You’re thinking of selling your successful eCommerce business. What’s going to make your brand attractive to acquirers, and more importantly, what are some weak spots to improve on?
We usually discuss qualities that will excite a buyer, but it’s also important to bring up red flags aggregators look out for, and ways that you can either avoid them or improve them. If you are considering selling in the future, yet do not know where to start – it’s of great value to evaluate your business and see if your brand has what it takes to be attractive to a buyer.
Selling your business can be a difficult and time-consuming process. The M&A (merger and acquisitions) process requires detailed planning, competent expert assistance, and an understanding of the deal dynamics necessary for negotiations. Companies that have not engaged in many M&A transactions often make mistakes that can result in a less than ideal payout that would have otherwise been possible- or even kill the deal altogether.
Analyzing your business (and potential reasons an acquirer would reject your brand) ensures you stay ahead of your game. You can then correct your brand’s less desirable traits before exiting your business. And don’t be discouraged, nobody’s perfect! Every brand has flaws in certain areas, so it’s important to adopt a growth and improvement mindset without getting down on yourself.
Searching for potential weaknesses before you decide on an acquisition can help you steer clear of larger problems down the road.
Aggregators not only look for successful brands, but they also narrow down their search based on perceived warning signs (red flags) that deem a business “not ready” to sell. This way they can narrow down their search to make space for exemplary brands that are actually ready for their exit.
Think about how you sift through everything you buy. From tomatoes in the supermarket to a professional camera, everyone searches for the best quality and filters out the weaker ones.
We wanted to give you a few pointers, based on our research, for what not to do (and of course, what to do as well), to make your brand attractive to aggregators. There is always room for improvement, but we wanted to point out some major, common deal-breakers and challenges that brand builders just like you are facing, and bring up promising solutions to put you into the buyers’ peripheral vision at the right time.
Here are seven reasons that take the cake in preventing (or delaying) acquisitions:
1. The financial records in your top drawer need a more meticulous eye.
Inaccurate and messy financials are some of the most common reasons why acquirers back out of an acquisition. One of the biggest turn-offs is disorganized, vague, and inconsistent bookkeeping. These will induce a lack of trust, and not to mention suspicion, from the acquirer.
What You Can Do: Hire a competent bookkeeper (and accountant!) and keep clean, up-to-date records of your own. Not only will this make your business more attractive and valuable, but it is also beneficial for you to be “in the know.”
2. Parts of your business are wondering where you’ve been.
Many of us have neglected crucial parts of our businesses when we’ve been overworked, understaffed, and need more help. You’re not alone. Maybe your practices and equipment are outdated, and your workers aren’t trained properly. Problems can (and will most likely) arise when we start letting parts of our business slip through the cracks. If the expenses, workload, and clean-up jobs are too high, many buyers will look for a brand that demands less work.
What You Can Do: Assess your current practices, equipment conditions, staff knowledge, and any other additional costs that have accumulated over the past year or two. Outsource tedious work when possible. Have your business operations running efficiently. The more well-run and transferable a business is, the more valuable it is since there is less risk of revenue being lost.
3. All your eggs are in one basket (or rather, one supplier).
Relying on only one supplier is a big red flag to a buyer. For an eCommerce seller, it is imperative to have multiple sourcing options for products and an efficient method to add or change suppliers, when needed. The more you put all your eggs in one basket, the less attractive your business will be. According to Furtone.com, 75% of companies experienced disruption in their supply chain due to Coronavirus, causing frustration for both sellers and buyers.
What You Can Do: To prepare your business for sale, it’s a wise idea to ensure that your supply chain is shipshape. Doing so will help best prepare your business for a higher valuation and a more efficient exit. Failure to diversify has left many businesses defenseless against trade tensions, natural disasters, labor shortages, rising material costs—and, in recent times, global pandemics. Make sure you work only with reputable manufacturers and reliable suppliers and have a backup supplier in place as well.
4. Those margins in your back pocket are crying out for help.
Many investors prefer to look at businesses with over $250,000 of SDE in the last 12 months, along with profit margins of at least 15%. Some investors have an even higher threshold to consider an acquisition. They look for an upward trajectory, with growing sales and consistently growing profit margins. That’s not to say that brands that aren’t high in profitability do not get acquired, it does happen. However, having a good balance of solid growth and healthy profit margins makes your brand that much more attractive.
What You Can Do: Acquirers do not want a stagnant brand. They want to invest in businesses that are growth-filled and provide a return on their investment. Improve your profit margins if they are not up to par.
5. Your brand is lacking a unique voice.
Think about the big, brand-name companies out there. Ever heard of Obscuregoods.com? Well, neither have we. Any purchaser would much rather buy from a brand that has built up its brand than from one that hasn’t. Amazon Aggregators will no doubt be wary to invest in a business that has not developed a strong voice and brand.
What You Can Do: Set aside time to improve on your brand strategies. In one of our previous blogs, we covered everything on how to build a strong brand. It’s more than just the way your business looks, it’s also how it’s perceived and remembered. Enhancing your brand position, developing a strong story and customer experience, and gaining a competitive marketing edge are some examples of ways you can improve your brand voice.
6. Customers are flaking out and not staying loyal.
A lack of repeat, loyal customers brings less appeal to your business. A loyal customer base, however, is seen as a great advantage by aggregators. Repeat customers are fantastic for business. Having a loyal fan base also gives you more bargaining power.
What You Can Do: Prioritize customer service, offer discounts and promotions, and offer multiple forms of communication. Remember, happy customer = happy business. Generate a solid understanding of your target audience, their journeys, and why they need your products. Build out customer personas to make sure your products and message will always stay targeted to the customer base you’re aiming to attract.
7. Failure to comply with the needed legal and safety standards.
We know it’s difficult, but it should definitely be a priority for your business, as it’s a large priority for buyers. Aggregators will conduct their due diligence to evaluate that your products meet all international, federal, and state regulations. They will likely wait until everything is in place before they invest in a company. We know it’s not easy, but there are amazing resources out there to help you with this, and it’s definitely worth your while to check them out.
What You Can Do: Stay up to date with the latest regulations with groups such as ASTM International and the International Consumer Product Health and Safety Organization.
And here’s where we left off:
Finding out how to sell your Amazon business can feel like a tedious process. But we hope that the guidance in this article has helped clarify what are some key components that could make your brand less attractive and help you avoid or improve those weak spots. Utilize these tips to compile effective business strategies to avoid mistakes all those now-expert-sellers likely have made in the past.
Keep following along with fellow eCommerce visionaries for an abundance of knowledge and tools in the hottest and latest Amazon aggregator space!