Team eCommerce Next interviewed Emmett Kilduff from The Fortia Group to get more insights on Successful Ecommerce Exit. Following is our interview with him:
What are some of the most common reasons an Ecomm business owner might want to exit?
The most common reasons that we hear from working with independent Amazon sellers are burnout, increased competition, lack of resources and expertise, financial risks and a desire to try something else.
Many independent Amazon sellers work alone or with one other person to manage marketing, sales, supply chain, overhead, accounting and countless other business operations. A growing business usually requires constant attention, and it can be exhausting.
The space is seeing a flood of increasing competition, including competitors in countries where operations are less expensive, along with global companies that are consolidating the industry by buying up smaller brands for their portfolios. The roll-up aggregator space was non-existent one year ago, but since has seen a flood of investor money that now exceeds $13 billion. Deep pockets and endless resources allow them to build out teams with a broad range of expertise to streamline every aspect of a business. Most independent Amazon businesses have limited resources and lack expertise in many areas, making it extremely difficult for them to compete.
All of this competition increases the financial risk many of the eComm entrepreneurs are already taking on through loans, second mortgages and other debt. Managing overhead costs like inventory, advertising and platform fees is expensive. And there is always risk that Amazon or others could decide to suspend a product, or consumers may lose interest, leaving them in dire financial straits.
On the other end of exits we’re seeing, serial entrepreneur-types who like to build something, move on and start over, using the equity from their previous project to jump into something new.
What is it that The Fortia Group does?
The Fortia Group is an M&A firm focusing exclusively on eCommerce exits.
A study by the University of Alabama showed that advisors can increase a business valuation by as much as 25 percent compared to an entrepreneur selling on their own. And with very few M&A firms focusing on eCommerce, we combine that value proposition with billions of dollars of M&A experience and eComm expertise to prepare independent eComm businesses for a lucrative exit.
The Fortia Group has developed a thorough, months-long exit preparation process that includes advisement on everything from improving business operations to corporate finance tactics.
How did The Fortia Group get started?
Since Thrasio launched in 2018, investors have poured more than $13 billion into the rollup aggregator/brand buying space. Initially we saw the opportunity and set out with that model in mind. But a need emerged in the space that lined up with our expertise, which includes my time in corporate finance at Morgan Stanley, the leading M&A firm worldwide. In May 2021, we decided to pivot to advise eCommerce entrepreneurs on their exits.
What type of eComm companies do you work with?
The Fortia Group works with all types of eCommerce companies, whether on Amazon or other platforms, or direct to consumer.
We tend to focus where the largest aggregators are focused. Some of the most popular hardline categories include juvenile/baby, garden and outdoor, sport, lifestyle arts, home and culinary. Top consumable categories include personal care, pet care, and home care.
Aggregators tend to avoid perishable items such as grocery and food, fashion like clothing and accessories, complicated items such as electronics, and off-limit items such as weapons.
What are the values on the companies you work with?
We advise on exits in the range of $1m to $100m. Going back to May 2021, the largest deal we completed was for $17.5 million.
What kind of companies/investors does your network of buyers consist of? Are they mainly Europe based, US or other? The acquirors of companies are eCommerce aggregators (Amazon aggregators, DTC aggregators), private equity firms, strategics/corporates, family offices and individuals.
What advice do you have for e-commerce entrepreneurs and those looking to exit?
It’s important to work with someone who knows what they are doing. At very least, no one wants to sell their business for less than it’s worth.
Beyond that, there’s a ton of competition. Roll-up aggregators are sitting on mountains of cash. But with 40,000 independent Amazon businesses pulling in at least $1 million in annual revenue, aggregators are looking to find to close as many deals as possible with the best and most profitable brands with as little friction as possible, all while sellers are competing with each other for the best overall exit deal.
Again, the Fortia Group is one of only a few firms that works exclusively on eCommerce exits. Our process starts with knowing how to present each business to these rollup buyers, ensuring they are able to quickly understand the investment opportunity.
Are there areas that businesses should be focusing if they are looking toward an exit down the road?
A lot of buyers have specific criteria they use to value business. The Fortia Group has helped to align financials and brand story to show how it is set up for future success.
Bookkeeping and accounting are extremely important. We advise anyone with an eComm business to have a system and keep neat and organized records. We work with each business’s bookkeeper or CPA to break down revenues and costs and to calculate seller discretionary earnings – means fees for advertising, operating costs, platform costs and everything else.
On the operations side, our research goes beyond headline metrics like revenue, revenue growth and margin percentages, which can be impacted by short-term factors. The Fortia Group digs into lifecycle data to demonstrate the underlying long-term value of the brand to prospective buyers.
The Fortia Group employs its marketing and sales research important for demonstrating scaling potential – category sales trends through keyword searches, growth viability in untapped markets via competitor data, and advertising strategy. Being able to present a clear advertising strategy and ROI reduces concern for buyers about margin that could result from more aggressive advertising spending.
Is there anything particular to the terms of a sale that a business owner should be thinking about?
There are several things to consider with terms of the sale. Typically, a percentage of compensation ends up being deferred, with the owner receiving future payouts based on revenue, net profit or both. Therefore due diligence is as much about the you interviewing the buyer as they are interviewing you. You want to ensure they have the capabilities to deliver strong performance that gets you your deferred compensation.
There are also tax considerations – different rates on different aspects of the sale, as well as factors that go into cost-basis, potential add-backs and other aspects.
Any final thoughts?
For business owners, it’s important to set goals and remember why you got started in the first place. That means identifying how big and fast you want to grow, and ultimately having an end game in mind.
As the space quickly matures toward a new paradigm, the journey for more and more eComm business owners will include exiting their business.
Make sure you choose the right partner to walk you through the process.
About Emmett Kilduff
Co-founder and CEO Emmett Kilduff oversees all the exits that The Fortia Group advises on. With more than a decade in leading M&A ﬁrms Morgan Stanley and Credit Suisse, Kilduff brings billions of dollars of acquisition expertise to eCommerce exit strategy. In addition, Kilduff is founder and executive chairman of Eagle Alpha, a data business with clients including hedge funds, private equity ﬁrms and aggregators.
About The Fortia Group
The Fortia Group is an M&A firm focused exclusively on eCommerce exits. Its experienced exit-team works with eCommerce entrepreneurs to prepare their business to exit, combing through every aspect of a business’s financials, legal setup, supply chain, product roadmap, branding, and marketing to ensure the seller receives the highest valuation.
Since launching in 2021, it has managed multiple seven-and-eight figure exits with additional mandates for brands in baby, home, outdoor and supplements, and is on track to advise on 30 exits in 2022.