How to be attractive to buyers and how sellers can facilitate that prompt and frictionless exit which both buyers and sellers crave.

Instruct appropriate advisers

Time and again we see sellers instruct advisers that have good traditional M&A experience, but little or no experience in selling Fulfilment by Amazon (FBA) businesses. FBA businesses are different to your typical SME, normally owned by private individuals often running the business from their home. While these individuals run successful businesses, their experience of lawyers and financial advisors often only extends to the purchase of their property and basic booking, respectively. It is therefore vital that FBA sellers engage with professional advisers that are familiar with the legal and financial process to sell a business, and at the same time understand the entrepreneurial nature of FBA businesses. An FBA seller that has the right professional team in place will be more attractive to a buyer and can benefit from a smooth and efficient deal process.

Understand your financials

The typical roadblock we see which leads to a slow exit (or worse, the deal being aborted) is when there is a misalignment between the buyer’s understanding and the seller’s understanding of the business’s accounts. This often results because the buyers typically are sophisticated, have a finance background and will use acronyms or phrases used in the financial industry and assume (rightly or wrongly) the seller has the same knowledge. I am not suggesting sellers undertake a finance degree before selling their business, but a basic understanding of financial terms is essential and will make all the difference when negotiating deal terms.

Preparation, Preparation, Preparation

A seller who has prepared their business for sale will inevitably be more attractive to potential suitors. We recommend sellers take the following steps to prepare for sale :

• tidying up their cap table and corporate records
• e-filing (and numbering) contracts into a central repository
• repaying outstanding loans (including director loans)
• updating management accounts
• making the business as transparent as possible once a buyer starts their due diligence process.

A word of caution, however. Prior to allowing any access to business records, sellers should ensure all potential buyers (and their advisers) sign robust non-disclosure agreements.

Managing Expectations

When buyers approach an FBA business, typically they will value what’s known as the “enterprise value” of the business (i.e. they are buying the business on a cash-free, debt-free basis). Additionally, acquirers will often seek to de-risk their purchase by offering a deferred payment, also known as an “Earn-Out”. Sellers need to understand this means that if there is any debt in the business, this will be deducted from the headline purchase price, and if there is an element of an earn-out payment, the seller will only receive this payment if the business is performing well and inline with expectations after the deal completes. A seller that understands (and accepts) these terms, will be better placed for a smooth and speedy exit.

Conclusion

Whilst the demand FBA businesses remains strong it is imperative for sellers to position themselves as an attractive proposition for buyers, because if what’s under the hood is in disarray, complex or regarded as “too hard”, buyers will simply focus their attention elsewhere and source the lower hanging fruits.