October 22, 2024 • 39 mins
We are back with part two of our three-part journey into the hot topic of M&A - Mergers and Acquisitions. We continue with spirits, and we're joined by a pair of experts with a truckload of great advice for brands in any category: No Sleep Beverage Founder and CEO Nick Papanicolaou and No Sleep Beverage CFO & CIO David No.
Special guest cohost Brigid McCabe joins host Jimmy Moreland as we continue our M&A mini-series.
More info on No Sleep Beverage: Website
More info about MHW at https://www.mhwltd.com/
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Episode Transcript
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Speaker 1 (00:06):
Welcome to the MHW Mark podcast, where we take deep
dives into various aspects ofthe alcohol industry.
My name is Jimmy Morland.
Mhw is a US and EU beveragealcohol importer, distributor
and service provider.
On today's show, we are excitedto continue our journey into
the world of M&A, mergers andacquisitions.
And to help us along on ourjourney, I'm pleased to bring
(00:28):
back our guide and guest co-host, bridget McCabe.
Welcome back, bridget.
Speaker 2 (00:33):
Thank you, jimmy, pleasure to be here again.
Speaker 1 (00:35):
It's good to have you back here.
We took an extra week here forthe holiday and I guess there's
a lot of industry eventshappening right now.
Speaker 2 (00:45):
Is it just crazy there at MHW?
Well, we have Bar ConventBerlin that just wrapped up and
that is the largestinternational trade show for
bartenders and on-premise folks,so that certainly was a large
focus for our businessdevelopment team this week.
Speaker 1 (00:59):
And I know last episode, if listeners remember
we talked mergers andacquisitions, specifically in
the beer vertical and, becauseof the guests that we had on, we
also took a very narrow focuson the legal side of things.
What are we looking at thisweek?
Speaker 2 (01:16):
Yes, we certainly dove into the legal and the
brokering and preparation forsale.
In this episode we're coveringM&A in the spirit space, looking
a little bit more at thefinances, at a little bit more
of the investment criteria andwhile many of the same legal
concepts hold true as in thebeer space, a beer buyer or
(01:38):
investor and a spirits buyer andinvestor can sometimes be very
different.
The environments are different,so spirits investments are
certainly a bit warmer be verydifferent.
The environments are different,so Spirits investments are
certainly a bit warmer now thanbeer.
The performance, the margin,the financial and supply chain
considerations are different andwhen it comes to Spirits, the
sales force and the marketing aswell as the consumer base are
radically different.
(01:59):
So we've seen a lot of thestrategic large portfolios
invest in or acquire spiritsbrands over the years and the
level at which they can investcan vary quite a bit.
We've also seen certainly morecelebrity and influencer
involvement within this vertical.
So I'm interested to see whereit's going in the years ahead
and we're really curious tolearn, along with our listeners,
(02:20):
from two experts from no SleepBeverage who have a long list of
experience in the mergers andacquisitions space, both
in-house at large spiritsportfolios, as well as now with
their investment company.
Speaker 1 (02:34):
All right, let's get down to business, then.
Our first guest today is thefounder and CEO of no Sleep
Beverage, nick Papanikolaou.
Welcome, nick.
Speaker 3 (02:44):
Jimmy, pleasure to be here.
Thank you so much for having me.
Speaker 1 (02:47):
We are also lucky to have the CFO and CIO of no Sleep
Beverage, David Ngo.
David, thanks for joining us.
Hi Jimmy, thanks for having us,thanks for being here, both of
you, for our listeners.
Can each of you give us a quickbackground on yourself, how you
came to the beverage alcoholindustry and the eventual launch
of no Sleep Beverage?
(03:07):
Nick, if you want to start,yeah, absolutely Jimmy.
Speaker 3 (03:11):
So no Sleep.
Beverage is really theculmination of my 15, 16 years
in the industry.
I actually started in beveragealcohol in 2009, 2010,.
Really researching the industry, coming into it from the
perspective of an entrepreneur,ended up launching a product in
2013 and spent about two yearswith that product actually live
(03:33):
in market before sort ofshutting it down and realizing I
wasn't going to make it as anentrepreneur.
But I think the important pointfor me was as an entrepreneur.
I learned sort of the painpoints of the entrepreneurial
journey, the ups and downs, theobstacles they face, and I think
the biggest learning isprobably that in this industry
you guys know this.
(03:53):
You know nobody wants 10,000Knicks come into their office
door asking, as a distributor,asking you to take on a new
brand.
The same thing probably appliesfor retailers.
So I think the big learning forme was how hard it is to make
it as a single brand and as asingle entrepreneurial.
You know, single person,entrepreneurial company, and so
the insight there for me was, inorder to improve the chance of
(04:16):
success, how can I be part of aportfolio?
A portfolio, you probably get alittle more scale, you get a
little more access todistributors and retailers.
So, jimmy, I then went to sortof the other end of the spectrum
from smallest spirits companyin the world, the second largest
spirits company in the world,joint Preneur Card in 2015.
And I spent seven years there,always focused on the
(04:36):
entrepreneurial side of things,investing in early stage brands,
sitting on the boards of thesebrands Wonderful experience.
But the learning number two inmy career was that in this role
in the corporate world, whereessentially, I realized that, no
matter how big the portfolio,how many resources you have, I
think a lot of the largecompanies struggle to innovate
(04:59):
and struggle to nurture andscale these entrepreneurial
brands because they're just notset up to.
And you know what do I mean bythat.
I'll give just a quickexplanation.
You know, plugging a tiny brandinto a massive distribution
system is not always the bestmove.
Plugging a brand that was doingsomething very creative with
you know two unique, creativefounders, and plugging them into
(05:21):
a marketing model, you know acorporatized marketing agency
not always the best move.
So, in short, no sleep beverageis really the culmination of
those two experiences.
How do you create somethingthat sort of maintains the
entrepreneurial nature that Ifirst entered the industry with?
You know the agility, thecreativity, the risk taking, but
(05:42):
couple that with resources andcapabilities that are actually
needed for the appropriate sizecompany, for an early-stage
brand, not a large brand, andthat's what no Sleep Beverage is
.
We're a combination of aventure capital fund and a
consulting arm.
We provide capital andcapabilities to early-stage
brands.
Speaker 1 (05:59):
And David, some background for you.
Speaker 4 (06:02):
Yeah.
So I spent about 14 years ininvestment banking focusing on
M&A and capital markets and, asa great banker, I've always been
trying to sell brands or make aneed by brands.
While I was at Pernod Ricard,he never bought one nor sold one
, so I decided to join him intothis venture and have better
(06:22):
luck this time, really leftbanking because I fell in love
working with entrepreneurs andfamily-owned businesses.
I was really focused on craftbeer and craft spirits for about
five to seven years in my lasttime as an investment banker, so
left banking, decided to investinto food and beverage brands
and also help entrepreneurs froma fractional CFO perspective
(06:46):
with strategic building andplanning.
Speaker 2 (06:48):
You both covered off on it so nicely, but the fact
that there are so many differentvarying investment levels that
can be made.
It's not just a merger or anacquisition.
There can be partial orminority investment that can
happen.
So do you mind if I probe intothat a little bit?
What are the varying investmentlevels that a portfolio like
yours could take and how doesyour approach differ from you?
(07:12):
Know a full on exit that abrand might go through?
Speaker 4 (07:15):
So we our investment approach is more opportunistic,
rather than being fixed on aspecific size.
You know we've done investmentsto safe notes, convertible
notes, series A, b and evenseries C, investing different
type of check sizes right Fromanywhere from like $350,000 to a
million plus.
With all that being said, Ithink our sweet spot is within
(07:40):
investing in brands that aregenerating at least one million
in sales and also leading equityrounds, preferably Series A and
Series B, and also gettingboard seats with our investment.
The reason why we do likeinvesting in brands that are at
least generating one million insales is because there is some
(08:01):
level of proof of concept andproduct market fit, so that
potentially not fully, butpotentially lowers the risk of
investing in emerging brands.
Speaker 2 (08:12):
Nick, I'm going to punt this question over to you
what would make a brandappealing for investment?
And since we are talking M&A ona broader scale, when you were
in the seat leading M&A atPernod, what made a brand worthy
of that acquisition?
I know there were probablyhundreds of brands you looked at
a year, so what was that sortof final criteria that would get
(08:34):
a brand over the finish line?
Speaker 3 (08:35):
Yeah, great question, bridget.
Yeah, I think we had a trackerof over a thousand brands, so
you're right on looking atprobably over 100 a year.
Look, I don't think the answeris there are some nuances.
I don't think the answer isthat different between how we at
no Sleep Beverage look atinvesting versus how we, when I
was part of the we at PernodRicard would look at investing.
(08:57):
I think there are somecommonalities and some
differences.
Pernod Ricard would look atinvesting.
I think there's somecommonalities and some
differences.
You know the commonalities are.
At Pernod Ricard we had apartnership model and that's
similar to what we do at noSleep Beverage.
In other words, we want thefounder to stay on.
So therefore, the founder andthe management team is a big
part of it, right?
Are they visionaries?
Do they have a good trackrecord?
Have they done this before,maybe in other industries?
Is there a good culture fitwith us at Pernod Ricard or with
(09:21):
us again now at no SleepAverage?
And what's their vision forgrowth?
And I think that's a big onetoo, because a lot of
entrepreneurs I don't say thisin a derogatory way, I probably
was the same way, you know hadsort of delusions of growth and
how quickly they could scale.
And it is really hard in thisindustry to actually scale and
to do it in the right way.
So I think looking at thefounders and the management team
(09:41):
is definitely one.
I'll go a little quickerthrough the others, but you know
, obviously, the product.
We're always looking at whetherit's solving for is there a
need for it in the market?
Is it solving a functional painpoint or white space?
Is it solving an emotional painpoint or white space?
I think obviously.
The third is the category.
At Pernod Ricard they tended tolike large and growing
(10:02):
categories.
Going after something too smallor niche just doesn't really
move the needle.
I'd say maybe that's a nuancewe have.
We are a little more interestedin the things that are a bit
niche-y because, again, we'reworking with brands and
preparing them to get into aportfolio like a Pernod Ricard
or Bacardi Diageo at some point.
So we're willing to go a littleearlier and a little more niche
(10:23):
.
But in general the same logicapplies you want it to be
growing or you want the categoryfor there to be some understood
catalyst to spark growth in thecategory, if that makes sense.
You know, I think back to thesort of differences.
I think another majordifference is a group like
Pernod Ricard or, again, any ofthe major strategics are
(10:43):
probably coming at it with moreof a strategic lens than ours,
meaning they might be saying canwe buy or invest in this
company because of capabilitiesit brings to us, because of a
geographic presence?
Maybe we're underweight in thestate of California and we need
brands that have more of apresence there to help grow our
(11:03):
other brands in that state.
But obviously, and I'd say mostimportantly, it comes down to
the category.
Do they have white spaces inthat category and in those price
points to look at making anacquisition to fill that gap?
We do at no Sleep Beverages.
We sort of try to think likethe strategics and go what are
their white spaces, how are theythinking about it and where can
(11:24):
we be a potential solve forthem?
By bringing them brands thatfit and fulfill those needs or
those gaps that they have.
Speaker 2 (11:30):
That sounds really exciting in terms of the
capability to work withindifferent niches as well, and
that dovetails a little bit intoa question that I have about
trend consideration, and I knowthis is one.
When it comes to the categorythat sometimes we R&D as well as
M&A to try and figure out whichwas going to go farther, the
(12:06):
ones that were accelerating onthe shelf and had proven
performance are the ones thatwere SKU line extensions or new
brands within the big strategics, and then we've also seen the
proliferation of the past 15years of celebrity-backed brands
.
But down, that category isgetting quite crowded and we're
seeing that maybe it doesn'thave as much resonance as you
(12:28):
know, consumers used to once payattention to it.
So, from your perspective, withno Sleep, what amount does
trends play into it?
And what amount, like you said,with the white space and with
trying to figure out you know,what's coming ahead factors into
that decision making.
Speaker 3 (12:46):
Yeah, look, I think maybe I'll start with the
distinction between trends andfads, not to get too geeky.
But fads are probably shortlived and I don't think we're
interested in that.
Trends are long term and can bemacro cycles.
So I'm thinking on the spothere.
But you know, like a fad mightbe the flavor of the month, you
know, watermelon, dingleberry orsomething, and that's.
(13:06):
You know it's trending reallywell, but it's a short-term
thing.
Speaker 2 (13:10):
Right.
Speaker 3 (13:11):
Probably not as exciting to us.
Then you talk about and I'mgoing very broad here, but you
know craft beer, craft spirits.
Craft beer has been a 40 yearmacro trend, um, and I think you
know spirits has obviously beenlagging that.
But so we're interested intrends, not fads, that's for
sure.
I think you know the celebritything you mentioned.
I don't know if this istrending now.
(13:32):
Obviously it's trending morenow.
I think everybody who's been inthe industry for a while knows
it's.
It's been happening for a while, right, I mean, sammy Hager,
kilo was whatever almost 20years ago.
I think what's interesting is,when you dissect it a little
more, you notice that acelebrity-backed brand or
bringing a celebrity into abrand, is definitely not a
panacea, it's not a cure-all,it's not the solve to grow and
(13:55):
scale and exit the brand.
And I think I'm saying thiswith a little bit of like
observational research here, notnecessarily science backed, but
I think you'd probably find thesame failure rates among
celebrity backed brands as youwould non-celebrity brands.
Two or three years ago I had alist of celebrity backed
tequilas and I think it wasalready 50 and counting at that
(14:18):
stage.
So today I haven't updated it.
You know, maybe David and Iwill do that at some point.
It's got to be 75, you know,maybe a hundred.
The reality is the averageperson has probably heard of one
or two or three of those.
Maybe us in the industry haveheard of, I don't know, 10, 15,
20.
When you put the list togetherit's just mind boggling how many
(14:41):
are out there.
So I think the same failurerates apply and I think back to
the point of it being a solve,you still have to have a lot of
things right with a celebrityinvolved.
You know you got to make sureand I won't go into all the
detail here, but we certainlybelieve.
You know you can't just slap acelebrity on right the celebrity
, the DNA of that celebrity hasto match and align with the DNA
of the brand, otherwise theconsumer is too smart and they
sniff.
You know it just doesn't passthe sniff test.
(15:02):
I think you know having theright incentives for the
celebrity, having them have askin in the game.
Anyway, again, I don't want togo down a lengthy list here.
Speaker 2 (15:10):
No, I love it.
It's kind of making me, it'sshowing me that the people and
the talent behind it issomething that no Sleep looks
into, from both the founder andthe family side, but also, as
you're speaking, about thecelebrity and how to utilize
that and merchandise it and makesure that you know there's
actual utility and marketing inthat.
So I think, you know, I thinkthat's really interesting
(15:32):
because sometimes when peoplethink about M&A and spirits,
it's all about the evaluationnumber and you know there's
certain things that come to mind.
But I really like that You'reyou're looking at not just a
quantitative approach, but alsothat qualitative, um, intangible
what's going to get us there.
So that's really interesting.
Speaker 3 (15:51):
I think you nailed it , bridget.
Yeah, to be clear, we're notanti-celebrity, it just has to
be done in the right way.
We've invested in a few brandsthat have celebrities involved,
and they've done it for organicreasons, because they love the
brand, that they're notnecessarily putting themselves
front and center.
But if they can add value, thenthen they will, and I think
that's a much truer sort of formof relationship that we'd like.
Speaker 2 (16:12):
Absolutely.
And we have on MHW side, Iwould say, probably over 30
celebrity brands at this pointin our portfolio and we're
really lucky.
We have a great group of brandsthat you know merchandise and
really like hit the road when itcomes to on and off premise and
they're not just, you know,face on the bottle but they're
really living the brand in theday to day and you know bringing
(16:34):
it on talk shows and it is astrategic part of their overall
brand.
So we agree with you on thatside.
You know, celebrity iscertainly something that's going
to live on, but it has to bedone in the right way.
Speaker 4 (16:47):
Yep, love hearing that.
Yeah, another challenge withthe celebrity-backed brands
could be that, because these arecelebrities, well-known, right,
so they're trying to go orexpand rapidly to 50 markets
across the US.
But if you don't have thepersonnel to support it, if you
don't have the dollar investmentto support it, that becomes an
(17:07):
issue and it's almost better tojust focus on two, three markets
and be successful rather thangoing across all 50 states in
the US.
Because it's backed by slavery.
Speaker 2 (17:19):
Yeah, that's a great point, David.
That's actually a good dovetailinto my next question about
what's the environment like ofSpirits M&A right now.
So you know, we used to see itbe a really national approach, I
think both in Spirits and craftbeer they wanted to see, you
know every market and, like youmentioned, david, now it's a
(17:45):
little more strategic, likelet's own these two to three
markets and do it really welland every account you walk in,
you know you see it front andcenter.
So what are some other shifts,nick and David, that you've seen
spirits emanate go through overthe last 10 years?
Speaker 3 (17:52):
I think definitely there's been a lot of talk of
you know it's been frothy or themultiple is going to stay as
high or strategic is going tokeep buying as much as they have
been in the past.
I think the answer is yes, butit changes.
It does change and I think whatwe're seeing now is there's
still quite a bit of M&Aactivity.
Multiples are still pretty high.
(18:13):
I think the large strategicshave a problem, which I don't
say in an insulting way, butback to the point, they have
trouble innovating.
It's just against sort of thesystems, the way they're set up.
So in a way they need to buyand often it's cheaper to buy
than to actually innovatethemselves.
So for that reason we thinkagain, the industry will
continue to be pretty robust.
I think the other interestingthing is now we've seen, because
(18:36):
spirits tend to be higher pricepoint, better margins and
showing more of the growth thanwine and beer, we've seen wine
and beer players entering thespirits market.
So when you've got a marketwhere more buyers are coming in,
that probably bodes pretty wellfor multiples as well.
But there is no question,bridget, to your point.
I mean, I think the strategicsdid a lot of M&A activity over
(18:58):
10 years.
They filled a lot of the whitespaces or the gaps in their
portfolio, not to say therearen't more, but that's
something we definitely keep inmind too, david.
I don't know if you've got anythoughts to add to that or data
to support it, but those arecertainly my observations.
Speaker 4 (19:12):
Yeah, and clearly, given the current environment or
market conditions, the largestrategics are refocusing on
their core brands, you know, ontheir premium brands, and also
divesting some of their tailbrands.
The other key M&A trend thatwe've seen outside of the wine
players entering the spiritsmarket, is also beer companies
(19:35):
entering the RTD-based or thespirits-based RTD segment, as
well as the soft drink companieslike Coca-Cola and Pepsi
partnering with spirit strategiccompanies to launch RTDs right.
So a perfect example would befor Coca-Cola partnering with
Bacardi, pepsi partnering withCaptain Morgan, and we're going
(19:55):
to see some of these trendsgoing forward as well, because
the spirits industry is moreprofitable and they need to sell
, I guess, less volume to makethat amount in sales.
Speaker 2 (20:07):
Absolutely, and I noticed too that they're I mean,
they're really merchandisingpros, both the soft drink
companies and the beers likethey know how to do it.
So it's nice getting into RTDs.
They can kind of bring thatresource allocation and that
marketing and sales know-howover to it.
I know that sometimes they'retrying to keep like a division
between the two and forcompliance reasons they have to,
(20:30):
but there is still that sort ofknowledge share that happens.
So it's very interesting to see.
Speaker 1 (20:36):
Can we go from this broad discussion to a little bit
more narrowly focused here?
David, I want to ask you, asCFO, one of your titles I
imagine that you've spent a lotof time looking at the books of
a brand that you're consideringinvesting in Now.
This does give me likenightmare flashbacks to
financial accounting courses inmy MBA to talk about this.
(20:56):
But how does financialevaluation, how does that step
typically go, if there is atypical way for them to go, and
how does a brand best preparefor that?
Do they just like hire an armyof accountants?
Speaker 4 (21:09):
Yeah, those are very good questions, jimmy.
So to start with your firstquestion, we do a detailed
analysis on the P&L and balancesheet and the reason why we do
that is because looking at theP&L, we understand their sales
product margin, gross profitmargin, also their spend when it
comes to AMP or SG&A, andultimately gives us a good
(21:33):
picture on what their monthlyearn rate is.
And that kind of leads into thebalance sheet because we would
like to understand how much cashin hand they have, but also
understand what are thereceivables and mostly payables
as well, because we want to knowwhat the cash outflow is.
If they have any debt on theirbooks, that means that they're
(21:54):
also paying interest expenses.
So the balance sheet gives us agood picture on where they are
from a cash perspective, butalso what the runway would be in
the next 6, 12 months and 24months.
Something that the brands coulddo better, in our opinion, is
one start working withprofessional bookkeepers sooner
(22:16):
than later, because that's goingto save a lot of time, effort
and also money.
If they need to go back and fixthe books, that takes more time
and money.
Professional bookkeepersespecially the ones that
understand the business verywell or the experience industry
very well because of thethree-tier system, and also on
(22:37):
how to set up the chart ofaccounts that would be
appropriate for the brand.
The other thing that I would sayis probably you know founders
and entrepreneurs, including themanagement team.
They're so busy in theirday-to-day and also more
preoccupied to make paymentsrather than understanding why
they're making those paymentsand whether those payments are
(22:59):
necessary or not.
So one example would be youknow you're working with a
marketing agency that you'repaying $50,000 a month.
They're more focused on howwe're going to make that payment
this month as opposed to whyare we making this payment?
Are they actually adding valueor $50,000 worth of value?
And whether you actually needto adjust the scope of work.
(23:20):
Or maybe you don't need thatmarket agency and you hire
somebody in-house or part-time.
So those are some of the thingsthat I would say from a
bookkeeping perspective.
Speaker 2 (23:30):
I might scratch this from the podcast, but just out
of my own general curiosity.
Do you ever come across a brandwhere they're absolute sales
and marketing geniuses andthere's nothing more that you
want than to get your hands onthe brand?
And you look through the booksand it's a complete mire to get
through absolutely.
Speaker 4 (23:49):
It all starts with mostly personnel.
You know, either they have toomany people in-house from both
sales and marketing perspective,and not so much marketing,
although it does have a lot ofweight.
But sales, it's one of thebiggest problems because smaller
brands, they don't necessarilyneed a VP of sales, for instance
(24:09):
.
Right, I mean, you might aswell just hire two key account
managers or a sales director tobe selling more in that specific
market, because you want to bein two to three markets.
Really focus on those markets,increase your retention rate,
your velocities and the reorderrates.
Right, when you have a VP ofsales and you're paying, you
know, $250,000 and above on ayearly basis, that really starts
(24:33):
eating your cash.
We've also seen companieshiring way too many salespeople
in all the markets that they'rein.
But again, this is a problembecause if Nebraska is only
doing $50,000 a year and youhave somebody there to be
selling and you're paying thatperson $80,000 a year, then the
(24:54):
return investment on that personis negligible.
Speaker 3 (24:58):
And I think just to build on that one thing maybe
I'm going to toot our own horn alittle bit here, but one thing
we like about our model is we'renot a cookie-cutter approach.
So what we've definitelylearned is entrepreneurs come in
all shapes and sizes.
They might have somesimilarities, bridget, like you
said, around hustle, and youknow getting after it and
getting out there and being theface of the brand.
(25:18):
But you know, back to the pointabout I think your original
question was like creativegeniuses but don't have the
finance side.
And then we've seen the otherright where they've created a
great liquid on the productionside.
Maybe they are financialgeniuses, but they don't know
how to market it or brand it orsell it Right.
So our approach allows us tolook at each brand and go here's
where we ABC You're knocking itout of the park X, y, z, maybe
(25:40):
you need a little help.
What do you guys think?
And usually, hopefully, there'sgood overlap Eighty, 90 percent
of the time where they sayyou're exactly right, we need
you for X Y Z, and so that'swhere we can come in and say
that's what works for brand A,but for brand B it might be the
complete opposite or inverse ofthat.
Speaker 4 (25:56):
And to that point, nick, in one of your first
questions, jimmy, in terms ofthe different types of
investments that we make indifferent brands in different
scales, so to speak, rightAnother reason why we prefer
investing in brands that aredoing 1 million in sales and
above is because those are thebrands that we can really come
in with our value addedcapabilities and help them to
(26:19):
scale.
If they are too big let's say10 million plus in sales they
already have a team, an in-houseteam, right.
So they might not need all ofour services, although they
still need some services from us, whether it is across sales,
marketing, distribution, finance, whichever that may be.
And when the brands are toosmall and you're only in one
(26:39):
market, we can help you with theKPIs, kp analysis and how to be
successful in that one market.
But they're also not going totake advantage of all our value
added capabilities because ofthe suns.
So I think that's where thesweet spot is for us.
Speaker 2 (26:57):
That makes sense and can I ask, what is the breakdown
between maybe in your portfolio, but also in consideration of
brands that approach you forinvestment, versus brands that
you seek out, that you'veidentified in the market as
filling that white space?
Speaker 3 (27:11):
That is a good question because I don't think
we know the answer off the topof our heads, david.
My guess is it's probably about50-50.
I mean, we've invested in sixbrands.
Yeah, I'd probably say threecame to us and three were sort
of our own outreach.
So pretty mixed.
I think we do try to.
We love investment bankers.
We're former investment bankers, david and I had an earlier
(27:32):
career as an investment banker.
But usually our opinion is ifit's gone to an investment
banker, we're not doing our jobsvery well and we should be out
in the market finding thesebrands before they're teaming up
with a professional group likean investment banker to find us
right.
So that's sort of one of our orat least how we think through
the process of sourcing incomingversus sourcing our own
(27:53):
outreach.
Speaker 4 (27:54):
Yeah, and I think, as we continue to build our
portfolio of brands, we've beenhaving more inbounds, whether it
is to websites or cold emails,only because they're quite
interested in the portfolio ofbrands that we are building and
it resonates very well withtheir own brands, so we've been
having a lot more inbound inthat perspective.
(28:15):
Another just side comment hereis that most of these brands
putting aside the ones that theycame to us, these are
relationships that we've beenbuilding throughout our careers.
You know seven, eight years,some you know more than ten
years.
And there are other brandswhere we started conversations
even two years ago withoutmaking any investment to get to
(28:38):
know each other better and seeif there's fit, and that's how
we made investments into acouple of our brands.
Speaker 2 (28:44):
That's very similar to MHW actually.
I mean, we do get them clientsthat come to us and they're
ready to go tomorrow and, youknow, sign, but a lot of times
they need consulting, they needto understand how to set up
their budget for the next fewyears, so not just to enter into
the US market but to succeedand to get to the next level.
And so I see similarities toyou in that way, because it's a
(29:08):
relationship and it's ongoingand you know we want to make
sure that there's two-wayfeedback, that there's value add
being given on both sides.
So I think that's a great tipfor the audiences If you're
going to, you know, pitch aninvestor or VC in this space,
make sure that you're workingyour relationships and that
you're having a two-way dialoguethere as well.
Speaker 1 (29:30):
I think we have a lot of brands who listen to the
podcast, a lot of peopleinvolved in one way or another
with a brand and Nick, I guess.
To sort of get back to theadvice portion of this podcast,
can you tell us some things thatyou wish brands seeking
investment or to be inquiredsome things that you wish that
they knew when they wereentering the process for the
(29:50):
first time, something that youwitness every founder learn for
the first time as they're goingthrough one of these processes?
Speaker 3 (29:58):
Yeah, definitely, jimmy.
I think I've joked on anotherpodcast, you know somebody asked
a similar question.
You know what advice would yougive?
And I said don't enter theindustry as an entrepreneur,
which is obviously a bit harsh,but it does bring up the point
that I should make here, whichis I think it's incredibly hard.
Right, I mentioned this earlierand I think you know I came
into the industry I hope I would, and nobody would describe me
(30:21):
as arrogant.
I think it was ignorance, right, I don't think that I thought I
would have this huge success,but I think I was ignorant with
how difficult it would be and Ithink you know that was when I
entered.
That was, you know, 10,whatever, almost 15 years ago, I
think.
As we know, the industry'sprobably consolidated more with
distributor consolidation and inmany ways you could argue it's
(30:42):
harder for entrepreneurs tobreak through today.
So that's not necessarilyadvice, but it is something.
I would just caution everyentrepreneur Know what you're
getting into.
This is a long journey.
It's very rare that a brandscales overnight.
All these successes people talkabout are not overnight.
They're 20-year, overnightsuccesses and it is very
challenging.
I think the other two pointsthat are a little more practical
(31:05):
advice is don't scale tooquickly.
By the way, I think this adviceapplies across industries.
I mean, I see the venturecapital world has been for years
sort of pumping money intothese brands and I think it goes
against our ethos.
I think they've been pumpingmoney in for growth, for
growth's sake, right, get highgrowth, then you exit.
That's not always the case, andit's particularly not the case
(31:28):
in environments like this wherepeople are pulling back
inflationary pressures,macroeconomic issues, and so I
think that our big advice toentrepreneurs in the way we like
to scale is grow slow andsteady, very disciplined
geographic approach.
You can do a lot of damage inone state, california, even in
(31:49):
Nebraska that David mentionedearlier, you can do a lot before
you expand and go to NorthDakota, south Dakota, wherever
it is Right.
So really scale with that inmind.
Spend your dollars wisely andshow David talked a lot about
KPIs Show that you're hittingthe right KPIs before you start
to say it's time to open thenext market in the US let alone
(32:10):
international, by the way, whichwe won't get into.
And maybe this is just the lastthird piece of advice I'd give
is you know, particularly fromour perspective, know your
potential investor or partner.
This can apply to us aspotentially a group that invests
in a brand, but it also shouldapply to a Bacardi, pernod
Ricard, an exit partner rightwho you might eventually sell to
.
I think too often we getentrepreneurs that say you know
(32:35):
I'm killing it in the UK or inSpain, why don't you want to
invest in me?
And it's a little bit like youknow.
You really should do yourresearch and understand that.
As David said and we've said onmany podcasts, you know we focus
on US brands that do at least amillion in sales, so that might
be a bad example, but you cantake that logic and apply it to
many other aspects.
(32:55):
If we have already made threetequila investments, it's
probably unlikely that we'regoing to make another tequila
investment.
So be aware of our currentportfolio, be aware of our
geographic presence, be aware ofour investment criteria and
same applies for the buyer.
Make sure you understand whythey would actually want to
partner with your brand, whatneed you're filling for them,
whether it's geographic,category, price point, etc.
(33:18):
And I just think.
I hope I'm not sounding toonegative to entrepreneurs,
because we are entrepreneurs andwe love them, but too often I
think they come without havingthought that through, and it's
just like I've got dynamite.
Help me unlock this, and that'snot the approach you should
have.
Do your research.
Speaker 4 (33:33):
Yeah and to that point.
I also think distributors arelooking at it through the same
lenses, right?
Any given distributor couldhave 70 different tequila brands
and what they don't want to seeis the brand being in 23 states
but just generating, you know,1 million in sales, for instance
(33:56):
.
What they really want to see iswhat's your retention rate from
the existing accounts that youguys have?
You know what's the retainaccount velocity, is it
increasing?
And what is also the reorderrate and the frequency of the
reorder rate.
Once you start building in thatmarket, I think it's easier to
ask the distributor hey, youwant to take our brand and, by
(34:18):
the way, here are all the KPIsto back and support the
performance.
That makes an easierconversation with the
distributors to also expand intonew markets.
Speaker 2 (34:29):
I've noticed, Nick, that you sign off with eyes open
in your email signature andthat your logo has the eye for
no sleep beverage.
You have a larger goal for thebrands in your portfolio to
really transcend the glass.
And so what are some personalthings you've learned throughout
your career in M&A investmentsthat has carried this philosophy
over to your company?
Speaker 3 (34:50):
Yes, really happy you asked the question, because
eyes open is important and it'snot just me, david, charlie,
everyone on our team.
We all sign it or emails.
That way, it's sort of aninternal mantra.
Look, this comes down to, youknow, the cultural element.
I'll call it of no sleepbeverage.
One of the purposes we werefounded is sort of to let people
(35:11):
we're targeting culture seekersright, we talk a lot about
Anthony Bourdain, you know,unfortunately he's not here
anymore, but as a great sort oficon for us, we want to bring
brands to people that actuallyallow them to experience a new
cultural element, or culturalexperience.
That doesn't necessarily justmean like national culture,
right, you know we talked Spainearlier or the UK.
(35:33):
It could mean, you know,subculture, right, solento, with
one of the brands in ourportfolio, was founded by
surfers and people who wereinvolved actually making surf
film, documentary films, youknow, 20, 30 years ago.
The brand is not about surfing,but that mindset, that
mentality.
Even the name Solento meansslow sun.
(35:54):
It's about slowing down.
So that's sort of this beach,this surf, this vibe, this
mentality, that's culture to us.
We could go through our list ofbrands and tell you the cultural
component of each one, but Iwon't bore you with that now.
But that's the point.
So Eyes Open to Us is not aboutworking 24 hours around the
clock, and the name no SleepEver is not about that.
It's about keeping your eyesopen for the next great cultural
(36:16):
experience, the next greatflavor, the ability for you to
step out of your own skin for aminute, or your own shoes and
into somebody else's shoes.
That's what it's really about.
What we found is that it servesa dual purpose as well.
I talked about the internalmantra as well.
You know.
Eyes open, I think, for us as away to challenge ourselves
right, to know our weaknessesand to say what don't we know
(36:37):
here.
Let's keep our eyes open, youknow.
Let's go do the research, let'sgo ask people smarter than us,
let's go find out our own blindspots.
So keeping our eyes openinternally as well as externally
with brands, is key for what wedo.
Speaker 1 (36:54):
Moving on to our final fun question that we like
to ask all of our guests what isyour favorite alcoholic
beverage cocktail, beer,whatever you got, what are you
liking right now?
Speaker 3 (37:05):
I'm glad you're not asking what is our favorite
brand, because we can't pickamong our children, but I will
say the category.
I mean I've been a fan of like Iguess you'd call it the Oaxacan
old fashioned or a Mescal oldfashioned for a long time.
It's probably, has been andwill continue to be a favorite
of mine, so that probably isn'tgoing anywhere, I think.
(37:27):
The other one I'd say that I'mgetting more into is Sotol,
which is sort of a cousin to theagave plant, and I really like
Sotol Paloma, so you'd probablyfind me drinking one of those
too if you catch me on theweekend somewhere.
Speaker 4 (37:43):
Yeah, for me, I've been drinking tequila mezcal
consistently over the past 10years.
I think my preference is todrink it in a shot, and the
reason to that is because one Ido, the more that I drink
tequila mezcal, I appreciate theflavors and also how they make
(38:05):
it, and it lets me at least knowhow many drinks I'm having or
how many servings I'm having, sothat as a control, it helps a
lot as well.
Speaker 3 (38:14):
We do love all the products in our portfolio and we
can tell you many cocktails wedrink, with our whiskey and our
gin as well, just to be clear.
But you put us on the spot sowe'll answer honestly.
Speaker 1 (38:25):
You love all your children Exactly.
Speaker 3 (38:27):
Thank you, Jimmy.
Yes, we do.
Speaker 1 (38:32):
Well, I want to say huge thanks to our guests Nick
Papanikolaou and David Ngo forstopping by.
Listeners can find out more atnosleepbeveragecom.
We'll have links to that in theshow notes.
Thanks, nick and David.
Speaker 3 (38:44):
Jimmy.
Thank you so much, bridget.
Really nice to connect withboth of you and appreciate the
time.
Guys, thank you guys.
Speaker 1 (38:54):
And thank you listeners for joining us on the
MHW Mark podcast and thanksagain to Bridget McCabe for
joining me in hosting.
Speaker 2 (38:57):
Thank you, jimmy, for your work.
Always we appreciate it.
Bye, bye.
Speaker 1 (39:01):
This podcast is produced by me, Jimmy Moreland,
with booking and planningsupport by Cassidy Poe.
It's presented by MHW.
Find out more at mhwltdcom orconnect with MHW on LinkedIn.
Lend us a hand by subscribing,rating and reviewing this
podcast wherever you listen.
We'll be back in your feed intwo weeks.
We'll see you then.
Cheers.
Welcome to the MHW Mark podcast, where we take deep
dives into various aspects ofthe alcohol industry.
My name is Jimmy Morland.
Mhw is a US and EU beveragealcohol importer, distributor
and service provider.
On today's show, we are excitedto continue our journey into
the world of M&A, mergers andacquisitions.
And to help us along on ourjourney, I'm pleased to bring
(00:28):
back our guide and guest co-host, bridget McCabe.
Welcome back, bridget.
Speaker 2 (00:33):
Thank you, jimmy, pleasure to be here again.
Speaker 1 (00:35):
It's good to have you back here.
We took an extra week here forthe holiday and I guess there's
a lot of industry eventshappening right now.
Speaker 2 (00:45):
Is it just crazy there at MHW?
Well, we have Bar ConventBerlin that just wrapped up and
that is the largestinternational trade show for
bartenders and on-premise folks,so that certainly was a large
focus for our businessdevelopment team this week.
Speaker 1 (00:59):
And I know last episode, if listeners remember
we talked mergers andacquisitions, specifically in
the beer vertical and, becauseof the guests that we had on, we
also took a very narrow focuson the legal side of things.
What are we looking at thisweek?
Speaker 2 (01:16):
Yes, we certainly dove into the legal and the
brokering and preparation forsale.
In this episode we're coveringM&A in the spirit space, looking
a little bit more at thefinances, at a little bit more
of the investment criteria andwhile many of the same legal
concepts hold true as in thebeer space, a beer buyer or
(01:38):
investor and a spirits buyer andinvestor can sometimes be very
different.
The environments are different,so spirits investments are
certainly a bit warmer be verydifferent.
The environments are different,so Spirits investments are
certainly a bit warmer now thanbeer.
The performance, the margin,the financial and supply chain
considerations are different andwhen it comes to Spirits, the
sales force and the marketing aswell as the consumer base are
radically different.
(01:59):
So we've seen a lot of thestrategic large portfolios
invest in or acquire spiritsbrands over the years and the
level at which they can investcan vary quite a bit.
We've also seen certainly morecelebrity and influencer
involvement within this vertical.
So I'm interested to see whereit's going in the years ahead
and we're really curious tolearn, along with our listeners,
(02:20):
from two experts from no SleepBeverage who have a long list of
experience in the mergers andacquisitions space, both
in-house at large spiritsportfolios, as well as now with
their investment company.
Speaker 1 (02:34):
All right, let's get down to business, then.
Our first guest today is thefounder and CEO of no Sleep
Beverage, nick Papanikolaou.
Welcome, nick.
Speaker 3 (02:44):
Jimmy, pleasure to be here.
Thank you so much for having me.
Speaker 1 (02:47):
We are also lucky to have the CFO and CIO of no Sleep
Beverage, David Ngo.
David, thanks for joining us.
Hi Jimmy, thanks for having us,thanks for being here, both of
you, for our listeners.
Can each of you give us a quickbackground on yourself, how you
came to the beverage alcoholindustry and the eventual launch
of no Sleep Beverage?
(03:07):
Nick, if you want to start,yeah, absolutely Jimmy.
Speaker 3 (03:11):
So no Sleep.
Beverage is really theculmination of my 15, 16 years
in the industry.
I actually started in beveragealcohol in 2009, 2010,.
Really researching the industry, coming into it from the
perspective of an entrepreneur,ended up launching a product in
2013 and spent about two yearswith that product actually live
(03:33):
in market before sort ofshutting it down and realizing I
wasn't going to make it as anentrepreneur.
But I think the important pointfor me was as an entrepreneur.
I learned sort of the painpoints of the entrepreneurial
journey, the ups and downs, theobstacles they face, and I think
the biggest learning isprobably that in this industry
you guys know this.
(03:53):
You know nobody wants 10,000Knicks come into their office
door asking, as a distributor,asking you to take on a new
brand.
The same thing probably appliesfor retailers.
So I think the big learning forme was how hard it is to make
it as a single brand and as asingle entrepreneurial.
You know, single person,entrepreneurial company, and so
the insight there for me was, inorder to improve the chance of
(04:16):
success, how can I be part of aportfolio?
A portfolio, you probably get alittle more scale, you get a
little more access todistributors and retailers.
So, jimmy, I then went to sortof the other end of the spectrum
from smallest spirits companyin the world, the second largest
spirits company in the world,joint Preneur Card in 2015.
And I spent seven years there,always focused on the
(04:36):
entrepreneurial side of things,investing in early stage brands,
sitting on the boards of thesebrands Wonderful experience.
But the learning number two inmy career was that in this role
in the corporate world, whereessentially, I realized that, no
matter how big the portfolio,how many resources you have, I
think a lot of the largecompanies struggle to innovate
(04:59):
and struggle to nurture andscale these entrepreneurial
brands because they're just notset up to.
And you know what do I mean bythat.
I'll give just a quickexplanation.
You know, plugging a tiny brandinto a massive distribution
system is not always the bestmove.
Plugging a brand that was doingsomething very creative with
you know two unique, creativefounders, and plugging them into
(05:21):
a marketing model, you know acorporatized marketing agency
not always the best move.
So, in short, no sleep beverageis really the culmination of
those two experiences.
How do you create somethingthat sort of maintains the
entrepreneurial nature that Ifirst entered the industry with?
You know the agility, thecreativity, the risk taking, but
(05:42):
couple that with resources andcapabilities that are actually
needed for the appropriate sizecompany, for an early-stage
brand, not a large brand, andthat's what no Sleep Beverage is
.
We're a combination of aventure capital fund and a
consulting arm.
We provide capital andcapabilities to early-stage
brands.
Speaker 1 (05:59):
And David, some background for you.
Speaker 4 (06:02):
Yeah.
So I spent about 14 years ininvestment banking focusing on
M&A and capital markets and, asa great banker, I've always been
trying to sell brands or make aneed by brands.
While I was at Pernod Ricard,he never bought one nor sold one
, so I decided to join him intothis venture and have better
(06:22):
luck this time, really leftbanking because I fell in love
working with entrepreneurs andfamily-owned businesses.
I was really focused on craftbeer and craft spirits for about
five to seven years in my lasttime as an investment banker, so
left banking, decided to investinto food and beverage brands
and also help entrepreneurs froma fractional CFO perspective
(06:46):
with strategic building andplanning.
Speaker 2 (06:48):
You both covered off on it so nicely, but the fact
that there are so many differentvarying investment levels that
can be made.
It's not just a merger or anacquisition.
There can be partial orminority investment that can
happen.
So do you mind if I probe intothat a little bit?
What are the varying investmentlevels that a portfolio like
yours could take and how doesyour approach differ from you?
(07:12):
Know a full on exit that abrand might go through?
Speaker 4 (07:15):
So we our investment approach is more opportunistic,
rather than being fixed on aspecific size.
You know we've done investmentsto safe notes, convertible
notes, series A, b and evenseries C, investing different
type of check sizes right Fromanywhere from like $350,000 to a
million plus.
With all that being said, Ithink our sweet spot is within
(07:40):
investing in brands that aregenerating at least one million
in sales and also leading equityrounds, preferably Series A and
Series B, and also gettingboard seats with our investment.
The reason why we do likeinvesting in brands that are at
least generating one million insales is because there is some
(08:01):
level of proof of concept andproduct market fit, so that
potentially not fully, butpotentially lowers the risk of
investing in emerging brands.
Speaker 2 (08:12):
Nick, I'm going to punt this question over to you
what would make a brandappealing for investment?
And since we are talking M&A ona broader scale, when you were
in the seat leading M&A atPernod, what made a brand worthy
of that acquisition?
I know there were probablyhundreds of brands you looked at
a year, so what was that sortof final criteria that would get
(08:34):
a brand over the finish line?
Speaker 3 (08:35):
Yeah, great question, bridget.
Yeah, I think we had a trackerof over a thousand brands, so
you're right on looking atprobably over 100 a year.
Look, I don't think the answeris there are some nuances.
I don't think the answer isthat different between how we at
no Sleep Beverage look atinvesting versus how we, when I
was part of the we at PernodRicard would look at investing.
(08:57):
I think there are somecommonalities and some
differences.
Pernod Ricard would look atinvesting.
I think there's somecommonalities and some
differences.
You know the commonalities are.
At Pernod Ricard we had apartnership model and that's
similar to what we do at noSleep Beverage.
In other words, we want thefounder to stay on.
So therefore, the founder andthe management team is a big
part of it, right?
Are they visionaries?
Do they have a good trackrecord?
Have they done this before,maybe in other industries?
Is there a good culture fitwith us at Pernod Ricard or with
(09:21):
us again now at no SleepAverage?
And what's their vision forgrowth?
And I think that's a big onetoo, because a lot of
entrepreneurs I don't say thisin a derogatory way, I probably
was the same way, you know hadsort of delusions of growth and
how quickly they could scale.
And it is really hard in thisindustry to actually scale and
to do it in the right way.
So I think looking at thefounders and the management team
(09:41):
is definitely one.
I'll go a little quickerthrough the others, but you know
, obviously, the product.
We're always looking at whetherit's solving for is there a
need for it in the market?
Is it solving a functional painpoint or white space?
Is it solving an emotional painpoint or white space?
I think obviously.
The third is the category.
At Pernod Ricard they tended tolike large and growing
(10:02):
categories.
Going after something too smallor niche just doesn't really
move the needle.
I'd say maybe that's a nuancewe have.
We are a little more interestedin the things that are a bit
niche-y because, again, we'reworking with brands and
preparing them to get into aportfolio like a Pernod Ricard
or Bacardi Diageo at some point.
So we're willing to go a littleearlier and a little more niche
(10:23):
.
But in general the same logicapplies you want it to be
growing or you want the categoryfor there to be some understood
catalyst to spark growth in thecategory, if that makes sense.
You know, I think back to thesort of differences.
I think another majordifference is a group like
Pernod Ricard or, again, any ofthe major strategics are
(10:43):
probably coming at it with moreof a strategic lens than ours,
meaning they might be saying canwe buy or invest in this
company because of capabilitiesit brings to us, because of a
geographic presence?
Maybe we're underweight in thestate of California and we need
brands that have more of apresence there to help grow our
(11:03):
other brands in that state.
But obviously, and I'd say mostimportantly, it comes down to
the category.
Do they have white spaces inthat category and in those price
points to look at making anacquisition to fill that gap?
We do at no Sleep Beverages.
We sort of try to think likethe strategics and go what are
their white spaces, how are theythinking about it and where can
(11:24):
we be a potential solve forthem?
By bringing them brands thatfit and fulfill those needs or
those gaps that they have.
Speaker 2 (11:30):
That sounds really exciting in terms of the
capability to work withindifferent niches as well, and
that dovetails a little bit intoa question that I have about
trend consideration, and I knowthis is one.
When it comes to the categorythat sometimes we R&D as well as
M&A to try and figure out whichwas going to go farther, the
(12:06):
ones that were accelerating onthe shelf and had proven
performance are the ones thatwere SKU line extensions or new
brands within the big strategics, and then we've also seen the
proliferation of the past 15years of celebrity-backed brands
.
But down, that category isgetting quite crowded and we're
seeing that maybe it doesn'thave as much resonance as you
(12:28):
know, consumers used to once payattention to it.
So, from your perspective, withno Sleep, what amount does
trends play into it?
And what amount, like you said,with the white space and with
trying to figure out you know,what's coming ahead factors into
that decision making.
Speaker 3 (12:46):
Yeah, look, I think maybe I'll start with the
distinction between trends andfads, not to get too geeky.
But fads are probably shortlived and I don't think we're
interested in that.
Trends are long term and can bemacro cycles.
So I'm thinking on the spothere.
But you know, like a fad mightbe the flavor of the month, you
know, watermelon, dingleberry orsomething, and that's.
(13:06):
You know it's trending reallywell, but it's a short-term
thing.
Speaker 2 (13:10):
Right.
Speaker 3 (13:11):
Probably not as exciting to us.
Then you talk about and I'mgoing very broad here, but you
know craft beer, craft spirits.
Craft beer has been a 40 yearmacro trend, um, and I think you
know spirits has obviously beenlagging that.
But so we're interested intrends, not fads, that's for
sure.
I think you know the celebritything you mentioned.
I don't know if this istrending now.
(13:32):
Obviously it's trending morenow.
I think everybody who's been inthe industry for a while knows
it's.
It's been happening for a while, right, I mean, sammy Hager,
kilo was whatever almost 20years ago.
I think what's interesting is,when you dissect it a little
more, you notice that acelebrity-backed brand or
bringing a celebrity into abrand, is definitely not a
panacea, it's not a cure-all,it's not the solve to grow and
(13:55):
scale and exit the brand.
And I think I'm saying thiswith a little bit of like
observational research here, notnecessarily science backed, but
I think you'd probably find thesame failure rates among
celebrity backed brands as youwould non-celebrity brands.
Two or three years ago I had alist of celebrity backed
tequilas and I think it wasalready 50 and counting at that
(14:18):
stage.
So today I haven't updated it.
You know, maybe David and Iwill do that at some point.
It's got to be 75, you know,maybe a hundred.
The reality is the averageperson has probably heard of one
or two or three of those.
Maybe us in the industry haveheard of, I don't know, 10, 15,
20.
When you put the list togetherit's just mind boggling how many
(14:41):
are out there.
So I think the same failurerates apply and I think back to
the point of it being a solve,you still have to have a lot of
things right with a celebrityinvolved.
You know you got to make sureand I won't go into all the
detail here, but we certainlybelieve.
You know you can't just slap acelebrity on right the celebrity
, the DNA of that celebrity hasto match and align with the DNA
of the brand, otherwise theconsumer is too smart and they
sniff.
You know it just doesn't passthe sniff test.
(15:02):
I think you know having theright incentives for the
celebrity, having them have askin in the game.
Anyway, again, I don't want togo down a lengthy list here.
Speaker 2 (15:10):
No, I love it.
It's kind of making me, it'sshowing me that the people and
the talent behind it issomething that no Sleep looks
into, from both the founder andthe family side, but also, as
you're speaking, about thecelebrity and how to utilize
that and merchandise it and makesure that you know there's
actual utility and marketing inthat.
So I think, you know, I thinkthat's really interesting
(15:32):
because sometimes when peoplethink about M&A and spirits,
it's all about the evaluationnumber and you know there's
certain things that come to mind.
But I really like that You'reyou're looking at not just a
quantitative approach, but alsothat qualitative, um, intangible
what's going to get us there.
So that's really interesting.
Speaker 3 (15:51):
I think you nailed it , bridget.
Yeah, to be clear, we're notanti-celebrity, it just has to
be done in the right way.
We've invested in a few brandsthat have celebrities involved,
and they've done it for organicreasons, because they love the
brand, that they're notnecessarily putting themselves
front and center.
But if they can add value, thenthen they will, and I think
that's a much truer sort of formof relationship that we'd like.
Speaker 2 (16:12):
Absolutely.
And we have on MHW side, Iwould say, probably over 30
celebrity brands at this pointin our portfolio and we're
really lucky.
We have a great group of brandsthat you know merchandise and
really like hit the road when itcomes to on and off premise and
they're not just, you know,face on the bottle but they're
really living the brand in theday to day and you know bringing
(16:34):
it on talk shows and it is astrategic part of their overall
brand.
So we agree with you on thatside.
You know, celebrity iscertainly something that's going
to live on, but it has to bedone in the right way.
Speaker 4 (16:47):
Yep, love hearing that.
Yeah, another challenge withthe celebrity-backed brands
could be that, because these arecelebrities, well-known, right,
so they're trying to go orexpand rapidly to 50 markets
across the US.
But if you don't have thepersonnel to support it, if you
don't have the dollar investmentto support it, that becomes an
(17:07):
issue and it's almost better tojust focus on two, three markets
and be successful rather thangoing across all 50 states in
the US.
Because it's backed by slavery.
Speaker 2 (17:19):
Yeah, that's a great point, David.
That's actually a good dovetailinto my next question about
what's the environment like ofSpirits M&A right now.
So you know, we used to see itbe a really national approach, I
think both in Spirits and craftbeer they wanted to see, you
know every market and, like youmentioned, david, now it's a
(17:45):
little more strategic, likelet's own these two to three
markets and do it really welland every account you walk in,
you know you see it front andcenter.
So what are some other shifts,nick and David, that you've seen
spirits emanate go through overthe last 10 years?
Speaker 3 (17:52):
I think definitely there's been a lot of talk of
you know it's been frothy or themultiple is going to stay as
high or strategic is going tokeep buying as much as they have
been in the past.
I think the answer is yes, butit changes.
It does change and I think whatwe're seeing now is there's
still quite a bit of M&Aactivity.
Multiples are still pretty high.
(18:13):
I think the large strategicshave a problem, which I don't
say in an insulting way, butback to the point, they have
trouble innovating.
It's just against sort of thesystems, the way they're set up.
So in a way they need to buyand often it's cheaper to buy
than to actually innovatethemselves.
So for that reason we thinkagain, the industry will
continue to be pretty robust.
I think the other interestingthing is now we've seen, because
(18:36):
spirits tend to be higher pricepoint, better margins and
showing more of the growth thanwine and beer, we've seen wine
and beer players entering thespirits market.
So when you've got a marketwhere more buyers are coming in,
that probably bodes pretty wellfor multiples as well.
But there is no question,bridget, to your point.
I mean, I think the strategicsdid a lot of M&A activity over
(18:58):
10 years.
They filled a lot of the whitespaces or the gaps in their
portfolio, not to say therearen't more, but that's
something we definitely keep inmind too, david.
I don't know if you've got anythoughts to add to that or data
to support it, but those arecertainly my observations.
Speaker 4 (19:12):
Yeah, and clearly, given the current environment or
market conditions, the largestrategics are refocusing on
their core brands, you know, ontheir premium brands, and also
divesting some of their tailbrands.
The other key M&A trend thatwe've seen outside of the wine
players entering the spiritsmarket, is also beer companies
(19:35):
entering the RTD-based or thespirits-based RTD segment, as
well as the soft drink companieslike Coca-Cola and Pepsi
partnering with spirit strategiccompanies to launch RTDs right.
So a perfect example would befor Coca-Cola partnering with
Bacardi, pepsi partnering withCaptain Morgan, and we're going
(19:55):
to see some of these trendsgoing forward as well, because
the spirits industry is moreprofitable and they need to sell
, I guess, less volume to makethat amount in sales.
Speaker 2 (20:07):
Absolutely, and I noticed too that they're I mean,
they're really merchandisingpros, both the soft drink
companies and the beers likethey know how to do it.
So it's nice getting into RTDs.
They can kind of bring thatresource allocation and that
marketing and sales know-howover to it.
I know that sometimes they'retrying to keep like a division
between the two and forcompliance reasons they have to,
(20:30):
but there is still that sort ofknowledge share that happens.
So it's very interesting to see.
Speaker 1 (20:36):
Can we go from this broad discussion to a little bit
more narrowly focused here?
David, I want to ask you, asCFO, one of your titles I
imagine that you've spent a lotof time looking at the books of
a brand that you're consideringinvesting in Now.
This does give me likenightmare flashbacks to
financial accounting courses inmy MBA to talk about this.
(20:56):
But how does financialevaluation, how does that step
typically go, if there is atypical way for them to go, and
how does a brand best preparefor that?
Do they just like hire an armyof accountants?
Speaker 4 (21:09):
Yeah, those are very good questions, jimmy.
So to start with your firstquestion, we do a detailed
analysis on the P&L and balancesheet and the reason why we do
that is because looking at theP&L, we understand their sales
product margin, gross profitmargin, also their spend when it
comes to AMP or SG&A, andultimately gives us a good
(21:33):
picture on what their monthlyearn rate is.
And that kind of leads into thebalance sheet because we would
like to understand how much cashin hand they have, but also
understand what are thereceivables and mostly payables
as well, because we want to knowwhat the cash outflow is.
If they have any debt on theirbooks, that means that they're
(21:54):
also paying interest expenses.
So the balance sheet gives us agood picture on where they are
from a cash perspective, butalso what the runway would be in
the next 6, 12 months and 24months.
Something that the brands coulddo better, in our opinion, is
one start working withprofessional bookkeepers sooner
(22:16):
than later, because that's goingto save a lot of time, effort
and also money.
If they need to go back and fixthe books, that takes more time
and money.
Professional bookkeepersespecially the ones that
understand the business verywell or the experience industry
very well because of thethree-tier system, and also on
(22:37):
how to set up the chart ofaccounts that would be
appropriate for the brand.
The other thing that I would sayis probably you know founders
and entrepreneurs, including themanagement team.
They're so busy in theirday-to-day and also more
preoccupied to make paymentsrather than understanding why
they're making those paymentsand whether those payments are
(22:59):
necessary or not.
So one example would be youknow you're working with a
marketing agency that you'repaying $50,000 a month.
They're more focused on howwe're going to make that payment
this month as opposed to whyare we making this payment?
Are they actually adding valueor $50,000 worth of value?
And whether you actually needto adjust the scope of work.
(23:20):
Or maybe you don't need thatmarket agency and you hire
somebody in-house or part-time.
So those are some of the thingsthat I would say from a
bookkeeping perspective.
Speaker 2 (23:30):
I might scratch this from the podcast, but just out
of my own general curiosity.
Do you ever come across a brandwhere they're absolute sales
and marketing geniuses andthere's nothing more that you
want than to get your hands onthe brand?
And you look through the booksand it's a complete mire to get
through absolutely.
Speaker 4 (23:49):
It all starts with mostly personnel.
You know, either they have toomany people in-house from both
sales and marketing perspective,and not so much marketing,
although it does have a lot ofweight.
But sales, it's one of thebiggest problems because smaller
brands, they don't necessarilyneed a VP of sales, for instance
(24:09):
.
Right, I mean, you might aswell just hire two key account
managers or a sales director tobe selling more in that specific
market, because you want to bein two to three markets.
Really focus on those markets,increase your retention rate,
your velocities and the reorderrates.
Right, when you have a VP ofsales and you're paying, you
know, $250,000 and above on ayearly basis, that really starts
(24:33):
eating your cash.
We've also seen companieshiring way too many salespeople
in all the markets that they'rein.
But again, this is a problembecause if Nebraska is only
doing $50,000 a year and youhave somebody there to be
selling and you're paying thatperson $80,000 a year, then the
(24:54):
return investment on that personis negligible.
Speaker 3 (24:58):
And I think just to build on that one thing maybe
I'm going to toot our own horn alittle bit here, but one thing
we like about our model is we'renot a cookie-cutter approach.
So what we've definitelylearned is entrepreneurs come in
all shapes and sizes.
They might have somesimilarities, bridget, like you
said, around hustle, and youknow getting after it and
getting out there and being theface of the brand.
(25:18):
But you know, back to the pointabout I think your original
question was like creativegeniuses but don't have the
finance side.
And then we've seen the otherright where they've created a
great liquid on the productionside.
Maybe they are financialgeniuses, but they don't know
how to market it or brand it orsell it Right.
So our approach allows us tolook at each brand and go here's
where we ABC You're knocking itout of the park X, y, z, maybe
(25:40):
you need a little help.
What do you guys think?
And usually, hopefully, there'sgood overlap Eighty, 90 percent
of the time where they sayyou're exactly right, we need
you for X Y Z, and so that'swhere we can come in and say
that's what works for brand A,but for brand B it might be the
complete opposite or inverse ofthat.
Speaker 4 (25:56):
And to that point, nick, in one of your first
questions, jimmy, in terms ofthe different types of
investments that we make indifferent brands in different
scales, so to speak, rightAnother reason why we prefer
investing in brands that aredoing 1 million in sales and
above is because those are thebrands that we can really come
in with our value addedcapabilities and help them to
(26:19):
scale.
If they are too big let's say10 million plus in sales they
already have a team, an in-houseteam, right.
So they might not need all ofour services, although they
still need some services from us, whether it is across sales,
marketing, distribution, finance, whichever that may be.
And when the brands are toosmall and you're only in one
(26:39):
market, we can help you with theKPIs, kp analysis and how to be
successful in that one market.
But they're also not going totake advantage of all our value
added capabilities because ofthe suns.
So I think that's where thesweet spot is for us.
Speaker 2 (26:57):
That makes sense and can I ask, what is the breakdown
between maybe in your portfolio, but also in consideration of
brands that approach you forinvestment, versus brands that
you seek out, that you'veidentified in the market as
filling that white space?
Speaker 3 (27:11):
That is a good question because I don't think
we know the answer off the topof our heads, david.
My guess is it's probably about50-50.
I mean, we've invested in sixbrands.
Yeah, I'd probably say threecame to us and three were sort
of our own outreach.
So pretty mixed.
I think we do try to.
We love investment bankers.
We're former investment bankers, david and I had an earlier
(27:32):
career as an investment banker.
But usually our opinion is ifit's gone to an investment
banker, we're not doing our jobsvery well and we should be out
in the market finding thesebrands before they're teaming up
with a professional group likean investment banker to find us
right.
So that's sort of one of our orat least how we think through
the process of sourcing incomingversus sourcing our own
(27:53):
outreach.
Speaker 4 (27:54):
Yeah, and I think, as we continue to build our
portfolio of brands, we've beenhaving more inbounds, whether it
is to websites or cold emails,only because they're quite
interested in the portfolio ofbrands that we are building and
it resonates very well withtheir own brands, so we've been
having a lot more inbound inthat perspective.
(28:15):
Another just side comment hereis that most of these brands
putting aside the ones that theycame to us, these are
relationships that we've beenbuilding throughout our careers.
You know seven, eight years,some you know more than ten
years.
And there are other brandswhere we started conversations
even two years ago withoutmaking any investment to get to
(28:38):
know each other better and seeif there's fit, and that's how
we made investments into acouple of our brands.
Speaker 2 (28:44):
That's very similar to MHW actually.
I mean, we do get them clientsthat come to us and they're
ready to go tomorrow and, youknow, sign, but a lot of times
they need consulting, they needto understand how to set up
their budget for the next fewyears, so not just to enter into
the US market but to succeedand to get to the next level.
And so I see similarities toyou in that way, because it's a
(29:08):
relationship and it's ongoingand you know we want to make
sure that there's two-wayfeedback, that there's value add
being given on both sides.
So I think that's a great tipfor the audiences If you're
going to, you know, pitch aninvestor or VC in this space,
make sure that you're workingyour relationships and that
you're having a two-way dialoguethere as well.
Speaker 1 (29:30):
I think we have a lot of brands who listen to the
podcast, a lot of peopleinvolved in one way or another
with a brand and Nick, I guess.
To sort of get back to theadvice portion of this podcast,
can you tell us some things thatyou wish brands seeking
investment or to be inquiredsome things that you wish that
they knew when they wereentering the process for the
(29:50):
first time, something that youwitness every founder learn for
the first time as they're goingthrough one of these processes?
Speaker 3 (29:58):
Yeah, definitely, jimmy.
I think I've joked on anotherpodcast, you know somebody asked
a similar question.
You know what advice would yougive?
And I said don't enter theindustry as an entrepreneur,
which is obviously a bit harsh,but it does bring up the point
that I should make here, whichis I think it's incredibly hard.
Right, I mentioned this earlierand I think you know I came
into the industry I hope I would, and nobody would describe me
(30:21):
as arrogant.
I think it was ignorance, right, I don't think that I thought I
would have this huge success,but I think I was ignorant with
how difficult it would be and Ithink you know that was when I
entered.
That was, you know, 10,whatever, almost 15 years ago, I
think.
As we know, the industry'sprobably consolidated more with
distributor consolidation and inmany ways you could argue it's
(30:42):
harder for entrepreneurs tobreak through today.
So that's not necessarilyadvice, but it is something.
I would just caution everyentrepreneur Know what you're
getting into.
This is a long journey.
It's very rare that a brandscales overnight.
All these successes people talkabout are not overnight.
They're 20-year, overnightsuccesses and it is very
challenging.
I think the other two pointsthat are a little more practical
(31:05):
advice is don't scale tooquickly.
By the way, I think this adviceapplies across industries.
I mean, I see the venturecapital world has been for years
sort of pumping money intothese brands and I think it goes
against our ethos.
I think they've been pumpingmoney in for growth, for
growth's sake, right, get highgrowth, then you exit.
That's not always the case, andit's particularly not the case
(31:28):
in environments like this wherepeople are pulling back
inflationary pressures,macroeconomic issues, and so I
think that our big advice toentrepreneurs in the way we like
to scale is grow slow andsteady, very disciplined
geographic approach.
You can do a lot of damage inone state, california, even in
(31:49):
Nebraska that David mentionedearlier, you can do a lot before
you expand and go to NorthDakota, south Dakota, wherever
it is Right.
So really scale with that inmind.
Spend your dollars wisely andshow David talked a lot about
KPIs Show that you're hittingthe right KPIs before you start
to say it's time to open thenext market in the US let alone
(32:10):
international, by the way, whichwe won't get into.
And maybe this is just the lastthird piece of advice I'd give
is you know, particularly fromour perspective, know your
potential investor or partner.
This can apply to us aspotentially a group that invests
in a brand, but it also shouldapply to a Bacardi, pernod
Ricard, an exit partner rightwho you might eventually sell to
.
I think too often we getentrepreneurs that say you know
(32:35):
I'm killing it in the UK or inSpain, why don't you want to
invest in me?
And it's a little bit like youknow.
You really should do yourresearch and understand that.
As David said and we've said onmany podcasts, you know we focus
on US brands that do at least amillion in sales, so that might
be a bad example, but you cantake that logic and apply it to
many other aspects.
(32:55):
If we have already made threetequila investments, it's
probably unlikely that we'regoing to make another tequila
investment.
So be aware of our currentportfolio, be aware of our
geographic presence, be aware ofour investment criteria and
same applies for the buyer.
Make sure you understand whythey would actually want to
partner with your brand, whatneed you're filling for them,
whether it's geographic,category, price point, etc.
(33:18):
And I just think.
I hope I'm not sounding toonegative to entrepreneurs,
because we are entrepreneurs andwe love them, but too often I
think they come without havingthought that through, and it's
just like I've got dynamite.
Help me unlock this, and that'snot the approach you should
have.
Do your research.
Speaker 4 (33:33):
Yeah and to that point.
I also think distributors arelooking at it through the same
lenses, right?
Any given distributor couldhave 70 different tequila brands
and what they don't want to seeis the brand being in 23 states
but just generating, you know,1 million in sales, for instance
(33:56):
.
What they really want to see iswhat's your retention rate from
the existing accounts that youguys have?
You know what's the retainaccount velocity, is it
increasing?
And what is also the reorderrate and the frequency of the
reorder rate.
Once you start building in thatmarket, I think it's easier to
ask the distributor hey, youwant to take our brand and, by
(34:18):
the way, here are all the KPIsto back and support the
performance.
That makes an easierconversation with the
distributors to also expand intonew markets.
Speaker 2 (34:29):
I've noticed, Nick, that you sign off with eyes open
in your email signature andthat your logo has the eye for
no sleep beverage.
You have a larger goal for thebrands in your portfolio to
really transcend the glass.
And so what are some personalthings you've learned throughout
your career in M&A investmentsthat has carried this philosophy
over to your company?
Speaker 3 (34:50):
Yes, really happy you asked the question, because
eyes open is important and it'snot just me, david, charlie,
everyone on our team.
We all sign it or emails.
That way, it's sort of aninternal mantra.
Look, this comes down to, youknow, the cultural element.
I'll call it of no sleepbeverage.
One of the purposes we werefounded is sort of to let people
(35:11):
we're targeting culture seekersright, we talk a lot about
Anthony Bourdain, you know,unfortunately he's not here
anymore, but as a great sort oficon for us, we want to bring
brands to people that actuallyallow them to experience a new
cultural element, or culturalexperience.
That doesn't necessarily justmean like national culture,
right, you know we talked Spainearlier or the UK.
(35:33):
It could mean, you know,subculture, right, solento, with
one of the brands in ourportfolio, was founded by
surfers and people who wereinvolved actually making surf
film, documentary films, youknow, 20, 30 years ago.
The brand is not about surfing,but that mindset, that
mentality.
Even the name Solento meansslow sun.
(35:54):
It's about slowing down.
So that's sort of this beach,this surf, this vibe, this
mentality, that's culture to us.
We could go through our list ofbrands and tell you the cultural
component of each one, but Iwon't bore you with that now.
But that's the point.
So Eyes Open to Us is not aboutworking 24 hours around the
clock, and the name no SleepEver is not about that.
It's about keeping your eyesopen for the next great cultural
(36:16):
experience, the next greatflavor, the ability for you to
step out of your own skin for aminute, or your own shoes and
into somebody else's shoes.
That's what it's really about.
What we found is that it servesa dual purpose as well.
I talked about the internalmantra as well.
You know.
Eyes open, I think, for us as away to challenge ourselves
right, to know our weaknessesand to say what don't we know
(36:37):
here.
Let's keep our eyes open, youknow.
Let's go do the research, let'sgo ask people smarter than us,
let's go find out our own blindspots.
So keeping our eyes openinternally as well as externally
with brands, is key for what wedo.
Speaker 1 (36:54):
Moving on to our final fun question that we like
to ask all of our guests what isyour favorite alcoholic
beverage cocktail, beer,whatever you got, what are you
liking right now?
Speaker 3 (37:05):
I'm glad you're not asking what is our favorite
brand, because we can't pickamong our children, but I will
say the category.
I mean I've been a fan of like Iguess you'd call it the Oaxacan
old fashioned or a Mescal oldfashioned for a long time.
It's probably, has been andwill continue to be a favorite
of mine, so that probably isn'tgoing anywhere, I think.
(37:27):
The other one I'd say that I'mgetting more into is Sotol,
which is sort of a cousin to theagave plant, and I really like
Sotol Paloma, so you'd probablyfind me drinking one of those
too if you catch me on theweekend somewhere.
Speaker 4 (37:43):
Yeah, for me, I've been drinking tequila mezcal
consistently over the past 10years.
I think my preference is todrink it in a shot, and the
reason to that is because one Ido, the more that I drink
tequila mezcal, I appreciate theflavors and also how they make
(38:05):
it, and it lets me at least knowhow many drinks I'm having or
how many servings I'm having, sothat as a control, it helps a
lot as well.
Speaker 3 (38:14):
We do love all the products in our portfolio and we
can tell you many cocktails wedrink, with our whiskey and our
gin as well, just to be clear.
But you put us on the spot sowe'll answer honestly.
Speaker 1 (38:25):
You love all your children Exactly.
Speaker 3 (38:27):
Thank you, Jimmy.
Yes, we do.
Speaker 1 (38:32):
Well, I want to say huge thanks to our guests Nick
Papanikolaou and David Ngo forstopping by.
Listeners can find out more atnosleepbeveragecom.
We'll have links to that in theshow notes.
Thanks, nick and David.
Speaker 3 (38:44):
Jimmy.
Thank you so much, bridget.
Really nice to connect withboth of you and appreciate the
time.
Guys, thank you guys.
Speaker 1 (38:54):
And thank you listeners for joining us on the
MHW Mark podcast and thanksagain to Bridget McCabe for
joining me in hosting.
Speaker 2 (38:57):
Thank you, jimmy, for your work.
Always we appreciate it.
Bye, bye.
Speaker 1 (39:01):
This podcast is produced by me, Jimmy Moreland,
with booking and planningsupport by Cassidy Poe.
It's presented by MHW.
Find out more at mhwltdcom orconnect with MHW on LinkedIn.
Lend us a hand by subscribing,rating and reviewing this
podcast wherever you listen.
We'll be back in your feed intwo weeks.
We'll see you then.
Cheers.
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