If you are thinking of selling your eCommerce business in the next 12-24 months, you should understand the difference between the sales process and sales preparation.
​Sales process:
By the sales process, we ultimately mean the M&A negotiation, which includes lawyers, accountants, due diligence and payout structures. It can take three to ten weeks from the letter of intent (LOI) to the final offer.
​Sales preparation:
This refers to all the steps that are helpful in preparing your eCommerce business for potential buyers in order to achieve the highest purchase price. This includes preparing your financial and legal framework, your supply chain, your marketing and much more (see below).
Starting the sales process unprepared usually favours the buyer and results in a lower payout for you. Sellside Partners helps eCommerce entrepreneurs best prepare their business for exit and guides clients through the entire selling process.
In this article, we highlight ten specific administrative, commercial and deal related issues that should be considered and prepared for as part of the sale preparation process.
Administrative:
#1 Prepare your financial data
Sometimes e-commerce entrepreneurs contact potential buyers without having set up and cleaned up their financial data beforehand. Often, errors occur in the profit and loss account during the sales process.
This leads to significant additional work and increased uncertainty for buyers, which can ultimately result in a reduced purchase price. Accurate and reliable financial data is therefore central to a reliable purchase price offer and a smooth sales process.
We check the financial data of each client for plausibility and can establish contact with specialised accountants if necessary. We approach buyers with a prepared P&L that is specifically adapted to the industry, so that they can concentrate directly on the significance of your figures.
#2 Prepare yourself legally
Obtaining and organising all of your company's legal documents and requirements can be time-consuming. It is therefore important that everything is prepared, before the sales process is initiated. This ensures that the deal does not drag on and potential buyers do not lose interest.
We work with lawyers who specialise in this area and to whom we can refer you.
#3 Consult a tax advisor
The sale of an eCommerce company often involves large sums of money. It therefore makes sense to think about the deal structures in advance and to carefully evaluate the associated tax implications.
We know tax advisors who specialise in such topics and will be happy to advise you.
#4 Protect your intellectual property
Your business depends on your brand and your products. It is therefore important to ensure that they are adequately protected.
We know lawyers who have a lot of experience in protecting intellectual property and would be happy to introduce you to them.
Commercial:
#5 Develop your eCommerce brand equity
The strength of your brand is determined by buyers using certain (Amazon-specific) metrics. Among others, the following KPIs are consulted:
Ø Rating
# of Ratings
# of Simple Notification Subscribers (SnS)
ASIN KPIs (# clicks, % conversion)
Stock-out frequency
Stability of sales prices
A+ Content
Pay attention to and improve these metrics in the phase before your exit. They will be decisive for how attractive your brand is perceived in the market. For example, the difference between a 4.2 and a 4.3 rating will determine whether your listing is displayed with 4 or 4.5 stars.
We have experience in evaluating KPI's of online businesses. We would be happy to analyse your business and share our assessment with you.
#6 Diversify your revenue
In terms of sales revenue diversification, there is a balancing act to be mastered. Aggregators appreciate it when eCommerce companies are successful with a few SKUs and only offer them in selected markets and primarily on Amazon. The background is that the buyer can exploit a lot of potential in terms of product, channel and geography itself and thus high future growth rates are more likely.
What aggregators appreciate, however, is when a brand has already proven that it can successfully implement a product, channel or geography expansion. As long as there remains sufficient potential for further initiatives, such expansions can significantly increase the purchase price multiple.
We are happy to help you discuss and prioritise such expansion strategies.
#7 Optimise your Seller Discretionary Earnings (SDE)
Your company is primarily evaluated on the basis of the Seller Discretionary Earnings (SDE) of the last 12 months. It therefore makes sense to ensure that this indicator is as high as possible in the months before the sale. But beware: Buyers also notice if the figures have been artificially inflated, e.g. through exaggerated marketing expenditure.
In the following you will find a rough overview of what a robust profit and loss statement in eCommerce can look like in our experience:
Cost of Goods Sold (COGS) at 30% -- cost of manufacturing your product and shipping from the manufacturer.
Fixed Operating Costs at 40% -- Including all Amazon Marketplace commissions, storage and fulfilment fees.
Variable marketing costs at 10% -- Including all marketing costs, Amazon advertising, influencers, social media, etc.
SDE margins at 20% -- The resulting SDE margins after all investments.
We are happy to analyse your P&L and advise you on possible initiatives to reduce your costs.
Deal:
#8 Articulate your growth story
Buyers of eCommerce brands will primarily focus on the growth potential of a target.
It is therefore important to clearly highlight the potential that lies dormant in a brand and to quantify it for the buyer. Only in this way can you ultimately create a "hype" around your brand among interested parties and achieve a purchase price that is above the usual multiples.
We know what makes buyers' hearts beat faster and can address them directly.
#9 Prepare a sales prospectus
As soon as the growth story has been defined, it is poured into a sales prospectus and supplemented with the most important key performance indicators (KPIs). Since buyers are confronted with potential targets on a daily basis, it is very important to clearly highlight the advantages and potential of your brand. This is the only way to arouse the interest of the buyer's investment team and obtain a purchase price indication (LOI).
We know the internal processes of aggregators and have experience in writing sales prospectuses for large private equity deals. We would be happy to help you with our expertise.
#10 Get initial feedback from buyers
Once your company is prepared for the sales process, it is worth getting initial feedback from selected buyers. Based on the feedback, changes can be made before approaching the wider market. Relevant changes to the prospectus or a pause in the sales process tend to be perceived by buyers as unprofessional or a warning signal once the official process has been initiated.
We have close contact with buyers and can therefore easily anticipate and wait for the right go-to-market time.
