Field Notes: Luxury Dive Watch Manufacturer

Timing is Everything: Is this DTC Watch Company a Smart Investment?

*Are you a searcher looking for a peer-group? Check out Silverwave Buyer’s Club.

Ok folks, here’s another business that meets all of about none of my own search requirements. Nevertheless, ever since I created my own Valhalla dive watch when I was running my e-commerce company I can’t help but be drawn to watches. Love them. And besides, in under 2x EBITDA, how could you not take a second look?

TLDR:

The asking price for the company is 3.33 times the cash flow seems reasonable, especially for a company with substantial brand value and high growth rates. The inclusion of $400k in inventory effectively drops this to 1.66 times cash flow.

Several other factors look compelling at first glance too:

• High growth rate: The company has an impressive year-over-year growth of 48%.
• Strong brand identity: The company has established a strong brand in the luxury diving watch market.
• High average order value: An average order value of $825 indicates a customer base willing to spend money on quality products.
• Strong customer loyalty: The 40% repeat purchase rate signals strong customer satisfaction.

CLOSER LOOK:

This watchmaking company looks like a lucrative acquisition opportunity with a proven track record, strong financial performance, and significant brand equity. The asking price is justified by the company’s robust year-over-year growth, substantial repeat customer rate, and included inventory. The seller’s willingness to finance part of the asking price could help facilitate the acquisition, making this an appealing investment for someone with expertise in marketing and brand development in the luxury consumer goods sector.

Let’s take a closer look at some of the finer points from the listing:

Financial Overview

• Asking Price: $799,000
• Gross Revenue: $689,035
• EBITDA: $239,950
• Inventory: $400,000 (included in the sale)

Business Operations

• Established: 2017
• Location: Relocatable
• Industry: Watchmaking and online retail
• Sales Channels: Direct-to-consumer (DTC) eCommerce
• Customer Engagement: High engagement through email (68,000+ subscribers) and social media (55,000 followers on Meta)

Analysis

Valuation and Price Justification:

• The asking price is approximately 3.33 times the cash flow seems reasonable within the consumer goods sector, especially for a company with high growth rates and substantial brand value.
• The inclusion of $400,000 in inventory adds significant tangible value to the purchase price, effectively dropping the multiple to around 1.66x

Strengths:

• The company has established a strong brand identity in the niche market of luxury dive watches.
• High average order value (AOV) of $825
• A robust 40% repeat purchase rate signaling strong customer satisfaction and brand loyalty.
• Impressive year-over-year growth of 48%

Risks and Considerations:

• The business’s success is heavily reliant on direct consumer channels. This will require continuous investment in marketing and brand maintenance.
• As a niche luxury brand, the company is susceptible to market fluctuations and changes in consumer spending on luxury goods.

Opportunities for Growth:

• Expanding product lines or entering new markets (way easier said than done) could increase revenue.
• Further development of marketing strategies, particularly in digital and social media platforms, might enhance visibility and customer acquisition.
• Leveraging the substantial email and SMS subscriber base for more personalized marketing campaigns and promotions.

At the end of the day, look deep at this (pun intended) because the nearly 35% EBITDA margin, while not unreasonable, seems pretty high for a DTC watch company.

Here’s the one I made but never put into production:

What do you think? Check it out and let me know!