it. And they were willing to also do the investment part.
00:16:21:19 - 00:16:33:02
Rob Emery
But at the end of the day, you know, for us, it was just an opportunity to to exit and step out of it. And we felt like it was good timing and it turned out to be just that.
00:16:33:15 - 00:16:53:07
Todd Sullivan
So it's a it's an emotional shift, right, where you're going to raise and grow to, hey, we're going to exit and we're going to live with this new partner who's going to really control the next few years. Right. I'm assuming you you stayed on board for an earnout period. Can you maybe take. Yeah, take us through what that structure of that sale look like, if you don't mind.
00:16:53:20 - 00:16:54:05
Todd Sullivan
Sure.
00:16:54:10 - 00:17:23:07
Rob Emery
We sold just a little over 60% on the first go round and then just under 40% on the second. And it kind of had some predefined terms to it as far as performance terms that could change the outcome of that. And, you know, once once we got to the end of it, the two years, it was like myself, my partner and a couple of the executives that we had there, you know, we weren't really made to be working at publicly traded insurance company.
00:17:23:18 - 00:17:43:10
Rob Emery
So from a culture perspective, we didn't fit in there. You know, I always kind of joke around that it was probably illegal for me to be an executive vice president of an insurance company or a publicly traded company because I had zero, you know, traditional insurance background, you know, as a retail phone guy. That's right.
00:17:43:20 - 00:17:47:06
Todd Sullivan
That's right. You had a serious sense you had a serious title over there.
00:17:47:13 - 00:17:52:02
Rob Emery
Yeah, I had to get out of that.
00:17:52:02 - 00:18:24:04
Todd Sullivan
Yeah. I mean, it's it's it's fascinating. So you're making the decision to sell control 60% of the business and essentially roll equity, 40% of the equity you still own. And you're expecting over a period of time that that's going to be bought out. Right. And so you're really investing in this strategic partner. You know, how much due diligence were you doing on them that made you feel comfortable to to leave a substantial part of your net worth in the hands of that combined entity?
00:18:24:15 - 00:18:45:15
Rob Emery
Yeah, I think when you do stuff in it your first time, you just don't know as much. And you know, hindsight in these cases is definitely 2020. So going forward, you know, we would take different approaches to what we took at this particular one. But, you know, we did as much homework as we could, you know, look looked up all their public records and make sure that everything was on the up and up.
00:18:45:15 - 00:19:06:07
Rob Emery
And, you know, in hindsight, there were definitely some key signs there that when it gave you the stop sign on a go for on the next, you know, deals that we do, we would probably have passed on this given some of the things that happened in retrospect. But, you know when you get down to this was going to close at the end of the year.
00:19:06:07 - 00:19:27:05
Rob Emery
And so the almost all the paperwork on this happened between Thanksgiving and Christmas at the end of 2012. And we had mandated that it had to close at 12 because the capital gains tax went up on January 1st. So we were pushing them really hard and telling them if if you don't close, the price is going up, you know, to cover this tax increase that the partners are going to have.
00:19:27:18 - 00:19:43:10
Rob Emery
You know, it was a race to the finish. You know, when you get down to the five yard line, two yard line, one yard line, they you know, once you find out the things you find out about it, it's tough to pull out when that checks dangling in front of you. So we we were we were hesitant to do that.
00:19:43:23 - 00:20:04:03
Todd Sullivan
Yeah. I think, you know, we tell a lot of our founders that the investment bankers that are representing you really need to know these these buyers well so you can make that recommendation. We're constantly in that conversation. Is this the right partner to role equity, essentially invest in, you know, to be a good steward of my capital and make that capital grow?
00:20:04:03 - 00:20:20:16
Todd Sullivan
Right. When we talk about the second or third bite of the apple, a lot of times if you're rolling 40%, that second bite of the apple could be much bigger than the 60% initial initial paycheck. And how did that end up turning out for you financially when they made the second purchase two years later?
00:20:21:05 - 00:20:49:15
Rob Emery
I think that the second one was probably a lot lower. There were some things that changed in the industry that we were in in that the cell phone carriers stopped allowing third party people to sell insurance, pretty much. So it was getting tougher and tougher to operate inside that window. And, you know, that drove that the revenue down and the way that these guys operated was so much different than how we did stuff.
00:20:49:15 - 00:21:06:06
Rob Emery
You know, we we built up sales teams and we built up relationships and all this kind of stuff. And there they were kind of looking at it from a strict insurance thing. So basically we could have made a killing on that business if we would have got to the first closing, fired our whole team and just let it run out.
00:21:06:06 - 00:21:23:10
Rob Emery
We would have probably made way more than we did because they would have shown a huge profit on the way they do their books. But that wasn't in our makeup, you know, to be firing our team and cleaning house. You know, we were still trying to grow the business and make new accounts and do all the stuff that we needed to do.
00:21:23:10 - 00:21:46:22
Rob Emery
So we were really in there trying. But the way we did our bookkeeping and the way they did their bookkeeping were kind of different from from, you know, the traditional insurance perspective. And you know, again, that's another thing. In retrospect, I could have probably just laid everybody off and gave them a year of severance and still came out way on the upside of their deal at the end of the two years.
00:21:47:13 - 00:22:06:05
Todd Sullivan
Yeah. Hindsight, right? 20/20, you know, you really don't know what you're getting into. And like you said, it's kind of, you know, the rosy, rosy eyeglasses and you're just trying to get that deal done. The first check is enormous and, you know, it's life changing, right? So we tell a lot of founders that, you know, you don't want to count on that second check.
00:22:06:05 - 00:22:28:22
Todd Sullivan
But, you know, with the right partner, that can be many times much, much more meaningful. You know, in our conversations, which has really impressed upon me, is how you think about operational excellence. Right. And I think you've talked a couple of times now how the way you built companies and teams and processes is very different from one, your franchisor and now you're a acquirer.
00:22:29:06 - 00:22:45:08
Todd Sullivan
So I'm guessing, you know, you, you, you take the next step, right? You're going into another industry or you're making investments, but you also have learned a lot and you're continuing this kind of operational excellence moving forward. Can you take me what's the next step after you're out in 2014?
00:22:46:17 - 00:23:11:11
Rob Emery
So when we exited the first time in 2013, I was still working till the end of 2014, but I started to invest in little things here and there, several different businesses, just people hear that you sold something. They want to talk to you about it, they want to understand it and then some of the people are looking for both consultative help and also capital potentially.
00:23:12:00 - 00:23:30:22
Rob Emery
And so I talked to a lot of people about both of those different types of things. Originally, we kind of set up our own little I don't know if it's like a boutique shop, like just kind of doing these types of things, meeting these types of people. The guy who was our business broker, they would send us people that were too small for them.
00:23:31:20 - 00:24:00:00
Rob Emery
So we had a bunch of leads coming in and we ended up investing. I say we I CFO from Protect Sale came with me and we ended up doing, you know, a couple of deals here and there, depending on, you know, just different scenarios. A couple examples are like one was a, a brewery restaurant that we, that I bought into, I invested in that these guys were actually my landscapers and they wanted to open a restaurant.
00:24:00:12 - 00:24:23:20
Rob Emery
That's still going great. I'm still a partner in that. We did like an automotive roll up where these guys had a great idea where they were rolling up mechanics that were kind of getting older and they didn't have any discipline in their bookkeeping and all that kind of stuff, and their kids didn't want the business. So basically they sold their mechanics were like shutting down instead of selling.
00:24:23:20 - 00:24:42:16
Rob Emery
And these guys were scooping them up and rolling them up into a bigger play, which we had seen a lot of people do in that with like paint shops and body shops and all that kind of stuff around the country. So this was a good thing and it didn't work out for us with the partners, but still ended up okay from a financial perspective.
00:24:42:16 - 00:25:02:16
Rob Emery
And we invested in a couple of little cell phone related businesses. And you know, one was a little device that would kind of go in your car and measure all the metrics in your car and be able to pass it off to an insurance company and stuff like that. So a little I've never been really huge into technology stuff.
00:25:02:16 - 00:25:16:16
Rob Emery
I'm more of a simple, you know, I like simple things that I know are going to work like beer and cars and pets and stuff like that. Cell phones, things people always have. Yeah, those are more my style than than high tech stuff.
00:25:17:06 - 00:25:26:13
Todd Sullivan
Well, so, you know, what's the next step, right? You got a little family office or venture fund. You're making these investments. But what's going to be kind of the next full time effort?
00:25:27:15 - 00:25:54:13
Rob Emery
So during that process, we got into a product called Snuggle Puppy, which is a pet toy, which is a dog toy basically with a beating heart beat in it. That's good for calming puppies was something that I knew the guy who owned it and invested with him and that business I invested in 2013 and over the next three years or so, it continuously needed more capital, more capital, more capital, and by 16 ended up owning the whole thing.
00:25:55:06 - 00:26:15:16
Rob Emery
And that was kind of not really where I wanted to be at that stage of my life. You know? And when I sold all these businesses at 46, I was pretty much retired. And now I find myself with this pet business that I have basically a full time gig. And I just kind of got determined that I just wanted to get my money back out of that thing.
00:26:15:16 - 00:26:39:02
Rob Emery
So I set down the path of doing the same type of thing, like, you know, never having imported product from overseas or sold product to big retailers. There's a lot of learning curve in there. So we had to set up everything in that business. Warehousing and finance and sales team and everything else, grow more products, have more products to be able to sell, stuff like that.
00:26:39:02 - 00:26:44:08
Todd Sullivan
Okay, So you're really kind of a pet product retailer at that point, right? It more than.
00:26:44:16 - 00:27:17:20
Rob Emery
Wholesale, like mostly, yeah, mostly Amazon. And then we got into PetSmart and Petco and stuff like that. So but mostly mostly online and some in store know the product that we have is great and it's gets like unbelievably great reviews on Amazon. And once we fixed a couple of the key issues in the business, like as a simple example was when I got it, we had all of the SKUs in stock that were not selling and not the SKUs in stock that we're selling.
00:27:17:20 - 00:27:51:16
Rob Emery
So, you know, once we solve those problems by buying the right SKUs, then the revenues started trickling up and this particular product kind of gained like its own little organic. I won't call it like a cult following. I don't know if that's the right word, but got a lot of organic growth. I think that, you know, as people started using, you know, this is like key growth area for Amazon and online buying and you know, during those time periods and people were writing great reviews about it and then it as it continued to rank better and better, more people were finding it.
00:27:51:16 - 00:28:14:03
Rob Emery
And then it started becoming like, you know, USA Today top ten Things you Need for Your New puppy. And it's getting written about BuzzFeed and Huffington Post and you know, it's on the news and all this kind of stuff. So it keeps getting all of these kind of like accolades that we didn't really ask for. We never knew even any of that any of these articles were coming out.
00:28:14:03 - 00:28:22:18
Rob Emery
But I was getting article after article after article after article. So it just kept growing in popularity and growing in popularity. And so that's great. Yeah, that's that's great.
00:28:22:18 - 00:28:45:00
Todd Sullivan
I mean, you obviously you wanted to get your money back, but you believed in the product initially, and then it just just took longer and good management, right? It needed time management and capital. And you've turned this into a little bit of a cult following. That's great. But it's really that's a launching pad, right, to more products, distributing warehousing, much more for what, lots of independent retailers.
00:28:45:22 - 00:29:07:16
Rob Emery
Yeah. So we've kind of taken this business and in and grew it through 2019. You know we got to the end of 19 and and or end of 18 and one of my business partners said, hey, you know, we should get into retailing because, you know, you have a great retail background and you know, now you're importing all these products from overseas.
00:29:07:16 - 00:29:34:14
Rob Emery
So when you put those in your own store, you'll have ginormous margins on your own product. So we did set down that path and we opened up three retail stores in Florida in 2019. Then we also in 19 purchased one of the distributors that was distributing dog food to us. I had met with the guy just to talk to him about sharing warehouse space, and it just became clear that he could use some help getting his business in alignment.
00:29:35:20 - 00:30:02:08
Rob Emery
The guy did, I think, a great job considering he was a police sheriff and his wife was a nurse and they were basically working this gig during the day and work in their night jobs to kind of keep cash flowing in. And they got it pretty much to the where they could get it up to. And again, it wasn't going to succeed without infrastructure, capital, you know, warehousing, logistics and all of the stuff that goes with that type of business.
00:30:02:08 - 00:30:16:20
Todd Sullivan
So, yeah, I mean, that's the operational excellence that I'm talking about, right? So you can enable some really great products to be kind of financially viable. Okay. So you keep building this is this choice. Pet products. What's the name of this organization?
00:30:17:08 - 00:30:37:06
Rob Emery
The whole organization's called Encompass Pet Group. Okay. And it has three divisions. It has the snuggle puppy division, which is kind of like a direct to consumer play or like retail products. It has choice pet products, which is the distribution business that we sell to independent retailers down here in the state of Florida. It's also our logistics hub for the rest of the business.
00:30:37:06 - 00:30:49:00
Rob Emery
So it supports all of the logistical things that go on from importing and shipping product. All over. And then we have our three stores called Dog Perfect that are part of that as well.
00:30:50:03 - 00:30:53:07
Todd Sullivan
And so you still own this with what, a couple partners.
00:30:55:04 - 00:30:59:14
Rob Emery
I own about 95% of it. There's a couple of guys that have a couple of percent.
00:30:59:21 - 00:31:29:09
Todd Sullivan
Okay. So really, you know, your career was built up in the cell phone industry, right? Selling phones, then then retail outlets and then the protection plans. And you have your big exit and you're thinking retirement. I'm a family office. I'm going to make some investments and more hobby the next career. But now, right when the keys get turned over to you and you turn this single product into a major operation with three different highly functioning divisions.
00:31:29:20 - 00:31:37:17
Todd Sullivan
So what what's the plan? What is how does this hobby to, you know, major enterprise? What's what's going to be the outcome?
00:31:38:15 - 00:31:59:20
Rob Emery
I think what we're trying to do with this is we envision that we can continuously add new products into our suite or different little kind of pet related businesses. We're kind of setting it up to be a almost like its own little mutual fund built around the distribution business, like a logistical hub as as the core of the business.
00:32:00:05 - 00:32:17:11
Rob Emery
So now that we have that all set up, we can bring in whatever type of products that we want. So probably about two or three weeks ago we had our big pet trade show in Orlando and for the first time since 2017, we launched a whole suite of new products under the Snuggle Puppy name, which we hadn't done.
00:32:17:11 - 00:32:46:09
Rob Emery
So we launched Beds, a Heartbeat and New Snuggle Puppy colors, which we hadn't had in five years. And we also last October we bought a supplement company, so we launched two lines of supplements for dogs as well. So one of the things that we're figuring out about having the logistical business and then having Snuggle Puppy, which is kind of like we're it's a product that people really only buy once, right?
00:32:46:09 - 00:33:10:09
Rob Emery
So you make this purchase, you have your puppy, your puppy sleeps great at night, you're all happy. But we had nothing else to backfill that from a product perspective. So now we're kind of looking at Snuggle Puppy as a top of the funnel product that we can bring people into our kind of vertically integrated infrastructure and just start pumping them different products and services from there for the whole lifecycle of a dog.
00:33:10:09 - 00:33:30:18
Todd Sullivan
Oh, Rob, that's fantastic. I think, you know, for our audience, we're we're really focused on M&A, but the fact that you take this like major exit and turn it hobby into, you know, a real strategic plan to keep growing and growing and growing. I know now you're on on the hunt to buy companies, buy products right, because of this and.
00:33:30:18 - 00:33:53:05
Rob Emery
Potentially sell them, too. Yep. Right. So we kind of look at this as like we may buy a bit and we might sell a bit at any point during their. So we're kind of like thinking of the, you know, the next exit might we doubt it'll be a single exit. It'll probably just be multiple things so we could sell off, we could grow the supplement business for example, and then sell it off.
00:33:53:09 - 00:34:24:14
Rob Emery
But we might buy something like some of these selling like leashes and collars business, and we might buy that and bring that in. So we might bring things in and out. We've looked at a couple more deals already. Yeah, there are obvious things. If you think about life cycle of a dog, like from, you know, week we're usually touching on that week 8 to 10 with Snuggle puppy and then you know you get you know this dog that could live ten, 12, 15 years and you think about how many products could you sell them in between.
00:34:24:14 - 00:34:42:07
Rob Emery
There is kind of like where we're setting everything up and some will work and some won't. So we may bring some in, sell some off. Don't really know exactly how that work. This is really like a vertically integrated solution that's kind of unique. There is there isn't much like it around that we've seen.
00:34:42:14 - 00:35:03:15
Todd Sullivan
And it's great. I actually I love this story because I did something similar. I built a company called Crowd Zone and partnered with a guy out of Exile Partners who had a company called Buy Fi, and there were essentially ideas and we built them together and the two really converged. And at one point, my side of the business, crowds on CBS walked in and said, We want to own this.
00:35:03:22 - 00:35:29:23
Todd Sullivan
And so we took that opportunity to right sell off essentially an asset and fund the business going forward, the one that we thought was bigger. And what's great is today we have clients that are like this, that they grow a business over 30 years and find, wow, I actually have three or four businesses here. What if we were to divest or sell off the businesses that are not core to our future where we really want to spend our time or where we see the biggest opportunity?
00:35:30:07 - 00:35:49:19
Todd Sullivan
And I think what's so great for those founders is not only can you get rid of or sell off a business that provides some liquidity for investors and family members and give you growth capital, but it really focuses all your attention on the potential big winner and you know, how business is right. That focus is really, really important.
00:35:49:19 - 00:36:06:00
Todd Sullivan
So I like the fact that you'll be able to see should we keep this one or sell this one? Maybe we need to buy and grow a category that's great to be. They be fortunate to be that flexible. So I think there's a lot of learnings in there. Could I could I step back? Is really your big exit.
00:36:06:00 - 00:36:19:01
Todd Sullivan
I don't want to like overlook that for our listeners. Maybe you could talk to me about, you know, what, what were the biggest learnings? What mistakes do you think you made or things that you did really well that other people could take from?
00:36:20:08 - 00:36:38:03
Rob Emery
Sure. I think the the thing that we did really well was that we were prepared in our data room. I think that a lot of organizations that were coming in to look at us probably felt like they could come in and say, you know, this is a small business with these guys that are kind of like cell phone store guys.
00:36:38:15 - 00:37:14:13
Rob Emery
And, you know, I think they felt like when they came in, they were going to be able to like really put pencil and paper and say, hmm, I see some angles here where where we can do a lot better with this business. And I think once they got under the hood and saw how, you know, disciplined and detailed and organized and accurate, our bookkeeping and all the other stuff was especially as it related to claims management and stuff like that, being in the insurance business that that was probably the biggest win for us that stop people from coming in and saying, you know, you guys think you're worth X, but you're really only worth Y.
00:37:15:06 - 00:37:40:15
Rob Emery
You know, that was probably the the biggest win. Yeah. You know, I think on the hindsight part, I think that, you know, that second step of the transaction, we we kind of got reiterated a little bit at the last minute, you know, where these guys started all of a sudden, like calling all our customers and saying like, you know, like, I don't think your big customers are going to stick with you guys.
00:37:40:15 - 00:38:11:00
Rob Emery
I'm talking to them and maybe they're going to go somewhere else. And, you know, we got reiterated a little bit at the end and it was kind of like that was a learning experience because we kind of felt like like I would never do that again. Yeah, we already looked at some people started talking to us about our pet business last year and we weren't in a position to do anything, but we wanted to have that conversation and the first thing we let out of the gate is, you know, when you come with an offer and if you say anything about retraining us or walking away because we don't need the deal.
00:38:11:08 - 00:38:36:15
Rob Emery
So I would definitely encourage people be prepared for the fact that somebody is going to try and re trade them at the one yard line for a better deal. Yeah. And they have to be ready to kind of at those points. It's usually whoever needs it the least is going to win, right. Yeah. If you show you're desperate and you really wanted or need it, then it's going to show that these people are pros and they're going to take advantage of that.
00:38:36:22 - 00:38:56:13
Todd Sullivan
I love the the advice, Rob, because the two really tie together, right? So, yes, I mean, there's there's a lot to say on that. A lot of buyers, everybody wants a good deal. Right. And so going into a transaction, a buyer might say, yeah, I'm willing to pay within this range and that range might be really attractive to you.
00:38:56:21 - 00:39:15:17
Todd Sullivan
And their plan is to go in and do due diligence and find all the little holes, all the missing data points, all the questions that they can come up with. And you had your data room in order, right? So you're able to push back. And we've been in these and have management meetings where you're going through all of this data with a buyer.
00:39:16:00 - 00:39:42:00
Todd Sullivan
And when you have a CFO or someone sitting in that seat who can share information really clearly, really cleanly, instantly, it shuts down their ability to come back and say, Oh, we're going to have to ding you for that. Now, to your point, it doesn't mean that they're not going to try it at the end. And I think that's where kind of time comes in to these deals where you're emotionally ready to sell.
00:39:42:00 - 00:40:01:01
Todd Sullivan
You're already thinking about what's that vacation I'm going to get to take or where am I going to go buy my summer house or my new house. And so your emotionally invested in this and it's very hard when somebody a buyer comes and says, hey, I think we're going to need to pay a little bit less because we couldn't get the financing for X, Y and Z.
00:40:01:14 - 00:40:24:23
Todd Sullivan
I just encourage all founders to understand that knowing your buyer and what their reputation is and what their game plan is before going in is so important, right? We run transactions where our investment bankers won't let certain buyers even bid because they know what their game plan is. And it isn't consistent, you know, with creating the exit that our founders deserve.
00:40:25:11 - 00:40:35:10
Todd Sullivan
So a lot of our answers tie back to having the best possible representation that would not ever allow that. Yes, it happens, but being totally prepared, it's.
00:40:35:10 - 00:40:39:05
Rob Emery
Going to happen almost on every deal. Right. They're going to try to buy when they.
00:40:39:19 - 00:40:54:00
Todd Sullivan
Were one one. Right. We're in one right now and we're anticipating it. And the founder is saying, hey, if they come back with anything less, like it's going to be a little bit of a game of chicken. We know who we're dealing with. We signed up for it. We went in eyes wide open and we're going to see what happens.
00:40:54:12 - 00:41:07:13
Todd Sullivan
But yeah, okay. So those are great, great pieces of advice. Let me let me ask you, how did you celebrate? You had that the first sale, the 60%, any vacations you buy something new, you know, where were you from a family perspective, too?
00:41:09:02 - 00:41:33:03
Rob Emery
We didn't really do anything. You know, I did end up buying my Florida house, but I was already looking for a house way before then. So we ended up closing on it in February and definitely transaction helped, but I wasn't one of the, you know, go buy a Ferrari guy and a guy. It's not really my thing. So yeah, we just kind of like life was pretty normal for me, you know, coming out of that.
00:41:33:23 - 00:41:48:00
Rob Emery
I guess my, my one big thing I did do for myself is I promised myself I would always fly in first class out. That's. That was my gift to myself. So I just. That's great. I don't want to fly coach anymore, But that's a that was really a you know, it wasn't that big of a deal, I guess It's just.
00:41:48:00 - 00:41:48:10
Rob Emery
Oh, that's.
00:41:48:10 - 00:41:49:00
Todd Sullivan
Fantastic.
00:41:49:00 - 00:42:11:11
Rob Emery
You know, it is a lifestyle. It was a lifestyle change. But otherwise I didn't I didn't change my the way I live really at all. Obviously, the biggest thing that I did personally was I put away money for my two nieces and my nephew to go to college. That's fine. So now that the youngest of them is in, he's just finishing his freshman year in college.
00:42:11:11 - 00:42:31:01
Rob Emery
So I've got to through and I got one a quarter of the way through. And so that was that was my kind of thing. I don't have kids, so, you know, I didn't have to worry about setting up funds for them, you know, you know. So it was very simple for me. I just that's continue to just be same, same person, I guess.
00:42:31:06 - 00:42:55:12
Todd Sullivan
Yeah, that's great. But what a gift to your nieces nephews. That's fantastic. So, yeah, I think is it's amazing story. I really appreciate you you sharing it with us, Rob. This idea that you built something amazing, you have your exit and then you're just investing, which is feels like more of a hobby because you're thinking retirement and all of a sudden you're kind of tossed into a new opportunity.
00:42:55:12 - 00:43:08:18
Todd Sullivan
And all the lessons, the kind of the operating lessons that you took from your previous career have made this enormously successful. And you can see how much opportunity there is to buy and sell, you know, divisions or products out of your portfolio.
00:43:09:04 - 00:43:29:11
Rob Emery
So and being impaired is huge, right? So it's a huge growth area. You know, we didn't really talk about the impact that the pandemic had on our business was unbelievable because everybody adopted puppies and we have like the number one selling puppy product. So our business went through the roof, you know, during that time period. And that created all sorts of other issues.
00:43:29:21 - 00:43:55:04
Rob Emery
But, you know, we've we've kind of selected this time to instead of doing like a consultative approach, you know, this this time what I did was I hired a bunch of really great executives. So over the last three months, I've added a CMO, a world class CMO, a world class CEO and a president for our distribution business. So adding these exacts that you can really lean on is kind of like my jet fuel for this one.
00:43:56:00 - 00:44:04:19
Rob Emery
So I got it as far as I could without them. And now it's time to to add some fuel and and see what these these folks can do to help us get over them.
00:44:05:00 - 00:44:16:09
Todd Sullivan
That's awesome. Rum. All right. Well, is there one person that you would like to thank who contributed to your personal and professional success? It's the question we we end with with every guest.
00:44:17:12 - 00:44:39:17
Rob Emery
You? Yeah, I would say like probably my first boss Bill at the car stereo stores. So, you know, it's kind of like one of the guys that you learned a lot from, but he didn't know he was teaching you. So just just by his everyday actions. So probably him because, you know, he taught me like to look at people and not judge them.
00:44:39:17 - 00:44:49:14
Rob Emery
He was the most like an judging person ever. Any person could walk in and he treated them like they were an old friend. So I just, you know, I learned a ton from that guy.
00:44:49:17 - 00:44:57:07
Todd Sullivan
That's great. Rob, thank you so much for sharing all of this with us. I know, you know, our guests are going to get a ton out of it and really wish you.
00:44:57:08 - 00:44:57:18
Rob Emery
That's my.
00:44:57:18 - 00:44:59:22
Todd Sullivan
Pleasure. That's a success with the pet industry.
00:44:59:22 - 00:45:02:12
Rob Emery
From all the work on that data room from day one.
00:45:02:12 - 00:45:02:23
Todd Sullivan
You got.
00:45:02:23 - 00:45:05:09
Rob Emery
It. That's what we're doing this down day to day to day to day.
00:45:05:09 - 00:45:08:02
Todd Sullivan
Yeah, Yeah. That is big. Rob, thank you.
00:45:08:21 - 00:45:09:10
Rob Emery
All right, Todd.
00:45:10:17 - 00:45:34:15
Todd Sullivan
Thanks again for listening to the Cashing Out podcast. For more founder exit stories, please subscribe to the Cashing Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember ex it was dot com and the cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.