How long does it take to sell an eCommerce business?
For small brands, you can work with a marketplace style broker. They’ll have you on the business in around a week and with any luck you’ll be sold in 2-3 months.
For larger brands (over $500k in profit) like the ones we work with here at Raincatcher, the process is longer. It takes 1-2 months to get on market, 2-3 months to market the deal and solicit offers, 1 month to meet with investment groups who submitted IOIs and another 2-3 months to get from LOI to close.
On average, It takes 8-9 months to sell a strong eCommerce Business.
How are eCommerce companies valued?
On a multiple of their annual EBITDA. 80% of direct-to-consumer brands we work with will sell for 4-6 X EBITDA.
See the below guide on what makes eCommerce deals more/less valuable. Or, use our valuation calculator to see where your company falls.
What are the steps to sell an eCommerce Business?
We’ll outline the steps in more detail below. Here they are at a glance:
- Request a valuation from a capable M&A firm. Ideally, one that has worked with DTC brands your size.
- Gather your financials, org charts, supplier/agency agreements, HR documents.
- Your advisor will prepare a CIM and teaser (marketing materials) on your business.
The Formative Days of eCommerce
As consumers began to shop online in the late 90’s, eCommerce quickly became a recognized business model. However, there were still very high barriers to entry as there were limited third-party technologies to build an eCommerce business on and accept payments.
Additionally, most merchants were stuck fulfilling orders out of their own garage. Venture capital firms took interest in the rapid growth of eCommerce’s early days which drove innovation and the growth of solutions such as Shopify and Amazon.
As Amazon started to get traction, payment processor solutions such as PayPal and eCommerce CMS’s like Magento also arrived, the number of merchants quickly grew. This created a market where many eCommerce merchants had rapid and sustained success. It was at this point that Private Equity groups got off the sideline and decided it was time to deploy capital into this now proven market.
The Current State of the eCommerce M&A Market
While the number of consumers that are looking to make their purchases online has continued to increase, it has been outpaced by the number of merchants entering the market.
In recent years, the number of eCommerce merchants has become so large that the costs to acquire a customer has gone through the roof, return rates are higher than ever, Amazon has taught the market that they should expect 2 day shipping on everything they order and the once juicy profit margins of avoiding wholesale channels and selling direct-to-consumer are now blood red.
Many strong brands are willing to lose money on the first order a customer makes with the hope of getting them to purchase several more times and eventually make a profit.
This has made eCommerce in the post-COVID era, a game of buying strong brands as opposed to a game of building strong brands and thus-far, it has been picky buyers who understand products and consumer behavior who have benefitted.
Request A Valuation
If you are entertaining an exit, feel free to start by requesting a complimentary valuation. We’ll try to get back to you with our thoughts on your business or by setting up a complimentary valuation.
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Are You Interested in Selling?
The Process to Selling an Ecommerce Business
Each broker/M&A advisory firm will have their own process. These processes are largely tailored to the size of deal that these firms work with.
For eCommerce companies $500k – $10m in annual profit (our specialty), the sell-side process looks like this:
1. Gather Documents
Develop a comprehensive request list to get all key business documents, images, product specs, operating models, etc. Not only is this helpful in building the CIM (next step), the investment groups will need to review these materials before they table their best-and-final offers (LOI).
These documents will be scrutinized before you get to a close, so it’s helpful if your advisor has a comprehensive understanding of all of these documents before marketing the deal.
2. Create Marketing Materials
The advisor should build a CIM to represent the business. 20 pages seems to be about right for most eCommerce companies.
This should cover not just the current state of all of the business departments, it should cover the market the company plays in, where it can be grown and a background of the marketplaces it sells in.
3. Market the Deal
Your advisor should come up with a specialized marketing list specific to your deal. This means including private equity groups, search funds, independent sponsors, family offices and any strategic buyers that may have interest in your brand.
The investment groups will first get an anonymous presentation about the business and sign an NDA to request more information. After vetting, your M&A advisor will grant them access to the data room to view the comprehensive marketing materials. Follow up discussions and document requests will also be made by the advisor and investment groups at this point.
4. Set an Offer Submission Deadline
Your M&A advisor will set a bid submission deadline and give clear guidance to the investment group on what structure the business owner is looking for.
The reason why a submission deadline is necessary is so that the buyers are competing against one another to get the deal. If you get an offer after 1 week of marketing and don’t get any others until 5 weeks later, there is no way to compare the two of them and have second rounds of bidding as you never have more than one offer at a time.
5. Management Meetings, LOIs and Due Diligence
After round 1 bids (IOIs) are received, you’ll work with your advisor to short-list the 3-5 most capable buyers and buyers who offered the best terms to invite our for management meetings. You’ll meet with those groups either in person or online, make a presentation on your business and learn more about them.
Once you’ve conducted management meetings, your advisor will give the investment groups guidance on how they can adjust their offer (more/ less rollover, higher price, less earnout, etc.) to make it more beneficial to the business owner.
Potential buyers will then submit their best and final offers. Your advisor will walk you through the options and help compare them apples-to-apples as there are often a variety of different deal structures. At this point you’ll sign the most desirable LOI.
The rationale for waiting as long as possible before signing an LOI is that they are exclusive. This means you can no longer market the deal or negotiate terms with any of the other potential buyers.
Once an LOI is signed, the buyer will request a number of documents to be uploaded into the data room for due diligence. They will also hire an accounting firm to do a quality of earnings analysis on the business and a law firm to diligence any legal risks associated with the contracts or the assets of the business.
6. Purchase Agreement and Close
One diligence is complete, the buyer will submit to the seller the first draft of the purchase agreements. For Brands selling for $5m – $100m, these purchase agreements are often 50 – 75 pages.
Items such as working capital pegs, indemnification, survivability, reps and warranties and true-ups that are common in M&A, but not often-times found in other industries are ironed out at this stage.
Because this is such a nuanced process, it is important to surround yourself with capable advisors. In addition to your investment bankers/M&A advisors, you’ll need a capable M&A attorney.
Once the purchase agreement is executed, the buyer wires the funds to the seller or to an escrow agent for distribution. The deal is now closed.
7. Post-closing Responsibilities
Often-times, the seller and buyers will agree to the seller overseeing a successful transition period. This can last anywhere from 3-12 months post-close.
In some cases, the buyer is really a partner moving forward and the seller desires to stay on with the business in some capacity for the coming years.