If you are reading this, there is a high chance that you have heard about Thrasio. Thrasio is a US-based startup that acquires independent, D2C consumer brands selling on Amazon and grows them. This business model has become so successful that VCs have invested billions of dollars in startups similar to Thrasio all over the world.
Now we have many such Indian companies with massive cash reserves who want to acquire profitable online businesses. We are advising one such online D2C brand on its sale.
The competition to acquire great companies is immense. All these buyers have raised huge venture capital, and they are all striving to acquire the best brands.
Source: Money Control
Here are 3 key points that all founders should keep in mind.
1. Valuation – Buyers pay a multiple of either EBITDA or Revenue for all startups. The multiple varies from buyer to buyer, and sometimes there can be a huge difference considering how critical the brand is for the buyer. Thus, it makes sense to speak to everyone about price discovery.
2. Structuring – Acquirers buy a majority stake on day zero and then buy the remaining stake over 2 to 5 years. They are flexible with different structures. Buyers have logistics, warehousing, marketing, etc. expertise and huge working capital. Founders should choose a longer duration if they believe their brand can become massive with buyer support. Otherwise, they should opt for a quicker exit and start their new adventure.
3. Culture – The final amount is not the only consideration. Unlike an asset sale where the seller leaves the business on day zero, this is a 2 to 5-year commitment. This is more like a merger and less like an outright sale. Most mergers fail because of conflicting cultures. Founders should interact with the buyer's team before deciding because they will work with those guys for at least 2 years.
It makes a lot of sense to choose a lower offer if the founders are more comfortable with the team and culture.
The objective of all buyers is to grow these businesses together with the founders. Since the remaining payout is always linked to the future revenue or EBITDA, sometimes the sellers will make more money in the long run if they can grow the business more with the buyer's support.
Advising on this transaction has been an enriching experience for us. We have learnt a lot. We are thinking about sharing our learnings over a webinar in a few days. Give your thoughts in the comments if you would like us to talk about something specific.