There’s been a rise in acquisition funds, aggregators, and roll-ups specifically looking to acquire profitable online businesses.
In light of this burgeoning industry, Flippa met with co-founder Ayo Disu from Octillion Capital Partners, the first minority-led digital native brand platform and holding company, operating, and growing an ecosystem of inclusive and sustainable brands in the health, beauty, food and beverage industries.
In this interview, Ayo touches on qualities of successful e-commerce businesses, the company’s mission to acquire sustainable brands, and the future of acquisition entrepreneurship.
What do you think about the future of acquisition entrepreneurship?
AYO: Over the next two decades, the US and Europe will experience a major shift in wealth and demographics that will likely have an impact worldwide. It is expected that baby boomers are going to transfer $30T worth of assets to the younger generations spread over years to come.
When this amount of wealth is exchanged – what will the impact be for most people?
For acquisition entrepreneurs it will present a massive opportunity to acquire established businesses with revenue, profits, brand equity, people and systems.
As existing SME businesses have achieved proof of concept, they are very attractive to all types of investors.
What is most interesting is that many of these businesses whether a digital-native brand, landscaping business, etc, could grow significantly when an entrepreneur with a fresh and more modern perspective assumes operations while benefiting from the advice and support of the original founder during the transition period and potentially after.
Many of these brands have further room for strong and sustainable growth but the owner may not have the resources, expertise, or interest to move the brand to the next level and this is where a company like Octillion comes in.
Acquisition entrepreneurship via start-up model is also a way of remediation and convergence, which is what we have done at Octillion because we built the infrastructure to support our pre and post-acquisition endeavours, but this starts to really scale up once we have acquired the first few brands as opposed to building infrastructure and then seeking out revenue to support it (what most start-ups do).
By doing so we enable immediate focus on initiatives that grow an already profitable small brand to culture-defining, omni-channel, sustainable and multicultural brands.
The future for acquisition entrepreneurship is extremely bright and this feeds into our core mission because it goes beyond wanting to build a very successful company.
We want to create a new ecosystem of liberated minority commerce founders who now possess capital and insight to implement change in their communities.
When acquiring a brand, why is it significant to continue the mission of the original founder?
AYO: This is very important because it’s one of the foundational tenants for us to decide if the opportunity is worth pursuing. If we understand and buy into what the founder was looking to achieve when he/she first started the brand it makes us very excited, and we will work to preserve the legacy of the founder while still being innovative.
Why is it necessary that Octillion acquires inclusive and sustainable brands?
AYO: For us it does not necessarily impact our decision to acquire a brand if it’s not inclusive or fully sustainable as these are some of the growth initiatives, we’ll look to instate post-acquisition. An alternative question could be why do we want our brands to be inclusive and sustainable?
Some numbers. Minority consumers in the US spend $1B on health and beauty per annum.
In the UK minority consumers spend 25% more than other demographics with this number rising to 41% in the U.S. and yet almost half of black female shoppers find it difficult to buy cosmetics and skincare – why? Because brands are not inclusive.
Significant capital is being left on the table especially as the purchasing power of minorities is increasing this needs to be addressed and we are here to tackle that.
Consumer preferences are ever changing and in today’s market where people have so much choice, consumers have evolved from passive purchasing to active and intentional purchasing. They want the brands they buy from to have a soul; shared values and they want the relationship to be more than just a transaction.
A brand’s identity and their advertising strategy must deliver more than just conversions. It must be more customer obsessed with the intention of being more accessible, representative, equitable and inclusive of all its customers.
In terms of sustainability, 1 in 3 Shoppers stopped purchasing a brand due to ethical or sustainability related concerns and since 2020 there has been an increase of 600% in interest in ethical shopping.
Sustainability has always been a macro-trend but has become a bit of a buzzword as of late. Truthfully, brands need to carefully consider the environmental impact of their operations if they’re serious about building a brand legacy.
It’s never been more important for brands to implement sustainable operations as a growing number of consumers will carefully consider your brand’ environmental impact before purchasing a product. It is also the right thing to do.
Why does Octillion differentiate itself from Amazon aggregators?
AYO: We are actually not Amazon aggregators; we are building a consumer brand portfolio in very specific verticals. Our strategy and vision are very different to Amazon aggregators. We respect the model, and it works but we just have a different way of looking at things.
It is an easy comparison to make, but the only similarity I can think of is the M&A feature.
We are different because:
- We are niche with a focus on only the health and beauty & Food and beverage space
- We are channel agnostic (Acquire amazon and non-amazon brands)
- We are looking to make only 20-30 acquisitions over the next decade (vastly different from the aggregators)
- We take an omni-channel growth approach
- We are the first minority led digital native brand platform
- We are customer obsessed, top to bottom
- Inclusivity and sustainability are key for us
- We are looking to develop key operational expertise in one vertical before pursuing others
When acquiring an e-commerce business, what qualities are you looking for in a business?
AYO: We look for businesses with the following characteristics:
High net margins (15%+)
This shows us that the brand can effectively control its cost or charge a premium price significantly lower than its cost price and it shows that the brand is more efficient at converting sales into profits.
A moat (a community or niche focus)
We are very much attracted to businesses that are very specific with their targeting in a way that they have established or are establishing vertical authority and focus. We want a business that has something about it i.e., a continuously improved product range that not only improves the lives of their customers but delights them! Finally we are to see a growing and engaged active customer base and community who derive more from the brand than just buying the products it sells. We also assess that the vertical the brand is operating in has some industry tailwind behind it because it signifies better growth prospects at a macro level.
Simple to understand and Operate
Net Profit/SDE of $250K+
We want the business to be profitable so we can deploy and re-invest capital to spur future growth as well as have that foundational base to experiment with growth initiatives that a non-profitable brand would not be able to do.
Operating for two years+
We are data driven so the more data we have to analyse and find trends/patterns to make more informed decisions the better. For this to be possible we need the brand to be at least 24 months old, but our sweet spot is 3 years+.
Positive and ethical approach
Sustainability is a key tenant for Octillion, and this is not being done from a business angle – its simply the right thing to do. We like it if a brand has already started to build sustainable practices into their brands no matter how small and should we acquire the brand we can look to further strengthen its sustainability credentials.
A great founder
As we are going to be building on the legacy of the original founder, we want a founder who is cooperative, responsive, and shares our values.
High retention rate & less dependent on acquisition (over 20%)
This enables us to see the brand loyalty and stickiness
Less than 40 SKU’s
We like brands that have a smaller products catalogue size as it makes things easier to manage and it gives room for us to develop products in collaboration with our customers and community driven by the data.
What are the most lucrative portfolio brands you’ve seen?
AYO: Without giving any names, we saw a dry foods brand which was doing around $6M in revenue with 22% net margins with a core team of less than 5 people. They have been in business for less than 5 years.
We also saw a minority owned brand in the beauty/hair space generating revenue amounting to $10M having been in business for 4 years. They built a really good community, however their finances were a mess relating to their cost structure and was not managed efficiently so they were nowhere near as profitable as they should be.
You can learn more about Octillion Capital Partners at octillioncapitalpartners.com.
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