Building an Ecommerce Business, Part 12: Acquiring Companies

Acquiring ecommerce businesses requires skill and diligence. Financing is a major consideration, as is learning from the previous owner and hiring new executives, if necessary.

I am the founder of Beardbrand, an Austin, Texas-based ecommerce business that focuses on beard care and men’s grooming. This is episode 12 in my series on building an ecommerce business from the ground up. The previous installments are:

For this installment, I spoke with Shakil Prasla, the co-founder of Pro Click Ventures, a holding company in Austin that owns 12 ecommerce businesses. He explained his methods of identifying, acquiring, and growing multiple ecommerce firms.

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

Eric Bandholz: I’ve always admired people who can manage multiple businesses. How did you get started?

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

That’s when I came across a website for sale and requested the prospectus. Reading through it, I realized this company was getting all its traffic through organic search. They didn’t do any advertising. I bought it for a two-times multiple. This means if the annual profit is $50,000, the purchase price is $100,000. I then turned on Google ads and started selling on Amazon.

I made my money back in six months. And I was like, “Wow, this is cool. Let me do this again.” And so I bought my third business six months later and then I bought my fourth business. Then in 2015, I meet a guy through an ecommerce Facebook group. We hit it off. We combined our money and acquired more companies. The whole portfolio is now 12 companies. We’re well into eight figures in sales and have 40 plus employees.

Bandholz: How do you find the companies? Walk me through the negotiation process.

Prasla: I find a lot of businesses through my network and relationships I’ve built with brokers. You can still find ecommerce businesses on BizBuySell. The first step is to submit a letter of intent, which is a basic, three-page paper that explains the offer, how you’re going to pay it, and any other terms, such as if you want to keep the seller on. Once that’s agreed upon, you go through due diligence for about 30 days. You need to verify the financials and where the traffic is coming from.

In our larger companies — $2 million to $15 million in sales — we find the CEO, who becomes responsible for everything from supplier relationships to hiring, firing, and growth strategies. And on the backend we have shared resources. We have on staff content writers, graphic designers, search engine optimizers, and an ad specialist. The CEOs can use those resources to help grow their companies.

I always keep the seller on for at least two months via a consulting agreement. The point is to transfer all of that person’s knowledge. Remember, these folks have been running the company for years, usually. We try to learn as much as we can and transfer that knowledge to the new CEO.

Bandholz: How do you find a CEO in a month or two?

Prasla: We’re very aggressive on ZipRecruiter and LinkedIn. We spend a lot of money to find the right person. And it’s not just in Austin or Houston. It’s all over the U.S. We pay a relocation bonus as well. We’re very competitive on our base salary and benefits. We also do incentives. And then we empower them by letting them make decisions.

Bandholz: Do you invest in new products or focus on growing sales from existing items?

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

The business model we’re aiming for now is custom drop-ship products — offering custom products on the ecommerce site that are made by a manufacturer, which ships to the customer. So we don’t have to buy raw materials. It eliminates many cash flow problems.

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

Prasla: When I initially started buying companies, it was all out of pocket. But that became impossible with bigger deals. Banks are now willing to give two types of financing for ecommerce deals: traditional lending and loans guaranteed by the U.S. Small Business Association. The great part about SBA loans is you only have to put down 10 percent.

If your credit is bad, you have the option of owner financing. Another strategy is what I call a hold-back or performance payout. You pay a little upfront but hold back the balance. If the business performs the way it did before the acquisition, the seller gets the rest of the money. If it dips by 20 percent, the seller receives 20 percent less.

Bandholz: Have you sold any businesses?

Prasla: I have not. But as my lifestyle changes, I am definitely looking to exit.

Bandholz: Could you lump the businesses together to one buyer?

Prasla: A lot of buyers like the diversity of multiple businesses. It avoids the risk of focusing on a single product line. Plus the business can have different sources of traffic — Facebook, Google, email, direct.

See the next installment, “Part 13: Raising Money.”

Eric Bandholz
Eric Bandholz
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