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SNOCKS buys OCEANSAPART – What happens next! (00:00) first of all, we got a rejection saying we hadn’t made it to the next round our actual strategy was to buy Amazon companies and listings so I’d say in the range of a few hundred thousand EUR and I also remember they said back to us (00:12) hey why only Amazon businesses you should definitely make sure you’re at least under 20% when it comes to inventory in relation to net revenue what did we pay for Oceans Apart we bought Oceans Apart and Rean is the new CEO that’s what this episode is about namely (00:33) these two topics Rean has now been CEO of Snocks for a year and is also CEO of the new company operating Oceans Apart how that happened what we may have paid for it and what we plan to do with Oceans Apart that’s what this podcast episode is about enjoy you’ve been CEO for a year now the two of us at SNO what was your highlight (00:58) wow yeah we can jump straight in I think the highlight was definitely our deal with Oceans Apart I don’t think you can imagine anything bigger after one year as CEO than landing a crazy thing like that I thought that was really really strong so that (01:18) was definitely my highlight how did you explain it to your parents I have to say I always take my parents along on the journey quite a lot when it comes to what’s happening at Snocks in general and then I tell them stuff like hey we’re currently looking at another company maybe we want to buy it and yeah often they don’t really know okay what exactly does that mean what’s the scale and of course they do know what we sell and yeah basically I just said in broad terms yeah we want to buy another company that’s very strong in the (01:51) sportswear space and my dad is always very interested in the financial side too and asks what that means for the company how much revenue we’d make then and how much profit that means so he’s definitely really really interested in that but they understand it pretty well (02:07) are they more like positive wow cool or are they worried cautious or more neutral I think in the past they were more like hey are you sure that’s a lot of risk I guess typical parents somehow but by now they know that we do so much cool stuff they trust me or trust us in general very very strongly and I have to say they’re always very proud so when we sit at the breakfast table on the weekend you can tell they’re really really happy and very proud yeah it was pretty funny I was at my grandma and grandad’s place this week with my parents and my wife and then (02:46) we were sitting at the table eating and somehow we started talking about the biggest companies from the village where I come from Ladenburg and there’s this garden company there and then my mother said wow that’s such a huge company and really no front really amazing what they’ve built and then I said well Mum how much revenue do they make and she didn’t know and my father kind of knew halfway and said yeah around 5 million euros in revenue my mother then was like wow 5 million euros and then I asked her (03:21) really for the very first time like Mum do you actually know how big Snocks and now Oceans Apart are how much revenue do you think we make just to make it tangible for them and then she was like oh if they make 5 million then maybe 2 3 4 million would already be crazy and then I said (03:39) yeah we’re planning well over 100 million next year and that was another moment where I realised for my mother she’s proud but it’s also completely far away she just can’t really grasp it and at the same time my father knew exactly how much revenue we make so I think kind of similar to you the father is already very interested in that I also find it exciting because so often I think we’re so deep in the bubble we know exactly how much revenue a company might make and for many others out there or especially (04:14) for our parents the benchmark is how many employees a company has and then they say oh wow 120 150 employees that’s a really big number somehow and I think that’s a bit more tangible for them than revenue figures whether it’s 1 million or 10 or 100 that’s super hard to measure yeah is it tangible for you by now it’s also still pretty surreal somehow in the first years it was already crazy when you thought about the leaps we made at times we basically just doubled year on year and made 20 or 30 million in revenue growth that’s (04:52) totally crazy but now yeah somehow it’s become normal we always talk about figures like 10 million in revenue growth so yeah that’s somehow become normal yeah to me it always feels like a computer game because the numbers in the computer and the Excel sheets that got bigger yesterday when we discussed the business plan for next year but I’m sure (05:14) if we had a retail shop or if you somehow had the money physically in the till you’d be on a completely different level emotionally totally and above all we don’t always look at absolute figures we very often talk about percentages and the percentages basically stay the same whether your contribution margin is 50% or 55% the numbers basically stay the same whether your company makes 1 million in revenue or 100 million you basically orient yourself around that and (05:54) often ignore the absolute number I think that somehow helps in managing the company too so you don’t go completely crazy by saying wow we’re making 100 million in revenue but instead you focus on the KPIs you have there you started at Snocks as employee number 10 12 actually yeah 12 my favourite number too yeah someone asked me what’s your favourite number and I said 12 and actually it’s also my employee number yeah so twelfth employee what’s been your journey how would you explain it on a date how your journey at Snocks went from employee number 12 all the way to the top yeah so I basically started or I came to Snocks because I had my own brand or rather I was selling products via Amazon myself what did you sell it was microfibre towels I think there are (06:52) 100 Amazon sellers for that exactly I think it’s one of those standard products if you want to travel you basically want to take a towel with you that isn’t so heavy you can just pack it into your bag and that was the product very classic searched on Alibaba found it and then sold it on Amazon and did it work during university it was okay but yeah obviously it wasn’t successful there were better options um yeah exactly and that’s how I first noticed Felix back then because he was in our circle of friends and I knew that (07:30) you’d started selling socks and I was always able to exchange ideas quite well on everything related to finance because I basically had the finance background and had studied controlling and also worked in it and then I realised Snocks needed a bit of support there and a bit indeed and yeah that’s how I ended up in conversations back then still with Felix and then I also said hey you need a bit more support in finance and then I basically started as yeah you could say as an accountant yeah I literally transferred every single (08:10) fucking invoice myself back then so I built everything from scratch in finance the whole accounting and controlling and then little by little took over the individual departments too like logistics customer service and yeah last year then supply chain and data as well and yeah I’d say I just did my stuff I was up for getting new challenges and using the opportunities too yeah and I just did what I could do and what I believed I could do and simply pushed everything through with a lot of ambition and discipline and that’s (08:53) how I managed it and you also gave me the opportunity to make more happen directly by your side as co-CEO and yeah I think that’s roughly the journey yeah um to CEO of Snocks yeah now we have to kiss um from what point was it the first time in your mind that you said wow I could or I want to become CEO here um I think that was around I think almost two years ago one and a half years ago Felix had actually already said that he wanted to step back more and more and could imagine giving up his role so to speak and his areas of responsibility and that’s when I naturally started thinking about it more I never really focused hard on saying I absolutely want to do it but the opportunity was there and yeah I gradually (10:01) took it and you also have to say I had to grow into the role too so yeah I think one and a half years ago that topic first came up now here we are roughly a year later last year November December unofficially and then officially in February March something like that something like that yeah exactly and now together we’ve bought a company here Oceans Apart too how did that happen take us along on the journey um actually I think you even sent the pitch deck into our team lead round once and said hey have a look here we’ve got a company that’s being sold and then we basically just looked at the pitch deck meaning all the figures the KPIs and you always do the whole learning session with our team leads too and yeah just to keep educating everyone accordingly then I looked at it too and I think I wrote to you in parallel on WhatsApp and said hey Johannes this looks really great and yeah I told you that too I’d looked at all the KPIs and that immediately sparked something in me and then I also said hey let’s somehow look into this speak to management and to the whole M&A advisor and that’s how it really started rolling and then we also basically noticed that yeah we were getting more and more excited and that it really looked very very good from the portfolio point of view and could be very exciting because it simply complements our product portfolio yeah that’s how I’d say the first (11:47) stone started rolling yeah were you immediately fired up did you open it and by page 3 say okay I really mean it I think it took one or two days because I kept looking at it again and again but you could say by the second or third day the deeper I got into it I knew pretty quickly that I definitely wanted to do it at some point it was naturally also because for the company because I realised this could really be the first big thing that pushes the company forward in one big leap that’s when I realised I think this is really something good yeah strategically I’d say in the first half of the year we had to do a lot of tidying up at Snocks we made our product portfolio leaner we reduced inventory from around 16 17 18 million down towards the region of 10 million and that also freed up a lot of capital so that we really had several million in the account and I’d say around the middle of the year we had our first conversations we always discuss things and share our thoughts about the vision like hey what could be the next step and that’s when the idea first came up that we’d also told our investors that we could very well imagine buying a company at some point then we had a meeting with our investors in Munich and (13:18) we pitched it to them by saying our original strategy was to buy Amazon companies and listings so I’d say in the range of a few hundred thousand euros we want to have a look at that and then it was a relaxed conversation about it and I also remember they said back to us hey why only Amazon companies couldn’t you also imagine buying real brands and we said wow we’d be cautious not sure and then one or two months later this pitch deck was sent to us and I have to say at the beginning I wasn’t even that crazy excited about it this sounds silly but I saw it more like training material that you could look at together with our managers and analyse and then in the session itself where I presented it and went through the pages it also became more and more clear to me when you go through it rationally okay this is really a big opportunity because our starting point as Snocks was we grew around 10 15% this year in that sort of range so this kind of doubling like in previous years or 30 40 50% is only very hard to achieve at this scale anymore but at the same time we had the capital in the account too so we were like okay let’s make an acquisition what did you find in this pitch deck or what were the core deciding points for you that made you say this is a super good addition for Snocks and that we should do it yeah I think fundamentally it was the product portfolio because by now we’re also so strong in the women’s space too we don’t just sell boxer shorts anymore the share is already over 50% for women in some cases and I simply found it really really exciting and we still struggle in inverted commas to attack the sports category that strongly and it was simply a brutal complement because they also just make 40 50 million in revenue or in the past even much more simply in the sports sector in the yoga pilates area so very strong and focused for women and I just found that very strong as another addition and I also believe that purchasing power is simply much stronger in the women’s area than for men and I found that very very exciting and of course this growth story of getting back to a point where we say we want to bring in 20 30 million in absolute revenue growth again and I basically only saw that as possible over the next few years in that way because organically with Snocks alone we just won’t manage it on that scale yeah that’s where I said yes this is really the only way we can do it in the long run if you zoom out a little and go through the individual points product portfolio we’re very strong in basics in sportswear we’re doing around 4 5 6 million this year in that sort of range so straight away a new category an addition and we’re not really cannibalising ourselves then I also find the quarters interesting the best quarter in sport and in supplements and health is always January February new year’s resolutions everyone knows those stories everyone signs up to the gym and so on and for Snocks the worst month of the whole year is January and partly February too so that complements us very well so that what we now call the Group internally has the best possible spread in revenue too so there as well I thought tick very very sensible absolutely and what you also have to say is the whole topic of synergies in general because especially when you acquire a company that’s really where you say this is the only way we can also grow and grow profitably you don’t need another 100 or 200 employees to continue running exactly the same volume and exactly the same company and grow it because and that’s the exciting part it’s not just a completely new company and completely new product categories we’re actually doing exactly the same thing whether that’s logistics finance product or supply chain in general it’s very very similar and we can combine a lot of things there and we can already see internally that we have lots of synergies there both for Snocks and for Oceans Apart funnily enough we even had a shared producer so there too in the analysis it became clear to me how small the e-commerce bubble really is so absurd that two German e-commerce companies have the same producer in China that’s how close-knit the whole thing is um when you looked at it in more detail what were maybe some shock moments for you where you said wow how the hell because it is a bit like we’re playing this Snocks computer game and then it’s like peeking over at the desk neighbour and seeing wow what on earth is he doing over there yeah I think that was the whole topic of product and inventory and that over the past there may also have been wrong management strategies but you also have to say we made similar mistakes too we just recognised them early enough I think because at one point we were also at 16 17 million in inventory and reduced that down to around 9 to 10 million and that also took a very very long time but with Oceans Apart they had over 30 million in inventory at their peak and then tried to reduce it step by step but probably recognised and implemented it far too late I have to say that was one of those moments where we said wow if we buy this company then we’re also buying it with a really substantial inventory do we manage to sell that off relatively quickly and in a timely way so I definitely had respect for that because it simply ties up a lot of capital in the warehouse and keeps generating ongoing costs so I definitely had respect for that yeah why did Oceans Apart go insolvent wow I think there are probably many theories but also what you can see from the figures I’d say quite clearly inventory too much bought too much capital tied up and the wrong products meaning wrong colours lots of different colours not just black and the basic colours but the crazy ones pink or whatever all kinds of colours and very very many different styles too that simply don’t perform well and then what happens you have too much inventory it doesn’t sell through well enough and you start discounting very heavily in some cases we can even see in the figures that products were sold with 70% discount and that just can’t be profitable yeah and I’d say that was a very very strong factor and of course they built up a lot of employees over time because they had such a hype in 2021 I think built up a lot of staff and then things gradually went down the sell-through didn’t come in anymore and then you have very high fixed costs running against that and over the last two or three years there was basically repeated loss financing meaning a lot of liabilities were built up too yeah I think it was a combination of many likely wrong decisions yeah I also found it exciting to see they brought an investor in during 2020 2021 the original founder management team stepped down relatively soon after that and then two or three new CEOs were put in with different strategies and how difficult it is for an entire company to adapt to new strategies and constant change no more discounts very high discounts because I think from the end consumer perspective or from many outside people that’s exactly what you just described internally externally the discounts just kept getting higher and the marketing more and more aggressive in order to get rid of all that 30 million of stock and maybe as a benchmark we at Snocks do 80 85 million EUR in revenue and we have around 10 million I’d say as healthy inventory so just around 11 12 13% of revenue is our inventory at Oceans Apart in the sort of range of 30 40 million euros in revenue this year and they somehow had a low point this year but on average they were probably around 15 million in inventory so 50% of revenue whereas we’re at 12% of revenue so I can really only recommend to people check it in your own business after this year where we both looked intensively at this topic I’d really say you should definitely make sure you’re at least under 20% when it comes to inventory relative to net revenue because everything above that is unhealthy and I can’t imagine that being the right path absolutely and I also believe that many e-commerce brands still have that post-Covid hangover I think that’s a strong factor because during and after Covid there was such a crazy hype and I think everyone simply ordered so much because they thought it would keep going like that forever and whatever product you launched it would sell through and afterwards you could just see that’s simply not the case so um and I think it was exactly the same at Oceans Apart we made those mistakes too so if you sum it up Oceans Apart went insolvent because they bought too much bought the wrong products had too much staff and constantly changing strategies in management and the general direction how do we want to do it better I’d say we want to do exactly the things better that we’ve already implemented intensively at Snocks this year basically clean up the product portfolio right now we’re doing nothing else but going through all possible lists there too how many products are there I can’t even say it exactly right now I think it’s 8,000 or 9,000 SKUs or something like that I checked again this morning just under 10,000 yeah so the list is endless it’s really crazy and there too if we no longer continue all the poor-performing products from the past that means we’ll once again focus on the basic colours and the top-performing colours how many do you think we’ll have within the year inventory no from the number of SKUs exactly so SKUs for everyone means the number of products um I think what would maybe be healthy would be something like 3,000 in that range so if we cut very hard then those are the products that really perform well and of course there will be new launches and new tests again but I can imagine around 3,000 so from 10,000 down to 3,000 that’s our target what’s another thing we want to change um I think another big topic is employee efficiency we’ve also rebuilt our organisational structure internally so that we can combine certain departments too in places and I think that’s one of our biggest levers and can you give an example yeah for example the whole topic of supply chain is already running with us at the moment we have the same suppliers or many similar suppliers and we may also want to use suppliers that Oceans Apart brought with them for Snocks too especially in that area I think there are lots of synergies there but also existing employees we’ve taken over from Oceans Apart we’re integrating them into our teams meaning they’ll be responsible for Oceans Apart products at the same time but also for Snocks products so we already have synergies there so we’re not using one full-time person only for one company and I think we can still unlock quite a lot there inventory right now at Oceans Apart we’re at around 10 million what do you think is realistic within the year within the year I’d say if we really focus on the top products maybe we can get it down to 4 million yeah though you always have to see how quickly we can really sell it off but I can well imagine that 4 to 4.5 million would be a good benchmark yeah what else do we want to change I think it’s the whole topic of marketing you’re very very involved there as well what Oceans Apart never really did in the past is performance marketing they focused so heavily on influencer marketing and we want to change that and also the whole topic of multichannel especially marketplaces we want to include too that didn’t work in the past at Oceans Apart either and this combination of everything where we can see not only from sell-through but also from marketing efficiency we can see that marketplaces are significantly more efficient in marketing and that’s something we want to change too yeah you also noticed we talked about it again and again the discounts at Oceans Apart were a huge topic and it’s also extremely important for us that we absolutely do not want to become that discount brand again we still need to clear quite a bit with up to 50% off but we definitely don’t want to go any higher and all those leftover and excess stocks and otherwise the bestsellers we want to sell exactly like at Snocks never above our 10 to 20% and I think that’s another important point and the last topic quality quality assurance at Snocks we already have two full-time people here and we’re currently looking for a third person so that we invest heavily there as well to ensure that the products really are of the quality promised now let’s spend the last 10 minutes talking about what a process like this actually looked like when we had the pitch deck on the table what was the next step yeah the next step is basically to connect with the M&A advisor to get in touch somehow that’s why we also drove to Munich for lunch I also said this to our management meeting yesterday we drove all the way there for a lunch of an hour or an hour and a half because as we always say peep game we have to stay close to people otherwise we might not have done the deal in this form at all absolutely and that really helped because it lets you understand okay what’s happening there or what happened in the past too that’s also part of the whole due diligence to understand what the company is how it even got to this point and what the role of the M&A advisor is so that was to get that out and then right after that we also said okay I’ll go to Berlin yeah true true I think I then even drove to Berlin that same week at short notice to speak to the management and do our next due diligence so to speak in order to find out what the individual processes were like meaning we looked at how logistics works how marketing works how supply chain works which employees currently do which tasks and that was basically the next step and yeah then I actually drove back on Friday I was there for two days and then first of all we got a rejection saying we hadn’t made it to the next round because of course there are always other investors involved too who are equally interested that means you either have to be relatively quick quicker than your competitor ultimately or you have to pay more or you do both so you pay more or you’re quicker than the other person just broadly speaking yeah but at the end of the day to put it bluntly you really have to look through all possible Excel lists and contracts too that is hard work so you do nothing else you have relatively little contact with other people because I literally sat at my laptop for four weeks and looked through all kinds of Excel lists extracting information because that’s what the M&A advisor does they simply provide all kinds of information in the data room and you first have to feel your way through it and then if you have questions you either speak to management or to the M&A advisor you also have to imagine they want to sell as quickly as possible and proactively especially in the case of an insolvent company the information they give you isn’t the best so they try to provide you with as little information as possible and then through the conversations and interviews we tried more and more to weigh up the risk as best we could one example is that at some point we asked how many customer service tickets are actually still open or how many people are still waiting for a refund and it turned out there were a few hundred thousand euros still sitting there of course they don’t proactively tell you oh by the way guys please watch out there are still a few thousand people waiting for their no only if you ask so it was really about digging through the dirt to find out what was going on do you have maybe a funny anecdote did you notice or see anything crazy where you thought what the wow I think there were so many things I don’t even know what would still count as funny because you also have to say especially when a company is insolvent or in preliminary insolvency then of course there are lots of amounts outstanding that were no longer paid so I also have to say I really feel sorry for every single person out there whether that’s a supplier or other service providers they simply weren’t paid or could no longer be paid because the company was insolvent and that yeah I think that’s what gave me a bit of a stomach ache too as you asked if there was anything where I got uneasy yes it was exactly things like that when you look at an outstanding items list so how many open receivables or liabilities are still there that in theory should still be paid whether to suppliers or other counterparties that’s hard yeah and then still carrying on and saying okay we still believe in the company that’s exactly the risk you have to weigh up there you said earlier we were out at first after submitting our first offer why were we out and what happened next um I think we were out partly because we were naturally one of Oceans Apart’s biggest competitors and at the same time there was someone else who simply bid more he basically booked what they call a fast track which means he put a bit more cash on the table and said hey everyone else is out he wants pure exclusivity and full focus on him so that he has enough time to do the due diligence in two or three weeks in order to complete his process yeah I was in Namibia in the hotel my phone rings Rean calls me Johannes the other bidder has dropped out we’re back in the race 30 September yeah yeah that was the moment when I said to you now we do the deal if he’s dropped out we were all the time what I’d say was in second place and in total around six or seven parties had bid in that sort of range we were in second place and once the first one really dropped out we were in pole position how did things continue then I knew okay there are no more alternatives you also have to say a preliminary insolvency basically runs for three months and then there are still ways to stretch it a bit so this was already a worst-case scenario both for the insolvency administrator and for the M&A advisor this had to happen in the next three weeks which meant I had roughly three weeks left until the hard deadline and then I also knew okay we’re going to and we now really have to go all in that meant literally doing exactly the same thing every day looking through all possible data and of course we also had to speak with our investors that meant we had to do the convincing there too and in the end our investors supported us as well at the end of the day I also have to say throughout the whole process I was one of the main people pushing it because by then I was already so deep in the topics and I think up to that point I had the most information on the whole process and I knew it was going to work exactly like that so I believed in it very strongly and still do and that’s why I wanted it to really happen whether that was the persuasion work with our investors or with you because sometimes you were sceptical too actually I’m normally the more rational one of us two and in this case you were actually the rational one which was also great yeah our investors came along too and then yeah guys we messed up a bit the audio track from the last 10 minutes got lost so we’re recording it again let’s jump straight back in how do negotiations like that work in a deal like this yeah basically you spend the whole day doing DD looking through everything in detail for everyone due diligence so that’s the detailed review in a case like this exactly and that’s basically what you do all day gathering all the information and then in the evening you go into the negotiations so then there are certain purchase price options or rather individual variables that ultimately make up the purchase price what kind of variables are those and what do you negotiate in an asset deal like this especially in an asset deal you mainly negotiate around fixed assets and current assets for us that was very heavily the whole inventory but also things like a Shopify account the brand itself things like that but you can basically say in an asset deal 95% almost even 98% is simply the inventory and then you look at how valuable the individual inventory positions really are there are variables there too and then you apply a corresponding discount so for example you say a product that’s been in stock since 2019 or 2020 and it really is like that when you imagine it there’s literally a pair of leggings lying there for five or six years and then you negotiate what it’s actually still worth exactly and then you ask is it still worth 5% of the original value those are the options and that’s where you negotiate relatively hard but also things like and this came up too that some goods were still at the harbour or still with the supplier so how do we deal with that do we still pay for it after we’ve taken over the company or the assets or does the insolvency administrator still do it those are the negotiation topics that you ultimately have to agree on how much respect or fear did you have when we were negotiating over millions even though we’d never done a deal before yeah I think very often with us you go into things with a certain naivety which I think is often a good thing and was good here too because we weren’t so biased that we became overly fearful we just looked at it and of course you do have respect once you realise during due diligence okay there may still be a million worth of goods somewhere at a harbour or still in transit how do we deal with that you do have to keep that in mind or generally factor in that after the deal we’ll need to inject further working capital how much is it of course you have respect because now we’re no longer talking about tens of thousands or 100,000 we’re talking about several million and if you’ve never done it before and then your very first one is on that scale that’s definitely crazy yeah did you have a sleepless night I have to say not really because I worked so much I didn’t sleep I didn’t sleep no in the evenings I just dropped dead into bed so around midnight or 1am I was done and then I was just glad to get my five or six hours of sleep before having to go all in again the next morning but you also have to say we worked a lot but it was so much fun during the process because we kept discovering new things and noticing that we were making progress and that then gave us energy and that’s how you can do it for a few months but I don’t think you could do it for much longer we’ve now taken over the company and we’re now in week two or three what’s the status quo and also mentally we’ve worked a lot is the tension slowly easing are you heading into a long holiday what’s the situation yeah absolutely these past two weeks after the transaction we pushed again the whole team was here too which was really lovely finally meeting everyone in person I’d only got to know them through video calls and so had you and not even all of them and yeah these were another two intense weeks but now we’re really gradually getting back into normal waters again and I’m really looking forward to that so now the workload is slowly going down again which is good and yeah finally holiday in December last and most important question what did we pay for Oceans Apart a few million that sounded a bit like TV shopping yeah we paid a few million we can’t say the exact amount but we can say we also said we had nearly 10 million in inventory and yeah in the end in an insolvency you only pay a fraction of that because you also don’t know exactly how valuable all of it really is the entire inventory and yeah we paid a few million I’d almost say I’m embarrassed that this is your first time on the podcast in this much detail shame on me we’ll do an update in three months or in two months depending on how fast we are in the new year then we’ll look at what we’ve achieved with Oceans Apart in the first few months what worked really well and what didn’t work well I can already say after the first two weeks we were able to implement two or three measures that increased revenue by 40% so we’re seeing and let’s call them the first positive signals that the bet can pay off and we still have a lot planned so with that in mind tune in again next Monday and soon Rean will be back too I’m looking forward to it ciao ciao ciao
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