🛏️Weighing in on Weighted Blankets

🛠️Acquisition Teardown of a Shopify Brand

Welcome to this week’s newsletter! We’re all the way from Germany for this one.

We are closing next Tuesday on a new portfolio from an aggregator and one of the businesses we are most excited about sells weighted blankets. If you’re not familiar with these products, weighted blankets can help improve your sleep by simulating the feeling of being hugged.

Let me go over part of our due diligence process by doing a teardown of the brand. This exercise helps us decide on the best way to move forward with a brand.

Introducing the Brand

Bedding Weighted Blanket (Duvet and Cover)
Bedding Weighted Blanket (Duvet and Cover)

This Shopify brand was founded in Germany in 2018. The founders themselves were suffering from sleep problems and discovered that the use of weighted blankets helped ease their issues. Knowing this could also help others, they decided to launch their own line of weighted blankets.

They launched through a Kickstarter campaign in 2018. The following year, they put up online stores for Germany and Europe. From 2019 to 2021, they came out with new and improved products and expanded their reach. In 2023, they eventually sold the brand to an aggregator.

They have the BEST bedding weighted blanket I have seen on the market in any country, which means their cost of goods (COGS) is very HIGH (50% of revenue vs usual 20-25%). I believe this is where we can create some value.

Understanding the Situation

We need to improve margins in 2024
We need to improve margins in 2024

The brand revenue and profit has declined slightly year-on-year (YoY) compared to 2022. This is normal as more people go back to shop at physical shops and the malls. The brand has also been managed by an aggregator recently with external agencies versus having involved founders.

Also, the brand is NOT currently positioned as the BEST and most LUXURIOUS blanket in the market. And, with its high COGS but lower pricing, its margins really suffer in an industry that is generally race to the bottom.

Overall, we see a few things that can easily be improved before we sell the brand to a new owner after a year.

Turning Things Around

Knitted Blanket - New Product Launch in 2024
Knitted Blanket – New Product Launch in 2024

This turnaround has two main components:

  • Fix the COGS
  • Launch 2 new hero products in 2024

Fix the COGS

We do not want to compete in the luxury segment, as we are not experienced enough in it. This means we need to lower the COGS. We already have quotes to lower it by 50% while maintaining similar quality. This will bring our total working capital needs for inventory from $350,000 to $200,000 while improving CM3 from ~$100,000 to ~$350,000.

We have suddenly improved the valuation of the business from $500,000 to $1,000,000.

Launch Two New Hero Products

The brand is currently very focused in weighted blankets bedding and the market has a lot of demand for lounge weighted blankets. You use them on the sofa when taking a nap or watching a movie, outdoors when sitting on a bonfire, or in the car during a road trip. This is a product line we will launch to sell using the email list of previous customers.

Our plan is to launch 2 products in 2024:

  • Cooling Bamboo Weighted Blanket at $199
  • Knitted Cotton Weighted Blanket at $199

We forecast we will sell 1,000 of each in the first year, which will add $200,000 CM3 and take the business to over $500,000 CM3, making it a more attractive target to buyers.

We can now easily sell the brand for $1,500,000. With our purchase price being only $350,000, we will have achieved a good return on our investment over 18 months.

Conclusion

Some turnarounds require manpower reduction. Some turnarounds require product improvement and ideation. At Inversal, we know what to do before we acquire a brand and we execute over the following 18 months.

We are currently raising a $1MM convertible note by January 15th, while we prepare for a series A raise in 2024. Let me know if you want more information.

Thanks and see you next Sunday!

As far as acquisitions are concerned, valuations are ultimately decided by the parties involved. We just try to reach a point where things work for everyone involved, especially us. If the deal makes sense, we’ll do it.

See you next Sunday!

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Marc Roca
Founder & CEO of Inversal

Marc Roca Founder & CEO of Inversal - Face
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