The frenzy to buy up Amazon businesses continues, so we brought Yael Cabilly and Michal Baumwald Oron, founders of Fortunet, to you to talk to you about this phenomenon. Fortunet is an investment banking firm that helps Amazon sellers and brands present their business to the industry and get the best price in a sale. Here is a rundown of the topics we covered, the replay, and the transcript.
- Why profitability is key, and how add-backs and adjustments can help the bottom line
- What makes a company attractive to potential buyers? Size of business, growth, patents, channels, and number of SKUs play a role
- Who are the players in the buyer space? Aggregators, larger Amazon sellers, private equity firms, strategic buyers and more
- What does it take to get your business in front of potential buyers? You need a great strategy
- The benefits of an auction, how to get the best price, and why the “wisdom of the crowd” matters
We had a lot of great questions and a very engaged crowd. Yael and Michal will be following up with folks who didn’t get their questions answered live, and you may find some answers to your own questions in the replay below.
Watch the Replay
Read the Transcript
Liz Downing:
Hi, everyone. Thanks for attending today’s webinar. I’m very excited. We’re going to be talking about selling your Amazon business with Yael Cabilly and Michal Baumwald Oron, founders of Fortunet, which is an investment banking firm that helps Amazon sellers sell their businesses. This is a hot, hot topic. I imagine that you’re all going to have a bunch of questions. That’s great. We welcome questions, we want this to be an open casual, but very informative conversation.
Liz Downing:
I’ve got my friend, Andrew Johnson with me. He is an Account executive and affiliate marketing manager here at Teikametrics. I’m Liz Downing, I am the E-commerce Marketing Manager here. Do a whole lot of webinars. You guys see me a lot, probably getting sick of me. Just a few housekeeping things. We are recording this session. So it will come to you via email. First 17 questions I usually get is are we recording? So yes, we’re recording.
Liz Downing:
We do open questions. There is a question section in your go-to webinar panel. So just pop your questions in there. We’ll take them as we go along and we’ll leave a little time at the end for Q&A, if there’s still some outstanding questions. So without further ado, let’s get started, we’ve got a jam packed agenda that we’re not going to share, because we’re going to roll through it all. But Yael and Michal, thank you so much for joining us today.
Yael Cabilly:
Thank you. Thanks for having us.
Liz Downing:
So Fortunet, correct me if I’m wrong, but Fortunet came to exist because of this insane surge of investment companies and aggregators and roll-ups and all of this interest in buying FBA businesses, you saw a need and you decided to meet that need.
Yael Cabilly:
So maybe I’ll start. So it didn’t start with the aggregator we actually started before the aggregator before [inaudible 00:02:00], or maybe at around the same time. But it did arise out of a need. We were working with sellers since 2015. My background, I’m an attorney, in addition to Fortunet I also own a law firm that deals with E-commerce and Amazon specifically. And when we saw that, I mean, a lot of clients of the firm wanted to exit and sell their business. And many Amazon sellers in general spoke with us and Michal and I saw that while they were brokers there wasn’t any investment bank in the E-commerce field.
Yael Cabilly:
So while brokers work more as intermediary between buyers and sellers, there was no one really on the sales side only, focusing on the seller to get the highest possible value out of this business. And that’s how we formed Fortunet. It was in 2018 and it grew very fast. We have a third partner, who was an Amazon seller. He sold his business with us and joined us. He’s also a CPA originally. And Michal’s background, maybe you can say about yours.
Michal Baumwald Oron:
Okay. I’m also a lawyer, a commercial lawyer and before forming Fortunet I was the VP Business Development of an international company, dealt a lot in M&A in deals that are large deals, at least much larger than the deals that currently are happening on the Amazon space. And then I decided together with Yael that no real solution for those businesses sellers exist in the market. We hear even today, sometimes they’re sellers that tell us that, “We haven’t decided yet to list our business.” And we think that businesses are not something that you should list. This is not a shoe or a notebook that you sell on Amazon. It’s a much broader operation and it should be treated differently. This is why Fortunet was established.
Liz Downing:
That’s awesome. I think that in a frenzy like this, it would be very easy for a business to make a hasty decision and for you to be on the seller side of things, supporting sellers, helping them make a decision, helping them get ready, helping them get to the point where they’re going to actually receive the most for their business, I think that’s great. And it’s just in line with exactly my obsession with third party sellers on Amazon, let’s help them the most.
Liz Downing:
So I’ve got a ton of questions. I am assuming that the audience is going to have a ton of questions once they warm up a little bit. But I think the first thing that we listed when we told everybody that we were having this webinar is that we were going to talk about when is the right time to sell your Amazon business? So regardless of what type of seller you are, or what size of seller you are, maybe that has something to do with it, you’ve gotten too big. Like, what are you seeing with people that are actually timing it perfectly? What is that time, what are the factors that go into that?
Michal Baumwald Oron:
So maybe I’ll take this one. I think that first of all in order to have the best time to sell your Amazon seller, you first need to decide if you want to sell your business. So if a seller decides that this is the strategy for him to sell the business, then the next question is when to do it, what is it the right time? And this second question, to some extent, it depends on the first one, because if you want to sell the business, then why do you want to do that? Are you under any rush, it is something that you must do immediately because you don’t get along with your partner, because you feel that the business is stuck and limited by your capacity and your capabilities? So these questions are really important when you want to answer the question on when to sell.
Michal Baumwald Oron:
In general, of course you must sell a growing and successful business. So whenever you want to sell the business, you should make sure or at least hope that it will be in a position in which you really believe that it can keep on growing. You can create a projection that’s will prove these beliefs of yours. You will have a working plan, how this businesses about to keep on growing. This is a good time to sell the business. On the other hand, once you sell the business, if you are not under no rush, then you do want to enjoy the growth of the business or to bear the fruits of the business in which you created. So it kind of a balance.
Michal Baumwald Oron:
And again, if you sell the business, because you feel that you’re about to hit a glass ceiling, and so much more is needed to keep on growing it, or if you believe that the risk on managing the business become too burdensome for you, then you need to just find it right time, which is related to this balance between how much of the profit you can add to your total performance before you get to sell the business and how much you, so-called live on table. So that’s in general. In suggesting that’s context, it’s worthwhile mentioning that it’s usually those deals when you sell a business the business is being measured based on the past performance. So the recently past performance.
Michal Baumwald Oron:
In some of the deals, it is possible to present also the projection. So there may be a look on the future, which support the overall valuation of the business. So again, balancing between past and the future, that’s the tricky question. Maybe Yael can share some examples. We have, I think iconic example cases where waiting for, just for delaying the time of the sale benefited a lot the seller and vice versa by the way.
Yael Cabilly:
So I’m thinking about two cases, one was just recently, just a couple of months ago, where the seller actually came to us and wanted to sell the business. We always start with a strategic thinking, when’s the right time? And when we prepared the profit and loss reports, when we saw the profits of this year versus last year, we saw that every month, the gap between this year and last year was 60K. Now 60K can be, there’s a multiple, let’s say five, okay, just as an example so it’s 300K per month. So if we wait just four months, okay, just wait four months, it can be over a million dollar in the valuation at the end and the business wasn’t that big.
Yael Cabilly:
So it was almost double what he could get now. So sometimes it just makes sense to wait but sometimes we can create structures that take into consideration this growth as Michal said. Another example is a seller that came to us at the beginning of 2020. It was interesting because he wanted a pretty high violation for that time and we got him that valuation, the multiple I mean, and then he said, “Listen, I’m not sure I should sell.” So we sat with him for several days and we prepared projections for the year, and we realized he’s rights. If we look at every product, there will be a significant growth.
Yael Cabilly:
So in his case, the number was just insane. I mean, he grew from maybe two, $3 million, to $5 million in profit. And when you think of the exit and you apply the multiples, you can do the math. So when to sell is, like Michal said, it’s always, when you’re growing, you don’t want to leave too much on the table, but on the other hand, you want to sell it when it’s growing and you can squeeze the lemon, but until a certain point. So I think that the best thing is to have a strategic plan, to prepare the projection and then think of every aspect before you make the decision.
Liz Downing:
That’s great. We do have a couple of questions and they might kind of get into actually like the financial analysis that you do and that we need to talk about. Andy, did you have something?
Andrew Johnson:
Yeah. To kind of go along the lines of what we’re talking about so far. When a brand or a distributor come to you, asking for advice about when to sell their business, do you guys usually recommend they do something that’s outside of the norm of just being profitable in general, or it just more about following best practices to help them make sure they’re doing the right things to be successful?
Michal Baumwald Oron:
So it depends on when this brand wants to sell the business. In general, there isn’t really a big difference on what is good for the sale of the business, as opposed to the management of the business. We’ve maybe one distinction here which is between long and short term consideration. So if you want to sell your business, for example in the short term, and you have just thought of new product to launch and launching new product is not something that you do on a usual basis, then probably you create some loss which only the buyer is going to profit from. But in general, so there are staff consideration. Other consideration could be cleanups in the business.
Michal Baumwald Oron:
If you engage employees that you don’t really need them for the ongoing operations of the business, so either you can really circle them out and allocate them for missions which are not and cannot be conceived as part of the management of the business. Or you should just let them go because you don’t want to have their expenses impacting your profit. So there may be clients like that. And maybe another consideration, but this is a usual recommendation of ours, which becomes stronger before the sale process is not to take irregular risk, business risk and dangerous, I mean, as it may sound, so with the risk and it endangers the business. Higher risk for the business may endanger its existence.
Michal Baumwald Oron:
Mainly when we talk about Amazon businesses, okay, if you play with the Amazon terms of sales on any significant matter, if you buy reviews, manipulate reviews, this puts your business at risk and the value goes down. So we would not recommend to do that usually, by the way. Not that you must be a saint in order to be able to sell your business, but usually you should manage it reasonably. And before the sale, you should better be more inclined towards clean operation and be well organized.
Michal Baumwald Oron:
So usually, to sum it up, what I’ve just said, usually we would advise the seller, do what you do always, keep on doing what to do, keep on managing the business as best as you can. You don’t want to get blind by the idea that a lot of money is about to enter your bank account and forget to manage the business. But at the same time, maybe improve a beat some of the processes and pay attention to specific things. I’m sorry, I need add just one more point, if you have more time before you go to sell the business, then you can consider to make a deeper changes. We have an example where we advised a seller to optimize PPC expenses, and actually this increased his profit from 18 to 26%. And he ran the business this way from for more months and of course it impacted the overall value of the business eventually.
Andrew Johnson:
Makes a lot of sense. Thank you.
Yael Cabilly:
By the way, we’re often asked, I mean, what Michal said is exactly true. It depends on how much time you have. So we’re often asked, “I have six months and I’m going to sell it in six months and my plan during that time is to go to retail. So I’m going to start an entire operation so that I can maximize the value of that exit.” I think that when you have only six months, starting something completely new and yourself, not hiring someone who’s not going to hurt your… I mean, taking your focus out of Amazon and then taking it to retail and starting something new, I don’t know if I would do that if I had only six months. If I had a year or two, that’s maybe something else.
Yael Cabilly:
The other is maybe to have someone external that doesn’t take your focus out of Amazon, and then that person will do it for you. So if you gain profits from that, then great, then that will add onto to the exit. And if not, then that’s okay. But what we really don’t want is to hurt the business. And we’ve seen that, we’ve seen sellers trying new things, investing a lot in Shopify for a short period of time and it didn’t work out, and then the Amazon started going down. Or we’ve seen sellers who knew they’re going to sell, so they stopped launching, they stopped pushing the products. They stopped some of them ordering inventory because they thought that would hurt, very important to keep running the business as if you’re not selling, on the one hand and be very focused on what you usually do. And if you’re very good at launching new products or launching new variations, or going to other marketplaces, then do that, focus on what you do best.
Liz Downing:
Super. So we have a lot of questions. I think it makes sense, one thing that we were talking about earlier before we went live is, that there are brands being purchased, but there are also resellers being purchased. And someone has asked, “Please speak about the difference in business value if you resell other vendors products, or if you have your own brand, or it’s a blend of both.” Is there a big difference in interest or is it just based on the health of the account and revenue?
Yael Cabilly:
So there’s a market for everything, right? I mean, everything is sellable. I can tell you that we feel the difference between a brand, your own brand, the private label, if you like, and a reseller. When you’re buying a private label, you know exactly what you have. You’re buying the IP, you’re buying the trademark, you’re buying the listing with the reviews, you’re buying the copyrights and the images. You know exactly what you’re buying and you’re looking at the future and how it looks like and you get these assets and you continue to operate these assets.
Yael Cabilly:
When you’re buying a reseller business, it really depends what’s in there. If it’s a reseller business and the reseller doesn’t have any agreements with suppliers and they supply Nike shoes every month at a good price, but tomorrow they can stop, okay? Tomorrow they’ll say, “Listen, we have one big customer.” He becomes the official distributor, you’re out. What happens to the buyer? They bought something that doesn’t exist anymore. So I think that the risk in these businesses could potentially be higher. But there are businesses that could be very interesting if you have exclusivity agreements, for example, okay?
Yael Cabilly:
If you’re selling the brand and you’re the only ones selling the brand, and you have an agreement for 10 years and things like that, then that could be at the end, quite similar than selling a private label. So I think that generally speaking, if there are no agreements or no stronger agreements, the valuation can be lower. And we also see at Fortunet that the level of interest is a little lower, or I don’t know, I feel maybe lower, I would say, than private labels.
Liz Downing:
What about FBM versus FBA? Are you seeing that regardless if it’s a reseller with exclusivity or if it’s a brand or some mix of the two. If they’re mostly FBAs that more attractive to a purchaser or if does that just really not matter as long as the business is running profitably?
Yael Cabilly:
Yeah. I mean, as long as it’s running profitably, but I think that most buyers, if I’m really trying to talk generally, they’re looking for businesses that are easy to run and don’t require crazy management, and a lot of hours, and a lot of employees. And so FBA kind of answer. In most FBA businesses, you have one manager, one owner of the business and maybe two employees, one or two. And when you compare that to FBM businesses, it can be a little more complicated.
Yael Cabilly:
But again, there’s a buyer for every business. So those businesses could be interesting and if the seller has chosen that path, there’s a reason. If the seller doesn’t choose FBA, there’s probably a reason for that. So it’s a case by case basis, if I’m trying to say generally, generally they look at FBA businesses, but some FBM businesses could be interesting and many, many of the businesses we represent have the majority FBA and some FBM. So yeah.
Liz Downing:
Is there any kind of trend with categories? Are certain categories really hot right now, or more attractive or does it just sort of run the gamut?
Michal Baumwald Oron:
This again, it depends on the buyer. There are buyers that are more focused on specific categories and other that shy away from certain categories, and other that are generally category agnostic. You may be expected that a product that their success was related only or mainly to Amazon or some trendy impact would be less demanding businesses. But other than that, whenever there is a solid business case and the businesses sustainable and they represent future growth in their success, then it will be valuable to multiple potential buyers.
Liz Downing:
Okay, great. So we’re getting a lot of questions about multiples. Does it make sense to talk about, because we talked before we did this about profit and loss and how that’s the first step of your negotiation. Does it make sense to talk about that before we start talking about multiples in valuation and what size is most attractive and all that kind of stuff? You can tell me, you’re the experts.
Michal Baumwald Oron:
It just makes sense to remember that whenever we evaluate those businesses based on multiples, it start with identifying what the magical would be applied on, which is a big deal. Okay? So everyone needs to remember, you want to sell your business, by the way, if you want to manage your business as well, you should have very clear financials. But if you want to sell your business, you must have a very detailed calculation of your profit, which is well suitable for your own business. Which means that our business says that we have no alternative, but to measure the profitability by product and other businesses where it is less important. You may see businesses that it is very important to be able to measure and analyze the business [inaudible 00:24:43] over fee or per channel.
Michal Baumwald Oron:
So you should be minded to that, how to actually evaluate your financial performance. And then of course, when you calculate the SDE, the SDE which is the profit, okay, or the operational lift profit, then you should take into consideration or consult with the right people what can be added back out of your expenses in order to actually reflect a higher profit. These can include add backs and other adjustments and performer calculation. So that’s the first step for that reason. In a market which evaluate businesses by multipliers then you must make sure that your profits represent your business well and in the best manner. And then now we will think past the multiples.
Yael Cabilly:
The profit. I’ll just add too regarding the P&L, when we call it the first step of the negotiation, remember that each dollar can be five, $6, $4. So when you have this expense, I mean, I’ll give you an example. We had a client that was using air freight the entire year. And so we calculated if he didn’t use air freight the expenses would be probably 150 or 200K less, okay? So we negotiated with the buyer and we explained, “You will not use air freight. So we want to adjust the profit and add back this expense.” So 200K, you apply multiple of, let’s say five, that’s a million dollars. So really every part of this P&L is important and that’s where we see a lot of mistakes.
Yael Cabilly:
Where many sellers sell their business directly to the buyers and the buyer prepares the P&L, these are things that many sellers don’t think about. So just like that they left a million dollar or a half a million because the P&L wasn’t prepared as one should or you didn’t think about all the potential add backs and adjustments. So it’s a very important part then for when we prepare the P&L we call it the smart P&L, or we make sure that we’ve covered everything. And the first step of that negotiation is what is the profit to which we apply the multiple? And then we can talk about multiples.
Liz Downing:
Is there a scale, like a business size where you see multiples increasing exponentially, Eric asks. He had several questions, so I’m trying to tackle him all at once.
Michal Baumwald Oron:
Yeah. So, first of all it’s important to understand that the word exponentially is relevant to this whole market. Everything that is happening here is exponential. So this relates to any trend that we see, we see something today in three weeks time, boom, it’s a big deal. We see indications all the time, and then they are becoming a phenomenon. [inaudible 00:28:13] multiples, first of all it’s a kind of one zone, there isn’t any scientific way to really evaluate how much of a multiple you can get.
Michal Baumwald Oron:
We can look back at any given time at previous transaction and try to conclude out of what was done before, what would be the multiple and the next deal, if we compare the parameters and the points which impact the valuation. But you cannot get a really clear view. The only way to know and I will not elaborate too much on that because I’m sure that we’ll get to it. But the only way to know what is the maximum multiple that you can get is actually to work diligently and make sure that you tap the market and that your business was presented to all relevant potential buyers, and the right process was taking place.
Michal Baumwald Oron:
As of what I can’t say, that there are those common factors that’s usually are being looked at, and these make businesses more attractive than others. So size of the business is very much relevant, but it may have different impacts on the relative multiple at different times. So they may be that at some point in time, the larger businesses would get higher multiples very easily. And these days we see that also the medium size businesses get very, very good multiples because they enjoy a larger amount of demand, demand more and more buyers that maybe cannot afford themselves to buy those really big businesses. And then the results is demand focused there. So again, we can talk about multiples and what gets a higher multiples the other for hours and I don’t think it will ever cover this [inaudible 00:30:34].
Yael Cabilly:
We could hear a few examples maybe of those parameters that take the multiples up. So there’s obviously the size of the business, by the way, several times what we do is we integrate, we join two businesses together, so that they’ll be larger and then they enjoy a higher valuation. But so there’s the size of the business, the reviews, the ages as Michal said of the account. There’s a difference between an account, a store that was started in the last year, than one that’s there for five years.
Yael Cabilly:
One of the most important factors is the growth. So a growing account gets a higher multiple than a flat business or a declining business. A business that’s declining is saleable, but just gets lower multiples. Patterns that also gets the multiples up being on several channels for some of the buyers, not all of them, but for some of them, it is an advantage. So several factors. We feel that it really depends on the type of business. When you have, for example, the number of skews, for many buyers, the less skews the higher the valuation.
Yael Cabilly:
They want as few skews as possible because they need to manage all of these accounts after they buy them. So they want few skews. But for others, they’re not buying 20 businesses, they’re buying only one. And when you’re buying only one Amazon business, you don’t want all your money on one product. So you want several product. You want 20 skews, maybe. What we can tell is selling a business with 200 or 300 skews is sometimes more difficult than 20 skews. But that’s very general and really depends on the buyers. So that there are main factors and then there are those where buyers are different.
Liz Downing:
We have so many good questions. Andy, do you have one while I sort through?
Yael Cabilly:
Where is the questions? I don’t see them.
Liz Downing:
I should’ve made you an organizer, so you can see them too, but I’ve made the mistake of doing that before. And I’ve had panelists that just stopped talking and started typing answers. And I know that you wouldn’t do that but that doesn’t matter of course, I spring them on you instead, which is maybe not the best thing to do.
Andrew Johnson:
So I had a question for you guys. I know you mentioned earlier about potentially timing the sale of your business, based more on internally, like maybe your inventory or things like that. But do you find in your experience doing this, are there buyer or buyer buying and selling markets, are there certain times just based on the market, you might want to sell now or hold off, or has it been pretty consistent since you’ve been doing this?
Yael Cabilly:
I mean, it’s a good question, especially lately because the market is just crazy. And so a lot of sellers are asking us, I mean, “Will it stay the same, will it keep growing? I mean, will multiples keep going up like they do now or will the market go down again?” It’s hard to tell. I mean we feel that with all the money that has been raised lately, it’s not going to go anywhere in the next year or two. It’s hard to predict again, but there is over $3 billion, these are the aggregators, there are many more buyers in the industry. So generally speaking, it’s a good market now, and it’s probably going to be a good market in the next year or two. Now what will be the future, we don’t know. Do you want to, sorry, I cut you Michal.
Michal Baumwald Oron:
No, no. You gave her a perfect answer. I just want to add that in the balance of things, that the market is good and can be worse but also better. So I don’t know, we cannot have real answer to this. We do know that the level of demand today is huge. This is what we know, it’s a heaven. To sell your business today, I think that it’s the most fun experience on that sense, at least. You feel important and desired and you get so much attention from so many players in market and of course the results is [inaudible 00:35:15].
Liz Downing:
We had several questions when we talked about large businesses are attractive, mid-sized businesses are attractive and we’ve had lots and lots of people ask, what do you consider a large-sized business versus a mid-sized business?
Michal Baumwald Oron:
So for us, and maybe not for us, actually, all the market is not big size. When we’re looking at single, or doesn’t matter, Amazon store, a few Amazon store that’s are being sold together, still these are not big size that deals. But comparing to that to the space and according to our discussion with different buyers, and by the way, not only seller ask us, where we think about the market is looking to is going to? But also buyers are asking the same question that no one knows. So for discussions that we hold with the buyers, we understand that what would be considered is really large transaction, large business would be business with a profit of five, $6 million and above.
Michal Baumwald Oron:
Of course, 10, 15, 20 would be larger. These are the larger businesses, okay? Anything between, I would say 2,000,000 and five would be considered as medium and below that would tend towards a more smaller businesses.
Liz Downing:
Okay, great. That’s a great clarification, because we had a lot of people asking that. So my friend, Chris is here. Hi Chris. And he asks, “Are you seeing large Fortune 500 brands entering the brand buying games?” So other than the aggregators and other types of buyers there are, he said, like say a P&G competing to buy an upcoming Amazon native shampoo brand. And have you bumped into Amazon as a competitive buyer of upcoming Amazon brands yet? Just curious.
Michal Baumwald Oron:
So we’ve been in touch with multiple companies that are part of these luxury community. And I don’t know if plenty of them have already completed an acquisition, but at least part of them are looking to do that.
Liz Downing:
Awesome. Oh gosh, there’s so much. So let’s talk about the buying space, who are the players here? We just asked our big brands players, maybe they were starting to be, but since this has been going on for a while, let’s categorize. If you’re going to sell your business who the players are that you could potentially sell that business to.
Michal Baumwald Oron:
So they are the aggregators, okay? Those groups that raised money with the purpose to acquire such businesses, these will be called the aggregators. And then they are a large Amazon sellers themselves that emerged out of the Amazon seller space and they become a kind of an aggregator themselves, either in small or larger scales. So we see them as buyers as well. There are private equity and VCs, and they are strategic buyers. These will be a beauty company that is looking to expand into Amazon by acquiring a beauty brand on Amazon, so these would be a strategic buyer. And they are kind of more private buyers, people, business men in other fields, or just people that are looking at it as a very good investment, that are interested in acquiring such businesses. So actually there is everything there. I mean, anyone with money in his pocket is a potential buyer.
Yael Cabilly:
COVID has brought many new buyers into the space of any kind. We feel that, I mean, there are many more than before 2020.
Liz Downing:
It’s accelerated E-commerce. I was talking to somebody yesterday and I said, “E-commerce has been sort of in its infancy and what COVID has done is created like a terrible twos like we never knew. It has launched into toddler hood and maybe even young child mode.” I’d say, I think that our data says maybe a five-year acceleration beyond where it would have been if there hadn’t been COVID-19. So it’s created not only this amazing phenomenon that’s going on, but it’s also created tremendous growth for a lot of the brands that we work with and it’s created utter devastation and other areas of the industry. It’s been such a mix.
Liz Downing:
Sorry, I just hit the soap box about that for a minute. Because I mean, who’s ever seen anything like this, it’s been crazy. So we’ve had a couple of people ask about timing like, “How far in advance of being ready to sell should we engage or have our P&L, our profit loss reviewed to optimize for sale?” We had another guy say, “I’m thinking about doing it in about two years. I’ve businesses, I’m not going to sell. I have one that I might sell. If it’s two years in advance, is it worth it to go ahead and get in touch with you and get the ball rolling?”
Yael Cabilly:
Yeah, I mean, I’ll answer that. I guess the sooner, the better, because there are things that can be changed now and cannot be changed later. So when we start the process when we have a client that wants to sell in a year, or at the end of the year, there are many clients who want to sell at the end of the year because they want to enjoy their Christmas business and they want to sell it by the end of Q4. When we start early we do several things that can’t be really relevant when you do it at the last minute.
Yael Cabilly:
The first step, as I said we, we prepare the P&L and then you understand your business better. So some things come out of the P&L. The example that Michal gave earlier with the PPC, this is something that came out immediately out of the P&L. I mean, we saw that the profit wasn’t high, it was around 18% and we saw everything was around the advertising. We saw that the costs were higher than the average business in that category. And so we focused on that. And he had almost a year, he changed it and then over a year, the profit was 8% higher just because of that change, so that’s one example.
Yael Cabilly:
Another example is the taxes. In some cases when we start the business, we start talking with our clients about taxes and if they’re aware of the taxes they’re going to pay. So it really depends on the country in which they are, but we’ve seen, we just have a client in Europe or the client was living here, but the business was there in another country and his partner was in a third country. We advised him to take on one of the large consulting agencies in taxes that everybody know, like PWC and those firms and together with them he made a plan.
Yael Cabilly:
At the end of the plan he actually moved to another country and that saves him over a million dollar, it can save a lot of money. So that’s a change that you could not do if you’re doing it at the last minute, and these are just examples. Sometimes it’s about IP. So we’re looking at the business, we’re trying to find if there is maybe a patent or a design patent to register copyright so that we can take, again, up the valuation of the business. One purpose, it’s always the same purpose, maximizing the value of that exit. So the earlier we come in, the better we or any other consultant that does that can maximize that value. Sometimes there’s nothing to optimize, sometimes the business is just perfect. The seller knows exactly where she is or where he is and it’s just, “Okay, let’s continue and wait.” And sometimes there’s a lot to do. In most cases, there’s at least something to do.
Michal Baumwald Oron:
I agree a lot with what Yael said. I want to add another dimension to that, which is more relevant to medium and large businesses. And this is to get closer to the market. It’s a strategic important decision to sell a business and when you asked before about the right timing. So part of it is to identify what the market has to offer you. So even if you don’t want to sell your business today, you should start and be educational about your opportunities in the market. We have cases where we discussed a potential sale of the business with a buyer for a year until this specific buyer bought the business during the time that the business grew so much. So they met eventually. So we discussed the idea, we [inaudible 00:45:08] the matter it’s sometimes you need to cook this for a longer time. And mainly for the larger businesses, so it is worthwhile doing it.
Liz Downing:
We have a couple of questions about, and I know that’s skipping over, and I do want to talk about determining your right price, auction, finding the right buyer, how you can help with that. I think that’s an important piece of this puzzle, but people are asking, does the buyer take all assets, including social media accounts, everything outside of the channel that they’re selling? I would imagine yes, but I don’t know. So you tell us.
Yael Cabilly:
Yes. The buyer takes over everything, all the assets relating to that brand or to the account if you have several brands. So they take over the trademark, they take over the copyrights that are attached to the images and the videos that you have, they take over your Facebook account and your Instagram, sometimes sellers have, I’m thinking about our last migrations, a Walmart account, and an eBay account, and a Shopify account, everything. They take over everything and they just continue.
Yael Cabilly:
In some cases, there’s an agreement between the buyer and the seller that the seller will just operate something specific. But these are rare. In most cases, they just continue everything and take over all the assets. By the way, it’s usually an asset purchase, they don’t buy the company, they buy the assets of the company. So you stay with your company and they just buy the assets.
Liz Downing:
Interesting, because that dovetails nicely into a couple of other questions. So included in those assets, if someone is their own manufacturer, that’s the buildings, the machinery vehicle, all of the physical assets as well. So all the virtual assets and business assets, but also the physical assets.
Michal Baumwald Oron:
That depends. This really depends. It depends what is the business and then who is the buyer? So for example, if there is a relatively small business we have discussed with one like that, relatively small businesses of sales backed with relatively large investment in machinery and building, et cetera. Then unless there is a really strategic advantage in these investment, if the business needs to be judged by the sale, then it’s a problem. So it all depends. And sometimes there is another Amazon businesses that we have a company for a while that has its own assembling a facility, which is an inherent part of the business. So in that case, the answer is, yes, there are businesses that with print on demand and the operation also an important part of the business and the answer would be, yes. So it depends on the business. Naturally, most of the Amazon FBA private label businesses are people just the team itself. It’s order products from third party suppliers. And then it doesn’t come with all of that.
Liz Downing:
Is anyone interested in buying a 1P brand? Just curious, because we did have somebody ask.
Yael Cabilly:
A what?
Liz Downing:
A vendor, like somebody who’s-
Yael Cabilly:
Vendor, yeah. Yes. I mean, again, I mean a vendor account at the end if you’re the owner of the brand it’s just the way you’ve been selling through Amazon, but the asset is the same. You’re still the owner of the brand, it’s still a brand that’s been generating profits. And if it is, and the margins are good, there’s no real difference between the two.
Liz Downing:
Great, great. That’s helpful. So let’s talk about, okay, everything is looking good, profitability is great, we’ve done all the things that we need to do. Now it’s time to set our price and start entertaining offers. How does a business get those offers and how do they decide really?
Yael Cabilly:
Yeah. Do you go ahead.
Michal Baumwald Oron:
So maybe before, Yael, maybe you can relate to the process itself, but that I want to say something more [inaudible 00:49:58]. So you want to have a very vivid, and professional and deep discussion with the market over the valuation of your business. The only way to do it is to engage with different potential buyers. Recently, we have encounter a case where a buyer actually submitted a kind of an offer which he claimed to be very good offer. And then he said, “Okay, you want to keep on discussing this offer, I’m fine, but I want you to sign an LOI just to give me exclusivity for the sake of the discussion of this offer on it.”
Michal Baumwald Oron:
So it’s not an LOI over the business, the deal itself, but on the opportunity to discuss with you the deal terms. This was a kind of innovative, I believe requirements from a buyer. Of course, the seller did not accept this proposal` in this case, but I think that it’s emphasizes what is the strength of this process that Yael will describe. The fact that you are checking live what are your alternatives and each such alternative knows that you make the sanity check or comparison within the all market created an outcome in which you get really what you deserve.
Yael Cabilly:
Yeah. So the process that we’re talking about, I mean, we spoke about getting the smart P&L and then there’s a step where you present the business. So you want to prepare a very strong presentation about the business, that kind of wraps everything and shows all the advantages of the business and what a buyer could do with it. And once you have that, you have a very strong presentation about your business, the P&L that’s adjusted and smart, the third step, which we think is the best is to conduct an auction. So there’s a huge difference, if you speak with one or two buyers you get an offer. You can negotiate with that particular buyer until a certain point, it’s you and them.
Yael Cabilly:
And then there’s a process where they all know they’re in a competitive process. They all know that there are hundreds of buyers bidding on that business. And if they want it, there’ll bid higher. So what happens is that we usually see several bids around the same size or maybe a similar offer. And then there’s one or two for which the business is just worth much more. And they’ll know that you’re in this process, they’ll know it’s a competitive process and if they want the business, they will not lose it. So they’ll give their best.
Yael Cabilly:
So you get to the highest possible bid and then you negotiate. That’s the best process. Of course, there’s the negotiations are not only around the price, that’s the mistake that we often see. We’ve had a client recently who told us, “Listen, I spoke with a buyer, I did it myself. I got a six X multiple on that business.” And so we said, “Wow, terrific. What’s the structure?” And so he said, “It’s two X upfront, and then two X in two years, if I get to this and that, and then two X in three, four years, if I get to this and that.” So there’s the price and there’s the structure.
Yael Cabilly:
The structure is, sometimes we spend much more time on getting to the right structure for that particular client, then talking about the price. The market sets the price. And that’s why when we start the process and the clients ask us, “What’s the value of my business?” So we can tell them, like Michal said earlier, we can sell them, “Based on the last transaction that we’ve done on businesses that are quite similar to yours, we can say that it’s between this and that.” But the reality is that every transaction we do, we kind beat the record then and push it up and get to another multiple that we haven’t even thought we could get to. So the market speaks for itself. You just need to have the market, you just need to touch the market and just need to touch all the markets.
Michal Baumwald Oron:
Maybe to add just one aspect to that, okay? To complete the philosophy behind this process, there is no index in the market, okay? There is no objective place where you can go and really find out how much your business is worth. There is no exchange here, right? So actually, I think that everyone appreciate the wisdom of the crowd. And when I say everyone, it’s us, Fortunet or consultant like us, it’s the seller of course, that [inaudible 00:55:08] from the market, how his business is viewed, but also the buyers that are participating in the auction process, they respect themselves as well, the wisdom of the crowd.
Michal Baumwald Oron:
They get a better understanding on how other view of certain business from such a process. So it’s not only a mechanism, it’s for the most important reason why to conduct such a processes of course is to get the best valuation. But it’s not only a mechanism for that purpose. It is also a highly educational process that leads to the best result, that balances between the strength and powers in the market and lead to the right price and valuation.
Liz Downing:
That’s excellent. Backing up just a little bit, we have a clarification question about, so there’s smart P&L, get your ducks in a row, and then you present the business to the market before you start the auction, or that’s how you present your business.
Yael Cabilly:
Before we start the auction, you prepare it and then that’s what we distribute to all the buyers.
Liz Downing:
Okay. Okay. So they prepare a presentation and then you would find all eligible-
Yael Cabilly:
No. We prepare the [crosstalk 00:56:31]
Michal Baumwald Oron:
We prepare everything.
Yael Cabilly:
That’s probably one of the most challenging parts of the preparation, finding the strengths of that business, what the buyer could do with it, the advantages of that business and present everything to the buyer. And by the way, the buyers themselves also, they tell us they love our presentation because it includes so much information, they can decide like that. I mean, everything is there. They can just say yes or no. So preparing that is a very important part and you want to make sure that whoever represents you or if you represent yourself, everything is in that presentation and you tell the story of the business. Every business has a story. You don’t want to miss that or you don’t want to have your buyer tell you the story of your business.
Liz Downing:
That’s an excellent response. I think that we have way too many questions to get through in three minutes. So if you have an objection to me sending your question to Yael at Michal, tell me in the chat right now. But if you’ve got an open question, they will be happy to answer it, and I can definitely send these questions to them. Obviously, this is a huge topic, obviously it depends on your business, it depends on your buyer or the group of potential buyers. There could be certain defining factors, certain fantastic things about your business that factor in that aren’t the regular things. And I suggest that you ask for advice, because I know that, that kind of decision is a huge decision. And you don’t want to take it lightly and you don’t want to get less than your value.
Liz Downing:
And we were going to get to creative ways to increase your value, but we didn’t quite get to that. So hopefully we can cover that in the recap. But the ladies of Fortunet, thank you so much. Andy, thank you for joining us today. Thank you to all the people who joined us for a rare 10:00 AM webinar, I think we’re going to do more of these. But if you’ve got questions for Yael and Michal, we will be providing contact information, a link to their website how to connect with their company on social media so that you can get the advice that you need in order to make good decisions about this very important thing. So thanks so much everybody.
Michal Baumwald Oron:
Thank you.
Yael Cabilly:
Thank you. Thanks very much. [crosstalk 00:59:14]
Liz Downing:
Se you next time. Bye.
Yael Cabilly:
Bye, bye.
