🚀 Inversal Update & Sector News

Hey there 👋,

Welcome back to another issue of Inversal, which features honest, real-life stories on actual e-commerce turnarounds, plus market trends, strategies, and insights.

It’s been six months since I last posted an update, but we’re now back on a weekly sending cadence.

In today’s issue:

• Our H1 2024 update

• Why is All Birds only worth $100M?

• Our debt strategy

• The uncomfortable truth of turnarounds

🛒 Inversal H1 2024 Update

Our recent acquisition of Everstores, a German aggregator, marks a significant milestone in our growth strategy:

• 💰 Strategic Acquisition: Acquired Everstores with €1 goodwill and €700K in inventory.

• 📉 Operational Efficiency: Turned a negative EBITDA of $-48K into +$145K in 2024.

• 📦 Inventory Management: Reduced average inventory to $500K; placed $700K in new orders.

• 🥾 Product Success: Shoe accessory brand thriving with a new product launch during back-to-school season.

In January 2024, we took full control by acquiring four brands and $5 million in revenue for a symbolic €1 for goodwill (plus €700,000 for €700,000 worth of inventory). Over the past six months, we've focused on restocking key products, reducing software and team costs, and consolidating inventory.

The turnaround has been notable: what started with a negative EBITDA of $-48K in the first half of 2023 for previous management has now transformed into a positive $145K in 2024. We project a $400K EBITDA for the year, but this success has not come without its challenges, such as resourcing most suppliers and changing all the media buying strategies.

Our most significant acquisition to date was finalized in April 2023. It involved paying down $1.3M in consignment inventory and reducing the average inventory to $500K over the following 15 months. We've ordered $700K in new inventory for the holiday season on mostly net 30 terms after shipment, benefiting from favorable terms with Chinese suppliers.

While most of our smaller Amazon brands are performing as expected, our shoe accessory brand has exceeded expectations, especially during the back-to-school season—the recent launch of a sneaker cleaner positions it well for continued growth into 2025.

While the results thus far are promising, we remain cautious and critical of the road ahead. Managing acquisitions is never without its hurdles, and our progress underscores the importance of meticulous planning and execution.

🐦 All Birds Spiralling Down?

Talking of shoe brands, Fan Bi recently asked on X why All Birds is only worth just over $100M when it has $87M in cash:

Jacky Chou from Indexy replied, “It's probably going to decline more, and it's out of fashion at this point.” Whereas Travis Jamison stated he thinks the market is expecting them to burn through their money.

🎫 Inversal Debt Strategy

At Inversal, our approach to debt is straightforward but strategic.

We aim to maintain an average inventory-to-debt ratio of 50% and cap our EBITDA-to-debt ratio at 2.

As of June 2024, we’ve slightly exceeded our inventory-to-debt target, landing at 54.28%, while our EBITDA-to-debt ratio stands at a cautious 1.03.

As we push towards $20MM+ in revenue, we anticipate more favorable terms than our current blended interest rate of 14%. This will allow us to take a more assertive stance on debt—though always with a careful eye on maintaining balance.

Our capital stack is diversified. Nearly half of our debt comes from accounts payable, 90% of which is tied to inventory. We also utilize Amazon Lending, Shopify Capital, and contributions from friends and family, among other sources.

After months of negotiation, we recently signed a term sheet with a leading aggregator to acquire 19 brands, representing $26MM in revenue. This deal includes over $10MM in inventory, and we’re actively seeking additional financing to finalize it.

While the numbers tell a story of steady management, we recognize the need for caution as we navigate these financial waters. The upcoming acquisition is both an opportunity and a responsibility, requiring precise execution and careful planning.

We’re seeking an additional $1MM in financing and are offering competitive terms for a 6-month credit line secured by inventory.

🔄 The Uncomfortable Truth of Turnarounds

Turnarounds, unlike value buys, involve companies in a rapid downward spiral, requiring a fundamentally different approach focused on immediate stabilization and strategic overhaul, not just leveraging underutilized assets.

In a recent post on X, Josh Schultz stated that you need a tailored strategy that embraces the unique challenges of turnarounds for building resilience and operational excellence:

That’s it for this week.

If you have any questions or would like to know more about how Inversal can help you, just hit reply or send us a message.

Thanks!

Marc Roca
Founder & CEO
Inversal
X | Linkedin

Marc has founded, acquired, and operated more than 30+ e-commerce brands since 2017. He is also the founder of the third-ever Amazon Aggregator.