Sex, Sauce, and Rollups

Happy Friday!  It’s finally here.

I can’t wait to crack open a beer tonight, and I’m sure you feel the same way, too.

But first, time for your morning coffee and a little bit of fun.

Sex-Toy Makers Lovehoney, WOW Tech Merge in $1.2 Billion Deal as Lockdowns Spur Demand

That, my friend, is a headline currently on wsj.com.

I started laughing my ass off because, well, we’re all the same around the world.

Everyone does the same thing when they’re bored, but it got me thinking.

Besides having a great laugh, it made me think about how you’re going to have to make money in the coming years.

We covered second passports, and we will continue to cover them for those who fancy them.

I always liked talking about things that make me feel like James Bond.

I’ve talked a lot about crypto and wrote about it yesterday because crypto is not just an emerging story. It’s an already here story.

I think it’s one of the most important things that you can do to secure your wealth.

Incidentally, Saifedean Ammous, the author of The Bitcoin Standard, wrote an online education program that may be worth your while. It’s at saifedean.com, and it costs $100/year for the cheap package.

You get all these courses for free. So, if you’re not into reading The Bitcoin Standard or you don’t want to listen to the audiobook, you could get on and take his courses.

I’ve started doing that already, and it’s been quite good fun. Saifedean goes over Austrian Economics and builds up the case for why he thinks Bitcoin is the future.

So Passports and then Crypto.

Now, the third thing.

I want to talk about building your online presence.

Build Your Online Brand

Interestingly, the sex toy makers that I alluded to in the title made a lot of money because people stayed home and they were bored, so they decided to, well, pass the time more excitedly.

The sex industry basically went through the roof last year.

In fact, it’s now called “sexual wellness.”  Lovehoney and WOWtech together generate over 400 million in revenue per year.

I’m not saying to go out and buy a sex store, but it reminded me of an article I wrote for capitalism.com earlier this year about Cholula Hot Sauce.

Okay, maybe I’m making an odd segue from sex to Cholula, but bear with me.

Cholula Hot Sauce was a 100-year-old recipe in a family from Jalisco, Mexico. For three generations, the Harrison family produced this hot sauce, a prominent ingredient in Sangrita.

By the way, Sangrita is not Sangria.

It’s the partner to a shot of Tequila Blanco in Mexico. I have never had it, but apparently, that’s what the original use was for.

Now when I had to write the Cholula article, I decided to do some research.

Pam and I went shopping for it in our local Filipino supermarket, which has many international goods.  We couldn’t find it, but we did find Valentina Hot Sauce.

That’s now my favorite hot sauce.  Later we Cholula came in stock.

Pam loves Cholula, but I’m still a Valentina guy.  Valentina is what I put on my egg sandwiches in the morning when she makes them for me.

The exciting thing about Cholula is that it got bought by a private equity firm called L Catterton in 2019 for $200 million.

Wow.  But that’s not the whole story.

Private Equity Profits and Cholula

L Catterton then sold Cholula to McCormick in November 2020.  From their website: “McCormick & Company, Inc. is a global leader in flavor. With our diverse and balanced flavor portfolio, we are ideally positioned to meet the increasing demand for flavor around the world.”

McCormick has revenue of $5.6 billion, has increased its dividends for 35 consecutive years, and has just entered the Fortune 500.

McCormick paid $800 million for Cholula.  That level was at an almost unheard of 25x EBITDA.

EBITDA is earnings before interest, taxes, depreciation, and amortization.  Private equity firms use EBITDA for operating profit and the ability to handle debt.  As there’s no public stock price for private companies, private equity firms need this metric.

L Catterton at least quadrupled its investment.  (With the debt levels private equity uses, the actual return was probably much higher.)

This is what we call a thematic roll-up.

A roll-up is a process private equity firms use to acquire and emerge multiple small companies in the same market to create a conglomerate. And that’s what McCormick did, as evidenced by its entry into the Fortune 500.

They own many hot sauce brands, condiments, and spices, and they wanted to round out their lineup with Cholula.

A thematic roll-up is an exciting way to make money.

You see this a lot with Amazon stores.

People create Amazon stores of whatever that passion is; it could be perfumes, colognes, workout gear, workout, medicines… whatever you want.

And if they do the brand right, they find that either private equity firms or other big firms will go and snap up the brand, and they pay enormous amounts of money for it.

Another big reason to build a company online is that a company may buy yours to fill a capability gap.  If you create a company that does something well that another company would like to do but can’t, they might just snap you up.

The third thing you can build is an adjacency.  George Clooney and Rande Gerber sold their tequila company Casamigos to Diageo for nearly a billion dollars.

Why did Diageo want Casamigos?

Because Diageo wanted to round up their existing lineup of adult beverages, Casamigos is now the super-premium tequila brand to their current Don Julio line.

These big companies don’t see small brands as a threat.

They’re hoping you grow it big enough, so it makes sense for them to buy your company.

So here’s the plan:

  • Second passport
  • Crypto knowledge
  • Build a cashflow generating company online.

If The Colonel Can Do It, So Can You!

Maybe your family has a great recipe. Think the Colonel and his fried chicken recipe. Look what he did with that. And at age 65!

You don’t have to do half the work he did, though. You don’t have to have franchises, and you just stick it on Amazon.

Anything like that… cookie recipe, sauce recipe, tequila recipe…  See if you can produce something and sell it online.

If you’re not into the physical stuff, you could also think about the skills that you acquired throughout your lifetime to create online courses.

That’s what I do when I’m not writing for The Rude. I teach bankers because I used to be a banker. I’ve got tons of credibility and over a decade and a half of experience inside banking.

So, that fits nicely with what I can do online.

Building an Amazon business is next on my list.

You could do something you enjoy, teach it online, build it, and then sell it.

Bionic Turtle, which teaches CFA and FRM exam preparation, just got bought up by Leeds Equity Partners.

Why?  Because they wanted to do a thematic roll-up with financial exam preparation.

That’s a growing business.

So, that’s what I just want to leave you with this Friday.

A little bit of sex, a seed of an idea, and a little bit of fun.

I hope you have a wonderful weekend. You absolutely deserve it.

Take care.

All the best,

Sean

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