5 Steps to Exit Your Business for Maximum Valuations | #205 Michal Oron

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Claus Lauter: Hello, and welcome to another episode of the E-Commerce Coffee Break podcast. Today we want to talk about exit strategies for merchants. A lot of merchants have some kind of idea if they wanna sell their business or not, or when they wanna sell, but they don't have a clear plan on how to do this. So this will be the topic today.

We wanna find out what's the best way to find buyers for your shop, for your e-commerce business, and what's the best way to go through these different steps. With that, I have Michelle Aran on the show today. She's the co-founder and CEO of Fortune, a leading investment bank focusing on the sale of premium e-commerce businesses.

Prior to fortunate, Michelle was the executive manager on corporate lawyer for about 25 years, holding senior positions in international leading brands as a VP of business development and general counsel, Michelle let IPOs mergers and acquisitions on global transactions and joint vendor ventures throughout her career.

So she's definitely the right person to talk to. Hi Michelle. How are you today? Hi class. I'm

Michal Oron: fine. Thank you. It's nice to be here with you.

Claus Lauter: Michelle. We talking about exit strategies, about ways on how to sell an e-commerce business. Now obviously there's a lot of merchants that are building up their assets, their property, their brand, and at some point they think, okay, there might be a seller out there or not.

What's the best way to start with this whole process of getting into the idea of selling an e-commerce business?

Michal Oron: First of all, I maybe make sure that you have sellable business. So the business, this is a business that can remain sustainable for the long term and not something that will fall apart tomorrow.

And in order to be such a business, it should rely upon, relatively strong assets. And this could be brands protected by trademark. These could be strong, , clientele base , with the repeated repeated acquisitions. Differentiated products or any modes, that can support the long-term, existence of the business.

So that's the first thing maybe everyone can ask himself. would I buy my business? Is this a business that, makes sense to be acquired by someone? Generally speaking, as long as, there are, positive cashflow businesses that continue to generate, at least , stable performance or even better to show growth this should be a very good start.

To assume that your business and sell is sellable. So maybe , that's the first thing. And then , if you come to a conclusion that you want to sell your business, and generally speaking, your business is sellable then you should start planning your actions in this context.

So I assume that you want to hear what will be my recommendation here? That's a hundred

Claus Lauter: percent right? Yeah.

Michal Oron: It's better to start repair in advance, use the time efficiently to make sure that you are well prepared to sell the business when the time is right. and there are different things that you can do.

So one is to make sure that you are familiar with the benchmarks. Which are relevant to different key parameters of your business. And if you, your business deviates from major ones then try and explore how you can improve. I can give example of different metrics.

For example, what is the Ross return on ad spend? For your business, what is your ebitda? What are, what is your gross profit? There are different standards that your business can be measured by, by, by them. And this is worth learning those and adjust where wherever possible. So maybe this is the main important thing.

So start analyzing your business. Identify what can be improved and how truly strong and good your business is. The next thing is identify potential risks in your business. For example do you have a relevant trademark that protects your brand? And maybe here, just to give an example we meet you can see here and there.

E-commerce sellers that incorporated their business, let's say in 2016 found the right, brand for their amazing products and applied for a trademark for it. with time they launched traditional products, but they forgot to take a look at the list of their trademark and the list of products covered by the trademark.

And actually at the end of the day, they may discover that their, many of their products are not protected by their own trademark. The first product launch may down the road constitutes only small portion of your revenue, and most of your revenue may not be well protected.

So these are things that you should better. Discovery in advance and you can correct them. In many cases you can correct them, but you need the time to do that. For example, you can apply, to ex to expand the scope of your trademark. But this, it, it may take, I don't know, a year or so. So this is just one example.

There is a checklist that each business owner should go over to make, to identify if there are risks in the business that are curable , buyers would generally refrain from buying a business, whereby most of the products are not protected by trademark, for example.

, so maybe that's the second thing. And another thing which is very important to mention is the financial performance. And in order to improve your financial performance and control your financials, first you have to know them well. And as much as it may sound weird, we come across many times sellers of.

Large, relatively large businesses or not too small of a businesses that actually do not control their own financials very well. So you should better, you should better. Yeah. And it seems trivial, but that's the case. So you should better have your financials calculated and edited on a monthly basis.

This will allow you both to control better your business, identify where you should focus at in improving it, and keep on growing your business and also have it ready for a sale. I touch different things that should be approached internally in the business before you even start making any steps.

Outside of your business in relation to its sale. So let's say, let's call it, cleanups. Okay. In your business, just to make sure that you are ready. my advice will always be to get assisted by an m and a advisor. These are experienced people, for you, it may be the first, many times it will be the first time, and if not the first time, maybe the second or third time, but getting assisted with someone that make it, for a living and have concluded.

Dozens or hundreds of such deals will save you time. And with the right one, with the right advisor, you can gain much more money at the end of the road. So this will be my advice. What should you do with these advisors? maybe one thing is first plan, plan. What should be the right timing for you to start selling your business?

So again, start repairing now. It doesn't matter where you are now. You should start, prepare for sale now. And I didn't cover all the internal things that you should do. But that's no question. This is something that you should do, but when should you start the actual process for that? That's an important question and here is different aspects should be measured.

What do you want? This is one thing. What are your aspirations? are you planning to keep on managing this business for the next five years? So maybe you have, some time. Do you want to explore whether you are able to sell it or do you consider selling it in the next year or so?

Okay. You should speak with someone now. So these are your personal situation. Should be accounted for. In making this decision about timing, the next thing is what is the status of your business, and what is the status of the market and the m and a market? So with respect to your business, you preferably want to sell your business when it is in a gross brand.

People are getting married when they're young and beautiful for a reason. It's just easier this way. So the same is for your business. You should sell it when it is appealing and attracting and has what to offer to buyers. Also declining business and businesses that require some turn turnaround.

Intervention may be appealing, but it'll be more difficult to actually, build your case around that and find the right buyers. And find those buyers that will pay you. A good amount of money for your business, better to sell your business when it is shining it comes with a proven track record of success and it is positioned to a continued growth at the same time.

So this is about your business and then the markets. What is there a market for your business now when I say the markets, so of course macroeconomics is already always relevant, but different segments within the e-commerce space attracts more or less interested different times.

Today pet related products, baby products, beauty products, and others may generally attract more demand than I don't know, other fashion, okay? For example. So you may want to explore what the market has to offer for your business today. Based on all of the above, you can take a decision about timing.

That's important. It's a coffee break where I just speak and you drink all the coffee.

Claus Lauter: I take all the coffee and, yeah. I think there's a lot of interesting things that you imagine. I find it interesting that there are.

Bigger e-commerce businesses that don't know their numbers. Should know your numbers, your KPIs as a business. And you touched on the market situation right now. Now obviously a lot of countries right now are recession thoughts about it, and there's inflation going on, people are losing their jobs and so on and so forth.

So it's probably a bit about more of a stressful situation right now for a lot of businesses, to grow and to become sellable or to be become attractive, as you mentioned with the couple that gets married young. to find a buyer right now in that situation, what's the status right now?

Is there businesses out there looking to buy other businesses, or what was the overall situation? Right now, if I'm in interested in selling my business, does it make sense to start a process or should I rather wait until things become better again?

Michal Oron: Yeah, so surprisingly, there are many active buyers out there, so companies that define themselves as acquirers.

These could be either strategic buyers, companies that plan to go L P O I P O, companies that are already publicly traded. Just strategic players in different segments that want to develop their business, not only organically, but also through requisitions. Those who hold funds available for such investments are actively looking to buy businesses.

At the same time, there are some companies that raised money, you know, those aggregators, of the world. They operate mildly in the acquisition front, but they are still active. And also different funds, private equities or venture capital. These, kind of funds, hold dry powders that at the end of the day has to be invested.

So altogether there is available money out there looking to be invested in businesses, and, e-commerce is one of the Growing industries these days that generates positive cash flow, which is great specifically in these times. So yes, there is a market. This is not, the peak that we were able to see in 2021.

We're not there, but it's a decent market. And of course buyers are selective, so they will not buy everything. They will not pay the best price or the highest multiple for any business. But for the right business, for the shinier businesses or for good businesses, there will be Strong, solid buyers that will pay a fair amount of money.

Claus Lauter: You touched a little bit on industries beauty industry, for instance. If I have grown my business to what kind of size or what kind of size do I need to have as a business to become attractive? Means? What kind of revenue do I need to have? Team members? I don't market share.

Are there KPIs beside of having my ducks in a row within the business? That's make it attractive for a buyer.

Michal Oron: here It depends. Who is the buyer? But if I need to relate to this question in the most general manner, maybe it's better to relate to the minimal amount of, minimal size of the business that start to be more attractive.

Although in theory, there is a buyer for everything because maybe you have a very small business and there is a private operator, a small operator that is looking to extend a bit of business or sold this previous business and now looking to invest in another business. And then, Every business can be sold.

But businesses that can attract more buyers interested in their acquisition, I would say will, should have revenue of more than seven to 10 million per year, profit. Let's say the EBITDA line should be 20% and up. And of course, as you go up upper then it becomes more of a relevant targeted musician.

The reason for that is that first of all, we, once you've met this you trust this minimum barrier. You are proven to have a solid business, which should be less risky. Already coped well with some challenges, and, and then that's part of it. But it's not only about, size so general speaking, I would say that this should be the golden number for.

For a minimum sale of, Shopify rent.

Claus Lauter: Now, I was fortunate that you're obviously helping sellers, finding the right buyer and getting the process right now in regards of a timeline, if I decide to sell, and then the buyer has been found for sure, there's some other steps before I'm really out of the business.

How long does that take, usually

Michal Oron: after you found your buyer? Okay. So you skipped one stage and we'll get back to it later, but once you have your buyer, so ideally you should enter with your buyer into a term sheet or a letter of intent in this term sheet you would want to cover.

All the commercial part of the deal. Okay? So the legal part is out, but anything which is related to how much you will get for your business, under which term, when, what are the payment timeline, What is your non-compete? What are the assets that are, you are about to sell, whether you should stay with your business, and then you hand over your team as well, et cetera.

Those terms should be covered by a term sheet. Once the term sheet is signed, then you can expect, I don't know, an average of 60 days. It can be more than that. In which your business will be under due diligence. So the buyer would go over all aspects of your business, your financials, business aspects such as strategic contracts with suppliers, with key employees, your IP rights, any tariff and customs related information.

Sales tax, v a t, et cetera. All of these will be examined. And then in parallel the deal document will be prepared. This will be either share purchase agreement or asset per purchase agreement, and different and series documents as the case may be. All of these should take 60 days, maybe 90 days, and more or less something in, in between.

Claus Lauter: Okay, that sounds great. You was fortunate, obviously, helping not only find the buyers, but also preparing everything to make this process as flawless as possible. How does that work? What are the steps to get everything ready?

Michal Oron: it depends if we start working with the client well ahead of the sale or just the time that they want to sell their business.

If we're starting earlier, we can help. Getting prepared. We can help analyze reviewing the business, going over different parameters and exploring what must be improved and what must be corrected and what can be improved and corrected. And then when we feel that we are ready, that the process itself start with gathering all the data about the business.

, because we like the buyer must learn the business thoroughly. When we approach buyers, we know the business at least as well as the owner. This is what usually we see ourselves. We're experts in those business, at least as much as the owners. And then we prepare a business analysis based on all this information.

And the investor deck because you want to control thenar narrative of the story of your business. You need to present everything, but in the right context. if there are things to emphasize because this is where the potential lies, or this is where there is a huge opportunity that you haven't, Exploited fully yet you should point it out.

If there are different challenges in the business, you should put them in right context because they will be. They will be discovered eventually, so better to cope with them in advance and make sure that the story is well prevent presented. So that's, this will be the first step and then the, this deck together with your financials.

That must be well edited, well classified, sometimes we explore whether different expenses can be added back in this way. You present, not your ebitda, but your adjusted ebitda. So we help with that too. And then what we do, we decide on we are searching for the right buyers here. We must identify who those should be, which buyers should evaluate this specific business in the highest valuation.

Because of course a certain business doesn't necessarily worth the same for all buyers. It all depends on their own specific plans. So we will identify those buyers and will approach all of them at the same time, more or less. The philosophy being behind the process is to try and create a competition, and bring to the table as much as many buyers as possible at the same time.

Of course this is very much market, dependence because when the market is super hot, then very easily you get many buyers chasing after you. If the market is more challenging, then it may take more time and even today, even in those market conditions for the right businesses that we're working with, we're able to discuss with 10 20.

Actively interested buyers looking, interested in acquiring the same business. So we help them understand the business. We provide them with more information as they require, of course, after only after they sign and nondisclosure agreements, which is also part of the process. So if you do the process yourself, you must make sure that, you don't disclose information about your business without, Having someone committed to maintaining confidential.

And then we negotiate with those buyers that are interested and then this negotiation, , look differently in, in different deals. and of course the idea here is to obtain the best result. The best result is the highest, multiple and best payment terms and other terms, because you can get when we're talking about payment, then there is the cash that you get.

And potentially you have an equity incentives in the future earn out payments, how will you be paid for your inventory et cetera when you will get any portion of the deal price. And also we are negotiating the instructors. So should it be a share purchase agreement or an asset purchase agreement, and.

And et cetera. It all depends on your tax considerations and legal considerations. From then, yeah, so we are helping closing the term sheet and also helping, running the old project. We're, yeah. After the term sheet, we are kind of project managers coordinating the due diligence, coordinating the legal work, helping solve crisises that tend to appear during these processes until the deal is closed.

After the deal is closed, you also need some help because so we call it post deal, support because maybe you have earn out payment after the deal and we should. Monitor together with you whether you are entitled to receive your air notes, et cetera. And, and issues tend to come and we cover it all end to end.

Claus Lauter: Okay. That already shows selling a business is not an easy process. There's many, many steps involved, and it's better to have a partner on the, on your side who asks the uncomfortable questions and not the buyer. So you're prepared and somebody who basically, polishes your business and to really make it shiny to get the most out of it.

What's your pricing structure? How do you charge your clients? So we

Michal Oron: are partnering with our clients. Generally speaking, we are paid on a success based only. So we don't charge anything, upfront unless for specific cases. We are getting a certain percentage of the deal price that we're able obtain.

Maybe one thing that I forgot to mention, it's also very important if you are looking to sell your business. I'm sorry, I'm getting back to your other question. if you are looking to sell your business, you should explore where, who are your buyers all over the world. It's e-commerce doesn't, it's not that important where you're located.

You just need to find the right buyer. It doesn't matter where these buyers are in Dubai, in the us, in Europe, Australia. Or anywhere else in the world. So you should aim more or less, of course, but to cover your buyers globally. So this is something that we do

Claus Lauter: sounds great. As it shows, as a small, medium enterprise ready to sell your business, many steps involved.

I think that's a really good tip. The seller or the buyer might be on the other side of the planet, and then it will be very difficult for yourself to find them. Where can people find more about Fortune net?

Michal Oron: . So we have a website www net net. I'm available to always to answer any question.

And the rest of the team, we're a team of 40 people all of them are available to take, questions and looking to help wherever

Claus Lauter: possible. I will put the link in the show notes and you just one click away and I'm sure there will be many people approaching you with a lot of questions because it's a complex topic.

Michelle, thanks so much for your time. I think that was a very good insight on how selling a business works and what you need to take in consideration before really doing this. And I hope a lot of listeners will reach out to you and ask for more info. Thanks so much for your time today.

Michal Oron: Thank you.

Thank you.