29 Oct The Sum of the Parts: Which Qualities Make an E-Commerce Business Valuable?
“What is a business?” – a simple question with myriad answers of varying complexity. In the most basic sense, a business is any entity that offers goods or services in exchange for currency. A more comprehensive explanation might include the components that make up a business, including products, employees, supply chain and distribution channels, sales, and marketing.
Yet, there is a degree of nuance missing from each of the above prescriptive definitions of what qualifies as a business. The landscape is continually shifting, such that many successful companies defy conventional categorization. Increasingly, modern businesses look and function differently and thus the language used to describe these entities must also evolve.
The E-com Caveat
Perhaps the most significant development in the last 10 years is the proliferation of e-commerce and support services. Maintaining a strong digital presence is critical to the longevity of most brands today. In fact, many companies operate entirely online, without a traditional brick-and-mortar footprint or other hallmarks typically associated with most businesses.
Functions that were once handled by employees can be automated or assigned to a virtual assistant. Sourcing and logistics are frequently handled by third-party fulfillment services (including Amazon’s FBA program). The lifecycle of a brand is significantly shorter, and the components required to achieve critical mass can easily be supplemented or replaced by external agencies.
Longevity and scalability create differentiation while adding value, so leveraging brand building is particularly advantageous in advance of a strategic exit. Founders of enduring brands have access to a higher tier of prospective acquirer, as those with the most capital are looking for stable investments and brands signal increased permanence – as well as sustainable growth.
But by virtue of their inexorable adaptability, business operations in the digital space are constantly morphing to best suit the needs of e-commerce companies and provide an exceptional consumer experience. This makes it somewhat difficult to convey exactly what prospective acquirers can expect when they purchase a business for sale, necessitating a more sophisticated process.
A Wholistic Approach to M&A
In previous blogs, we’ve discussed examples of growth initiatives that improve valuation as well as how best to strategically position your e-commerce business for sale. Both factor into securing the best possible outcome from a potential sale. Articulating each attribute and intelligently communicating how they coalesce is integral to the success of a high-value M&A transaction.
Establishing intellectual property, developing a product roadmap, and maintaining accurate professionally prepared financials are important aspects of preparing for an exit. However, these initiatives do not take place in a vacuum, so it’s equally important to help prospective acquirers develop an understanding and appreciation of how the business functions as a whole.
Why Representation Matters
The caliber of intermediary you retain will have a material impact on the deal terms and ultimately, how much value you can expect to earn from your e-commerce business. Conducting a thorough analysis of an e-commerce company and presenting the information in a professional manner requires a specialized skillset and depth of expertise that most people don’t possess.
Moreover, it takes a degree of finesse to convince upmarket investors that you’re marketing a premium asset and not simply selling a bill of goods. The M&A process you / your advisor deploy is just as important as the individual components of your business and how they factor into the overall success of your digital brand.
This is especially important because sophisticated acquirers from private equity and Investment Banking backgrounds are not looking to purchase IP or historical financials or a product roadmap. They are investing in the effective fusion of all aspects of the acquisition target and its ability to continue achieving sustainable upward growth.
The true value of a business is reflected in its future potential. It’s no longer sufficient to provide a checklist of features to court buyers’ interest; rather, it is essential that the business sale process encompasses every facet of the company as well as its present and short-term operational capabilities. An experienced Investment Banking professional can assist you in preparing high-quality marketing materials and engaging with the most qualified counterparties to earn you the maximum value for your business.
Achieving the Optimal Outcome
The die has been cast so to speak. New investment capital continues to flow into the space, creating competitive pressure and generating increased M&A deal flow. Now in order to differentiate your business from the competition, both in terms of immediate operations and a potential strategic exit, it’s important to consider how you think about your business.
Adapting the language and thought processes you utilize to convey information and make decisions will help you better prepare to pursue a high-value transaction. And when the time comes, selecting the appropriate Investment Banking intermediary to assist you will help you achieve the best possible outcome at sale.
About Global Wired Advisors
Retaining an experienced Investment Banking professional is the first step in securing your financial future. Global Wired Advisors combines decades of transactional and operational expertise to provide institutional-caliber service to our Clients while helping them earn the maximum value for their digitally native or Amazon FBA businesses. If you’re considering a sale, or if you’d like to learn more about our process, click here to connect with one of our Advisors today!