ANATOMY OF AN 8.7X CASH EXIT
We thought it would be helpful to break down the deal that closed at the highest multiple in the past 12 months. We believe this is the highest published multiple of any deal for a small (<$10m) business in the e-commerce sector in the last 12 months, globally. And it was slightly above our average for this period. Here are the details:
· 8.76x EBITDA in cash at closing
· Plus the full value of inventory in cash at closing
· Plus a generous 3-year earnout
Hahnbeck is known for consistently achieving above-market results and this deal was a good example of this. We closed the deal at this price, while protecting the client in a number of other ways and providing extensive support throughout the process.
The Business
The full details of this deal are confidential so we are not disclosing the name of the brand or the buyer. The deal does not appear elsewhere on our site, so it can’t be identified. But we can disclose these metrics:
Low 7-figure sales
Strong margins
Fast growth
Mix of channels (65% Amazon)
Unique products
Great brand
The Setting
As is common in the e-commerce ecosystem, several buyers had already approached the owner of the brand with a view to acquiring it. The client had also reached out to a further six buyers (all aggregators, including some of the largest), who had all declined the opportunity.
The indicative offers from the four interested buyers were strong. However, the company accounts were incomplete and the buyers were using very limited data. This put the client at significant risk that the buyer would retrade on the deal during due diligence, once all of the details became clear.
Hahnbeck Stage 1: Engagement
We conducted intensive business & financial analysis to fully understand the business, its growth levers and all of the opportunities inherent in it. We worked with our client’s accountant to clarify the accounts and professionalise their presentation. Because there were offers on the table we worked to an expedited timeframe, completing this work within seven days.
We made contact with all of the existing interested parties first, keeping them engaged and explaining our process. We then approached the entire market, bringing many new buyers into the process. Even though the existing offers were already high, our goal was to find the highest price and best terms for the business, and most importantly, close the deal.
Hahnbeck Stage 2: Offers
After guiding our client through calls with all of the buyers we obtained even stronger offers from several new buyers and increased offers from the existing buyers.
Importantly, at this stage we instituted measures to prevent retrading (among other things we obtained assurances from buyers regarding their understanding of the accounts, their SDE calculations etc). We felt it was critical in this case that each buyer had the opportunity to ask further questions about the financials, or otherwise confirm that they had everything they needed, prior to entering due diligence.
We also spent time with our client truly understanding what he wanted from the deal, and who his preferred buyer was. This was in addition to the basic deal structure (asset vs share purchase) which we already understood. Here we helped him to weigh up the different potential deal terms, finding out what was truly the most important to him, alongside an analysis of the buyers to help him decide who his preferred buyer was.
After several rounds of negotiation we successfully attained everything the client wanted, from the buyer he preferred.
If measured on an enterprise value (EV) basis, the total transaction value was over 10x EBITDA in cash at closing
Hahnbeck Stage 3: LOI
During this process we had recommended several M&A lawyers to our client and helped him to choose between them. Once the buyer and seller had verbally agreed to a deal and the buyer had formalised this into a letter of intent (LOI) we negotiated the terms of the LOI in some detail before signing, for clarity.
Hahnbeck Stage 4: Due Diligence
Due diligence is always exhausting but it helps to have good advisors on hand. We supported our client throughout the process, forming an integral part of the team along with his lawyer and accountant. Importantly, we helped the legal team to negotiate all of the commercial terms of the SPA. We ensured protections for our client in a range of circumstances.
The buyer did attempt to retrade on the deal but we successfully shut down this attempt by referring back to our (written) communications prior to signing the LOI. The buyer backed down and agreed. We closed the deal at the offer price and terms.
If measured on an enterprise value (EV) basis, i.e. including balance sheet, the total transaction value was over 10x EBITDA in cash at closing. This still excludes the generous 3-year earnout. The buyer was very happy since the brand fits well within their portfolio and strategy and its strong growth should deliver a much shorter payback period than the multiple implies. Most importantly, our client was extremely happy to close the deal with the buyer he liked the most, while attaining an exceptionally high price and generous terms.
Conclusion
The offers for this business were already strong, and our process increased them even further, to the point where this is the highest multiple paid for a small e-commerce business within the last 12 months, globally (to our knowledge).
However, offers don’t matter. Our client would have had great difficulty closing this deal at anywhere near the offer price without our help. The Amazon FBA sector abounds with stories of retrading – of exceptionally high offers and mediocre final deals – and of buyers pulling out of acquisitions altogether. To us, closing the deal is all that counts. Getting the best possible deal for our client, on terms that are fair to both sides, and managing the process so that the deal actually closes, is our entire focus.
Closing a deal like this in 2022 is an exceptional result. But it is not surprising to us: our methodology consistently delivers above-market results for our clients. This is just another example.
If you have an outstanding brand or if your firm provides leading technology / services in the e-commerce sector, please get in touch. We only work with clients where we can bring a great deal of value to the table. If you’re a fit for us, then engaging Hahnbeck will be the first step in a profitable and rewarding partnership. It all starts with a no-obligation confidential discussion.