Buying 2 Rivals to Create a Dominant Leader

There's a lot of nuance. It's not straightforward. Like, there's different ways to do it.

You can do it based on when the passes actually get redeemed. You could just do a straight line. Like, every month I take, you know, a 12th of that $120, and so it's like $10 a month.

The 12th. The 12th. The 12rd. The 12th is. Is imperfect because the other challenge in your business is you don't know how much somebody's going to actually use the pass.

So this unlike, say, a SaaS business where, you know, an annual payment, you collect payment for the next 12 months at the top of the 12 months, but you know exactly the service that you're due to deliver over the coming 12 months. So it's all very linear and predictable. Not so here. Every. That's where I guess the data comes in.

And you guys really have to look at your data set and make predictions on, you know, your, your kind of average behavior and average consumption patterns of, of your 200, 000, you know, member pay, member base. Yeah, hard, Hard. That's exactly it. And so what, what happened was they did that diligence, and it came out much lower than expected. And so the, the EBITDA went down significantly.

It was maybe a third of what we thought it was. And what that meant was the business was worth much less than we thought it was. Yeah, right. And so I was devastated when that happened because when I saw those numbers, then I knew we didn't have a deal.

This wasn't like I was going to go retrade and try and get them to come down, you know, a few million bucks or something. This was like, hey, you guys are never going to accept the valuation that I'm going to put on this business, and I know that right now, and I'm never gonna give. Even though they knew, even though they were prepared for it to come down, because you said that they all knew.

Yeah, they were prepared for it to come down, but not as much as it was going to come down. So none of them had any idea that it was going to come down as much as it did. And to be honest, like, we should have had an idea.

But the biggest reason that it came down so much more than the POGO pass was growth they were growing a lot faster. When you think about it and step back, it kind of makes sense. It's like, oh, well, that's because they had these big sales and this big growth.

And if you're not, you know, pushing that forward into the next year, it makes it look like you're keeping a lot more than you are. Whereas if you're more steady state than accrual is a little bit more close to what cash basis looks like. And, and so that was, that was the biggest thing.

So on one side it's like, well, growth is a good thing. Like, hey, we've got this great trajectory and we can keep on growing and there's all kinds of expansion to be had. And so then you start to look at like, well, is this a different type of valuation?