How To Successfully Grow Your eCommerce Empire Through Acquisition

Welcome to the eCommerce podcast with me, your host, Matt Edmundson. Now the eCommerce Podcast is all about helping you to deliver eCommerce wow.
And I am super excited with today's guest who is gonna help us do just that Stephen Speer from e-commerce lending.
We are gonna be talking about how to successfully grow your eCommerce empire through acquisition.
But before we jump into that conversation, let me suggest a few of the eCommerce podcast episodes to listen to that tie into this whole
big topic of buying, selling and scaling your eCommerce business. Check out my conversation with Brad Wayland on how to
sell your eCommerce business. And also my fantastic conversation with Ben Leonard on how to effectively set
up and scale your business for sale. Yes. Uh, and just FYI.
Ben is gonna be coming back to the podcast very shortly as far as I can tell. Yes, he is.
He's an upcoming guest. So make sure you subscribe to hear all the latest happenings
with that fine young fellow. Now this episode is brought to you by the eCommerce Cohort, which helps you to
deliver eCommerce well to your customers. You may ask the eCommerce Cohort, what is the eCommerce cohort Matt?
Well, let me tell you it is a brand new mastermind type group.
Yes, it is. Every month a new sprint is released by the eCommerce cohort, which covers an
area of eCommerce that you can listen to. You can listen to experts is online.
You can access at your own pace and it will help you grow and scale your online business.
So whether you are just starting out or whether like me, you are, you are a well established eCommercer.
Uh, I wanna encourage you to check it out because I'm convinced you will benefit from it.
So. Head over to eCommercecohort.com uh, for more information, uh, they are gearing
up for their founding member launch and depending actually on when this comes out, it may have just happened.
Uh, so do check it out because there's some great starter prices. Let me tell you, uh, any questions let me know, email me directly at
matt@ecommercepodcast.net, and I will try my level best to answer them.
Now, all of that said without further ado, here's my conversation with Stephen.
Intro to Stephen
Well, I am here with the amazing Stephen Speer who is well, he's the
founder and CEO of eCommerce lending. He's over three decades of lending experience and has
helped hundreds of entrepreneurs achieve business success through
acquisition. That's right, buying or selling. I kind of view this chap as the monopoly expert of e-commerce, you know, how do I
buy and sell property, that whole kind of thing, but actually do that in e-commerce. Uh, he is a lender, a guest speaker.
He's a mergers and acquisitions instructor. I didn't even know those things existed, but this guy is one of them.
Uh, and with his firm, he has funded over transactions total. And check this out, drum roll Four Hundred Million Dollars, uh, making
them the top lender in the US in this very, very specialized niche.
So I'm super excited to have Stephen on the show. Stephen, welcome. Great that you are here.
Uh that's one heck of a resume you've got there, bud. Thank you, Matt. And thanks for having me on.
I know it's crazy. It's great, you're here. I, how did you, um, did you just wake up one day and think, you know
How Stephen got into eCommerce and lending
what, I, I just want to get into this whole money lending thing. I mean, was there something you saw on TV?
How did, how did that all start for you? On the lending side or the eCommerce side or eCommerce and lending?
Well, let's put 'em both together. Yeah, let's do that. Yeah, on the, on the eCommerce side, um, I had a client, this
was about eight years ago. I had a client come to me and, and, um, he was looking to acquire businesses, but most of our discussion was around brick and mortar, uh, acquisitions.
Um, not necessarily eCommerce, which eight years ago, believe it or not, everybody eCommerce was not, uh, was very new.
Um, and he said he came to me, you know, after I had been in discussions
with him, maybe for a month, and then he came to me saying, listen, I'm looking to buy an eCommerce business.
And I was like, okay, tell me a little bit about that. And, um, do you lend in the space?
And I knew nothing about eCommerce eight years ago and I said, well, um, I don't see why not.
And obviously there are a lot of nuances within the space, but he was trying to acquire an FBA business, an Amazon FBA business.
Yeah. And, and it kind of led one thing to another. And I did some research and realized, um, not only could I lend in the space,
but nobody else was lending in the space. So I saw a very large opportunity and, uh, I went for it.
And, you know, close to we're at, I think over half a billion dollars worth of
funding within the e-commerce space now. Be it digital businesses, you know, we look at SA we do finance SAAS.
We finance more product based businesses as well, but, uh, it's been a fun ride. It's been incredible.
That, I mean in eight years to loan out half a billion dollars. I mean, I dunno what the math on that is, but that's, that's some going, right?
I mean, that's, uh, that if you don't mind me asking, um, just cause I'm kind of curious, even if I'm honest with you, what is the typical amount that somebody
The typical amount that someone would borrow to buy an eCommerce business
would borrow to buy an eCommerce business? Well, it's ever increasing our average amount.
This year is about $million of loan.
Uh, a lot of our deals are around the, around the four to million range. Now they've, uh, as we all know, the, the sale of eCommerce
businesses, um, you know, the price points have increased drastically. Mm-hmm , especially over the last three years, there are a lot of aggregators
in the marketplace, a lot of demand, um, and relatively, pretty short supply
of businesses for sale relative to how many buyers are in the marketplace. So that's, that's driven at prices, um, so that our price
point continues to increase. Um, but we do, uh, you know, we get involved with deals roughly around a million dollars and now up to $million.
Um, so kind of a wide range, but, uh, the majority of our fundings have
been around a million dollar range. It's interesting. Isn't it? That, that's the sort of the number that is now the, the average cuz
I'm pre COVID, um, the pre pandemic. Um, was it, was it lower than million?
I'm gonna kind of guess that it is, but I'm, I'm curious. Yeah, it was about million and obviously in um, the percentage of retail sales that were in
this space drastically increased mm-hmm So that did bring up the, you know, bring up the price point because again, supply
and demand, um, it did have an effect and, you know, everybody thought it was
a COVID bump, but really that bump still there and Covid's pretty much gone. So mm-hmm um, because a lot of people, including my own
mother never shopped online. Um, really didn't do anything online, primarily went to, uh,
shopping malls to, to acquire goods. And now all those people realized during COVID like, gosh, this is great.
I could order a pair of shoes and next day it's at my doorstep. So, um, that's still there.
That's incredible. Isn't it? And there has it gone from million to million,
the business in effect has stayed the same, it's just the value has increased because of what's happened in the last few years or has it gone up from
to million because actually the, the value, the, the amount of business
that the, the website is doing has increased, or maybe a combination of both. I think a combination of both just definitely we've seen revenues for
businesses go up, considerably. And also the demand going up, uh, for, to, to acquire businesses have gone up,
um, you know, stratospherically and those two things have brought up price points.
Uh, many of our deals just on our production boards here are well over $million right now.
Uh, we're involved in a few deals above the $million range. Um, but again, you know, for you listeners out there, we're trying
to acquire a million dollar business or a business for thousand dollars, whatever, there's still a lot of great opportunities out there.
Mm-hmm but yes, price points have increased, uh, drastically. Yeah, that's interesting.
It's a bit like I probably the wrong analogy, Stephen, if I'm honest with you, but it's, it's a bit like one of the things I noticed
over COVID was the price of timber. Uh, went. It was the same piece of wood, but the next day was like three times
more than what it was the day before. And so it feels like everything has gone up, uh, in value, uh, you know, in
cost, and so actual eCommerce businesses buying an eCommerce business, uh, hasn't seemed to have escaped that.
Right? Correct. And also you have, at least in this country, you have,
uh, supply chain problems. And that's really impacted the cost of good.
So the landed costs have increased and ultimately businesses are passing those costs onto the consumer.
Um, I brought, I bought a pair of tennis shoes about a year and a half ago for about $and I just bought a new pair replacing
those, um, those trainers at $So that's just a perfect example.
Same shoe, identical. and, uh, it went up that much just in a matter of a year and a half.
Yeah, it's crazy, isn't it? So, so here we are, right, um, I guess then there's two sides
isn't there to your expertise. There's the side, which says I can help you buy your eCommerce business,
so growth by acquisition, which I want to get into first. We'll we'll touch on that first. But the second part of this conversation, um, that I want to sort of dig into,
just to, dear listener, let you know what's coming up is actually how to get your business prepared already to sell to somebody who maybe wants to buy.
Cause I two sides of the same coin, I suppose. And I guess you get to see it from both sides and so I'm kind of curious, uh, on
this whole topic to pick your brain now. One question I have is, um, uh, growth by acquisition is to me, one of those
Growth by acquisition
relatively untalked about ideas for growing your eCommerce business, right? So if I'm an eCommerce entrepreneur, if I'm wanting to get into the
eCommerce space and I kind of look, I, I need budget for this marketing and that marketing I've gotta grow and I understand who my competitors are.
I rarely have conversations with people about, well maybe you should buy one of your competitors.
So is, is growth by acquisition, a strategy that maybe we should be thinking about more?
I think so because, um, you're not in a position where you're trying to recreate the wheel. You're buying an established business and um, you know, many sellers of
those businesses, um, you know, brought the business to a certain level, but there's so much low hanging fruit with the, with the person, with the right
business acumen to really catapult the business and continue that growth. Um, and it's really hard to start a business.
I mean, you're starting from scratch or having to figure things out. So if you're, if, if you buy a business, let's say even a two year
old business, where the seller brought it to a certain baseline and you're able to kind of run with it from there.
It's a lot easier. And also, um, you're able to, when you grow through acquisition, you're
able to buy businesses that are run. If you, if you have a portfolio businesses, you know, grow the,
or, um, you're able to run them the same way, you know, roughly, you know, if they have roughly the same business model mm-hmm . So you're
really able to kind of grow portfolio businesses, running them the same way.
And oftentimes have economies of scale mm-hmm and, and ultimately
really succeed that way. And, and a lot of our clients, um, do that, you know, they're not looking to
recreate the wheel, they're looking to buy a business with kind of a baseline amount of sales and really, really push it.
Um, you know, continuing that growth pattern. One of the, um, interesting things that happened to us during COVID was we
were approached by a lot more people to buy our eCommerce business. We had a, a, an online beauty business and we sold that actually last year.
Um, and the person that purchased that business was
actually one of our competitors. Uh, and it seemed to me for them
to be a great fit because it was kind of plug and play in, in a lot of ways,
um, that they already had the warehouse. They already knew how to distribute beauty products. They already knew how to market beauty products.
They already under, there's a lot of stuff they on, they understood. And so, um, they were very clear in what aspects or what parts of the
business they wanted to buy from us. Um, But is if I'm thinking here, actually, uh, okay.
I wanna look at growth by acquisition. Are competitors a reasonable person to look at buying or should
I, or should I look at buying? I don't know if I sell, um, uh, I've got water bottles on my desk,
as let's say I sell water bottles. Should I go and buy a business that sells, um, I don't know,
coolers or Coke or something like, do you know what I mean? Something that's similar, but not quite a competitor.
Well, I've seen both. Um, as a matter of fact, you mentioned plug and play. We're working on a deal right now at million where the buyer does exactly what
the, I mean, he's buying his competitor and his competitor's a lot larger too, uh, where it is a plug and play.
I mean, it's it, I mean, it's, he's a perfect buyer. For a perfect business.
He's able to run it the exact same way as his current business. So, um, in that respect, it's, it's a perfect fit and we've had other buyers
where they're buying a business that's complimentary, um, back to your point, you know, water bottle and cooler.
It's like, okay, that kind of, you know, there's, there's synergistic sales opportunities there.
So we've seen both. But should I avoid, again I'm just, uh, shooting the breeze here.
Should I avoid, if I sell water bottles, buying a couch business, Do you know what I mean? Or dining table business, something that's completely out of my world.
Yeah. Usually our clients stick to what they know. Mm-hmm um, I really, we really have a client that, you know,
sells water bottles and then, Hey, I wanna buy a furniture business. That's, that's kind of, uh, unorthodox.
Usually they stay in their lane and they buy something that they're familiar with and run it roughly the same way.
And there's been great success uh, with our clients, uh, and kind of stay in their lane, um, and sticking to their business model.
And they've done really well. One of the things that you said, Steven, which I, uh, which surprised
me slightly, and I, I dunno why it did. So I just wanna dig into it a little bit more. You said that you're doing this million acquisition at the moment where
someone is buying their competitor, who is much bigger than they are. And.
I dunno why I just assumed I needed to buy companies that were smaller than me not bigger than me. Uh, and so maybe that I can't tell you why.
I think that that's just, that was just something in my head. Um, so is this quite common that actually you, when you grow by acquisition
you're, you can, you can buy something that is significantly larger than you? We've seen a lot of that.
Honestly, most of the time is that where a smaller business is buying a larger one. It's. Again, it's, it seems unorthodox, but, you know, I would say more often than
not it's that rather than the reverse. So, um, but we've seen a lot of that.
Uh, absolutely. And that's really interesting. A lot of it, you know, has to do with the available financing.
You know, a lot of our clients are able to acquire that larger business because we're able to leverage, you know, if they're injecting or putting down %,
you know, of million, let's just say. I mean, they're able to buy billion business for a lot less than, you
know, establishing additional business or, uh, or trying to pay cash.
So we're able to help through leverage financing. We're able to help smaller businesses acquire larger ones,
but in his case, he had a very, um, he had a very motivated seller. The seller was I think, elderly and looking to just get out and kind
of take his chips off the table. And it was a great opportunity from him and, um, he's moving
forward with the acquisition. So if I, um, if I look at my space and I kind of think, well, I there's one
or two competitors, I'd be interested in acquiring them on them, maybe. Um, how do I even think about starting that process?
Do you know what I mean? I, I, it, it sounds. It sounds almost otherworldly.
Uh, if I can put it that way, Do you know what I mean? It's like, I just would not know where to begin.
I mean, depends if that that business is for sale, if it's listed with a business broker or not, or if you're just starting a private dialogue with
that seller, but it starts with a private, you know, more of a private dialogue, uh, if it is that way.
And, and then, and then ultimately, um, if that seller's interested in selling,
obtaining the financials of that business and really digging deep and doing due diligence, um, and ultimately coming to someone like us, where we're able to vet
the business from a lending standpoint, mm-hmm and making sure that we're able
to shore financing for that acquisition. Uh, we do a lot of that and sometimes it works.
Sometimes it doesn't. We. buyers that come to us saying, Hey, I'm really interested in buying this business, but the business looks great on, you know, from the outside, but
you start digging into the financials and it's an absolute disaster. And we have to go back to the buyer and say, yeah, uh, this business
will not qualify for financing. Uh, and then sometimes it's the opposite. The business is very well run has great, um, financials, meaning, tax returns
and, and strong financial standing. And we're able to run with it and shore up the financing for our buyer.
So I'm starting a, a dialogue. I wanna look at their financials, um, start to do some due diligence.
What are some of the, I don't know, some of the key things I need to hit in their financials that I can look at myself and go, if I see this, this is like a big
warning or this is a big green light. You know, um, I mean, just from high level, Matt, I would say, you know, what
are revenue numbers doing year over year? Is it increasing revenues? Is it stagnant? Is it declining revenues?
We had a case yesterday where our business that we're trying to finance is just, I mean, it's not doing well.
And mm-hmm, one thing we do not finance, um, are, uh, businesses that we, we
call, uh, you know, falling knives. We don't try to catch falling knives. Um and so, so we do, that's good, you know, top line revenue numbers, we look
at, you know, EBITDA or SDE, uh, and, and make sure that the business qualifies for
financing because the last thing we want. Having our buyer move forward with a contract, you know, with a
letter of intent to buy a business. And then we have to deliver the bad news that the business doesn't qualify for financing.
So we do a lot of heavy lifting up front, um, and that's led to %
closing rate meaning of, of the deals that we bring in % of 'em close.
Um, the average, at least here in the states is about % mm-hmm . And the reason being is we, we vet the business, uh, very extensively.
We vet the buyer extensively mm-hmm , um, to make sure that it's a good fit and the buyer has the right acumen to, um, to scale the business and the buyer
doesn't have the right acumen or doesn't have a team member with the right acumen we, we, we don't get involved with that transac.
So when you say the buyer has to have the right acumen, uh, I, so I guess this is
part of your, your due diligence, right? This is part of your process. Yes. I need to look at the financials of the company you're buying,
but I need to understand about you the purchase of the buyer. I wanna understand what kind of person you are, what sort of things are you?
Are you looking for there? Yeah, so, um, kind of taking a step back.
So we vet the business and then we vet the buyer and on the buyer's side, we make sure that buyer has the right business acumen.
Does the buyer have direct eCommerce experience or does he have a skillset that's transferable that would work within an e-commerce, um, type business?
Um, you know, if, if the buyer's looking to buy, let's just say a million business and he has no eCommerce experience has been sitting in a cubicle
for the last years at, at, at VP. That, that person's probably not the right fit mm-hmm . But if it's somebody
who might have worked for an e-commerce business or, um, or has some sort of
transferable skill, that's something definitely, uh, we'd look at, um, or if the buyer may not have direct skill set, does a team member, cuz
oftentimes these businesses are bought by a group of people, partners, business partners.
Mm-hmm . So it's not just one individual. And does do any of the individuals within that, that team have that
skillset to, to run the business. Wow. Do you ever find people coming along saying to you Stephen list?
I wanna finance this business and they're buying it with a sole purpose of selling it again in months. I don't do we, is there such a thing as flipping eCommerce business?
Um, not usually, usually it's more roll up strategies, uh, buying a group of
e-commerce businesses and eventually, you know, selling them as a, as a whole mm-hmm um, because typically as you, uh, work up the food chain, the
multiples tend to be higher mm-hmm so there's a lot of opportunity there. Um, months, probably not, maybe two years, three years, you know,
they're buying a series of businesses and they're doing rollups and that strategy tends to work out really well.
Be it SAAS businesses, uh, and, or, um, eCommerce, you know, more product based businesses.
Yeah, no, that's great. Great. Uh, I, we're gonna carry on this conversation. Uh, we are gonna get into what it takes to sell a business, and we are gonna
answer that all important question. How the heck do I know the value of said business, uh, in our
conversation with Stephen, don't go anywhere, we will be right back after this. Hey, there are you a business?
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Growth by selling
So, Stephen, uh, fascinating conversations so far about buying a company, um, I
guess if I flip it around what you've said so far about doing due diligence
about accounting, if I'm selling, if I'm building a business to sell it, um, uh, I'm listening to you thinking I therefore need to have good accounting.
I need to have year on year growth. I need to do you know what I mean? I I'm kind of reversing there what you said there in terms of, of buying,
is that a fair assumption to make. Very much so. Um, a lot of e-commerce businesses when they're established, um,
they're sometimes, uh, on a shoestring and typically the owner
doesn't realize how important it is to keep a clean set of books.
So if there's co-mingling going on, generally, that's going to hurt when you get, when a seller goes to exit mm-hmm . Um, and another point is,
you know, I, we highly recommend here at eCommerce lending that sellers really plan well ahead of their exit.
Uh, we have buyers that come to us two years prior to when they're thinking about selling their business and we are able to give them recommendations.
Sometimes we're able to set them up with an accountant to clean up their financial. Um, and sometimes it may be a business that's in the UK and we highly
encourage them to get domiciled in the United States because generally that does push the price point higher.
So, um, we do a lot of consulting here at eCommerce lending. We're not just, you know, a lender. Um, and part of that with, with our seller clients is being able to get
things in place for their eventual exit. What, sorry, let me just, lemme just back up just a little
minute, put it in reverse. Uh, so I'm in the UK. Uh, I have a UK eCommerce website.
Um, and I'm saying to you, Stephen, I'm looking to sell this, uh, in about two, three years time. I currentlyphship from Liverpool, uh, which is where I'm based all over
the world, um, including the states. So one of the things that you would say to me would be.
uh, have a think about domiciled your business or moving your business to the states or having a us, uh, operation, uh, to the UK operational.
Or am I moving the whole thing? I'm just, sorry, I'm just curious about what you said. Yeah.
So, um, to, to answer question in kind of in a roundabout way, so generally US based
businesses, um, obtain a higher price. Primarily because our more financing opportunities than a UK based business.
Okay. So we haven't consulted, um, our friends across the pond to consider if it makes
sense, um, to domicile their business here in the states, because generally,
um, their business, it just opening up the buyer pool that much more mm-hmm because most of the buyers, um, just by sheer numbers are here in the states
and a business that's do south here in the states will qualify for various
us based, uh, financing programs. Mm-hmm Whereas the UK, unfortunately doesn't quite yet have any sort of
business acquisition financing programs, uh, similar to what we have here. Um, there's a high emphasis on the small business here in the United States and
uh, thankfully the government, um, is able to, uh, guarantee loans here.
Um, so allowing lenders to, to lend on businesses that don't necessarily have any assets mm-hmm , um, you know, mostly it's it's called considered cashflow lending.
So with that, uh, we have consulted sellers to consider finance or
consider domiciling here in the states, uh, for that very reason.
That is fascinating, uh, and leads leads me to a whole bunch more questions.
Uh, if I'm honest with you, you can come. Yeah. Yeah, absolutely. So, um, so we're, we're thinking of selling our business and now you've owned
up this whole kind of worms that if you're outside of the US, you might want to think about moving your business to the US.
Um, I, I'm not gonna ask you what's involved in that, cuz I'm sure that's a question for the us accountants to answer.
Um, but in terms of. Um, the, the, the other thing that you mentioned, you're, you're
saying people are starting to think two to three years ahead now. So they're like, it's not like I wanna sell my business now.
I wanna sell it in two to three years. Is this quite common thinking it's like, are we planning that far ahead now?
No, I think it's two or three minutes. Not two or three minutes. yeah, I'm in that camp right there.
oh gosh, I wanna exit. Okay. Uh, and unfortunately, a lot of businesses, you know, ultimately lenders
look at the financials and a lot of businesses, um, don't keep clean books or, um, at least here in the States, there are a lot of, um, There's a lot
of aggressive accounting work to lower the tax burden for that seller mm-hmm Um, unfortunately that generally hurts the seller upon exit because that business
will qualify for less amount of financing. Mm-hmm if, if, and sometimes it, it disqualifies a business
from qualifying for financing. So we try to encourage our, our seller clients to be less aggressive
in avoiding, uh, the taxman and, and being able to show as much profit, you know, bottom
line profit as possible because that's gonna pay dividends when, when he, or she goes to exit.
That's really, yeah. Proper planning and preparation and all that prevents and also co-mingling that that's a huge problem.
And I'll bring it up to your audience. If you have multiple e-commerce businesses, keep them separate.
Don't co-mingle financials. Mm-hmm because when you go to sell that one piece of the three businesses that you have.
Um, it, it won't qualify for financing. So make sure you have separate set of books for each, each of your businesses.
And do I, if I'm gonna sell, uh, an online business, there's a big move at the moment, Stephen, uh, certainly I've noticed for people
to sell, not just physical products, but digital now digital's, you know, actual digital products. You've got the whole, you know, buy in this photograph and the rights
to that whole photograph type thing. So there's, there's a whole massive sway now isn't there into digital products.
So in terms of, uh, selling my business, is it still more beneficial for me to build a product based business or does it not really matter?
Can you still get lending for both? It's it's equal? Um, I will say digital businesses have become a greater
share of our business here. Mm-hmm uh, the amount of business that we bring in, whereas eight years ago was like a, a what?
A digital. And now, um, now it's, it's a, I won't say, I mean, it's probably
to % of our business. Here are digital businesses or SAAS businesses, you know, service based businesses.
We have one where, uh, the, the seller owns like trillion,
um, website, uh, domains. And he's selling the business because it drives traffic and it generates revenue.
So, uh, across the board we, we do both eCommerce, which is technically
eCommerce our product based businesses, as well as, you know, digital businesses, SAAS businesses, cetera.
Wow. Wow. So the, um, this is all very fascinating, isn't it?
So I came across when I was looking, uh, I say looking, it usually means stalking, uh, Stephen , uh, your good self on LinkedIn.
I came across, um, a story on there about Phoenix store, Mark Daly acquired that business.
And I said to you, I don't, again, I've not asked you if you can talk about this is on LinkedIn.
So I'm asking, uh, feel free not to share certain things, but um obviously
Mark put on, on, on LinkedIn that this was his first eCommerce acquisition.
Uh, and he was very glowing and grateful to you in, in what he said on LinkedIn. I thought this obviously has gone well, and here's a guy, I
dunno the backstory, but it seems like there's a guy who's gone, I'll buy Phoenix store, which I, I looked at the website and it sell like
torches, uh, and things like that. I, I was just really curious, how did that start?
And, and, and what was the story there? I mean, Mark was one of our fantastic, uh, clients.
Um, he had strong business acumen, although not direct and he just had a real, um, he, he had strong business acumen.
I mean, it boils down to that and I, we saw no reason why he couldn't run that business.
Um, yeah. So, so we financed, uh, I think he closed a couple months ago,
but some of our clients don't have direct e-commerce experience and,
but they have the right acumen. They have the wrong, the right indirect experience. And he certainly had that.
Mm. So, um, and that was a good size acquisition. And so far, he's doing very well, uh, as he continues to scale that business.
So do you stay connected? Do you follow up with clients as they go through the whole process? We do.
And it's, you know, one thing that always comes up is how well do these businesses do uh, post-acquisition?
Mm-hmm I think only in, just in a few cases has a, has a business turned, turned bad.
Um, and usually it's operator error. Uh, we had one case about three years ago. Um, we, one of our clients bought a business and, uh, it was fairly
specialized and she fired everybody and thought she could do everything herself and the business totally tanked.
Yeah. And, um, for your listeners out there, if you buy a business, don't change anything
for at least like three to six months. Like anything. Just stay steady, get your sea legs and then start making changes over time.
And she, unfortunately didn't do that. She fired everybody and thought she could be a, you know, do everything yourself
and the business absolutely tanked. So, wow. This obviously brings us to one important question, uh, which will
be I'm sure the question that you get asked the most often, if you're down in the pub and you tell people what you do for a living, right?
How do I not ever
I like that. Um, if you, how do you. How do I value a business?
How to value a business
How do I value a business that I'm buying? How do I value a business that I'm selling? I appreciate, I've just gotta ask probably the most common, but the most
stupid question, because it's like how long's a piece of string, right. But are there some, some things that I need to think about in that process?
You know, unlike more kind of brick and mortar, traditional businesses, uh, the
multiples, uh, ultimately in terms of valuation, it's all about multiples. The, the, the challenge in eCommerce and or SAAS is that the
multiples are all over the place. Yeah. So that's been kind of a challenge for, for a lot of people.
And also back to the supply and demand the multiples have gone stratospheric,
um, because, um, because of the demand. So, um, but ultimately, you know, depending on, you know, a few factors
that that really affect the multiple, uh, you know, the type of business, it is the price of the business.
Um, so those, those two primary things, because you can have a SAAS business at, uh, times multiple and in a product
based business at three and a half. So, so it really depends, um, generally the higher, the price point, the
higher, the multiple mm-hmm . Um, but. Um, so, you know, once you move forward with your offer, um, you know, ultimately
at the end of the day, you have to feel comfortable with what you're offering, uh, for that business, meaning, okay.
I'm, I'm putting an offer at million because I believe that business is worth million mm-hmm and it's really, regardless of what the
seller thinks it's worth, because ultimately you're the one buying it. And then, so, but during the process, as you do your due diligence, we actually do
a third party valuation of that business. So we might come back to you and say, you know what, Matt, you know,
I know you're buying this business for million, but here's a page, uh, business valuation report.
And it's, it's actually worth two and a half million mm-hmm And that gives you the opportunity of going back to the seller
and renegotiating the price. . Yeah, because it's, it, it does feel like with, uh, business valuations, sometimes
it's a bit like I'm gonna link my finger and stick it in the air and see which way the wind's blowing and I'm, and I I've heard people wanting crazy multiples for
their business, you know, like And you're like, dude, what, what planet uh, is someone gonna may best to look
finding someone to buy that, but that's just not me, uh, out of the gate, right? Oh yeah.
I mean, it might be somewhat similar to the housing market, at least, you know, I know the UK housing market's gone crazy same with here in the states.
And ultimately there is someone stupid enough to overpay for, for, for a business or a house.
And, you know, hopefully our clients aren't that person, but we're able to have a safeguard. All of our deals require a third party evaluation.
Um, and so we're able to, to help our client make sure that he or she doesn't overpay for the business mm-hmm
Um, so that that's part of it. Um, and then also, um, we set up our, our buyers for success in
the sense that we help create, um, an acquisition team around them. Um, oftentimes our buyers come to us and they think that buying a
business is like buying a house. Excuse me and it's not it's, it's not at all. So we're, we're able to set them up with the, uh, due diligence
team, to mm-hmm vet the, the, the, uh, the business itself.
We're able to recommend a eCommerce attorney because again, a space is very different.
You can't just hire an attorney that doesn't understand e-commerce. So we help build this team around the person and, and really, uh, there are
a lot of safeguards in place to make sure that, uh, our clients aren't overpaying that we're able to show up financing, uh, and that ultimately
we're setting up our client for post-acquisition success and not failure.
No. Which makes a lot of sense because you're, I mean, you said earlier, you know, part of the process is you get the financials, you do your due diligence.
Well, the next question causes, well, how that, what, how do I do that? Due diligence? Do you know what I mean? And or how do I find somebody that knows how to do that due diligence?
Because most accountants won't know how to do that. Right. Especially when it comes to yeah. And our clients know, you know, right outta the gate with us during our
consultation call, we, we throw that out there saying, listen, there are a lot of steps here and you gotta create this team around you for, for
acquisition success, let us help you. And, um, and our clients really appreciate that.
So when you say let's take a four times multiple, uh, to value the business, multiple of what.
multiple of EBITDA or SDE mm-hmm because you can't simply look at the financials
and take the, the net income of a business and determine a multiple off of that because there are various, uh, things, uh, that are called ad backs.
Uh, be it, current owner salary, uh, is an add back and other things can be add backs.
Mm-hmm um, and really in our space, it's more of the SDE what stands for
seller discretionary earning um, and we're able to take that, that net income and add back those things and then come to an SDE number.
So it's a multiple of the SDE. Okay. Whereas that's interesting brick and mortar businesses matter more
about EBITDA earnings before you come, you know what EBITDA is? So, yeah. Yeah. Uh, so that's the mult, that's what, where the multiples drive from.
That's interesting because, so it's not about re I mean, revenue obviously helps and it's not the, the net profit, it's not the gross profit.
It's kind of somewhere between those two numbers, isn't it? EBITDA. And it, it, it kind of certainly in the UK anyway.
And so what, one of the things that, um, that is becoming more and more obvious.
Stephen, as we're carrying on this conversation, is it is, it is a, it's a nice idea to buy a business.
It is a nice idea to sell my business or exit from my business, but it sounds like it's not as straightforward, um, a process.
I mean, I've you mentioned it's not like buying a house, I've bought a house that was not straightforward. That was stressful.
So if this is, if this is not like that, uh, it's gonna add a whole new level
of complexity, uh, into the process. So if you're buying something or selling something of value, it makes
sense to get someone like yourself involved. And I, I appreciate this is not a sales pitch for you necessarily, but it's
just kind of like, I, I get the purpose of, of why you exist and the value that
you can bring and the nightmares that you could probably save me from uh,
if I try and venture down the space myself, would that be a fair comment? It's very fair. And we do have some clients that are, uh, unfortunately, you know,
penny wise and pound foolish. Um, and they don't engage us and they go down, uh, the wrong trail and end up never
closing, never having acquisition success. So we really stress building that team around that person to make sure
they do have acquisition success. There are a lot of moving pieces. Um, if you think buying a house has a lot of moving pieces, buying a business
has far more moving pieces and, uh, we help them navigate through that. And you know, our clients, uh, Uh, you know, we've gotten
good feedback about that. And we're actually the only firm that really does that. Um, we don't know if any other firm, at least here in the United States
that really, um, provides that level of service in terms of, um, you know,
we're, again, we're not just a lender. We're we really offer a lot of ancillary services, um, to help our
clients succeed post acquisition. Fantastic. And if, uh, Stephen, if people wanna reach you, if they wanna get hold of
Connect with Stephen
you, if they wanna find out more, uh, whether in the States, the UK, wherever they are around the world, what's the best way for them to do that.
Send me an email. Stephen@eCommercelending.com and that's Stephen with a ph at ecommercelending.com.
That's the best way. You could also go our to our website, eCommercelending.com uh, we have a lot
of information on the website and, uh, we could arrange a, a consult and, um, and we could even do it via zoom if you're across the pond.
That's no problem at all across the pond. I like that phrase.