Evaluating an E-Commerce Business w/ Declining Financials

by a searcher from University of South Carolina

1 year ago

I have been working on purchasing a E-commerce business over the last 5 months. I had an LOI accepted in September and have been negotiating the contract since. Now, the contract is ready to sign, but the Q4 financials came back very weak. In 2021 they finished the calendar year doing $3.4MM in revenue doing $1.2MM in Q4###-###-#### finished at $2.1MM with Q4 pulling $540K. I am working on receiving a better answer from the seller on why this has happened. In general, I would like to ask, is it worth me proceeding with this business with my EBITA $120k less? Assuming I can drop my purchase price, do I want to take over a declining business?

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26 comments

searcher from University of South Carolina

Thank you again everyone that weighed in. I did in fact run. I had a conversation with the broker and seller regarding our agreement. I had 3 new offers to propose, my primary offer gave the seller less upfront with a seller note and earn out. This would allow him to potentially get close to the same purchase price originally agreed on, while giving me much less risk. However, the broker advised the seller that he should force me to sign the contract "as is" or walk. The seller listened to him, so it was easy walk. Unfortunately, the seller was under the impression that he would be able to turn around and sell the business for the same price to the next buyer up. He is still holding the business and working more than before to recover the losses.

11 months ago | like reply | 0 likes

searcher from ESSEC Business School

eCommerce businesses, particularly D2C are dependent on platforms (read - Amazon, Google, FB) and any algorithmic update for these platforms can have strong impact on overall sales. Sometimes there is a recovery and sometimes there is no recovery (like iOS14 update on tracking)

11 months ago | like reply | 0 likes

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