AS 82: Selling Your Amazon FBA Business for Millions with MindBay
28 Mar 2017
Today I’ve got two invincible kings on the show – Wilson who is the founder of Mindbay, a specialized Amazon brokerage firm who has handled over 50 transactions in the last 3 years. Wilson has been an online entrepreneur for over 20 years and has operated an Amazon shop himself.
Hameed Hemmat, also a partner in Mindbay, has a background in App development specifically with iOS apps. He sold his app business recently that he was running for 5 years. He also operates a successful eComm store in the indoor grow space.
In this episode, you’ll learn:
- How to sell your Amazon FBA Business
- How Mindbay sells Amazon and App businesses
- When to sell your Amazon FBA Business
- Why to sell your Amazon business
- Best practices for selling your Amazon Business
- Getting acquired
- What you need to do before getting acquired
- A very detailed step by step process that is involved
And much more!
Mindbay Exclusive – Free quote on your Amazon FBA Business
DAVID ALADDIN: Great to have you on the show, guys!
HAMEED HEMMAT: Thank you for having us!
WILSON: Thank you! Nice to meet you, Dave!
DAVID ALADDIN: By the way, this is the first episode where we’ve had two guests on the show at the same time. Can you guys take us to the beginning before Mind Bay? Where did your journey begin?
WILSON: Hameed, I’ll let you start there.
HAMEED: Yeah, let’s see… Well, I started in the app business… I am going to get to how me and Wilson met… But I started in the app business about five years ago. This was during I guess you can call the gold rush of the risk-in era where anyone who’s somewhat familiar with app development started in 2011/2012. Me and a friend of mine, we partnered up, we built about seven portfolios, meaning seven developer portfolios with over 400apps. Just recently… The way I met Wilson actually was through a brokerage because I was looking to sell my business over the past year. And Wilson ended up buying my business, so…which ended working out great, and then we became really good friends. And then we saw, you know, I guess you can say a gap in the marketplace with brokerages. And no disrespect to the brokerages, I worked with these guys, they are great. But we just saw that we could offer a better service and help other business being able exit their businesses. So, we decided to partner up, plus we became good friends and that’s kind of how we got to where we are at today.
DAVID ALADDIN: What about you, Wilson?
WILSON: Okay, so yeah, my background…well, my educational background is in engineering, so I have a system based background. But my career really started to focus on entrepreneurship and so I’ve been involved in probably over fifty different businesses at different level ranging from the CEO of one billion dollar plus firm to a total startup. So, I’ve done a lot of different things. Really my strengths are really systems based implementation, so, picking a business and scaling it, specifically in the sectors of ecommerce, Software and also marketplaces. So this is kind of where I’ve dedicated my focus. Mind-Bay was founded because I realized at one point that in order to sort of find business opportunities. Building it was why I started it, but it was hard to do because I guess setup of any business takes time. So, I just decided that the best way to approach being a serial entrepreneur is to acquire the business. And what I did was I created Mind-Bay primarily as an acquisition for acquisition. Through that process of working with sellers like Hameed I built relationship with them, because a lot of them are very talented. You know, people who are willing to build a business from scratch usually have a certain, you know, profile which includes, you know, highly motivated personality, also willing to take risk, a lot of different skills. So, I tried to work with those people if they are right and really tried to build upon that. A lot of the people I work with are also entrepreneurs and a lot of them happen to be in ecommerce such as Amazon and eBay, and they always ask me to go and sell their business. So, that’s how the sell side part of our business kind of formed, but most of it was really based upon the bayside. So, that’s kind of the background and now here we are. I am still, you know, focused on being, you know, very entrepreneurial. We also operate. But the brokerage now has really come to intuition because I found Hameed. You know, it was very difficult to find a partner who not only had sales background and the ability to track and work with people, but also the experience to actually doing an Amazon business, and other businesses as well. So, I think that’s a very important aspect of being a successful broker.
DAVID ALADDIN: And Hameed, you said you had four hundred apps before you got acquired. How did that happen within five years?
HAMEED HEMMAT: Oh, man, you know, there’s actually…I have colleagues in the app space who did way more that. So, there really wasn’t a lot in…putting it in perspective, but… No, it was just…In that space it was just…we just had a system of just pumping out apps. So, basically what we would do is we would buy source codes from certain communities and then we would, you know, had a whole team, I built a team of artists and developers overseas leveraging up work which I’m sure most Amazon sellers do that as well. And basically, man, it was almost like a factory. We were just pumping out apps every single week. We were just risking source codes, many casino games, and kids’ games, arcade games. We were just risking with different themes, modify the games, and just literally be pumping out three to five, six, seven up to ten apps a week.
DAVID ALADDIN: Yeah, I mean, I actually have eight apps in my name. I’ve heard about that strategy, it was actually before the Amazon time. And like I was going to pump out…it was like a flashcard apps for every single type of, you know, test or quiz that people would have and sell it for 99cents. You know, it was very time-consuming. Not in a sense that it took a lot of time to create one app, but it’s like iTunes started catch on if you had too many apps. You know, it started moderating it more.
HAMEED HEMMAT: Right, yeah, no, definitely. You can’t just put one of the same apps and have four hundred of them or different versions of it. You got to have different apps, you know, what I mean? Do, we diversify casino, kid’s games, roulette, slots, all different types of games and we just pump them out to the app store. And did pretty well for quite some time, so… It was a lot of fun.
DAVID ALADDIN: Let get into the best topic, acquisition, which I think pretty much everybody wants to get their business acquired at some point or another. Let’s go through the process. Let’s say I want to sell my Amazon business. Where does it start?
WILSON: Okay! So, yeah, that’s one I can answer. So, first of all in term of where it starts it has to be…you have to have a reason, a rational reason. And we find that most of the sellers that we work with, they either sell for one of two reasons: personal reasons or business reasons. Personal reasons really include force down pool, changing priorities, you know, people who are looking to, you know, maybe diversify some of their income, maybe their time doesn’t allow them to dedicate as much, sometimes maybe unfortunate circumstances like a divorce, or maybe a partnership split, or a retirement. And that causes them to want to sell their business.
So, those are all very legitimate reasons for a sale. Most of our sellers sell because of business reasons. And those business reasons, if they are, for example, they may include being such as a changing competitive environment. A lot of times when, let’s say for example on Amazon, could be a flood sellers coming to that, you know, specific risk that includes change the risk profile for the seller or for the owner. And the owner may want to ship the risk to somebody else willing to take on that type of risk entering a new market. So, that’s a legitimate reason. Diversifying as well, I think, diversification. So, to channel that diversification is really important. A lot of times people who would want to sell because let’s say for example they need… When I find Amazon sellers, some of them…many of them are single channel Amazon sellers, but lot of them are multichannel sellers, they need to run a website and they may need to sell on other marketplaces.
One thing is that diversifying the channel is also a good portfolio management strategy. Another thing is to having really too many, you know, having too many eggs in one basket. You know, it happens with everything. Just even in the app business we talked about having too many app in the same genre like casinos creates a risk. It’s the same with Amazon. You have too many, you know, listings, you know, too much activity in a certain business sector that may be, you know, something that Amazon is growing in, or maybe have a lot of copycats who are trying to come in. That’s something that allows you to set for diversify. But the main thing that I find is that people are around when they recapitalize their business. They want to take some money off the table and they want to put it into other things. And I find that a lot of sellers want to do that. For example, seller who have built a business, they might have got bored and they want to kind of move on to something more exciting.
So, what they want to do is sell that business to somebody who doesn’t mind, you know, taking on a business that’s, you know, that is new. They are kind of interested in taking on new challenges and the sellers, they want to diversify and then raise capital and deploy that capital into another business, or it could be in other things that are just real estates. So, I find that those are kind of the…how do you say…the triggers for people to sell.
DAVID ALADDIN: I bet everyone has like one of these triggers at least. I mean, I definitely want to diversify a lot of my incomes straight from FBA just because… The income from FBA grows so fast that it kind of makes all the other incomes seem small. When do you think is like the right time for an Amazon seller to sell their business rather than to get too attached?
WILSON: Okay, well, a lot of the times, there are a couple of factors that sellers want to consider before they sell. First of all if you speak to most brokers they would say that the business has to be…has to have reached certain maturity point, age. So, for example, age is one of the I guess the baseline metrics that most sellers, or most brokers will measure the business. So, if it’s, for example something that is 18months old and above, that’s usually kind of the breaking point in terms of what they will take on. If it’s less than 18months old, a lot of brokers would say: no, there’s not enough history.
In our case, you know, we don’t restrict ourselves, you know, to that rule. We’ll take on any business, but we also advice the seller that it will affect the value of the business if it hasn’t reached that point. Second factor is that with any business it’s always very important to sell where there’s a positive trend. The valuations are…you know, the valuation of a business is based on a multiple of what’s called seller discretionary earning, or SDE, and those earning are based typically on the trailing you know, 12 months.
However, let’s say it could be, if your business doesn’t have 12months history for example, it can be forecasted forward. So, let’s say you have a business that’s 9months old. Well, we take the 9months, we extrapolate the 12months into the forecast and then base the multiple on that. If the growth is positive and there’s, you know, in terms of revenue and in profit, then that multiple it’s higher. So, for example, the typical sort of SDE multiple that most brokers ask for is anywhere from, you know, 2.5 to 3. You know, they usually just apply that rule. So, they say okay, your business is doing, you know, this much, and seller discretionary earnings then will multiplies by 2.5 to 3.
Our methodology is not quite the same. Our methodology is that we usually tell our sellers upon, you know, the initiation of our engagement that the SDE is usually quite wide. It’s going to be, you know, anywhere from 2.2 up to 5, and really that variation in SDE is very, very wide and it will depend upon a lot of factors, right? So, a lot of factors are, obviously one of them is what’s the growth rate. So, if it’s really accelerating obviously that will kind of move the multiple much higher. Is it a unique product, meaning is it something that they have branded, you know, that they’ve created and that they some exclusivity on. Is there limited competition into their barrier’s entry? Those types of things will increase the valuation. Anything that has less moving parts will increase the valuation. So, for example, if it’s an FBA business, if it’s, you know, large space to hold inventory, if that’s the way that they are going through, if that’s the business that they are in, then you know, that would increase the SDE multiple. So, there are a lot of factors. We try to measure all of them. I can give you, you know, quite a long list of those if you wish, but I don’t think you’d have the time to…
DAVID ALADDIN: No, that’s okay. I guess for me, like I want that 5x multiplier and so do you think…Would a product with 500 reviews versus a product with a 1000 reviews, would the multiplier increase or would it kind of stay the same?
WILSON: No, I mean, absolutely! I mean, there’s… Some of the factors that affect the SDE multiple, obviously one is reputation, no doubt about that. I mean, having 500 positive reviews out of a recent is going to be much more than, you know, something that has a mix of good and bad reviews. And that will increase the valuation of the business significantly. Another factor are things such as the product mix of the business. If it’s a single product business then that’s probably a lot riskier than a sort of business that has a multiple products because of obvious reasons: If you lose that one business thing or lose the buy box then you are going to be having half of your business threatened, right? So, those are those things.
Other factors, you know things such as leak times for product orderly. A lot of times the seller may have supplies that, you know, are not as reliable, they may have longer leak time, they may not be good to access inventory, or even the quality of the product and that all come at play into affecting the reputation of the business and the availability of the product. So, in that case, that really is going to affect the valuation. The terms that you have with the supplier as well, you known, the less favorable pricing and term. You know, these are all things that really affect the margins of the business and the valuation.
HAMEED HEMMAT: Even offline assets as well, you know. I don’t know if you mentioned these earlier, but even offline assets. Like do you have a standalone income store, or you are collecting leads, how big is your leads database? You know, do you have a Facebook community built around your product? You know, do you have following? Basically, do you have a brand reputation off of Amazon? I think that will also affect the valuation of the business as well.
DAVID ALADDIN: The 2.5x to 5x multiplier, is that the profit or the revenue typically?
WILSON: Let me just define what seller’s discretionary earnings are. So, first of all what you have is you have sort of gross margins of the business and the gross margins are the revenue minus the expense, the cost of goods, and any expenses. Some sorts of expenses are selling costs, you know Amazon, commission costs, etc. Now, once you have that gross margin then you have other expenses in there, oh sorry, then you have the costs in there. Then you have the net margin which is expenses like bank expenses, commission, etc.
Now, seller discretionary earnings really is a profit which excludes what they call added bags and they are really costs that the new owner would not need to incur. And so, for example, if the owner of the business pays himself a salary that is excluded as an expense, personal cost. So, for example, if the owner has a meal or charges his travel, and cellphone, and car expenses, those are also considered as add bags. Onetime expenses, so, for example let’s say a software upgrade or you know, in the case of Amazon it would be different, but let’s say that it was an expenditure in let’s say revamping the warehouse, you know, like buying a bunch of shelves retrofitting or whatever. These are things that happen only once and not so often and the new owner would not incur those expenses. So, that type of expenses is excluded in the calculation.
So, you arrive at that seller discretionary earning which is excluding the add-backs and then you take the multiple from there. And then what we do is we analyze the business, you know, according to what we just discussed and then we apply the multiple. Now, of course, when I gave it first to SDE, it was very large, I mean, 2 to 5, I mean, that… Again, most brokers are going to always try to, you know, they are incentivized by quoting a lower SDE because of what they want to do. They want the business to sell. And the reality is that selling a business is much like selling a house. You have to find someone that loves that business, like the seller, like the business dynamic, they’ll pay a higher multiple.
If they don’t like the seller, they find it very difficult to work with, they find the business has a lot of unfavorable dynamics, then they’ll ask for a much lower…they are not going to pay a high multiple for the business. So, there’s quite a wide range on the SDE based on the intangibles. And one thing that’s really important I find is support, so post-transaction support, right. Now, the buyer doesn’t really know what type of support the seller is going to offer after the transaction is done. But if it’s committed to in terms of a contract… So, for example, let’s say that the buyer request that the seller is going to provide, you know, let’s say, 12months or 6 months or whatever, 3months of post-transaction support defined by certain tax, that would really offer a premium to the multiple. So, it just shows a willingness of the buyer to work with…sorry, the seller to work with the buyer.
DAVID ALADDIN: Okay, so, at some point this SDE is calculated and the profit of the business is calculated, and you just find that multiplier and that gets send over to the buyer, correct?
WILSON: So, what happens is…the process is this: so, what we do…so, let me kind of explain the process for your listeners. First of all once the perspective seller decided to engage in selling their business based on the reasons we talked about or based on whatever reason they wish, what we do is we go over what’s called High Value Evaluation of the business. And that kind of really takes about a day. And actually we are doing that right now on our website. You go to mindbay.com/amazon and if you wanted to do that, you can actually submit on that form there.
What we do is we gather your what we call clean financials. Those clean financials are basically what you tell us. So, you tell us: okay, this is how much I am making revenue; this is how much I’m doing. And we ask for certain sort of financial…we’ll give you a template actually and you’ll see it out. We actually do some research in the business sector and give you a range; we give you a rough range. So, let’s say for example, if this business is going to sell for 3 to 4 times of the SDE. Now, that time the seller will decide, will make a decision: okay, is this what I want to sell it for? Okay, because this is why the broker is telling me is going to be 3 to 4 SDE probably. And they will say: okay, this is not enough for me, I rather continue run the business or let’s go ahead and move.
At that point there’s expenditure from our perspective, you know, I mean from our brokers. What we do is we have the seller engage in a contract with us so they find a contract. Typically the contract…because we are investing in promoting their business going forward and a lot of time a labor, we have a contract that allows us to represent them on an exclusive basic for a period of time, and that’s called the exclusivity period. That can range anywhere from, typically it ranges anywhere from 3months to 6months, depending on the size of the business and the dynamics of the business, that could change. But that exclusivity allows us to work and invest money in promoting the business without the seller moving their listing to another broker.
Now, once that engagement is confirmed, we go ahead and do a due diligence on the business. The due diligence means that we may take up to a week, to 10days, and what we do is we go into the needy greedy of the business. We go and prepare templates and we look at financial statements, audited financials, we access records such as, you know, for example screenshots or with provide analytic access, anything that we can do to verify the information that we’ve been provided.
We also verify who the seller is making sure that the seller actually owns the asset he’s claiming to own. And also their background, you know, making sure they haven’t…they don’t have the reputation that would be unfavorable to the buyer. So, we go through this process as a…probably a 20 point check list that we go through and based on that we start putting together a marketing package. Now, that marketing package will narrow down the valuation to a precise number and that number usually 90% of the time will fall within our first quoted range. Now, let’s say in the example I mentioned, we quoted 3 to 4 times, of 3 to 4 range in terms of the valuation. Usually it will fall anywhere between that. And if we find that there’s something that’s unfavorable, it will be at the low end. If everything looks good, reputation, the business is good, the seller is willing to, you know, get on call and provide post-transaction support, all those other intangibles, then it will be at the higher end of that range.
Included in the marketing package… The marketing package can range in links. But usually there is information regarding obviously the financials, common as FAQs and there will also be sort of a seller interview section, and there will be questions that we anticipate that all perspective buyers would, you know, would want to know. So, all that comes in the package and once that’s presented, created, we have the seller verify that and also confirm that the price is acceptable.
Upon the seller’s okay, we then proceed to promote the business. So, we promote it to various channels. First channels we promote it to, are internal database. In our case we have an internal database of more than 10,000 perspective buyers that we’ve collected throughout the years that we’ve been in business. And we also advertise on the public or on media, the business media where buyers would visit to buy a business. In the case of an Amazon business the dynamics are different than it is for an app business for example which we also work with. An Amazon business is a business that’s appealing not only to online buyers, but also to (inaudible 27:36). A lot of the Amazon sellers that are coming into the market are people who traditionally work more in retailing and they really want to go to…they want to become online sellers and Amazon is a natural first step.
So we promote our listings in those marketplaces that are appealing to breaking order buyers as well. One of the strategies that we implement that I believe help increase the valuation, increase the actual price for our client is…you know, we advertising and promoting our business on online media, but also on offline media, but also international media. Hameed and myself, we’ve worked internationally, we are comfortable, we have access to media of business buyers that are international. It could be somebody from Europe, it could be somebody from Australia, it could be somebody from Asia. We also publicize the business in those channels. And that’s something that other brokers, you know, don’t have at that level of expertise.
One of the real kinds of selling points of our business is that many of the buyers of any business, the ones that pay the highest valuation, are typically strategic buyers. Those strategic buyers are buying businesses because they want to maybe reduce the competition. So, for example, if you are selling, let’s say cell phones…well, that’s too big kind of a market. But just selling a product maybe like a certain type of cell phones accessory, and you have two competitors. Well, if one competitor has 80% or market, and the other two have a combine of 20%, it makes sense for the larger entity to acquire the small entities, so that will reduce the competition. Those strategic buyers typically will pay a multiple just to, you know, just to consolidate that subnet.
So what we do is that we drew an outreach program for our clients. We do the research into which those strategic buyers could be, not only online, but also breaking order. So it could be for example in the case of, you know, make a phone accessory, it could be a retailer, breaking order retailer. We contact them and we actually do outreach, we are not just, you know, putting ads out there and waiting for enquired to come in, we actually go and approach perspective buyers.
DAVID ALADDIN: I like how you guys go through the entire process of walking through with the seller, getting the data from the seller and letting them fill these template forms which makes it a lot easier and less intimidating to sell your Amazon business. One of the biggest things that I actually was curious about and I was going to ask you outside of the podcast was once that negotiated price is made it seems like if you guys find a buyer for that price that you guys have the right to sell the business at that point, is that correct?
WILSON: Okay, yeah, so what we do is typically with a broker, obviously when we have moving targets, so let’s say that the asking price is a million dollars that we have agreed upon with the seller. Now, if we find a buyer that is willing to pay that amount typically in cash…so, it really depends on the terms, right? Because a million dollars in cash or in sort of an immediate term is different than a million dollars in but over 10years, you know, if that’s… So, you can’t compare apples, you know, there’re different terms of a deal. But let’s say the asking price is a million dollars and we find a buyer for million dollars, and the seller decides that they don’t want to sell it, so in that case there’re two options. Number 1 is that we would ask the seller to pay our commission, because there’s a cost involved as brokers, so we don’t want to be involved in the business of, you know, being sort of…I guess being led on.
DAVID ALADDIN: Yeah, that sounds fair.
WILSON: And so what we would say is: okay, well, the commissions would be due at the time they decide not to sell and that’s included in contract too. If however the terms are not right… So for example let’s say the seller says: okay, I am only going to take a million dollars and I am not going to…I’m not willing to do any type of earn out and that was made clear, it’s our job to sort of okay, kind of work towards that number. And we are going to get offers that are bellow that number, we’ll present it to the seller and allow them the option to choose. I mean, it’s obviously…at the end the seller can choose whether or not they want to sell the business and at what price, but we do put some verbiage in the contract to, you know, prevent any abuse, it’s how it works.
DAVID ALADDIN: Are earn outs typical in an acquisition or not?
WILSON: Very! Very much so!
DAVID ALADDIN: What’s the length of that usually?
WILSON: Well, I mean…there’s no sort of a rule out there because it really depends upon… With selling a business it’s almost a little bit like getting married, there’s no real template to, we do it with different terms on the marriage, right? And it’s the same with a business. But most of the time we deal with sellers, I would say 90% of the time, we deal with sellers that are willing to do an earn out but the earn out really not less than 6months. So, for example, it would be…typical scenario would be 80%, or 75% of agreed upon price paid upon closing, and then remained paid over a period of 6months. Really depends on the dynamics of the business, the risk of the business and a lot of other factors. But that how we call it. If there was some rule, it would be something like that. I would say it’s somewhat rare, unless the business is extremely attractive where, you know, the buyer is probably buying a house that is in a surging market you know to pay above the asking and in this case. It’s very rare that someone pays above asking. They always, yo know, kind of negotiate the price and they always have terms. It’s quite normal.
DAVID ALADDIN: When I heard it, I was thinking like 20year period payment, like the lottery, but…
WILSON: No, no, no! I mean, we do get offers like that from time to time that are quite silly. For example there’s a domain name that was sold recently, I forgot the name, but it was, I think it was for a Le Vegas domain, a big one, and the payment period, it was obviously a big money transaction, it was much more than $10,000.000, but payout for that was over 20years. And so it was like an equal amount over 20years. And so it really depends upon how motivated the seller is. I mean, some sellers, how they look: I don’t want to get involved in this business, I am retiring, I want to kind of move on, I am willing to, you know, have that earn out over a longer period of time. And so, I’ve actually might sell. You know, my history in MindBay is that I bought many businesses and a lot of the times when I, you know, there were factors such as the seller really wanted to move on.
You know, I actually structured myself where, you know, the deal was very stable for myself, you know, I would pay them over a period of time, but in contingent upon the revenue target that they forecasted, that the seller forecasted being met, right? So, it really depends on the risk of the business.
DAVID ALADDIN: Very interesting! Okay, let’s say the Amazon business got sold. How does that transfer period go down? The transitional, you know, the FBA seller profile, or how would that work out on your guys end?
WILSON: Okay, so, at this point, right, the … so, just to, kind of, go through the process here continuing on where we . . . so I think this is relevant. So, during the process that we promote a business, I am taking a step back, if you don’t mind …
DAVID ALADDIN: It is okay.
WILSON: I just want to, kind of, clarify a few points. So, we go and promote the business and we are going to get inquiries that come in and those inquiries are handled, now, we try to be time-efficient and we try to qualify the buyers. The buyers, we try to qualify them; number one, it is a proof of funds, you know, I want to make sure that they do have the money to buy, where actually have access to finances to buy, otherwise you engage in … the seller will waste a lot of time and our job as a broker is to kind of mitigate that risk and those time-wasters. So, we usually set up some screening process on the buyers and once we arrive at that list of qualified buyers on a periodic base, we will set up calls. Typically, what we like to do is set up group calls because the group calls, I guess they incite a competition, right, so we have five buyers on a conference call asking questions; usually, it is much better …
DAVID ALADDIN: It is awesome.
WILSON: Yeah, that is one of our strategies. We do a webinar style where they can post questions on text, they don’t get into a shouting match. Then, it shows to the other buyers or the bidders, the prospective bidders, that there is other interest and I think that is very important strategy to implement. So, at that point we get a person who expresses intent to buy and what we do is we do the letter of intent; so, a letter of intent is okay, they are going to buy the business, let’s say for example, for a million dollars. And the letter of intent is a non-binding agreement, it is not anything that can be taken to court but what it is, it just allows the buyer, the prospective buyer, a period of time to conduct due diligence and not have the business be shopped to other buyers, to other prospective buyers.
It is a little bit like an exclusivity period to arrive and to conclude the business and that is formalized by the signing of an asset purchase agreement. So, when the asset purchase agreement, which is the binding contract, is signed, that is when really the business is transferred. Prior to that, the letter of intent is committed to and at that point, the buyer will do their due diligence. So, the due diligence at this point is they would provide copies, not copies, they will provide information that the buyer can verify, it could be a financial statement, Amazon statement, vendor invoices, you know, it could be tax returns, you know, usually a P&L and a balance sheet – things like that, cash flow statement.
So these are things that are provided, contracts with suppliers, actually, contact with the supplier so the prospective buyer in his due diligence phase would contact the supplier to make sure they are still willing to supply and what the price is and the terms … Documentation the buyer would insure there is no litigation, pending litigation against the seller; any issues of paper tame are to effect, you know, pertain to the business or put the business at risk is done. We actually assist, the broker, we actually guide our buyers through the process, I have done this over fifty times in my career myself, acquiring a business; I know exactly what to look for. I guess that is … not trying to blow my own horn here but because I have conducted so many transactions unlike a typical broker who may not have been a buyer, you know, I can identify the steps in the due diligence process better than really anybody else; I know how to detect fraud as an example.
So, one of the most common strategies that buyers or sellers will do is they will claim that all of the traffic, for example, in a web business, they claim that all the business is organic traffic but what they don’t realize, what is the buyer won’t realize is that a portion of that traffic was not really organic but it was generated through the seller’s own network, it could be their own network of affiliate sites that they are using or it could be through paid advertising or it could be through their friends network of sites, right. And usually what happens after the transfer occurs is that all that traffic disappears and so we have a lot of experience through a lot of mistakes of our own in advising our clients, our buyers, to prevent those situations from occurring.
So, you know, we got through that process, usually the due diligence process takes two to three weeks, there are also firms that do due diligence as well that specialize in it so we encourage our buyers to use those firms and if they feel it is necessary and once they pick up everything and everything is kind of identified as not what the seller has claimed, for example, if the seller has claimed that all the traffic was organic but in fact that it was paid and through let’s say private blog networks, then the buyer could actually opt out of the all proceedings, they can actually not proceed, just drop out. Typically what happens is that the buyer will identify issues with the business and then negotiate a final price that takes into consideration those factors. So, for example, if they find that 50% of the traffic was paid traffic that the seller didn’t disclose, then the evaluation would decrease by, you know, an amount they would negotiate a new price.
At this point, assuming that the price is agreed upon, then we proceed to draft out an asset purchase agreement and that binding agreement is very specific to all the deliverables that were agreed upon. What we do is we take all the notes that were exchanged between the buyer and seller and also take notes during the meetings and we compile everything and we draft out everything that we … all the information that we have taken. We then present this to the buyer and make sure that everything is as they desire and upon that we then present it to the seller for confirmation. At that point, if they decide to proceed, they execute the business or they execute a transaction and typically, we use, you know, to provide security to the buyer and seller, we use an Escrow service and we transact the business.
Post transaction, this is when the, I guess, the closing or the transition period is and that is what we facilitated well which is the transfer of all set assets as part of the asset purchase agreement such as transfer of inventory, transfer of accounts, transfer of maybe business entity, any of the IP’s such as images, you know, source images, anything related to the business, we help facilitate that transition in a structured way. We usually set up a project for that and at that point, the training and transition period where the buyer … we also coordinate that as well, so it could be regular meetings, it could be a venue where they exchange the … where they set up meetings with one another and do a Skype meeting or whatever, there are many telephone meetings – we organize that as part of our service until the obligation is complete.
DAVID ALADDIN: That is a huge process.
WILSON: It is, it is. So the process itself, it is not like buying and selling a domain name. I mean, when you buy and sell a domain name, the asset is binary asset either you bought it and it is there or it is not, right, and you pay. And when you sell a business, depending upon the complexity of the business, I guess the engagement for the broker varies greatly. If it is an Amazon-only business with a single channel, obviously that is going to be much simpler than it is if it is a multi-channel business where there is a website involved and there is advertising and beyond, you know, for example, it could be other types of advertising, paper advertising, SEO … So the more moving parts there are, usually the longer the more involved the engagement or the post transaction engagement is.
DAVID ALADDIN: It is interesting you say that because, you know, having a multi-channel creates a more stable business but it also creates a harder or longer selling process … that is opposite but you know.
WILSON: Yeah, absolutely! Well, it is like most things, right, like selling a house that has, you know, you are buying the furniture as well and you are taking over the whatever the housekeeper’s contracts, you are taking over the gardener’s contract. So the more parts you have, so is it with the core assets, the more complicated it becomes. But we have never really encountered issues with that, I mean, it is just, you know, it is just execution and it is something that we are very skilled in both as a broker, as a buyer and as a seller; we have a lot of experience so …
DAVID ALADDIN: What was the link that you said where people could get a free quote on their Amazon business?
WILSON: So, if you go to our website, it is MindBay, mind like in the head and bay like a body of water, www.mindbay.com/amazon and you will see a form there, if you fill out the form either myself or Hammed will contact you and we will arrange for the preliminary evaluation of your business.
DAVID ALADDIN: And that entire process that we just went through, I was actually very surprised of how detailed you went into it. How long does it take when they submit that first, you know, their contact information to the actual acquisition? What is the typical duration there?
WILSON: Okay. So, typically … so it really, it is going to depend upon, a lot of times, the seller and how fast he can get the information to us. So when they submit the form, we will be in contact immediately, within a day for sure, and we will have an email out where we will request certain information so that information is really the financials, anything that can help us to do some evaluation on it. That is usually the lag, the lag is in the seller, kind of, providing us the information. Assuming that it takes only one day or a short period of time, we can actually conduct a preliminary evaluation typically within 24 to 48 hours.
At that point, it is up to the seller to decide whether or not they want to proceed; assuming that there is no slippage there, you know, there is no period of time, it will take us around 7 to 10 days to prepare the marketing package and the marketing package will require obviously the involvement of the seller but if the seller is actively engaged in providing the material that we request in a timely basis, we can get the marketing package done typically like I said 7 to 10 days. If the information takes longer and if we have to go to third parties like sometimes the financials to the accountants or whatever, then that could extend that period. But for us, that takes about 5 days of hard work and then checking, it will get to 7 to 10 day timeline.
Now, once we get the confirmation from the seller, we start advertising and when we advertise, we deploy those via various channels; internally, we are able to get that out as soon as we get the confirmation from the seller, we actually do a broadcast to our internal 10000 plus buyer list within 24 hours. We usually get responses thereafter. At that point, depending upon the attractiveness of the business, we could get offers, you know, within days. So if the seller really just wants to, you know, kind of move on, they can actually sell the business within a short period of time. Really, the biggest variable in the time of selling the business is really kind of in terms of marketing, in terms of the price. When we bring in the prospects, we bring in the bidders, serious buyers, the seller has to be willing to work on the price.
So if he is willing to be somewhat flexible on the price, the transaction can be concluded, you know, usually in a reasonable short period of time, I would say, typically we have seen businesses sold within … attractive businesses with positive growth, usually anywhere from 14 days to a month, you know, usually we are seeing significant bids because we ensure of that.
DAVID ALADDIN: Actually, I was writing the number of days that it took and it did land on 14 which is what you said. Very cool! So 14 days to a month from when you submit that form, www.mindbay.com/amazon. It was great to have you guys on the show today. Wilson, Hameed, Dave Aladdin – out.
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