Case Study: Selling an e-commerce/online business
Mark and Joanne Hammond had an established and successful online business selling specialist hide rugs, having started the company themselves in 2014. The company had enjoyed year on year growth and it had reached the point where further investment was required in infrastructure, including staffing, storage and logistics. Mark, having Owned other online businesses in the past felt that he was not the person to take the business to that next stage. His business was run from home, and, in his words, literally “took over his house”. He had outsourced the marketing and online activities very successfully, relying totally on website sales, so there was huge potential to enter other selling platforms such as Amazon. The products were very competitively priced and of high quality.
The business had grown year on year, with a turnover in excess of £400,000 and we established an EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) and add back benefits to be around £100,000 pa. There was also up to £80,000 worth of stock.
Mark had sold all his previous businesses himself and felt that he needed professional help this time around. Mark first made contact with us in March of 2017. He had a free one-hour telephone consultation with Zach Dogar, during which a valuation of the business was established as well as advice on marketing strategy, taxation and the legal process. After speaking to several agents, Mark initially decided to go with a national business transfer agent because the agent visited him personally and he felt this was important to him at the time.
It is worth noting at this stage, that a personal visit does not in any way affect the level of advice given and national agents hire sales people, who have never actually sold a business before. Their job is to “sign you up” and the file is then passed on to others to prepare the marketing material and yet another department to sell it. On this point, our advice is to be careful when choosing an advisor. Be sure you know the experience of the actual Broker who will be handling your sale. Also, be careful to ensure you are not sold a service by a well presented salesman and that valuations are realistic and substantiated.
After several months Mark became very frustrated because of the lack of interest generated by the agent and so, decided to use us. His feedback was that Zach was the most knowledgeable and professional person he had spoken to in the industry.
We helped him get out of his contract with the previous agents without penalty, and started marketing the business on 19th June 2017. Zach was in charge of the case throughout, and prepared and agreed the marketing material and the business was quickly taken to market. All documents were swiftly collated including accounts and finances so that the file was ready for the negotiation stage. Mark immediately noticed the difference and was able to reach Zach at any time and alleviate concerns and be helped gently through the journey.
We understood that this opportunity would attract either an established online business that already had the infrastructure to grow the business or a hands-on private Investor that could take the business to the next level. The business was discretely exposed via the Internet using our website www.ets-corporate.com, www.businessesforsale.com and www.daltonsbusiness.com. As well as this, a large database of prospective Buyers were mailed, and suitable online businesses were approached.
The business, being a very profitable and successful concern, attracted lots of interest, so our first job was to initially ensure the right Buyers came forward. We used financial and background vetting to ensure that we were able to filter out genuine Buyers from those with other motives before seeking Mark’s permission to release confidential information. The NDA we have protects financial information, client base as well as staff and personnel and offers extensive reassurance.
The initial interest came from private investors and once NDA’s were signed by relevant Buyers, telephone meetings were arranged so that Mark was able to vet potential Buyers himself before releasing commercially sensitive information about the business. He was particularly keen to protect the identity of his suppliers which was the main basis of his business. During mid-July of 2017, a private investor was ready to make an offer. This coincided with the latest account showing a huge dip in turnover, in fact by around 30%. The Buyer made an offer based on a majority of the purchase price being paid on completion, with the remainder being on the basis of an earn out. This was agreed and Zach then started the process of negotiating and agreeing The Heads of Terms. The Buyer, being a Management Consultant and experienced businessman did negotiate very hard but Zach’s experience helped to reach a sensible deal.
We then moved onto the due diligence process, which Mark found particularly frustrating. The level of detail required by the Buyer was becoming more and more unreasonable and Mark had reached the stage where he felt like pulling out. The business had started to pick up and he was having second thoughts about selling. Zach then suggested a face to face meeting and after lengthy discussions, the deal was aborted. Whilst this was happening, a Buyer with a well-established multi-site home furnishings business appeared through our marketing campaign. He was however, looking for a “good deal” and he was treated with caution, as he was a potential competitor.
At this stage, Mark was frustrated with the process to the point that he actually wanted to take the business off the market but after a few conversations with Zach he reminded himself of the reasons why he wanted to sell.
During late August, a business meeting was arranged with another private buyer. She then decided to seek her accountant’s advice and put forward an initial offer. Zach was able to increase her offer, and Mark was attracted by the fact that all of the purchase price including stock would be paid upon completion. The Buyer also paid a non-refundable deposit of £5,000 on 4th September 2017. The matter then progressed to due diligence and Zach introduced the solicitor to Mark, as legal fees were covered by us. Mark was particularly pleased with how swiftly the legal process was concluded and the matter completed within another 7 weeks.
Mark was very happy with the service offered by us and you can see his video interview here:
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