Ornaments for Crocs: A $20 million idea
A husband and wife made their little company into a successful, $2-million-a-month business - then sold for $20 million.
(FSB Magazine) -- Crocs clogs have launched more than a fashion craze. The popular perforated shoes have also inspired a piggyback business.
Rich Schmelzer, a software entrepreneur from Boulder, started Jibbitz in August 2005, selling ornaments designed by his wife, Sheri, to fit in the footwear's famous holes.
By September 2006, Jibbitz was pulling in $2 million a month, selling in 4,000 stores in North America (and several hundred more internationally). In October, Crocs bought Jibbitz for $10 million upfront and another $10 million if the company hits earnings targets.
According to Fred Zirkle, CEO of IndustryPro, a Midvale, Utah, M&A advisor, "earn-outs" are a common arrangement in acquisitions of young, fast-growing companies whose sellers think they will be worth more soon.
"It can be a sweet deal for the buyers. Sometimes they can make the second payment out of earnings from the acquired company," Zirkle says.
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