White Paper | M&A in Online Specialty Retail
The McLean Group | Jones Day
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Mergers & Acquisitions in Online Specialty Retail
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Traditionally, venture capital funds have taken minority positions in companies and private equity funds have
taken majority or control investments. Today, we are seeing a blurring of those distinctions with more private
equity investors willing to fund minority recapitalizations for the right brands. While valuation is important in
recapitalizations, the “right fit” is the most important factor for all parties. The right partner/investor can help
accelerate growth and increase returns for entrepreneurs and investors alike.
Many investment banking firms have entire departments devoted to exit planning or capital infusion
preparation. Clarifying goals and objectives at the beginning of an exit plan should ease a process that is often
highly complex and unique to a specific business and industry.
An online retailer that has grown significantly may believe this is a good time to sell and thus may begin
engaging investment banks to launch an M&A process. Companies that are struggling with stagnant sales or
margin compression may prefer to take the time to build earnings and sales before launching a sale. Some
entrepreneurs and owners may prefer to complete a recapitalization now to gain, in addition to a capital
infusion, a partner that can help scale the business while allowing them to participate in an exit at a later date.
In
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depth discussions led by an experienced banker can help clarify objectives, expand the understanding of
M&A processes and create a road map that best suits the needs of the company and the entrepreneur.
Value Drivers
Once an online retailer’s objectives and goals are clarified, it is important to determine the company’s value and
analyze the company’s specific value/risk drivers. An initial business valuation will create a baseline against
which to compare future valuations and company developments.
Thorough periodic valuations will serve as useful status reports and will highlight value drivers realized and
areas in which the company still needs improvement. Typical value drivers addressed include: sales growth
and earnings potential, quality of earnings, projected performance, brand equity and, of course, risk. Value
drivers allow owners to establish strategic and tactical plans to transform their companies into highly attractive
businesses prior to an M&A sale. A thorough analysis of the online retail business valuation can enable owners
to better gauge their company’s performance against such metrics as:
Revenue and profit growth rates.
Growth in returning web traffic as well as growth in monthly unique visitors.
Barriers to entry that discourage competition. Is your product unique, highly sophisticated or
vertically integrated so that you don't have to compete directly with Amazon on price?
A highly
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experienced management team that is not overly dependent on a single manager or
owner.
Product, service, marketing and logistics excellence that makes the company a leader in its
business sector.
