Yeti from $4b -> $10B

TLDR:

Everything is a funnel

Making Yeti our Platform biz

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LBAB Community - The M&A Funnel

Today is exactly 1 month since my last full time day at Gorgias. The more I network the more I’m asked “have you bought anything yet?” or “How is deal flow going?”. It’s interesting because the question always comes from 2 camps:

1. The Vets who are surprised by the deal flow in 1 month (power of building a community like this).

2. People who are interested, but haven’t done deals before.

Today I’m going to spend some time walking through the buy side process (When you acquire a biz) and what it typically looks like.

For anyone who hasn’t acquired a biz, it might seem like being the acquirer is a prestigious role where deals fall into your lap and you pick your favorite and boom you just bought a biz.

The major difference is your buying instead of selling, so you aren’t pitching the same service 100x and figuring out who’s interested in buying. You’re talking to 100 Sellers figuring out if it’s the right buy for you. It’s essentially the same strategy just inverse all the tactics.

As the buyer your perspective is:

• Instead of selling the same thing over and over again to find who’s interested in buying, you’re constantly asking is this 1/100 opp the right one for me?

• Instead of an ideal customer profile with the same defined problem set, it’s a 100 different recipes on how to build a hamburger and you need to find the right one you can scale to a chain.

• Instead of the goal being to have as many customers as possible use your product/service, it’s how can I 5x this 1 specific biz. Essentially putting all my eggs in this basket.

It’s an interesting combination of Buying through Selling that is hyper competitive, with always moving targets where the game can completely change on you in an instant.

All of that to be said in 1 month it’s been a lot of upper and mid funnel work.

I’ve spent my time finding the bizs that are worth submitting an LOI. Really an LOI is just the starting point for the real work: Due Diligence and actually getting a deal done.

If you don’t already follow me on LinkedIn every Sunday I give a weekly rundown of the progress I’ve made. If you want to follow along come join me.

Now, let get to the meat and potatoes. Everyone’s favorite DTC stock that is getting beat up right now.

Let’s Examine This Biz

Yeti has gone sideways the past 2 years. Despite being everyone’s favorite DTC brand to analyze it’s getting beatn up publicly.

It is outperforming its stock price but is stuck in the “outdoor cooler” box.

Trading at $37.53/share with a $3.2B market cap, +50% the last 5 years, this Cooler and Drinkware biz is actually crushing it, but they need to rehab its investor branding.

Yeti’s biz has outgrown its cooler roots, but investors don’t see it that way. This American-made durable drink-related goods brand has recovered from the Post-COVID pullback, but it’s stock doesn’t reflect that.

Moving into multi-category, and on an acquisition spree, Yeti’s positioning themselves well for the next decade. Whether investors agree with it or not.

Financial Summary

TLDR Analysis: Solid Biz Bad Category

• 63% of Sales are from Drinkware & 60% of sales are from DTC. 

• US sales Flat. International + 29% YoY.

• Have $203m more in cash this year.

Yeti had a solid, but not fantastic year. Sales are stalling out, but profits were healthy by reducing COGS and keeping tight control of SG&A. Outdoor had a tough year, but Yeti took those headwinds in stride, got in shape, and is ready to come out the other side.

Let’s Learn This Biz!

Here’s the 3-step process to make Yeti our platform biz and roll up the DTC Outdoor industry around it:

1) Rebrand the Biz.

Based on their financials, Yeti’s stock should be up. Top and bottom line improved YoY, but Yeti is trapped in the positioning that made them famous.

Cooler sales are down. Cooler sales are shrinking. Yeti is predicting Cooler sales will continue shrinking. Sounds like the death of Yeti right?

Not really.

They sell more Drinkware (63% of Sales) than Coolers (37%), and the Drinkware category is growing faster (+8% YoY) while Coolers is shrinking (-2%). They don’t break out Gross Profits by product line, but I’d venture that Drinkware is a better margin biz as well.

What got Yeti here won’t get Yeti to what’s next. 

Yeti’s biz has outgrown the “Cooler Biz,” but its branding hasn’t. 

Which means Yeti needs to make its brand cooler.

They need to lean more into the Outdoor Dream. The desire to explore. They need to leave the best Cooler brand on the market narrative behind heavily leaning into the growth of Drinkware. 

Launch partnerships with Yeti-approved Coffee bizs. It’d be a mistake for Yeti to move into Coffee production, but partner up with customers' preferred Coffee brands to increase natural usage. Provide more natural moments to use the Drinkware product regularly.

The game is for customers to buy 1 for their home, office, car, etc. That way, they keep coming back to buy more from the brand in the 10+ yrs it takes for them to need another cooler.

Despite Outdoor getting obliterated last year, Yeti ended up having a fine year (Growth = 😐, Net Income = 👍), but their stock price doesn’t reflect that. Investors are too worried about the death of their smaller biz (Coolers), not excited about the growth of their largest (drinkware).

Takeaway:  Investor Narrative = Valuations.

2) Roll up the Outdoor market.

With the Post-COVID pullback, not just economically, but Return to offices, travel decreasing, and the camper life moment passing, Outdoor is having a bad time.

Yeti on the other hand is in an incredibly strong position. They have their checkbook out and acquired Butter Pat (Cookware) & Mystery Ranch (Bags/Accessories), but they shouldn’t stop there.

They should acquire Solo Brands ($250m Cap). 

Time will tell if Cookware will become as big as Drinkware. If it does, they're geniuses. But the real opportunity here is to be greedy when others are fearful.

Outdoor is getting beaten to a pulp. Yeti has $80m more in Net Income, $203m+ in cash in the bank, and increased their Earnings per share by 88% YoY. 

Yet their stock price’s gone absolutely nowhere (-3%).

This is the moment to scoop up great brands that will define the category for the next decade while everyone moves on. I don’t have the data, but have a strong hunch that Yeti customers are Solo customers. (Other than Chubbies… I still think that’s a different audience). 

Yeti could acquire Solo for Cash + Stock deal that would make Yeti’s stock price instantly more valuable.

1. Yeti trades @ 19x P/E Ratio.

2. Solo trades @ 6x.

There’s a bit of financial engineering that goes into this play, but Solo’s earnings inside of Yeti would be 3x more valuable.

Adding Solo’s $500m in annual revenues (Growing @ 28% YoY) to their earnings gives the biz a shot in the arm. Changing the Yeti slowing growth narrative.

This would:

• Boost Topline to $2.2B.

• (More importantly) Increase overall growth from 4% YoY -> 24%.

• Increase Solo’s Operating Margins by consolidating SG&A.

Yeti can pump Solo’s brands (Solo Stove, Oru Kayak, and ISLE Paddle Boards) through their DTC and Retail distribution, reducing each individual biz’s SG&A while boosting overall revenues. No one cares whether they’re called Solo Stoves or Yeti stoves. Solo’s entire portfolio are essentially Yeti product lines.

Yeti is sitting on 2 incredibly profitable, but slowing, growth categories and hunting for their next one. 

My bet is cookware outperforms bags, but both take a long time to develop. Does Yeti have the time to watch these earlier smaller bizs bake?

Takeaway: When a market turns, Consolidation is around the corner.

3) Build the 10x Version

Yeti’s largest segment isn’t the hardcore camper but the person who wants high-grade durable products that over perform what they need.

I’m a great ex. of this. I’ve gone camping <5x in my life, but I have:

• Yeti Tumbler (Drink daily),

• Yeti Tundra cooler (Parties & Park BBQs)

• Yeti Backpack cooler (Beach Days).

I’m not a perfect representation of who they want their customer to be, but I’m who their ideal customers are. This, like any other aspiration led-category, is all about overselling someone on what the product can do:

• Jordans don’t make you jump higher

• Grey Goose doesn’t taste better

• On Running shoes don’t make you a marathoner.

But the associations make you want them even more.

The bigger opportunity for Yeti is to find the products that the camping/outdoor hardos love but will scale to the everyday millennial/parents. Then make the $5k version of that product. Starting with Coolers. Then Drinkware. Then…

For the same reason Coach makes a $100k trunk. It’s not because they’ll sell well, but because casual shoppers will buy the more “reasonably” priced version given the incredible capabilities that flow down from the premium version.

Drinkware is larger + scaling faster than coolers because everyone needs to drink. It’s a larger market that Yeti can carve out with their tried & true Outdoor Aspirations. Building the most impressive, indestructible version will drive a new wave of growth.

Takeaway: Build the most impressive version of the product. Just to say you can.

Final Thought - PE is the better route to go Public

Yeti is one of the best examples of why brands that want to successfully scale, I mean 9-11 figs Topline with a massive exit or go public need PE partners not VC. PE partners build the right fundamentals into Consumer brands.

This is coming from someone who has cut VC checks into DTC brands as well.

Yeti (founded in 2005) didn’t raise outside capital until 2012, when they raised $67m from Cortec group for 66% of their biz. Today that valuation sounds crazy, but that was the market back then. And probably where we’re headed back to now.

The stable, consistent growth PE partners expect is more aligned to the longer turn timeline of a physical product biz. It’s a better match for the speed at which an inventory biz can operate.

The toughest consumer brand mindset to reset is the juicy valuations of the past 4 years. VCs are willing to give much higher valuations to founders at much earlier stages because they play a different game.

VCs are really trying to find future monopolies with 80% Gross margins that can Triple-Triple-Double-Double (300% YoY growth -> 300% -> 200% -> 200%). For the majority of DTC bizs that makes no sense.

The amount of capital you’d need to dump into Marketing and Inventory to try to hit those #s is what has led to the great consumer brand blow up over the past 3 years.

When we look at brands raised by big VC (Warby Parker, Allbirds, Honest Co.) they are so grossly underperforming because they never properly learned the operational lessons bootstrappers and PE bizs do. Consistent methodical growth. Brick by brick. 

It’s a different way to build a biz that has a different expected outcome, but if done well, it’s a life-changing outcome. Just ask the Yeti brothers. They ended up doing pretty well.

🧠 The Takeaways

We’re turning Yeti into a platform biz to roll up the Outdoor market. When a market turns south, it’s a great time to beef up the roster.

1. Yeti needs to evolve past its cooler roots and embrace Drinkware as the main category.

2. Yeti should acquire Solo Brands to revive its growth narrative.

3. Yeti should produce the $10k cooler or $400 tumbler/mug. To show everyone why their products are the best.