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Every Online Business Sale has Nine Lives

Posted by Andrew McSwain in Articles

This segment is about “saving the deal”. Every deal has hiccups and, as the saying goes, most deals, like a cat with nine lives, usually has many opportunities to close if all parties are truly ready and willing to consummate the deal. The entire process can be, on very rare occasions, simple and fast or, much more usually, a time consuming, intricate endeavor that needs to be finessed from beginning to end. There are many many moving parts and we have experience maneveuring around all of them.

First comes “The Offer”. Many Buyers like to lowball an offer in the hopes that the parties will end up “somewhere in the middle”. This can be a mistake, especially in a hot industry like eCommerce and Amazon business sales. If the company is a good, solid company with good, transparent numbers, it will sell for Fair Market Value. In the case of an eBusiness, it will go very quickly. In most cases, we can explain to a Buyer the importance of showing respect by starting with a reasonable offer. It is important as a Seller not to get offended by the offer if it comes in lower than expected. The object is to counter the offer and stay with the Buyer until he brings a reasonable offer. If this can’t be achieved, then we simply move on to the next Buyer and focus on them. It is not personal and shouldn’t be taken as such, but there’s also no need to waste time on Buyers that don’t respect Sellers from the beginning with reasonable offers.

On the flip side, Sellers should not get overly enthused about a full price offer. Though it happens, it isn’t always as it seems – actually, it never is and it is a particularly common transaction style with Equity Groups. They love to come in with a full price offer, get the Seller vested with the time and energy of compiling the Due Diligence, and then find reasons to renegotiate the price to where they wanted it to be from the beginning. If the number is still reasonable, then it will close, but otherwise it is an exercise in futility. Equity Groups also like to offer more than the Market Value, test the waters, stall the deal and then threaten to walk if they don’t get the price they designate. This can be frustrating for online business sellers, but this is when it’s important to have on your side. We will help you take a step back, coach you not to take it personally, to look at the bigger picture and if it makes sense then to proceed. It is similar to a game of chess. Employ logic and reason, not emotion. In the end, the question you really have to ask yourself was whether your company was ever capable of extracting a full offer price? Not likely. There is always a hedge built into the list price, right from the beginning. There are also groups that look at a company and aren’t sure if they want to go forward so they will “tie the deal up”. These are the ones a good Broker will spot and avoid.

Along the way there are many obstacles, all of which need to be smoothed out. Once the deal is inked, we start Due Diligence. Make no mistake, if the Buyer uses his own accountant or financial Advisor, then no matter how solid the numbers are, at the end of the process, the advisor will put a “caveat” in his final recommendation. He will warn the Buyer that the numbers aren’t exactly as represented (even in the best of scenarios, they rarely are) and that the future risk is high and that based on this fact the deal is overpriced. No advisor wants the future risk of leaving himself open to a lawsuit (regardless of how clean the numbers are) of something going wrong in the future and his having given a clean bill of health. If the Buyer chooses this route, it is essential to guide him in the process from the beginning and let him know that regardless of the conclusion the “caveat” is coming. No numbers are ever exact in the case of Due Diligence and the main goal is to verify the integrity of the numbers represented and make sure that they are reasonable and legitimate.

We try to circumvent this scenario by referring groups that specialize in Due Diligence. Under no circumstances will this be an automatic green light, rubber stamp process. The numbers are what they are and will come out in the wash at the end. The difference with the groups that we recommend and the Buyers accountant or adviser is that their goal is to get the deal to the end zone, and will call attention to problems, but will also offer solutions and suggestions to these issues. The Buyers accountant or adviser will advise that there is a problem, advise that they are overpaying, and leave it at that. They are mainly covering themselves for any future negative ramifications.

When a deal is financed, additional challenges can crop up. The best is to expect the unexpected.  As an example, we once had a transaction that was two weeks out from the closing date and the bank pulled out of the deal. This was at the height of the financial crisis, and the bank VP explained to us that with new bank regulations of Mark to Market, they were undercapitalized and had no money to lend. Can you imagine a major national well known bank ran out of money? This transaction still closed because we simply took the deal to another bank in our network, and though it took longer than expected, we managed the challenges and achieved yet another successful conclusion – the closing and sale of an online business.

Our expertise lies particularly in finding solutions. In the end the best description of our titles would be:

                                  “The Fixers”

Transactions will break down every time, and in every case, we will find a way to fix it.