Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Pet Brand Hit 30x EBITDA with Subscription Box Data
Transcript
- Lucas: So Luna, you know how we spend a lot of time on this show talking about multiples and what drives them — recurring revenue, contracts, IP, all that. Luna: Yeah, we've seen a lot of businesses in the 10 to 22 times range. Lucas: Right. But this week I came across a deal that really stood out. A small pet subscription box company called Tail & Tread — they sold at 30 times EBITDA. Luna: 30 times? That's almost unheard of for a company that's basically curating dog toys and treats. Lucas: Exactly. And the interesting part is that the multiple wasn't driven by some fancy SaaS platform or patented technology. It was driven by data. Specifically, the data they had on their subscribers' behavior. Luna: So it wasn't just the recurring revenue — it was the insights from that revenue. Lucas: Precisely. Tail & Tread started about six years ago. They shipped monthly boxes of premium pet products — think elk antlers, freeze-dried liver treats, eco-friendly poop bags. Luna: The kind of stuff that pet owners with disposable income love. Lucas: Right. They grew to about 8,000 active subscribers, with average revenue per subscriber of $45 per month. That's $4.3 million in annual recurring revenue. Gross margins were around 60 percent because they sourced directly from manufacturers and negotiated exclusivity deals on some items. Luna: So healthy margins, decent scale. But what pushed the multiple to 30? Lucas: The key was their churn rate. Monthly churn was just 0.3 percent. That means an annual retention rate of about 95 percent. For a subscription box business, that's elite. The industry average for pet boxes is closer to 5 to 8 percent monthly churn. Luna: Wow. So they were keeping customers for years. Lucas: Yes. And the reason they had such low churn was that they used data to personalize each box. They tracked which items each subscriber's dog interacted with — via a simple feedback card in the box and a mobile app where owners could rate products. Luna: So they learned that, say, a golden retriever owner in Colorado loves the antlers but hates the plush toys. Lucas: Exactly. They built a machine learning model that predicted which products a given subscriber would be most likely to repurchase at full price. Then they only included those items in the box. That drove satisfaction and kept churn low. Luna: And I'm guessing the acquirer saw more than just the subscription revenue. They saw a data asset. Lucas: That's exactly what happened. The buyer was a larger pet conglomerate — think one of those companies that owns multiple pet food and accessory brands. They didn't just want the subscriber base. They wanted the data on what 8,000 highly engaged pet owners actually prefer. That data could inform product development across all their brands. Luna: So the multiple reflected the strategic value, not just the cash flow. Lucas: Right. The owner, a woman named Sarah, had kept meticulous records. She could show the acquirer that her subscribers had an average customer lifetime value of $1,800 — that's four years of subscription revenue at 60 percent margin. The acquirer's internal models valued that lifetime value at a premium because they knew they could cross-sell other products to those same customers. Luna: So the data made the recurring revenue even more valuable. Lucas: Exactly. The acquisition was structured as a $12 million upfront payment plus a $3 million earn-out based on retention over the next two years. At the time of sale, Tail & Tread had about $2.6 million in EBITDA. That $12 million upfront is about 4.6 times revenue, but 30 times EBITDA. The earn-out could push it to 37 times if they hit targets. Luna: That's the kind of deal that makes other small business owners rethink how they run their operations. Lucas: And it's a great example of why recurring revenue alone isn't enough. You need the data to prove the stickiness and the growth potential. Luna: It makes me wonder — how many small subscription businesses are sitting on valuable data but not using it to strengthen their exit story? Lucas: Probably a lot. And that's actually something I've been thinking about. You know, this show is ad-free because of listener support, and conversations like this — where we get to dig into real numbers and strategies — that's only possible because people who find value here choose to support it. Luna: Yeah, it's a small way to keep the show independent and focused on the details that matter. Lucas: If these conversations have moved your work forward in some small way, you can find us at buy me a coffee dot com slash fexingo. Luna: No pressure, just an option. Lucas: So back to Tail & Tread — one thing Sarah did that I think was brilliant was she segmented her subscriber data by dog breed and region. She could show the acquirer that, for example, subscribers with large breed dogs in the Midwest had a 97% annual retention rate. Luna: That level of granularity must have made the acquirer drool. Lucas: Absolutely. And she also had data on product affinity — which items were most frequently reordered outside the box. That told the acquirer which products they could spin off as standalone e-commerce items. Luna: So the data opened up multiple revenue expansion strategies post-acquisition. Lucas: Right. The acquirer planned to launch a direct to consumer line of Tail & Tread's top five most popular products within six months of closing. They projected that alone would add $2 million in revenue in the first year. Luna: And that's not even including cross-selling to the existing customer base. Lucas: Exactly. So the 30 times multiple starts to make more sense when you realize the acquirer wasn't buying a subscription box — they were buying a data engine with a subscription box attached. Luna: What about the earn-out structure? How did that work? Lucas: The earn-out was tied to maintaining a monthly churn rate below 0.5 percent for 24 months. Sarah stayed on as a consultant for a year to help transition the data systems. She had a $50,000 bonus if churn stayed below 0.3 percent at the 12-month mark. Luna: So she had skin in the game to keep the data pipeline clean. Lucas: Exactly. And the earn-out was paid in cash, not stock, which is rare and favorable for the seller. Luna: That's a smart structuring choice. What advice would you give to a subscription business owner listening who wants to position for a similar outcome? Lucas: First, track your churn religiously. Not just overall churn, but cohort churn — by acquisition channel, by product preference, by customer lifetime value. Second, capture preference data from your subscribers. Even a simple survey or a feedback card can generate insights. Luna: And third, document the lifetime value calculation so a buyer can see the math. Lucas: Exactly. Sarah had a spreadsheet that showed the cumulative net present value of a subscriber over four years, discounted at 10 percent. That made it easy for the acquirer to plug into their own models. Luna: So the data didn't just help retention — it also made the business easier to value. Lucas: Right. And that's the key takeaway: if you want a premium multiple, you need to prove that your revenue is not just recurring, but predictable and growing. Data is the proof. Luna: I love that this example shows that even a small company with 8,000 subscribers can achieve a 30x exit by being data-smart. Lucas: It's not about size — it's about the story you can tell with numbers. Tail & Tread had a story that made the acquirer see a ten-year opportunity, not just a cash flow stream. Luna: And that's the difference between a good exit and a great one. Lucas: Exactly. So if you're running a subscription business, start collecting the data today. It might be the difference between selling at 10 times and 30 times. Luna: Great episode, Lucas. Lucas: Thanks, Luna. Talk to everyone next time.