Choosing a buyer for your ecommerce company is one of the most important decisions you will make. During a transaction process, potential buyers will dig into the company, request data and ask questions about the business.
However, many sellers don’t realize that the due diligence phase should be a two-way street. This is also your time to get to know potential buyers of your ecommerce company and confirm that you can see yourself working with them harmoniously in the future. Use this time to ask your own questions and ensure you and the buyer are aligned on the points that matter to you.
Here are 14 key questions sellers of their ecommerce company should be asking buyers.
Who will we be dealing with?
Are the team members you’ve been communicating with before receiving a letter of intent the same people making the decision to invest? Or will additional approvals be needed from others on your team who haven’t been involved yet?
Depending on the buyer type and organizational structure, buyers will handle this internal approval process differently. Some buyers include the decision-makers from the beginning of the process, while others may have a team who handles preliminary communication and diligence but that ultimately does not have the power to approve the investment.
What is your closing rate?
In other words, what percentage of ecommerce company transactions in which both parties signed the letter of intent make it across the finish line? How they answer this question will indicate how seriously they take the letter of intent and the terms presented. It’s easy to put together an enticing letter of intent to secure exclusivity with a seller; it’s another to follow through on those promises and complete a deal with the same letter of intent largely intact. A low closing rate could indicate that a buyer often tries to deviate substantially from a letter of intent to the extent that the transaction falls apart.
How are you funding the transaction?
Will the transaction be funded from cash on hand, or can prove they already have capital secured? You’ll feel more confident that the deal will close vs. them needing to raise capital after terms are negotiated. This can help provide clarity around certainty of closing.
What’s the transaction timeline?
How quickly will their team turn documents or comments at each step in the process? Knowing the overall process and timeline can help you set expectations with your own team as to how quickly you would like to move at each step in the process.
Who from your team will be involved post-closing?
Some ecommerce company buyers may have a team dedicated to finding and closing investment transactions, while a different group will be your main point of contact after closing. In the latter case, you’ll want to meet with the team members you’ll work with after, to ensure a good cultural fit.
What level of involvement will you have post-closing?
What is the normal cadence and style of the relationship between you and the management team at that point?
Both of these questions help clarify what it will be like to work with the buyer post-closing. This is your opportunity to feel out any areas of concern. Will they micromanage your team? Will you have to spend a lot of time every month creating new reports? What types of decisions does the buyer expect to be involved in? Don’t be afraid to ask for specific examples or further elaboration if you’re not getting the information you need.
How do you add value post-closing?
Is the buyer just providing capital and then completely stepping away, or do they bring other resources to the investment? This could include assistance with executive recruiting to build out your leadership team, strategic planning guidance and taking the lead on acquisition transactions. It could also mean bringing close third-party relationships from their network to you, such as digital marketing agencies or ecommerce web designers.
What should we expect from the board post-closing?
Related to questions above about level of involvement and cadence post-closing, this helps you understand expectations for a board relationship. What does having a board entail? What will the board’s expectations be? Who will the board members be?
What about the timing of a future exit?
With financial buyers that will exit the company themselves at some point, it’s good to ensure you’re on the same page regarding the general timeline for this second transaction. Remember this will likely change over time, but alignment upfront and general timeframe is helpful.
What is your culture? Specifically, how does your team behave when things are going well and when things are difficult?
What’s the most challenging investment you’ve made and why? How did you respond, and how did you work with the management team?
How often have you had to replace the CEO of one of your partner companies, and why?
These three questions help you envision what it will be like to work with this buyer in good times and bad. Ecommerce company sellers would be wise to be wary of buyers who cannot or will not give specific examples of challenging prior investments and how they were handled.
Please introduce me to references from current/prior partners
Lastly, the ability to corroborate these answers with founders or management teams that have worked with the buyer is invaluable. It can provide further confirmation to you about the potential cultural fit. Sellers should be skeptical of buyers who cannot or will not provide transparent references.
While not a comprehensive list, these questions will start to give you a true picture of the buyer’s process and values, and what to expect down the road after the sale of your ecommerce company is complete.
Chris Norwood is Vice President at Montage Partners
The post Selling Your Ecommerce Company? 14 Questions to Ask Buyers appeared first on Multichannel Merchant.
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