Why Amazon Sellers Exit

Daniel Calleja and Kris Linton on Amazing FBA
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Daniel and Kris talk to Amazing FBA about why owners sell, drawing on their own exit experiences

Two SellerX experts recently stopped in on the Amazing FBA podcast: Kris Linton, COO at TCA, recently acquired by SellerX, and Daniel Calleja, ex-Amazon seller and Head of UK Investments.

They share their own experiences, growing and selling eCommerce businesses, and give guidance for other Amazon owners thinking about selling.

Kris and Daniel speak with Michael Veazey about:

  • Taking a flexible approach to selling your business
  • When the right time to sell your business is
  • How the process of selling to aggregators works
  • Different deal structures, and Share vs Asset Purchase
  • Common challenges when selling your business
  • What an aggregator is really buying when they acquire your brand

Michael:

Welcome to the 10K Collective e-Commerce Podcast for six, seven and eight figure Amazon and e-commerce sellers, part of the Amazing FBA podcast family. If you want to scale fast, target a seven figure exit and enjoy the process then keep listening. Eva serves hundreds of private label seven figure sellers. To get a 15 day free trial, go to amazingfba.com/eva. That’s amazingfba.com/eva.

Michael:

Ladles and jellyspoons, boys and girls, welcome back to the 10K Collective podcast, a subset of the Amazing FBA podcast family for six, seven and eight figure Amazon sellers. Today we are talking about that subject that is often, what, the sort of shining city on the hill, the alleged aim of a lot of Amazon businesses, which is to sell your business for seven figures or even more. And, of course, it’s much discussed but today hopefully you’re going to have a bit of a different take on that subject, which is with Kris Linton and Daniel Calleja from SellerX. They’re a Berlin based aggregator, lots of exciting startups in Berlin, bit of a different take from the average sort of American aggregator, bit of a European angle hopefully.

Michael:

We’re going to talk through the whole thing of really when you decide to sell your business, how does that decision go and then what happens next and then what happens when you’ve actually transitioned the business to a new team, and what happens to your business within the new family of the aggregator? First of all, Kris and Daniel, warm, warm welcome to show. Thanks so much for coming on.

Kris:

Hey, Michael.

Michael:

Hey, Kris.

Daniel:

[crosstalk 00:01:41].

Michael:

What’s that, Daniel?

Daniel:

No, just thank you for having us.

Michael:

A pleasure. The first question then, really, is… I suppose we ought to give a bit of background about you, and then the first question I’m going to ask is really why should I even sell my business. Assuming it’s a good business, why would you sell it in the first place? But let’s get a tiny bit of background on you. Kris, tell us first of all about yourself. You’re actually a business owner and still working in an Amazon business, so bit intriguing. Tell us about yourself.

Kris:

Sure. Yeah, no, I originally started my career very early on at Amazon. I was a member in sort of this operational excellence team, then I moved to the retail side where I was sort of a category manager doing things like mattresses and office furniture, which was very exciting. Then I kind of wanted to make some money [inaudible 00:02:32] all of my accounts, all my vendors making all these six figures so I thought, “You know what? I’m going to try my hand myself.” But an issue was I didn’t have any good issues, so instead I partnered with my, well, now ex-CEO and I came on board with TCA around sort of maybe about four and a bit years ago, five years ago now. They were a business selling on Amazon, selling a little bit on Ebay as well.

Kris:

Then so over my time there, I kind of launched them on various Amazon marketplaces and so forth. The owner and I decided that we wanted to exit and so we spent around about… Well, this is maybe about 18 months ago. We spent the 12 months then preparing the business for an exit, and then we sold to SellerX in May of… Then since then, sort of as part of the deal we stayed on board, other than the ex-owner who’s now left. Then, yeah, for the last sort of five, six months we’ve all been SellerX employees. I’ve yet to update my LinkedIn for that, actually, so I’ll get a ticking off for that. But yeah, so that’s a good bit of background on me.

Michael:

Thank you, yeah. It’s funny about LinkedIn profiles, isn’t it? I mean, LinkedIn’s something I frankly check the messages every three months on that and people then vigorously reply to my messages on LinkedIn saying…. I say, “Don’t contact me on LinkedIn, email me.” Then they reply on LinkedIn. The other thing is everyone’s profile is about five years out of date. LinkedIn, if you’re listening, sorry guys. You’re not always the place to be, even though everyone says you are. Daniel… Thank you very much, Kris. Joking aside, lots of interesting points we’ll want to dive into there. Daniel, you’re part of the acquisitions team, as I understand it, at SellerX. What’s your job at SellerX?

Daniel:

Yeah. I mean, also for background, similar… I mean, my background is mostly finance [inaudible 00:04:22] Citi, but something a little bit more interesting with me was I used to be an Amazon seller as well. I had an Amazon FBA business that I started with my old flatmate, and we ended up selling the business so I got really interested in the space and, obviously, back in March this year, so it was already recently, decided to join SellerX full-time. I lead SellerX’s investment team in the UK, and what that means basically is we look for… Well, me and my team look for the best businesses normally based in the UK, but also around the world that sell on Amazon. We look at all marketplaces, but the main criteria is we focus on sellers that are based in the UK.

Daniel:

What’s interesting about Kris’ story, which I think is what we’re going to get to, is we tend to be very flexible in terms of our approach. Kris at TCA was a great example of a business that really, really, it came with some people that for us it was as top priority to continue keeping them because, I mean, it’s very difficult to find talent in the space. It was really, really helpful to have people that continue and help us continue running the brand.

Michael:

Yeah. I think that’s one of the things I wanted to talk about today because everyone talks about selling the business like it’s kind of selling a car or something simple that is a one off transaction, but, of course, that’s not normally how it works, is it? The business continuity after the sale is a really important thing. Let’s come back to one of the most important simple questions then, is why should I sell my business? Obviously, Kris you were involved in that as one of the business part owners and operators. Let’s take that side of it first, which is less often talked about. Obviously aggregators always tell you should you sell your business, but I guess they’ve got a vested interest. What caused you and your ex-CEO to decide to sell in the first place?

Kris:

I suppose he, in terms of the share… I think sort of the CEO had a bit more of a say in it than me, but I think at the time he’d been running the business for a good [inaudible 00:06:23] and I think in particular he just had some other sort of passions that he wanted to follow and he wasn’t as invested as he was, or knew he wasn’t going to be as invested as he was in TCA. I think when we had the discussion, we knew it was the right time to sell. I think everyone sort of has that time to sell, but we were on an upward trajectory and we’d… I think over the sort of last maybe three or four years, we’d had various projects that we felt we hadn’t really been able to capitalize on.

Kris:

For example, we’d really invested heavily in our website and we’d tried to launch an EU 3PL and things. We just felt that especially with the right people around it, and this is probably where SellerX come in, those projects could’ve been done a whole lot better. We felt that someone with sort of the capabilities would be able to capitalize on them. Then we actually… Around the time sort of the talking about selling, we knew that we wanted to keep the team and so that was, for me, a very sort of a personal type of reason to sell because we knew that we were going to stay on board and then I would have the opportunity to sort of go forth with all these projects. Yeah, which previously as sort of a small business we may not have been able to really implement as well.

Michael:

Yeah, makes senses. I mean, it’s interesting because I suppose that it’s having a sense of the business as a separate entity from either the owner now or the aggregator in the future and thinking what the business needs, which kind of sounds like a weird thing to say because, obviously, what matters is the ownership and profit and lump sums that you get and so forth, I suppose. But yeah, it’s interesting that actually at a certain point there is a natural dynamic, isn’t there? The business is going right. It’s either grow more or it’s going to die. Also, the fact that you see the fact coming that you’re going to lose interest and sell before that happens because I’ve seen quite a few cases where people try and sell afterwards. I guess, Daniel, you must have those sad conversations. Daniel, from your point of view then, when somebody like Kris and his ex-CEO and the team decide they want to sell, what’s a sort of basic process? Just talk us through a little bit of the mechanics just from the overview perspective.

Daniel:

Yeah, sure. I mean, I’ll talk in the context of TCA, which, I mean, in this case… I mean, we got in touch through a broker for the transaction. Actually, funnily enough actually knew the CEO through a friend of a friend, and actually we connected as well before like, “Oh, actually, I think we’re selling.” I was like, “Oh, well, you should message us as well.” So we connected a bit, but the process was… I mean, I’d say it was relatively simple, but the broker had prepared some materials on the business and financials, projections, basically a deep understanding on the supply chain and the operations and infrastructure that the business had. We had, I think, first a one hour call with Kris and the CEO. It was really about getting to know their business, getting to know them.

Daniel:

I mean, we firstly put a lot of focus on the growth and the opportunities because that’s where we see that we can really add value like, “If we take this business tomorrow, what can we do in order to grow it? What does the business need that it can’t be done at the moment that we can help?” I think we had one or two [inaudible 00:09:33] conversations with the team, and I think the process was relatively simple. We submitted an offer. I think then we had another touchpoint, then we signed what was called the letter of intent, which is basically a one or two page document where we agreed the head term of the transaction. Then we started due diligence. I think due diligence went relatively smooth. I think it took us maybe between 30 and 40 days to do all the due diligence.

Daniel:

Kris, he was instrumental, answering all our requests. I mean, I don’t know… From my side, it went relatively smoothly. For you it was a little bit more painful. What we did was I think we focused on the four main areas. Financial, it was basically very fine, the numbers that we had a look at were actually correct and there wasn’t anything there. Commercial, so again very fine, some of the things on Amazon and the product positioning, [inaudible 00:10:28] the inventory, things like that. Then legal, there’s nothing… No sort of legal issues with the setup, the trademarks [inaudible 00:10:37] et cetera. Then tax, which is, again… There isn’t any, so we had tax liabilities that we were taking over given this was a share deal. Yeah. I mean, 30, 40 days later we signed the share purchase agreement and, obviously, we welcomed TCA and Kris and all his team to our SellerX family.

Michael:

Great. Couple of points, so the first thing you said is share purchase agreement. I’ve heard that quite a lot of particularly the American aggregators seem to be very into asset sales rather than buying a company as a whole, but it sounds like you bought the company as a whole. Tell me what the thinking is behind that, if that’s important.

Daniel:

Yeah. I mean, the listing shows an asset purchase. Basically, what tends to happen in the US, most of the transactions tend to be asset purchase because it can be easier to do. You don’t have this element of a potential tax liability that comes with it, however in the UK and in most European countries [inaudible 00:11:35]. The main reason for this for the seller, there’s a big tax advantage to do it as a share deal because most governments offer some tax benefits by doing a share versus an asset deal. In this case, we did a share deal purchase to help the seller, and also given we were taking over the team, the contracts, everything, it was significantly easier to do it like that and rather than do an asset deal and have to transfer the contracts with the employees, transfer whatever leases that they have, transfer the trademarks, the seller account. So this case it was just easier, but in that respect as SellerX we do both and tend to be very flexible depending on what the seller wants.

Michael:

Cool. Okay, interesting. It’s just something that’s come up. It’s one of those sort of nitty-gritty technical questions that I suppose we need to educate people about a little bit. The other thing is you mentioned tax and weird liabilities. I’d like to just check on that in a second, but I think before we do that let’s talk about, as you said, the due diligence process from your side seemed fairly smooth. You mentioned that, Kris, obviously that you are and were the COO, so chief operations officer, which I guess implies a certain size of business. What sort of size of business were you when you decided to sell? What are we dealing with here roughly?

Kris:

I think we were sort of around about the five million mark in revenue, give or take a few. Yeah, so the due diligence process from my side… I think we ended up actually overpreparing. It’d be the first time I’d been through a sale, and we had our FD at the time who was really helping us out, he was more… He’s worked on a lot of acquisitions. I don’t think he’d ever worked on an acquisition in the Amazon space so I think his advice, which was probably really good at the time, ended up being that we overprepared.

Kris:

I think we had huge lists of things that we expected SellerX to ask for and they didn’t. The one big thing, I suppose, was around about tax, actually, I think. Think I was asked at one point to give a list of all of my customs declarations over the last year, which for an apparel business which operates in free entities was a long list of customs declarations. But yeah, so yeah, no, it was good. I think like I say, we definitely had already prepared a lot of the things anyway so when we had the request it was just about tweaking them for the wording the SellerX team wanted.

Michael:

Yeah, interesting. You guys are obviously very organized. I guess that with a £5 million business or dollar, I don’t know what even… Everyone throws the numbers around and assumes it’s dollars, but I guess we’re talking pounds or euros here. But obviously they were smart enough to hire someone like you who had a really solid, solid background in e-commerce and a CF or chief operations officer or whatever you call that in sort of British words, and then they also had an FD or financial director, which, for American friends listening, is CFO, chief financial officer. People chuck a lot of these words around, but in other words you’ve got solid operations and financial people there. I guess for the smaller businesses that don’t have that, then the due diligence is going to be a painful coming up to speed for a lot of people. Daniel, would you say what Kris has just described is typical of the businesses that you acquire, or is it normally the case that you find that their finances and operational documentation is a bit messier than that?

Daniel:

No. I mean, I think it’s typical… Well, it depends. I think it’s typical for the size, if that makes sense. Once you get to a size, you normally have an infrastructure in place, and this tends to be a little bit easier and smoother and there is people to answer those questions. I think the problem is a lot of times if it’s a one owner, one founder kind of person, they don’t have the granularity and the expertise on those topic, and a lot of time what they’ve been doing is just putting down fires and not necessarily keeping a good track record of all these things that come up during due diligence.

Daniel:

But what I would mention as well that’s important, I mean, related to what Kris says, we tend to do a lot of work before the transactions, so before we see very much the due diligence as confirmatory due diligence, so basically confirming the numbers that we did before confirming so that we… The product positioning is okay, that the Amazon account is okay, what I was mentioning before on the tax and that there’s nothing, also confirming that they own all the trademarks. In that respect, it tends to be fairly smooth, that there isn’t… It’s not like we start the work… Once we’re doing due diligence, is we’ve already done the work. Let’s just make sure our assumptions were correct.

Michael:

Yeah. That makes a lot of sense, and I’ve heard from various aggregators one thing to look out for with aggregators or… Yeah, I guess it would be aggregators, would be sending out a letter of intent super quickly without due diligence and then spending ages and ages trying to keep you off the market whilst they go and discover the stuff that they kind of should’ve found out before they actually did that. So yeah, let’s talk a little about deal structure then. This is obviously one of the things that people are gradually getting clued up on as Amazon sellers, is that you don’t just go to somebody and sell your business and they give you a million pounds, dollars, euros, whatever and then it’s goodnight Lucy. You actually normally have some kind of earn out structure or that’s part of it. What are sort of typical deal structures that you’d end up with?

Daniel:

Yeah. I mean, something I’ll point out here… I mean, something we’re quite proud at SellerX is… I mean, even our name, the X is not… It’s for the variable X that every seller is different, every seller wants something different and we really put a lot of effort on giving them the best experience as possible. That also goes from start to when we start talking with them, but also when we make them an offer. We really try to tailor for their needs. In that respect, I mean, we tend to be quite flexible, but if someone wants the majority of the money upfront we can do that structure, but if they want something a bit like, as you said, earn outs and continue to get paid longterm, then we also do that because I think it also works to what the seller wants to do with their life.

Daniel:

If they want to go and build other projects, et cetera, and don’t want to be involved then that’s fine. They probably want to have more of the money upfront to whatever [inaudible 00:17:54], but a lot of them… TCA is a great example, is one where, yes, the owners wanted someone to grow the brand, take it to another next level, but they also saw a lot of potential and so they would want to benefit in the long term. In this case, we went for a structure that was quite generous on the deferred payment component.

Michael:

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Michael:

Great. The earn out side was a bit bigger. In terms of the sort of balance between upfront money and earn out, if that’s even a realistic distinction, what’s the sort of balance in terms of the percentage of the value of the deal that it tends to be? What’s typical and what would you say you did in TCA, which sounded like it was a bit more towards in and out? How does that balance it?

Daniel:

Yeah. I mean, TCA was one of these examples exactly as you mentioned because we saw there was [inaudible 00:19:22]. I mean, even Kris has stayed with us and continues running the brand. He’s got a lot of control about what happens in the day to day and the growth of the brand. So that was one where there was a lot of focus on the earn out. I mean, to answer your question, typically I think it’s most aggregators, not all of them, include an earn out and then… I mean, it can vary. I’ve seen some things where it was like [inaudible 00:19:51] maybe 20% of the value up until almost 50 or 60% of the value depending on the intentions and the future of the business.

Daniel:

The point being that… I mean, it goes to fundamentally what you want. If you really believe in your brand and you just need more resources, et cetera, you’re probably going to go for a structure where you’ve got more on the deferred payment versus something that [inaudible 00:20:19]. A lot of the sellers think that like, “Okay…” Especially if they’re comfortable with a partner and they think this firm is really going to grow their business, et cetera, it’s a really good way of capturing [inaudible 00:20:31] longer term.

Michael:

Yeah. That does make sense. I guess you’ve got to faith in two things, the brand’s future and the ability of the aggregators to grow it, and willingness, I suppose, of the aggregator to put the necessary money in and resources, allocate staff time to it, I guess, as well. There’s quite a lot different types of faith involved there. Kris, obviously you’re in a very interesting situation that you’ve kind of gone cradle to grave with so many things you’ve seen, the market and other third party sellers making a lot of money. You then moved into being a part owner and a worker within… COO within that business structure, and you’ve now moved within the same business but the business as a whole has moved house. I guess we’d have a different conversation over a beer, I guess, without one of the members of the team there, but just in terms of what you can say in public, what are the sort of experiences in summary that you would say about that, the sort of things that have been challenges and the things that have actually worked out really well?

Kris:

Yeah, Daniel will cut my mic if I say anything. He’ll be the evil villain. No, no, it’s been… I think it was, I think, around about the time that we were acquired. I think SellerX maybe were just coming up to… I think it was one of the reasons, obviously, we chose them in the end, they were so fast growing. I think the amount of employees they’ve hired just in the space of us being acquired is mental. But yeah, so when we were onboarded and we were integrated, I think the first month was challenging because there was so much of sort of how I think that SellerX… Maybe so much sort of that we had to kind of discuss in terms of integrating so I said like, “Okay. Well, what bits would stay with you guys? What bits would be handed over?”

Kris:

I think… Yeah. We had a lot of kind of onboarding calls with different departments, and then I think it was very nice because on a lot of the calls the guys sort of obviously knew that we had what it was covered, and in that sense they would like, “Okay. Well, you guys have got it covered. We’ll just… Reach out to us if you need help.” Then the things that we really needed help on we’ve then onboarded, so PPC would be a key one there. We had an agency, we highlighted this as sort of a key opportunity, a key gap with SellerX to start, had a call with the PPC team and then it was, “Okay. Guys, we’re going to give you a full resource now to work within your team to handle your PPC.” I think that was an example of something running really smoothly.

Kris:

Then I suppose maybe that’s ran a little bit trickier, I suppose, would be something like operations because obviously we’re an apparel business, a lot of the ops team stayed with the company. That one was maybe a little bit more of a… It would need maybe a lot more conversations to really flush out what was going to stay with TCA and what was going to be sort of still handled within or was going to be moved towards SellerX. Yeah.

Michael:

That there, interesting that… What’s good and what’s more challenging. I guess that it sounds like they were smart enough to know that if you acquire a business, and I’ve seen quite a few… I guess we’ve all at some point in business seen that somebody acquires a really great business and then changes everything about it to fit the parent company’s structures, thus destroying the value they bought in the first place. It sounds like they were smart enough to go, “Right. You’re good at X so we’ll leave you alone,” and to support you where needed. Yeah, operations is obviously a challenging business anyway, especially sorting in something like apparel where there’s so many moving parts. How did you go about… What were the big challenges there from your perspective, Daniel? I guess that you’re in the acquisitions team not the operations, I respect that, but broadly from the SellerX’s, the acquirer’s point of view, what’s your side of that sort of story? How do you find these challenges and integrate businesses?

Daniel:

Yeah, no, I mean, obviously, as you say, I sit outside this but I get a lot of regular feedback loops of what happened. I mean, Kris has said it quite nicely. I think with any merger or any acquisition, there’s always integration things that are challenging in a way that they’re used to doing things in a way, we’re used to doing things in another way. Putting things together can sometimes lead to issues. I mean, what I would say we’re particularly proud of is… Kris mentioned it. We [inaudible 00:24:59] for 10 months and onboarding a lot of new employees that don’t necessarily know exactly how to do things at SellerX or are not used to our process.

Daniel:

One particularly proud of is if I look at TCA’s onboarding and I look at one of the recent ones that has happened recently, like has improved significantly. We’ve got way better guidelines, we can do things quicker, more efficiently and it’s allowed us to grow a little bit… Well, to also increase the speed of acquisitions that we do because, as you said, Michael, it’s super key that we maintain and protect the value of the brands that we acquire. In this case, obviously there’s a lot of value in TCA, in the brand and so in the employees. That’s super number one priority, is that the employees still are there part of the SellerX family, happy with our mission and values, et cetera, and that really want to stay longterm with us so to continue growing the brand to the next level.

Michael:

Great. Talking of which then, so one of the things that was a challenge was obviously keeping talent because people joined one company and then obviously they’re then part of quite a different setup. Kris, let’s talk from your perspective. What have you done and what challenges have you seen with keeping the talent that you already have within TCA now that it’s TCA/SellerX?

Kris:

Yeah. We’ve actually… Yeah. I think I’ll talk from a TCA perspective. I think highlighting some key examples there… I think maybe you’ve alluded to them on the start of the call. As soon as we onboarded, we had a brand manager that was sort of given to us and then also we had sort of this integration team within SellerX. Then we highlighted some real key opportunities, one of which for us was sort of launching an EU 3PL. We had so many problems a year today because of Brexit. We were having lots of stuff which couldn’t go into EU FBA because we were shipping it from our UK 3PL.

Kris:

Yeah, so we sort of launched that and in order to do that I had a conversation we the brand manager and we said, “Look, we need to actually hire people for the team.” So actually, within I think maybe a month into the integration, I hired someone for TCA and then we sort of launched there. Then we had some of the marketplaces that we wanted to sell on, and then I ended up hiring again because I needed a bit more resource to hire and to sort of launch us on some of the other target marketplaces that TCA had. Yeah, so then we hired more towards the team. I can’t remember where I was going with this now.

Michael:

Yeah. Well, that’s good. I mean, I was just getting a general flavor, I suppose, of how do you keep talent, but it sounds like actually what you did is not only you kept your existing talent, but they actually were able to give you the resources to hire people you needed to achieve the opportunity. It sounds like a very positive experience overall.

Kris:

Yeah. I think obviously with the existing team, it’s always a little bit of a conflict because they’ve all been kept in the dark pre-acquisition so that was a bit of sort of a… Having to have calls and things, making sure that they’d been sort of kept happy. Then as long as everyone sort of aligned… It’s always a bit of a worrying thing, I suppose, if it’s acquired and then you sort of explain to them this is the reasons you sell, which we’re going to grow. I think everyone on the team gets to start to feel a little bit more as excited as sort of you would be, as opposed to someone being acquired and then they’re like, “Oh, God. What’s going to happen to my job?”

Michael:

Yeah. I guess I ought to ask the direct, slightly rude question, but did everyone keep their job or how did you deal with that if they didn’t?

Kris:

No, no, everyone kept their job. I think with apparel it’s probably fairly okay for me to say that there would be roles that unless SellerX… Dan you might comment differently, but unless SellerX would be buying up lots of apparel businesses, there’d be roles within our company where, well, there’d only ever be one role needed for that person to design a garment, to bring a garment to development. So there wouldn’t ever be an over resource, like as if SellerX would already have that employee there. Yeah, so everyone kept their job.

Michael:

That makes sense. I guess it makes sense to acquire businesses that you… Well, I suppose there’s two things that, Dan, I’d be interested in your thoughts on this. I suppose on the one hand, it makes sense to acquire businesses of the same type so that you then can kind of duplicate your team’s work and have economies of scale, but on the other hand there’s another argument which it sounds like was more the case here, which is like, “We need X type of business in the catch group, for example, of apparel versus because we don’t have one yet, and in which case what we’re buying in is their ability to do apparel.” You’re part of the acquisitions teams so when you’re thinking about acquisitions, how do you think in those terms? Are you trying to add more of the same or are you trying to kind of add more different things?

Daniel:

Yeah, no, great question. I mean, the way we look at this is always… I mean, there’s some categories that we like and some categories that we shy away from. We definitely see that… We really like combining categories that have got similar products or related. I think it goes towards the overall mission of where we want to be, and it’s Digital, Unilever or Proctor & Gamble. That, I think, is super important to build clusters of brands within the same space. I mean, it goes from… I mean, there’s a lot of… For example, we’ve got TCA which, yes, it’s in the apparel, within the sports apparel, and we’ve got some other brands.

Michael:

Ladles and jellyspoons, boys and girls, welcome back to the 10K Collective podcast, a subset of the Amazing FBA podcast family for six, seven and eight figure Amazon sellers. Today we are talking about that subject that is often, what, the sort of shining city on the hill, the alleged aim of a lot of Amazon businesses, which is to sell your business for seven figures or even more. And, of course, it’s much discussed but today hopefully you’re going to have a bit of a different take on that subject, which is with Kris Linton and Daniel Calleja from SellerX. They’re a Berlin based aggregator, lots of exciting startups in Berlin, bit of a different take from the average sort of American aggregator, bit of a European angle hopefully.

Michael:

We’re going to talk through the whole thing of really when you decide to sell your business, how does that decision go and then what happens next and then what happens when you’ve actually transitioned the business to a new team, and what happens to your business within the new family of the aggregator? First of all, Kris and Daniel, warm, warm welcome to show. Thanks so much for coming on.

Kris:

Hey, Michael.

Michael:

Hey, Kris.

Daniel:

[crosstalk 00:31:32].

Michael:

What’s that, Daniel?

Daniel:

No, just thank you for having us.

Michael:

A pleasure. The first question then, really, is… I suppose we ought to give a bit of background about you, and then the first question I’m going to ask is really why should I even sell my business. Assuming it’s a good business, why would you sell it in the first place? But let’s get a tiny bit of background on you. Kris, tell us first of all about yourself. You’re actually a business owner and still working in an Amazon business, so bit intriguing. Tell us about yourself.

Kris:

Sure. Yeah, no, I originally started my career very early on at Amazon. I was a member in sort of this operational excellence team, then I moved to the retail side where I was sort of a category manager doing things like mattresses and office furniture, which was very exciting. Then I kind of wanted to make some money [inaudible 00:32:23] all of my accounts, all my vendors making all these six figures so I thought, “You know what? I’m going to try my hand myself.” But an issue was I didn’t have any good issues, so instead I partnered with my, well, now ex-CEO and I came on board with TCA around sort of maybe about four and a bit years ago, five years ago now. They were a business selling on Amazon, selling a little bit on Ebay as well.

Kris:

Then so over my time there, I kind of launched them on various Amazon marketplaces and so forth. The owner and I decided that we wanted to exit and so we spent around about… Well, this is maybe about 18 months ago. We spent the 12 months then preparing the business for an exit, and then we sold to SellerX in May of… Then since then, sort of as part of the deal we stayed on board, other than the ex-owner who’s now left. Then, yeah, for the last sort of five, six months we’ve all been SellerX employees. I’ve yet to update my LinkedIn for that, actually, so I’ll get a ticking off for that. But yeah, so that’s a good bit of background on me.

Michael:

Thank you, yeah. It’s funny about LinkedIn profiles, isn’t it? I mean, LinkedIn’s something I frankly check the messages every three months on that and people then vigorously reply to my messages on LinkedIn saying…. I say, “Don’t contact me on LinkedIn, email me.” Then they reply on LinkedIn. The other thing is everyone’s profile is about five years out of date. LinkedIn, if you’re listening, sorry guys. You’re not always the place to be, even though everyone says you are. Daniel… Thank you very much, Kris. Joking aside, lots of interesting points we’ll want to dive into there. Daniel, you’re part of the acquisitions team, as I understand it, at SellerX. What’s your job at SellerX?

Daniel:

Yeah. I mean, also [inaudible 00:34:08]. I mean, my background is mostly finance [inaudible 00:34:11] Citi, but something a little bit more interesting with me was I used to be an Amazon seller as well. I had an Amazon FBA business that I started with my old flatmate, and we ended up selling the business so I got really interested in the space and, obviously, back in March this year, so it was already recently, decided to join SellerX full-time. I lead SellerX’s investment team in the UK, and what that means basically is we look for… Well, me and my team look for the best businesses normally based in the UK, but also around the world that sell on Amazon. We look at all marketplaces, but the main criteria is we focus on sellers that are based in the UK.

Daniel:

What’s interesting about Kris’ story, which I think is what we’re going to get to, is we tend to be very flexible in terms of our approach. Kris at TCA was a great example of a business that really, really, it came with some people that for us it was as top priority to continue keeping them because, I mean, it’s very difficult to find talent in the space. It was really, really helpful to have people that continue and help us continue running the brand.

Michael:

Yeah. I think that’s one of the things I wanted to talk about today because everyone talks about selling the business like it’s kind of selling a car or something simple that is a one off transaction, but, of course, that’s not normally how it works, is it? The business continuity after the sale is a really important thing. Let’s come back to one of the most important simple questions then, is why should I sell my business? Obviously, Kris you were involved in that as one of the business part owners and operators. Let’s take that side of it first, which is less often talked about. Obviously aggregators always tell you should you sell your business, but I guess they’ve got a vested interest. What caused you and your ex-CEO to decide to sell in the first place?

Kris:

I suppose he, in terms of the share… I think sort of the CEO had a bit more of a say in it than me, but I think at the time he’d been running the business for a good [inaudible 00:36:14] and I think in particular he just had some other sort of passions that he wanted to follow and he wasn’t as invested as he was, or knew he wasn’t going to be as invested as he was in TCA. I think when we had the discussion, we knew it was the right time to sell. I think everyone sort of has that time to sell, but we were on an upward trajectory and we’d… I think over the sort of last maybe three or four years, we’d had various projects that we felt we hadn’t really been able to capitalize on.

Kris:

For example, we’d really invested heavily in our website and we’d tried to launch an EU 3PL and things. We just felt that especially with the right people around it, and this is probably where SellerX come in, those projects could’ve been done a whole lot better. We felt that someone with sort of the capabilities would be able to capitalize on them. Then we actually… Around the time sort of the talking about selling, we knew that we wanted to keep the team and so that was, for me, a very sort of a personal type of reason to sell because we knew that we were going to stay on board and then I would have the opportunity to sort of go forth with all these projects. Yeah, which previously as sort of a small business we may not have been able to really implement as well.

Michael:

Yeah, makes senses. I mean, it’s interesting because I suppose that it’s having a sense of the business as a separate entity from either the owner now or the aggregator in the future and thinking what the business needs, which kind of sounds like a weird thing to say because, obviously, what matters is the ownership and profit and lump sums that you get and so forth, I suppose. But yeah, it’s interesting that actually at a certain point there is a natural dynamic, isn’t there? The business is going right. It’s either grow more or it’s going to die. Also, the fact that you see the fact coming that you’re going to lose interest and sell before that happens because I’ve seen quite a few cases where people try and sell afterwards. I guess, Daniel, you must have those sad conversations. Daniel, from your point of view then, when somebody like Kris and his ex-CEO and the team decide they want to sell, what’s a sort of basic process? Just talk us through a little bit of the mechanics just from the overview perspective.

Daniel:

Yeah, sure. I mean, I’ll talk in the context of TCA, which, I mean, in this case… I mean, we got in touch through a broker for the transaction. Actually, funnily enough actually knew the CEO through a friend of a friend, and actually we connected as well before like, “Oh, actually, I think we’re selling.” I was like, “Oh, well, you should message us as well.” So we connected a bit, but the process was… I mean, I’d say it was relatively simple, but the broker had prepared some materials on the business and financials, projections, basically a deep understanding on the supply chain and the operations and infrastructure that the business had. We had, I think, first a one hour call with Kris and the CEO. It was really about getting to know their business, getting to know them.

Daniel:

I mean, we firstly put a lot of focus on the growth and the opportunities because that’s where we see that we can really add value like, “If we take this business tomorrow, what can we do in order to grow it? What does the business need that it can’t be done at the moment that we can help?” I think we had one or two [inaudible 00:39:24] conversations with the team, and I think the process was relatively simple. We submitted an offer. I think then we had another touchpoint, then we signed what was called the letter of intent, which is basically a one or two page document where we agreed the head term of the transaction. Then we started due diligence. I think due diligence went relatively smooth. I think it took us maybe between 30 and 40 days to do all the due diligence.

Daniel:

Kris, he was instrumental, answering all our requests. I mean, I don’t know… From my side, it went relatively smoothly. For you it was a little bit more painful. What we did was I think we focused on the four main areas. Financial, it was basically very fine, the numbers that we had a look at were actually correct and there wasn’t anything there. Commercial, so again very fine, some of the things on Amazon and the product positioning [inaudible 00:40:19] the inventory, things like that. Then legal, there’s nothing… No sort of legal issues with the setup, the trademarks [inaudible 00:40:28] et cetera. Then tax, which is, again… There isn’t any, so we had tax liabilities that we were taking over given this was a share deal. Yeah. I mean, 30, 40 days later we signed the share purchase agreement and, obviously, we welcomed TCA and Kris and all his team to our SellerX family.

Michael:

Great. Couple of points, so the first thing you said is share purchase agreement. I’ve heard that quite a lot of particularly the American aggregators seem to be very into asset sales rather than buying a company as a whole, but it sounds like you bought the company as a whole. Tell me what the thinking is behind that, if that’s important.

Daniel:

Yeah. I mean, the listing shows an asset purchase. Basically, what tends to happen in the US, most of the transactions tend to be asset purchase because it can be easier to do. You don’t have this element of a potential tax liability that comes with it, however in the UK and in most European countries [inaudible 00:41:27]. The main reason for this for the seller, there’s a big tax advantage to do it as a share deal because most governments offer some tax benefits by doing a share versus an asset deal. In this case, we did a share deal purchase to help the seller, and also given we were taking over the team, the contracts, everything, it was significantly easier to do it like that and rather than do an asset deal and have to transfer the contracts with the employees, transfer whatever leases that they have, transfer the trademarks, the seller account. So this case it was just easier, but in that respect as SellerX we do both and tend to be very flexible depending on what the seller wants.

Michael:

Cool. Okay, interesting. It’s just something that’s come up. It’s one of those sort of nitty-gritty technical questions that I suppose we need to educate people about a little bit. The other thing is you mentioned tax and weird liabilities. I’d like to just check on that in a second, but I think before we do that let’s talk about, as you said, the due diligence process from your side seemed fairly smooth. You mentioned that, Kris, obviously that you are and were the COO, so chief operations officer, which I guess implies a certain size of business. What sort of size of business were you when you decided to sell? What are we dealing with here roughly?

Kris:

I think we were sort of around about the five million mark in revenue, give or take a few. Yeah, so the due diligence process from my side… I think we ended up actually overpreparing. It’d be the first time I’d been through a sale, and we had our FD at the time who was really helping us out, he was more… He’s worked on a lot of acquisitions. I don’t think he’d ever worked on an acquisition in the Amazon space so I think his advice, which was probably really good at the time, ended up being that we overprepared.

Kris:

I think we had huge lists of things that we expected SellerX to ask for and they didn’t. The one big thing, I suppose, was around about tax, actually, I think. Think I was asked at one point to give a list of all of my customs declarations over the last year, which for an apparel business which operates in free entities was a long list of customs declarations. But yeah, so yeah, no, it was good. I think like I say, we definitely had already prepared a lot of the things anyway so when we had the request it was just about tweaking them for the wording the SellerX team wanted.

Michael:

Yeah, interesting. You guys are obviously very organized. I guess that with a £5 million business or dollar, I don’t know what even… Everyone throws the numbers around and assumes it’s dollars, but I guess we’re talking pounds or euros here. But obviously they were smart enough to hire someone like you who had a really solid, solid background in e-commerce and a CF or chief operations officer or whatever you call that in sort of British words, and then they also had an FD or financial director, which, for American friends listening, is CFO, chief financial officer. People chuck a lot of these words around, but in other words you’ve got solid operations and financial people there. I guess for the smaller businesses that don’t have that, then the due diligence is going to be a painful coming up to speed for a lot of people. Daniel, would you say what Kris has just described is typical of the businesses that you acquire, or is it normally the case that you find that their finances and operational documentation is a bit messier than that?

Daniel:

No. I mean, I think it’s typical… Well, it depends. I think it’s typical for the size, if that makes sense. Once you get to a size, you normally have an infrastructure in place, and this tends to be a little bit easier and smoother and there is people to answer those questions. I think the problem is a lot of times if it’s a one owner, one founder kind of person, they don’t have the granularity and the expertise on those topic, and a lot of time what they’ve been doing is just putting down fires and not necessarily keeping a good track record of all these things that come up during due diligence.

Daniel:

But what I would mention as well that’s important, I mean, related to what Kris says, we tend to do a lot of work before the transactions, so before we see very much the due diligence as confirmatory due diligence, so basically confirming the numbers that we did before confirming so that we… The product positioning is okay, that the Amazon account is okay, what I was mentioning before on the tax and that there’s nothing, also confirming that they own all the trademarks. In that respect, it tends to be fairly smooth, that there isn’t… It’s not like we start the work… Once we’re doing due diligence, is we’ve already done the work. Let’s just make sure our assumptions were correct.

Michael:

Yeah. That makes a lot of sense, and I’ve heard from various aggregators one thing to look out for with aggregators or… Yeah, I guess it would be aggregators, would be sending out a letter of intent super quickly without due diligence and then spending ages and ages trying to keep you off the market whilst they go and discover the stuff that they kind of should’ve found out before they actually did that. So yeah, let’s talk a little about deal structure then. This is obviously one of the things that people are gradually getting clued up on as Amazon sellers, is that you don’t just go to somebody and sell your business and they give you a million pounds, dollars, euros, whatever and then it’s goodnight Lucy. You actually normally have some kind of earn out structure or that’s part of it. What are sort of typical deal structures that you’d end up with?

Daniel:

Yeah. I mean, something I’ll point out here… I mean, something we’re quite proud at SellerX is… I mean, even our name, the X is not… It’s for the variable X that every seller is different, every seller wants something different and we really put a lot of effort on giving them the best experience as possible. That also goes from start to when we start talking with them, but also when we make them an offer. We really try to tailor for their needs. In that respect, I mean, we tend to be quite flexible, but if someone wants the majority of the money upfront we can do that structure, but if they want something a bit like, as you said, earn outs and continue to get paid longterm, then we also do that because I think it also works to what the seller wants to do with their life.

Daniel:

If they want to go and build other projects, et cetera, and don’t want to be involved then that’s fine. They probably want to have more of the money upfront to whatever [inaudible 00:47:45], but a lot of them… TCA is a great example, is one where, yes, the owners wanted someone to grow the brand, take it to another next level, but they also saw a lot of potential and so they would want to benefit in the long term. In this case, we went for a structure that was quite generous on the deferred payment component.

Michael:

Thanks for listening to the 10K Collective e-Commerce Podcast for six and seven figure Amazon sellers. I really hope you found the show helpful to you. Please don’t forget to subscribe to the show, and if you’re on Apple Podcasts please do leave us a quick star rating. It will take you all of 30 seconds to do it, but it does mean we can be found by and help many more e-commerce business builders. I wish you fast and profitable scaling, and I hope you enjoy the process of building your seven figure Amazon business. Thanks very much for listening.

 

Alejandro Marco
Alejandro Marco

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