A high performance exit with GWA Auto Parts’ Gregg Alper

Gregg Alper got into ecommerce back in 2008, while he was working at an auto repair shop. He put up a website, and the results were pretty surprising. In 2015, Gregg had build that side of the business to 15 people, when he realized that no matter how hard he worked and how much the website grew, it wasn’t really his. So he decided to start GWA Auto Parts.

Tune in to hear about how that company grew as well, and how Izach Porter and Ron Matheson from the WebsiteClosers.com team ultimately helped him exit.

Today’s episode of Deal Closers is hosted by Jason Gillikin, and is produced by Earfluence.

Transcript

Gregg Alper: I mean, two weeks after receiving the first purchase order I taught, I ordered a couple of $1,000 product. And within about two weeks, all the inventory that I had ordered was just put on.

Jason Gillikin: You’re listening to Deal Closers brought to you by websiteclosers.com. A show about how to build your ecommerce business to be profitable, scalable, and one day even sellable. I’m Jason Gillikin. And on the show today, we talked to a founder who successfully built his company to the point where he can make a living than a good living and then he had a successful exit. You know, sometimes when we think about starting a business, we look into what we’re passionate about. Jim Cook, love to save consulting job and started Samuel Adams because he was passionate about beer and had an old family recipe. Jen Hyman and Jennifer Fly started rent the Runway, because of their love of fashion. Even Bill Gates was a programmer way back in 8th grade. And sometimes when we’re starting a business, it’s a pretty simple concept, we find a market that’s being underserved, and that we can make some money. Today, we’re with Izach Porter and Ron Matheson from websiteclosers.com, along with the founder of a company that they help sell GWA Auto Parts. Founder Gregg Alper, he found a market that was both underserved and what he was passionate about, high quality, hard to find auto parts. Gregg got into ecommerce back in 2008. While he was working at an auto repair shop, he decided to put up a website. And the results were pretty surprising.

Gregg Alper: It was pretty crazy to wake up in the morning and 5, 10, 15 orders back then those were the days where Shopify really wasn’t saying. We would manually have to process credit cards that would come through and things of that nature. So that was kind of really, really early on.

Jason Gillikin: The ecommerce continue to grow. So much so that at the end of 2015, there were 15 people working specifically on that side of the business. But he realized that no matter how much he grew the website, it wasn’t really his.

Gregg Alper: I was kind of overseeing everything on the ecommerce side of the business. And I wanted a pathway to equity in that business. And there just wasn’t a pathway there. Around the end of 2015, beginning of 2016 just didn’t really have a firm grasp on what direction I wanted to go. I obviously had ecommerce knowledge, I had a lot of automotive knowledge. And at that point, I kind of started to dig into the ins and outs of starting a FBA business. I had already been exposed to them, because we would when I was working at USP, we would go to the internet retail convention IRC every year in Chicago. And over the year is I remember seeing more and more software vendors, they’re gearing towards FBA businesses. So I knew it was kind of an emerging market that had a lot of opportunity in it.

Jason Gillikin: And for any of the listeners who don’t know what FBA stands for or means exactly, could you explain that?

Gregg Alper: Yeah, it’s fulfilled by Amazon. So you pretty much launch a store on Amazon, you list your products, and then you actually send your products to Amazon. And they’re going to pick pack and ship them as they sell, as well as handle the customer returns and the kind of basic customer service. So I need to return this, where’s my tracking number? This didn’t arrive, this arrived damaged they handle all that type of stuff.

Jason Gillikin: Gotcha. All right. So you’re at IRCE, and you see all these businesses popping up and you think like, oh, wait a minute, now, this is something that I could do as well?

Gregg Alper: That’s exactly what popped into my mind, because kind of going back to the state of launching your own.com. Back then I knew all the hurdles involved in there from just setting up credit card processing and hosting and dealing with chargebacks and dealing with everything like that. So the idea of an FBA business was really appealing.

Jason Gillikin: Gotcha. Ron, let me bring you into the conversation. What was your perspective on FBA businesses? And you know was that starting to become more of a trend in the mid-2010s? 

Ron Matheson: Yeah, actually around 2010 to maybe 2014, everybody wanted a website, you know, exact match domain. That’s what everybody was looking for. I remember the first Amazon stores that we were representing people would say no, I don’t want an Amazon store. And that’s how it began. And then it slowly started to move towards while maybe this is a good business model. So around 15, we started to do a lot more business in the, you know, the Amazon side than the website side. And as each year went by, it just grew and grew and grew. And you’ve got to look at the Amazon itself. I mean, back then I think they were probably 10% or 15% of retail search is where it started. Now, I think Amazon is, you know, I don’t know, Izach, what is it 70% or something like that now?

Izach Porter: It’s when they say 70%, yeah, retail search starts on Amazon.

Gregg Alper: Yeah, that’s interesting, because that was one of the numbers that I remember back in, like, 2015 at IRCE at the time, then. I remember sitting in our presentation and hearing that it was 55% of purchases online and started with an initial search on Amazon.

Jason Gillikin: And So Ron, what is the model look like then? Are you paying Amazon something like 20% of the revenue?

Ron Matheson: Well, there’s two mafias, there’s Google and Amazon you’re gonna pick one up. 

Jason Gillikin: Okay

Ron Matheson: You’re either paying AdWords or you’re paying Amazon and Amazon, you know, they’re a little hefty, but they provide an incredible service and it’s worth it. I mean, you know, typically, it’s 30 plus percent of your sales are going to Amazon. You know, it’s a great deal for us all. I mean, keep in mind, I came from the world of bricks and mortar, and you’re paying a landlord in a bricks and mortar major regional mall, 10 or 20,000 a month. And then on top of that, you’re staffing that from 10 in the morning, till 9 o’clock at night, and maybe at 10 in the morning, you have zero clients till maybe 11 or noon, yet you have employees down there that are just kind of eating up space, you know, it’s just everything’s evolved.

Jason Gillikin: Yeah, for sure. And Amazon is just super convenient. And that’s where everybody goes. So I get it. I mean, that 30% is well worth it. You know, Gregg, when you were starting out, and you’re starting this FBA business, when did you know this was a hit? Like when did you know like you had something that could work here?

Gregg Alper: It was, I mean, two weeks after receiving the first purchase order I taught, I ordered a couple of $1,000 in product paid a little bit more to get sent by FedEx to get it quicker. And within about two weeks, all the inventory that I had ordered was just completely gone.

Jason Gillikin: Wow. Okay, and what do you attribute that success to, like, where you just ranking well on Amazon?

Gregg Alper: Just the industry knowledge that I had in the auto space, I knew what was in demand, especially coming from USP. And I saw that it wasn’t available on Amazon, or if it was available on Amazon, it was items that had one to two weeks shipping costs. 

Izach Porter: Gregg, you mentioned that you found Jungle Scout, I think in 2015, or 2016. Were you using analytical tools to help you pick products that had high demand back then or were you just did that help you kind of just realize there was an opportunity on Amazon?

Gregg Alper: It didn’t help me initially, because quite frankly, when I did initial searches on Amazon, the products just weren’t there at all on Amazon. So it was more, the first products I sold was more of a test of okay, well, I know the automotive industry, I know, on a traditional.com these parts are selling, and they’re not on Amazon, kind of putting two and two together and realizing, okay, well, a little at the time, a little more than half of purchases start with a search on Amazon, I kind of wanted to prove a theory that there is demand, there’s just no one for filling that demand.

Jason Gillikin: What a great idea. Awesome. What kind of mistakes did you make in the early days, you know, as you’re going through this, I’m guessing is not all going to be like you spend a couple $1,000 and then it sells in a couple of weeks, and everything’s going great. I’m guessing there are some road bumps or speed bumps along the way. What are some of the mistakes that you made Gregg?

Gregg Alper: Hesitant to order more inventory was definitely a big one and hesitant. Just expand the product catalog faster, as well as hiring people and introducing systems and workflows and things that nature the business?

Jason Gillikin: Yeah. So how do you decide then, you know, when it’s time to expand and hire and you know, it’s not just you anymore after that, like, you have to rely on other people and you can’t be involved in all the decisions of the business and that’s pretty difficult. So how do you make those decisions?

Gregg Alper: Well, my view of that today is a lot different than it was in 2016 and 2017. Back then, it was something where I was kind of still apprehensive about still kind of completely bootstrapping the business. This was back in the days when Amazon was just really still arbitrary really suspending seller accounts and not releasing inventory and doing things like that. So I had kind of reservations about doubling and tripling down on inventory and adding people and kind of building out an organization.

Jason Gillikin: Yeah. I mean, is it scary to rely on Amazon as an entity when theoretically, they could just start selling those same products on their own?

Gregg Alper: I don’t worry about that too much. Because all of our, what our business is focused on is very niche within automotive. Pretty much everything in our catalog only fits specific vehicles. And in turn, what makes that unique is we have relatively low unit volume per skew. If I look in the automotive category, and see where Amazon’s introduced basics and some of their private label brands, it’s in more of the commoditized stuff, motor oils, cabin, air filters things like that. I don’t really see them getting into automotive replacement parts and private label.

Jason Gillikin: Gotcha. So you mentioned the skews, and that you have a lot of skews, but limited inventory. When did you start to build up the number of skews?

Gregg Alper: So the initial purchase order I placed my watch the business, I believe, was with five skews. I believe the second purchase order I placed I doubled it and 1 to 10. And it was just kind of a snowball effect in terms of every time I would order, I would order more and more skews because I started using some of the tools to find product opportunities. And at the time, the only one that really existed was Jungle Scout. 

Jason Gillikin: Well, we’ll talk about your growth. You mentioned growing with the skews, of course. But how many team members did you start to build up? And I don’t know if you want to share specific revenue numbers, but you know, broad scope, like what do revenue numbers start to look like as you’re growing?

Gregg Alper: Yeah, so I think the first sale with the business occurred in May of 2016, the first person I added was in August of 2017. And August of 2017, I think we were averaging a little over $100,000 a month in revenue with some very good net margins. And we ended up finishing 2017, I hired a second person towards the end of 2017, handling more customer service type stuff and things of that nature. But we finished 2017 with I think was right around like $1.2 million in revenue. 

Jason Gillikin: That’s awesome. And so with these numbers and with you growing in when do you start to think about selling the business? Because you know, you just started off as somebody who’s bootstrapping it, and maybe it’s going through your head, like, I don’t know that I want to be leading a 20 person company or a 50 person company. And once you start to think about like, maybe it’s time to maybe I should be selling this?

Gregg Alper: It started crossing my mind in 2019, by 2019 company broke $10 million in revenue I had, I think at a time seven or eight people. And that’s kind of when the idea of selling a business first came into my mind.

Jason Gillikin: Wow, that is impressive, Gregg, to go from just those 5 skews to then $10 million in revenue. Oh my gosh. So Ron, when did you start to become aware of Gregg and GWA?

Ron Matheson: Well, you know, we had talked to Gregg, and you know, we had decided to go to market after, you know, some back and forth for quite a while. And, you know, obviously, as we do in a lot of different deals, you know, we had some ups and downs, especially right into the COVID wins. That end of the headwinds of COVID. We had, you know, one deal under contract, and their finance guys, actually, I was told their finance guy was in Europe, and he couldn’t get back in the United States. And right now, he was not interested in doing anything until this whole thing died out. So that’s how we started.

Jason Gillikin: Wow. Okay. So you mentioned that one challenge of getting somebody back into the United States. What are some of the other challenges that Gregg and GWA were facing or websiteclosers.com was facing and trying to sell the business? 

Ron Matheson: Well, Gregg has a great company. First, he picked a great sector and he built it very smartly. And it’s funny, because I always told Jason and this is there’s been two companies that I’ve looked at since and we’ve represented 1000s of them, but that I would be interested in and Gregg’s is one and there was one we closed down about a month ago that was the other one. So you know, congratulations on picking a great sector and building a great company. But you know, anytime that you’re in M&A, there’s always going to be challenges. As an example, yesterday, we had a deal fallout. And that particular deal. I think the reason it fell out is because we took so long to come to terms on the original LOI, and I’m talking about maybe six weeks of going back and forth, we finally went under LOI, and now we’re at the legal stage. And we’re actually supposed to close in two weeks, and there were more negotiations over working capital, that will, that would basically have added a lot more debt to the equation. And I think at some point, you know, the buyers kind of decided that they didn’t want to keep going. And so there’s a lot of reasons that, you know, companies go under contract fall out of contract. I think, in the end, the company we closed with, and Gregg, you can correct me if I’m wrong, but was a great company to close with, you know, it kind of works itself, to the point where at the right time in the right place, the right group comes around.

Jason Gillikin: How long did that process take, you know, from when you started looking at somebody to buy the company to actually finding the right buyers? 

Ron Matheson: Gregg, how long did we take on that one? 

Gregg Alper: We were we’re over a year.

Ron Matheson: Yeah, it wasn’t usually it’s not that long. But once again, the COVID thinking right in the middle. And also, it’s interesting, too, because the buyer was one of their main operations was tow trucks, and everything shut down for COVID there too. So their revenue stock came to a dead halt. And, you know, I mean, that kind of changed a lot. And what ended up happening was, you know, we went a few months for pretty much I think, every deal die. And then maybe within six months, everything started going back to normal. And then, you know, we started building towards the end of 20, we had a big year end, particularly a last quarter that was really big. And then I think a lot of it made up for it and 21 so everything just kind of came because we had a monster year, and 21 that’s when it all came together.

Jason Gillikin: Gregg, a year long process. I mean, were you ever like, screw this? I’m just gonna keep running the business. I don’t I don’t want to do this anymore.

Gregg Alper: Yeah, that thought definitely, definitely went through my mind. And it was the initial deal that that Ron was speaking to about the, the main investor that couldn’t get back into the country. I mean, we I think went to market in like December of 19. And I think we have an LOI signed by the end of January 2020 had met them face to face in person that came down to South Florida. And with COVID, it kind of fell apart at that point. And then it was just a couple of months back on market. And then I think it was by June or July, once stuff started opening up again. Throughout the country, we went under contract again, what ultimately happened that there was they couldn’t raise the amount of debt that they thought they could raise, that deal ultimately fell apart as a result of that. And then by the end of December, a couple of days before Christmas in 2020, the last and final globe, I was signed with the buyer, I ultimately ended up doing deals.

Jason Gillikin: Well that’s Merry Christmas, for sure.

Ron Matheson: The funny thing too, is you know, we talked about time periods in our world operates a lot more quickly in the internet space than it does in bricks and mortar when I first started brokering six months would have been a fast close a year was not unusual. And so you know, you sign a year agreement. It’s not unusual to read, you know, extended at the year point. And so we’re in a world of the internet, where things tend to work a lot quicker. That was a particularly challenging period of time.

Jason Gillikin: Yeah, definitely. Yeah, that things will turn around in 2021 though, and now 2022. Gregg, did you ever think about as you’re going through this and you know, everybody’s kind of tap dancing around actually buying the company or not? And then there’s COVID, did you think about the just doing financing on your own?

Gregg Alper: Yeah, I did. So I had taken some Amazon loans that was something they had introduced around that time. So I started taking some of those and it really would, would only go so far. It wouldn’t give me what I would need. And then just looking at kind of traditional financing routes, bank line of credit and things of that nature. At the time. No When was really comfortable lending to business like that business with a heavy Amazon concentration with really a founder and overseas team, the markets kind of changed a little bit now? I can certainly say, financing and calling get to grow a business now as is really cost effective with some of the rates that these companies put out there. But yeah, it’s something that I did explore.

Jason Gillikin: Gotcha. All right. Well, let’s take you back to a couple days before Christmas, when that LOI was signed, had to feel amazing. Izach has talked before about different hurdles that companies have to go through with going from LOI to ultimately getting the money and getting the ultimate sale run, like did you have to go through any of those hurdles to get into the point of actually making the deal?

Ron Matheson: Yeah, there’s always a lot of back and forth during the contract during the working networking capital is always a challenge. You know, there’s just so much that goes back and forth. We just got off of a call just before I jumped on here. That was actually kind of funny, because we are working really hard to close tomorrow. And why? Because Friday is April Fool’s Day. And nobody wanted to close on April Fool’s Day. We actually had an eight o’clock call on Tuesday last night at 9:30 call. And today, they’re working through just, you know, probably 40 or 50 pages of the documents to get done for tomorrow’s close. And so it’s you know, there’s a lot that goes into all of it. You know, when it comes to getting to the finish line, every one of them are the same. They all have you no crisis at the end. And you always have to fit, you know, do some workarounds and figure it out. And, you know, eventually everybody gets on the same page and it works out.

Jason Gillikin: Yeah. Well, I imagine there’s got to be some sort of, Oh, crap moments. Gregg, what do you remember from this? Like, were there any moments where you’re like, oh man, I don’t know if this is gonna get done?

Gregg Alper: Yeah, it came working capital was a point of contention, from, from what I hear, not just from Iran, but from everyone. And it always is, because the two sides want to look at it differently. So working capital was one contention. And then negotiating non-competes was another. And ultimately, the only way that that this deal kind of got done was especially when it came to non-competes was to keep the lawyers out of it. And have a conversation with the main partner at the private equity firm, and asked for very reasonable language, where if this buyer is the, the right person that you’re going to continue working with, they’re not going to oppose it. So the way I typically am is, I typically won’t ask for something that I wouldn’t agree to myself. Yeah, there was a lot of eight o’clock at night, nine o’clock at night calls. Fortunately, we got all that out of the way, rather quickly. It was a kind of lengthy process, I think, from the LOI signed to closing was about four months. But there was they get a lot of diligence on the business, on the catalog on the supply chain on a lot of different areas of the business.

Jason Gillikin: Gotcha. And so then what happened? Did you get a cash? And do you have equity still like, what are some of the parameters that you can talk about?

Gregg Alper: Yeah, so the deal had a cash confirming upfront, that came out higher because we were above the working capital target. So that was nice to have, I was able to pay off the Amazon loan when I was able to pay off a couple other things. And then there was a seller note, which had some interesting provisions that that I negotiated in there. And then it also had an earn out, which had some interesting proficiency as well. And then roll an equity component. So it kind of had multiple avenues. Obviously, I would have, like any seller, I probably would have preferred more cash up front, but understood the mechanics of you’re not going to move $1 on an urn out to $1 in cash, it’s typically not going to happen when you’re dealing with finance guys. 

Jason Gillikin: Gotcha. What does that even mean? Like the interesting components of a rollout? Like we don’t need to get into specifics but like, what kind of interesting components could there be?

Gregg Alper: Yeah, so traditional earn out as I understand it, and as I usually see is okay, the way we closed the deal in 2021. In 2022, if the business hits this benchmark, you’re gonna get paid ‘X’ amount of money in 2023. If it hits this, you’re gonna get this payout 2024, you’re gonna get this. So what I kind of negotiated in there was acceleration provisions. So let’s just say the three benchmarks were 5 million, 10 million, 15 million, with five at year one, ten at year two and fifteen at year three. I wanted to put myself in a position where if we just completely hit it out of the park, and do 10 million in your one I want both are now payments in your one. And likewise, if I hit let’s in this example, 15 million, I want all three are now payments that year. In year two, if I hit in this example, the 15 benchmark, I want both of those payouts there. So those were some of the interesting components that I wanted in the earn out and ultimately got.

Jason Gillikin: Awesome. 

Izach Porter: How’s it gone since closing, Gregg, has gone as you’ve planned or suspected or forecast?

Gregg Alper: A lot of it has, and a lot of it has it just like anything else in a rapidly growing business. In a market, being Amazon that rapidly changes, it’s definitely been a fun journey. We’ve added a lot more people to the organization, not just overseas, but a lot of high level people domestically, there’s a board now that I have to interact with on a weekly basis and things of that nature. So it’s been a fun ride for the first year.

Jason Gillikin: Nice. So Gregg, you ultimately made the sale of the business and you’ve got more earn outs? What does it look like for you now? Are you still the CEO of the company, or you just on the board?

Gregg Alper: Both, so I do have a board seat, I sit as the president of the company, there’s technically no CEO of the company. We just kind of defined a corporate structure being led by a president which we’re just continuing to grow the business and looking at kind of making some very strategic acquisitions in the in the space. And that’s not necessarily focused solely on an Amazon business.

Jason Gillikin: That’s awesome. In the space, meaning auto parts are going beyond that.

Gregg Alper: Auto Parts and closely related. So automotive, motorcycle, marine power sports tools, small engine, types of very technical product categories.

Jason Gillikin: I know a company that can help out in finding companies to buy, I can’t remember their name of the website, websiteclosers.com. I think if you need help, I’m sure they can help.

Ron Matheson: We’d be happy to help you with that, Gregg.

Jason Gillikin: So when you sold the company, you got your first cash payout. And what’s the, how did you celebrate? What’s the first purchase that you made?

Gregg Alper: I bought a vacation rental slash second home at Colorado, and that was about three months after closing.

Jason Gillikin: That is awesome. So how often do you get there?

Gregg Alper: I closed on the place in August of last year. I spent a total two weeks there. 

Jason Gillikin: Oh, come on. You’re still very busy, I guess. Well, Gregg, thank you so much for being our guest here on the Deal Closers podcast. And it has been an amazing episode and I truly appreciate it.

Gregg Alper: It was a pleasure to be on the stand to.

Jason Gillikin: Greats talk with Gregg.

Gregg Alper: Thank you very much so.

Jason Gillikin (OUTRO): All right, that was Gregg Alper, and you can find GWA Auto Parts at gwaautoparts.com. Thanks everyone for listening to this episode of the Deal Closers podcast, brought to you by websiteclosers.com. If you liked the show, be sure to rate us, write a review, and press the follow button or share with your network. And of course if you’re looking for help selling your ecommerce business, be sure to visit websiteclosers.com. This episode was edited and produced by Earfluence. I’m Jason Gillikin and we’ll see you next time on the Deal Closers podcast.