Should I acquire an online fashion business as my first business?

[giants89]

Hey everyone,

I am planning on acquiring an online fashion store as my first business acquisition. I got it negotiated for a 1.77X Multiplier and it is consistently profitable and growing. I just wanted to ask your opinion on whether it is too risky or not a good choice because of the fashion industry being notorious for being hyper competitive. However, this business has established itself in a unique sector of the market where it is growing and very profitable. But, I still want to grow the business.

Keep in mind, that I do not know much about fashion. However, the owner does not have to be involved in day-to-day operations and design selection because they have an operations team in place (only 5-10 hrs per week for the owner). On the other hand, I am eager to learn and have a LOT of time to dedicate these next couple of months to the business.

I plan to apply for an e-commerce accelerator for this business post-acquisition to gain mentorship, immense knowledge, and rapid growth in exchange for equity in the company. I might also look for a C-suite executive from a recruiting agency tailored toward fashion/e-commerce to fill in my knowledge gaps.

How does my plan sound? Does my thought process have a good grounding to move forward? Is the fashion industry too risky for a first acquisition?

Financials:

Avg TTM Monthly profit: $35,500 USD

Profit Margin: 71%

Multiplier: 1.77X on PROFIT

Age: 8 years

TTM Rev: $591k USD

Growing consistently over the past 3-5 years.

Numbers are clean, no large variability in profits throughout the year.

Business Information:

Niche: Wedding gown and suits and Evening dresses (ALmost all of revenue), and African themed clothing (small percentage of revenue)

Reason for sale: The owner has 4 other businesses she is handling, wants to let this one go

Working capital needs: $11k USD per month, will finance for $66k (6 months of working capital

NO INVENTORY: Most dresses are produced only after payment.

Operations: (Employees will stay on)

Supply Chain: Strong relationships with reliable suppliers ensuring quality and timely deliveries.

Digital Presence: Robust e-commerce platform, optimized for user experience and SEO.

The owner manages staff and quality controls

1 Customer Service Representative, 1 Marketing Specialist, and 1 Designer (All work 40 hours a week).

We work with 30 tailors.

Meetings are scheduled with customers to get measurements to make their custom-fit clothing items.

Customer Base

Loyal Customers: A growing, loyal customer base with high repeat purchase rates.

Primarily People of Color(70% of clients are African)

Demographics: Primarily young adults, fashion-forward, and internet-savvy.

Feedback: Positive customer feedback with high satisfaction rates.

Lots of unique customers, not meant returning. (People hopefully aren't getting married multiple times)

Market analysis:

According to a report highlighted by Maximize Market Research, the global wedding wear market, which includes gowns and suits, was valued at USD 58.06 billion in 2023 and is expected to reach USD 60.50 billion by 2030. This indicates a steady growth trajectory, reflecting a positive outlook for the e-commerce segment of this market as well.

 

[crimson12]

@giants89 Why are they looking to sell? That's my first question. 1.77x what? 1.77 revenue or seller discretionary earnings/ebitda? How big of a company is this? How much working capital will you need to infuse post acquisition? How much inventory are you getting in the purchase or would that be separate? What's the cash flow like? Inventory businesses, especially clothing can be so tricky. AR vs. AP time lines create cash crunches, e.g. you have to pay for the inventory up front, but then it will take time to sell the inventory and receive the cash inflow. How big is the team? Have you looked at their books and determined whether or not they are clean? What is the trend YoY for past 3 to 5 years? Also, who markets the business, is it heavily dependent on the owner's personal brand or something like that? Customer base - are there a lot of repeat customers or do you constantly have to vie for new customers.

Sorry for the long comment. I find acquisitions to be so interesting, so these would be my initial questions!

 

[giants89]

@crimson12 I updated the post to answer questions.

Let me know if you have any questions.

 

[scorcher007]

@giants89 who is running it, how are you going to keep them running it, and shy are they selling?

 

[giants89]

@scorcher007 They have an operations team (specified in the post), the employees are staying for transition, and they are selling businesses they want to focus on their other businesses.

 

[annecpo]

@giants89 @giants89 texted you in private message