Building an Ecommerce Business, Part 12: Acquiring Companies

Acquiring ecommerce businesses requires diligence and skill. Financing is a significant consideration, as is learning from the former owner and hiring new executives, if needed.

I’m the creator of Beardbrand, an Austin, Texas-based ecommerce firm that focuses on beard maintenance and men’s grooming. This is episode 12 in my series on building an ecommerce company from the bottom up. The preceding installments are:

With this installment, I talked with Shakil Prasla, the co-founder of Pro Click Ventures, a holding company in Austin that possesses 12 ecommerce companies. He explained his methods of identifying, acquiring, and developing multiple ecommerce firms.

What follows is my complete audio conversation with Prasla along with a transcript, edited for clarity and length.

Eric Bandholz: I have always admired people who can handle a number of businesses. How did you begin?

Shakil Prasla: In 2013 I started my very first ecommerce firm, ProCuffs, which sells cufflinks and other men’s accessories. Once I learned the basics of ecommerce, I started looking at other opportunities.

That is when I came across a site for sale and asked the prospectus. Reading it, I understood this business was getting all of its visitors through organic search. They did not do any advertising. I purchased it to get a two-times multiple. This means if the yearly profit is $50,000, the buy price is $100,000. I then turned on Google advertisements and began selling on Amazon.

I left my money back in six months. And I was like, “Wow, this is cool. Let me do this again.” And so I purchased my third company six months later and then I purchased my fourth business. Subsequently in 2015, I meet a man through an ecommerce Facebook group. We hit it off. We combined our cash and acquired more businesses. The entire portfolio is now 12 companies. We are well into eight figures in earnings and have 40 and employees.

Bandholz: how can you locate the companies? Walk me through the negotiation procedure.

Prasla: I find a good deal of companies through my network and connections I have built with agents. You may still find ecommerce companies on BizBuySell. Step one is to submit a letter of intent, which is a basic, three-page paper which explains the deal, how you are going to cover this, and any other conditions, like in the event that you would like to keep the vendor on. Once that is agreed upon, you go through due diligence for around 30 days. You want to confirm the financials and where the traffic is coming from.

In our larger businesses — $2 million to $15 million in sales — we locate the CEO, who becomes responsible for everything from provider relationships to hiring, firing, and expansion plans. And on the backend we’ve shared resources. We have on staff content authors, graphic designers, search engine optimizers, and an ad specialist. The CEOs can use those tools to help grow their businesses.

I keep the vendor on for at least two weeks by means of a consulting agreement. The purpose is to transfer all that individual’s knowledge. Bear in mind, these people have been running the business for years, usually. We try to learn as much as we can and transfer that knowledge to the new CEO.

Bandholz: how can you find a CEO in a month or two?

Prasla: We are very competitive on ZipRecruiter and LinkedIn. We spend a whole lot of money to get the ideal person. And it is not only in Austin or Houston. It is all over the U.S.. We pay a relocation bonus also. We are very aggressive on our base salary and benefits. In addition, we do incentives. And then we enable them by letting them make decisions.

Bandholz: Can you invest in new products or concentrate on growing sales from existing things?

Prasla: Both. Our growth comes from efficiencies and adding products. One of the ways to develop a business is to enhance the product line. That’s the CEO’s job.

The company model we are aiming for now is habit drop-ship products — offering custom products on the ecommerce site which are produced by a producer, which ships to the client. So we don’t need to purchase raw materials. It eliminates many cash flow issues.

Bandholz: Speaking of cash flow, how do you fund these deals?

Prasla: When I originally started buying businesses, it was all out of pocket. However, that became impossible with larger deals. Banks are now willing to provide two kinds of funding for ecommerce deals: conventional lending and loans guaranteed by the U.S. Small Business Association. The wonderful part about SBA loans is that you just need to put down 10 percent.

If your credit is poor, you have the choice of owner financing. Another approach is what I call a hold-back or functionality payout. You pay a modest upfront but hold back the balance. If the company performs the way it did before the purchase, the seller receives the remainder of the money. If it drops by 20 percent, the vendor receives 20 percent .

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Bandholz: Have you sold any companies?

Prasla: I haven’t. However, as my lifestyle changes, I’m definitely looking to depart.

Bandholz: Can you bump the companies together to a single buyer?

Prasla: a great deal of buyers enjoy the diversity of numerous companies. It avoids the possibility of focusing on a single product line. In addition to the company can have different sources of traffic — Facebook, Google, email, direct.

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