Why You Should Use an eCommerce Business Broker to Sell your Business
Selling a business is a big decision that can be a life changing event. For many of us selling our business can be one of the biggest financial decisions we’ve ever made.
Selling an eCommerce business requires a unique broker or advisor who has experience in the industry. eCommerce businesses are much more complex than your average brick & mortar businesses. With complex contracts, confidential manufacturing relationships, 3rd party distribution channels, and fluctuating inventory, there are a number of variables to consider when selling an eCommerce business.
Studies have shown that the price you receive for your business and the probability of a successful exit goes up with the quality of the broker you hire.
Transactions can fail for a number of reasons, but the most common reason a transaction will fail is that the broker or seller has overpriced the business from the start.
Finding a quality business broker can help you sell your business for a higher price more quickly.
There are really 3 main types of eCommerce business brokers. Also, a disclosure before we go any further, I’m a managing director at BizSold.
M&A Advisors – BizSold.com
These are high-level brokers who specialize in larger more complex transactions, they’ve built relationships with private equity groups and strategic buyers and represent companies with doing $1mm or more in sales.
An M&A advisor will typically get you more for your business as they work with you to create an exit plan and help increase your value before taking you to market. The typical M&A advisory firm is around three to seven professionals who work on a transaction as a deal team.
Business Brokers – FEInternational
These firms typically focus on small to medium sized deals with an average deal size of less than $1mm. These firms will offer a superior level of customer service to a marketplace like flippa.
Marketplaces – Flippa
At the smaller end of the spectrum are eCommerce marketplaces like Flippa, these companies typically will accept any type of listing and have little to no vetting process for no listings.
Benefits of Using an eCommerce Business Broker
A good M&A advisor or business broker will do a comprehensive business valuation to determine exactly what your business should sell for. The concept of valuing a business sounds simple enough, but it’s actually quite challenging and requires a skilled broker or CPA. Since the sale of private companies is typically not public information, it’s extremely important to find a business brokerage that has significant data they can use for comparables.
Since the sale of private companies is typically not public information, it’s extremely important to find a business brokerage that has significant data they can use for comparables.
Getting a proper valuation isn’t the only reason to look at hiring a business broker, selling a business involves much more than just a proper valuation. Selling a business requires significant time and resources, the process can take several months to over a year depending on the size of the transaction.
Marketing Your Business –
A good broker will market your business in several ways. Good brokerage firms have spent a large amount of money building and segmenting their email list. The majority of business transactions are closed inside a buyer database with cultivated relationships.
Business brokers will advertise your business to over 30 networks with sites like axial.com and bizbuysell.com, a respected business broker will have premium subscriptions to these websites and use them to effectively market your business.
Finally, your broker should work with you to identify potential acquirers and make a plan to contact those potential acquirers confidentially on your behalf.
Negotiation & Due Diligence –
Most sellers make the mistake of underestimating the sheer effort and time it takes to close an M&A deal.
Sophisticated buyers often use the tactic of “wearing down” the seller to get a better price. In this situation, the buyer will continually request due diligence items from the seller in an effort to frustrate the seller and wear them down into taking a lower offer. Sellers will request things like complex financial reports, market plans, legal records, and proformas to try and bog the seller down.
As a business owner, you have a business to run and don’t have the time for the back and forth games played by buyers. If you lose focus of your business even for a minute and profits or revenues start to decline you will be forced to discount the price of not be able to sell at all.
A good broker will handle these negotiations to weed out bogus due diligence requests and take as much of the burden off your shoulders to let you run your business.
Buyers will also get a 4 to 8 week due diligence period (pending on the deal size and complexity) to review financials and legal records. Due diligence can be a very time consuming and intense process. It’s during this period buyers will request financial documents, review legal and employment contracts, visit facilities, and interview key employees and vendors.
A high-quality broker will prep you for due diligence, help prepare a data room, gather paperwork and answer questions. It’s a businesses brokers job to help you navigate this period.
Finding & Managing Buyers –
Finding a buyer always seems easier than it really is. As a seller, you will find that a lot of different people may be interested in your business, but the fact is most of them aren’t serious and don’t have the resources or knowledge to complete an M&A transaction.
Often times competitors will poke around to try and steal trade secrets or information with no real interest in purchasing the business.
Dealing with these “fake” buyers can waste months of your time. A good business brokerage or M&A advisory firm will have a pre-screened list of qualified buyers.
Brokerages build up these buyer lists and relationships over the years through networking and advertising other deals.
There are 4 major buyers who are the typical purchasers of eCommerce businesses.
- The First Time Buyer – The first time buyer is generally a corporate employee or individual with newly inherited money that has always dreamed of owning their own business. These buyers typically use some form of bank financing and a large part of the deal will depend on how much financing they can get. In this scenario, its very important you have a business broker who is familiar with SBA and bank financing. Bank underwriting can be burdensome and if you’re not prepared it can quickly kill the deal.
- The Entrepreneur – This individual typically buys in two situations: They’ve recently sold a company and is cash heavy and looking for their next business venture…..Or they are looking to purchase a bolt on acquisition for an existing business. These are sophisticated buyers who can close a deal quickly and tend to make fast decisions.
- The Strategic Buyer – These buyers include competitors, manufacturers, employees, and vendors. These are often the first place a seller will go looking and often the last place a sale will happen at. That said, competitors are often willing to pay a premium for a business. In the case of a competitor, a business broker can be a huge asset in protecting your interests with confidentiality agreements.
- The Institutional Buyer – This group includes private equity and investment groups. These groups are cash rich and aggressively looking for deals. Generally speaking, they have raised money and are looking to deploy it. In 2017 with low yields and the lost cost of capital the M&A market is a seller’s market with investors looking to private equity groups for higher returns. These groups are very sophisticated buyers and have set operating procedures for how they value businesses. Private equity groups are sophisticated negotiators and have deep pockets so it’s important you’re properly represented.
Reviewing the Buy/Sell Purchase Agreement
Purchase agreements can vary in length and complexity depending on the size of the business being sold. Larger more complex transactions tend to have longer more complicated agreements.
As the seller, you will certainly want to have an experienced transaction attorney on your side advising you.
There are two main types of purchase contracts, an asset purchase agreement, which means the buyer is going to acquire the assets of the company, but not the actual company itself.
The alternative to an asset purchase agreement is the stock purchase agreement where the buyer is purchasing shares of the company.
Both types of agreements have different tax and legal consequences so it’s important that you have good legal and tax advisors on hand. A quality business broker will help advise you on your options and the different outcomes.
Selling your eCommerce business is a huge decision, it’s extremely important that you find quality representation. Having the right representation could be the difference of selling for a big pay day and not selling at all.