D2C Distressed Acquisitions

Mehtab describes a strategy of acquiring distressed D2C (direct-to-consumer) businesses, focusing on companies with strong operational components that can be turned around through manufacturing improvements and operational efficiency.

Key Points:

• Target Criteria:

  • Distressed D2C businesses doing ~$100M revenue
  • Can be acquired for $10-15M in equity
  • Focus on companies with physical manufacturing components
  • Look for businesses others are unwilling to tackle due to operational complexity

• Acquisition Strategy:

  • Enter at far below market valuations
  • Work with existing creditors and senior lenders
  • Structure deals to get cash back quickly (within 2-3 months)
  • Focus on companies where manufacturing is in US or Mexico

• Turnaround Approach:

  • Implement lean manufacturing principles
  • Boot up manufacturing operations in Mexico for margin expansion
  • Clean up operations quickly (within 6-12 months)
  • Remove inefficient team members and revise company culture

• Key Advantages:

  • Manufacturing operations provide strong defensive moat
  • Skills/processes transfer cleanly between companies
  • Hard for overseas competition to replicate
  • Less reliant on marketing compared to typical D2C brands

• Exit Options:

  • Sell the improved business
  • Leverage the business to take out cash
  • Use as platform for larger fund raising