Ryan Lewendon, Partner at Giannuzzi Lewendon, LLP: How To Build the Most Profitable Ecommerce Business and a Sure-fire Plan for a Successful Exit
Written by: Satta Sarmah Hightower
"[In] today’s market, acquirers want to buy a fully-formed asset. There was a time when every big conglomerate had a venture fund that was created to get into companies early and acquire them before they had to overpay. Now, these big conglomerates are willing to overpay. They're willing to overpay for a more fully-formed company with great fundamentals and great functionality, and that's already profitable." — Ryan Lewendon, Partner at Giannuzzi Lewendon, LLP
Practically every startup’s dream is to build a scalable business that successfully exits, whether through an IPO or acquisition.
However, as economic uncertainty grows and brands and investors with deep pockets cautiously wait it out, the path for disruptive brands to get acquired or cash out is narrower today than even a few years ago.
That’s the perspective of Ryan Lewendon, a partner at Giannuzzi Lewendon, LLP, a boutique law firm that works with disruptive direct-to-consumer (DTC) brands to pave a pathway to profitability and multi-million- (or even billion-) dollar exits.
Lewendon joined a recent episode of the Unpacking the Digital Shelf podcast, "Inside the World of DTC M&A," to share how his firm works with DTC brands and best practices similar companies can leverage to propel their own growth and become more attractive acquisition targets.
Collaborating To Build the Most Profitable Ecommerce Business
Lewendon and the firm’s founder and managing partner, Nick Giannuzzi, have decades of experience with successful exits. Giannuzzi founded the firm in 1993, and Lewendon joined 11 years ago.
Throughout its history, Giannuzzi Lewendon has worked with clients on more than 500 financing transactions and nearly 50 exits. It’s had a hand in some of the biggest consumer packaged goods (CPG) deals over the last 15 years, including the acquisitions of RXBAR, Oatly, Vita Coco, and Vitamin Water.
Last year, Giannuzzi Lewendon represented Body Armor sports drink in its sale to The Coca-Cola Company for $5.6 billion — the CPG giant’s largest acquisition in its 130-year history.
"We're kind of the only life cycle counsel out there — in that we can work with you early on in your life cycle — and we can take you every single step of the way through an exit for hopefully billions and billions of dollars," Lewendon says.
4 Strategy Pillars for Successful Exits
Giannuzzi Lewendon’s work centers around four central pillars.
1. M&A and Financing
The firm sells about 20 companies annually and has averaged $2 to $2.5 billion exits over the last five years. Across the companies it works with, it completes about 200 rounds of financing every year.
"What makes us unique in that representation is, on the earlier side, you're getting counsel that has a great downstream view into what you're doing," Lewendon says.
"'Hey, this is what you need to do now to get your money in, to get your investors in, but these are the additional things that you need to put in place to set yourself up for success in the future, for the future rounds, and then the exit.'"
2. Deploying Capital
The firm also works with brands to help them deploy the capital they’ve raised more effectively. This approach often includes helping them build out their infrastructure and team, securing their IP, cultivating celebrity partnerships, agreements with distributors, brokers, and digital marketers, as well as negotiating commercial leases.
3. Outside In-house Counsel
Giannuzzi Lewendon also acts as “outside in-house counsel” for its clients, Lewendon says.
The firm focuses on its core competencies and works with brands to outsource their other legal needs, such as litigation, trademark filings or searches, and U.S. Food and Drug Administration (FDA) and Federal Trade Commission (FTC) compliance.
"Because we work with more than 1,200 companies in the space, we've got a great network of professionals that are similarly situated to us. They're experts in their particular field. They're narrow and deep in what they do, and we can connect you with all those people," Lewendon says.
4. Community Building
The fourth pillar of the firm’s strategy encompasses community building.
The CPG industry is actually pretty small, and because of its deep experience, Giannuzzi Lewendon knows most of the biggest players, whether it’s major business services providers or retailers. The firm often serves as a sounding board for its DTC clients as they try to grow and scale.
"We've got great insight into who's the best target broker. 'Who's a great Amazon broker? Who's a great PR company for my product? What types of investors are great at the size and scale that I am that would match up to me and match up with my vision and alignment?'" Lewendon says. "'Who would be the person to talk to figure out how to partner with a retailer if I'm trying to go omnichannel from digital?' We're just a great resource in the industry."
Why the Market Is Changing for 100% Acquisitions
As the firm’s DTC clients try to drive growth, they also must contend with a shifting landscape.
Lewendon says changing dynamics have created a more complex market for acquisitions, as many big companies, funds, and other acquirers don’t immediately target 100% acquisition. Instead, they’re going after majority stakes because they realize "they’re not as good at unlocking value," he says.
Many acquirers are structuring deals so that the founder team stays on for a set period after the acquisition and are incentivized post-acquisition to help the acquirer drive growth and better performance.
American media personality Kylie Jenner’s deal with the makeup conglomerate Coty is a perfect example of this shift. Jenner sold a 51% stake in Kylie Cosmetics to the company for $600 million in 2019, notes The New York Times. The deal was valued at $1.2 billion at the time.
"Today, more than ever, having a product, a brand, or a company that can be acquired and maintain its momentum is so much more important for the founders and the creators of those companies." — Ryan Lewendon, Partner at Giannuzzi Lewendon, LLP
How Brands Can Make Themselves Attractive Acquisition Targets
How does a high-growth DTC brand make itself ripe for an acquisition or successful exit? Lewendon says brands need to focus on operational excellence and protecting their IP, among other things.
According to Lewendon, acquirers are primarily looking for profitability, good margins, the opportunity for future growth and scalability, and a strong sense of customer loyalty.
DTC companies need to own the name of their brand and protect their trademark before they’re even acquired. This approach includes any subsequent derivatives of their original recipes and specifications, for example.
Supply Chain MOAT
Lewendon says brands need to create a competitive MOAT around their supply chain and get suppliers to agree that they won’t create a similar product for another company or potential competitor.
DTC brands need to shore up their human capital and incentivize their workforce and leadership team throughout their lifecycle.
"Incentivize those great key hires so that when you sell, they can stay on for a little bit, whether it's stay bonuses, ongoing options, or some type of sales goal," Lewendon says.
Solid Advisor Network
Companies also need a network of great advisors as they’re growing their business. This approach can include a founder who’s been through a successful exit, good legal counsel or someone skilled at operations.
They can lean on these resources when there are road bumps or navigate new growth opportunities in their business.
Lewendon says DTC brands also need to build their supply chain resilience, especially as supply chains continue to be constrained and as inflation increases the cost of goods and transportation.
"You need to be able to tell the story of not [just] how you can get to the exit, but you need to be able to tell a story of how you can get two years past the exit," Lewendon says.
What Brands Should Look For in an Acquirer
On the other side of the equation, brands also need to think about what they want in an acquirer. Rather than looking for an acquirer with strong core competencies in the areas where they may be weak, Lewendon argues that brands should look for alignment.
"You don't want to be the guinea pig," he says. "You want to find someone whose system you can come into and start working and aligning your team and theirs pretty quickly."
Either way, what’s clear for DTC brands is that the path to a successful exit is changing.
Whereas VC firms, private equity funds, and big CPG companies were buying at big valuations, this is slowly shifting. These acquirers can no longer afford to buy largely based on momentum.
DTC brands that want to build the most profitable ecommerce business — and have the next billion-dollar exit — should take note and focus on the fundamentals.
"You're seeing acquirers pay more," Lewendon says, "but they're paying more for companies that are a more sure thing."
To hear more of Lewendon’s perspective on how DTC brands can drive growth and achieve a successful exit, listen to the rest of this episode of Unpacking the Digital Shelf.