BEP 3 | E-Commerce Business

When we think of selling a business, we rarely think of the online landscape. But now that almost everyone is on the Internet and businesses need to adapt to this shift, we can now see that online businesses also need to plan their exit. Gary Nealon, a serial entrepreneur and the founder of Nealon Solutions, did more than just exit; he quadrupled his company’s purchase price while at it. In this episode, he joins host Brian Loring to share how he did it. He takes us across his journey from establishing his e-commerce business to making a couple of acquisitions, highlighting the importance of vision and core values to growing a business and finding the right buyers for it. Don’t miss this conversation to learn how to get the most of your business while also understanding the strategies to acquire your next.

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How To Quadruple An E-Commerce Business’ Purchase Price With Gary Nealon

Gary, I appreciate you coming on. Thanks for joining us. I loved the discussion you had with John Warrillow at Value Builder. I’d like to go back if we could to the moment when you decided, I guess it was around 2017, when you said, “It’s time to sell my business. It’s time to move on.” Can you talk to us a little bit about how you proceeded from that point in your mind? Did you know that you wanted to hire somebody to sell it? Did you give the thought of trying to go out there and trying to sell it on your own? One of the reasons I ask is because in our property management space, our businesses are all owned by licensed real estate brokers and contractors. A lot of times they say, “Why should I go out and get a broker? I can do this myself.” Did you give any thought? Did that cross your mind to try to sell the business at that time on your own?

No. I knew it wasn’t my skillset. If somebody may be a little more familiar with that process, it might be easier for them to do. I knew that my business was a little more complex than a traditional eCommerce business or like an Amazon business or anything like that, where it would be a pretty easy transaction. I knew I was going to need some support on that and getting everything organized several years of financials. It never crossed my mind to do it myself. It’s more of I want to bring in a professional that I thought could do the process for me or help guide me through that process.

Did you approach other people in your industry before you put it on the market? Did you say, “I know a couple of guys out there who might be interested in this?”

The interesting thing about the industry or that segment of the industry is it was one of the first times I’d ever experienced even competitors not wanting to associate with each other. It was very adversarial versus some other niches or industries where it’s more of information sharing and it’s a friendly environment. I knew that if I had approached anybody ahead of time or even told them that I have this for sale, it probably would have caused some ripples. I avoided doing that before I got a broker involved.

What was that process like then? Did you interview brokers or did you pick one you knew? How did that work?

I didn’t go about the smart way to start. I asked around to a couple of people I knew that had sold businesses before, I asked their experiences. My first go round, I went with the one that I had heard multiple people referenced. In hindsight, I have done more of an interview because it is a lengthy process. It’s something real estate agents or whatever should interview multiple versus picking one that somebody tells you about.

Was there something there that if you had asked a few more questions, you would have found out that maybe would have turned you in a different direction?

It was understanding the process. It was the first time I was selling a business. There are two different ways to go about selling a business, which is what I found out. There’s more of the real estate transaction type where they come in, they give you an estimate of what the business is worth. They set a price and then they left it in the market and say, “Here’s a business that’s worth X.” There’s the mergers and acquisitions approach to it where they take more of a holistic approach. They put together a forecast and position the company a little bit better. They go to the market and say, “What would this be worth if you were interested in buying it?” It’s a different conversation to have.

Was it exhausting and difficult to try to get the business ready in terms of all the financial reporting, the operational information, and all the stuff that needs to go into the process? Talk a little bit about how difficult that was.

As I alluded to, there are two different types of processes. I went through both of them. The first one, they set a price, you sign an LOI and then they start asking you for due diligence, documents and everything. That was almost like a full-time job because I didn’t know what I needed to have prepared ahead of time. They would ask for documents here, documents there. I was constantly chasing things. The second process when I ended up pulling off the market and going back with a mergers and acquisition company, they took about 3 or 4 months to compile everything ahead of time. It was more streamlined. We had a database of all this information. It was less a burden on me and it was more their responsibility to find that information. If they have it already, then they’ll come to me. It’s two completely different processes that I went through. It was interesting to experience both.

[bctt tweet=”Look for people that are not relying on the revenue as their income. They’re thinking strategically and long-term on it.” username=””]

I should say that advisors and your better business brokers, they will operate in more of a manner that you’re describing for the M&A. As business brokers, we should have you prepared emotionally and financially to have everything uploaded already into a data room before we put the business on the market. All the financials that we know that everybody will ask for, a lot of the material that is the preliminary due diligence materials, that should already be uploaded and ready to go for anybody even before you get on the market. You weren’t quite as adequately prepared as you should have been. You didn’t know what you didn’t know at the time, so it’s not your fault. You get to a point where you get on the market. Did you have initially an offer or a couple offers right away? What was the timeframe and what was that process like?

The first time we went to the market when we set up price, we ended up getting a couple initial offers. I was concerned both with price and how they were going to handle the business. If we were going to a private equity firm where they’re trying to merge it in with other companies, they may get rid of the warehouse and the staff. I was looking for a mix of that, of ensuring the employees were going to be okay, getting the right price, and the combination of how much was it in cash, how much was equity. We came up with a couple offers on the first round. The first experience though was I came across a lot of tire kickers. People that would go into due diligence to get some financial information and poke around, but they weren’t as serious as they were once we went with the M&A firm.

When you got the initial offers under LOI, did you pick one of them and go under an exclusive arrangement so that you had to pull it off the market for a while, while they went through due diligence?

Because of the complexity, it was very hard for us to do it without exclusivity. Imagine with a high growth company, it might be a little bit easier to get somebody to do it. For our industry, they wanted at least 60 to 90 days locked down so that nobody else can be going through the process at the same time.

That’s common. You get through their due diligence and then you had a couple of cases where those LOIs didn’t go anywhere, and they backed out after due diligence was completed. Is that what happened?

Some of them backed out during due diligence, some would wait until the last day. It was a very frustrating process at first. It was two different processes I went through, but the first process, they didn’t do a lot of screening on the buyers. I didn’t know what I didn’t know to ask the questions to scrutinize them. On the second go-round, I figured that out. There were some questions that I would ask to ensure that they were vetted properly and everything else before we went into due diligence.

This was an online business. As such, were you able to meet the buyer in person or was this all Zoom calls and phone calls?

A lot of times it was in-person. One of the unique things about the business was that we did have a warehouse. We had 35,000 square-feet outside Philadelphia, which had a showroom. There was a brick-and-mortar component to it. It wasn’t just a true eCommerce. In a lot of cases, before we signed the LOI, we’d have some Zoom call or conference call online. I’d like to at least meet them face-to-face as well to get a feel for who they were. It’s a lot easier to see facial expressions and everything. They needed to get a better feel for people.

Did they try to grind down on the price after they got through due diligence, or did they give up entirely?

It’s two different processes. When we set the price and we went to market with the first go-round, that was a lot of looking for holes and trying to figure out how to beat down the price. When we started working with the mergers and acquisitions firm, the interesting thing was that the buyer was setting the price. When they came to due diligence, they would go through the numbers, the financials and they weren’t looking for holes. They’re looking for reasons to justify why they set that price. It was an interesting dynamic. They were no longer saying like, “This number is off by X number of dollars and we’re going to deduct that.” It was more like, “We can live with that because we see what the forecast is going to be.” It was interesting to see those two different dynamics of buyers and how they operate.

BEP 3 | E-Commerce Business

E-Commerce Business: A strategic buyer will more likely pull the trigger than somebody who’s looking at the business to have the cash flow as their income.


The M&A deals live in the investment banking community and a lot of their deals are for companies that are going to sell north of $25 million, $30 million or $40 million. They have a very different approach. They have a very different staff and structure.

One of the things is that they could see the future. They’re looking at when we buy it and we merge it with these companies, we’re going to have exponential growth over here. They’re not just looking at it strictly from the EBITDA of the business itself. They need to make money there. They’re looking at other opportunities that they may have in their portfolio.

How much time separation was there between when you gave up with the business brokerage world and you went with the M&A advisor, was that 6 months or 1 year?

We took it off the market for about six months. That was data collection and then building out a forecast, a five-year model of if we were to implement certain strategies, what would that look like in five years? Using a professional accounting firm and making sure all the numbers made sense, and we weren’t just pulling them out of the air.

That was one of the things I wanted to drill down and hit home on this particular conversation. That five-year forecast that you did, it’s such an important part of trying to get a successful transaction especially for a company like yours was at that point doing $40 million in revenue. That’s the business that you do that with. Talk to us a little bit about how that five-year forecast got put together. Did you get a third-party auditing firm into the mix or did you try to do it internally?

The M&A firm had a team that came in. It was almost like a brainstorming session, picking our brains like, “If you were to keep the business for another five years, what were you planning on implementing?” We would take those ideas, we’d put them on paper and assign realistic values to it. They would backtrack of, “How much revenue would this bring in? How much could we feasibly get in terms of traffic?” They brought in a third-party, an independent accounting firm to say, “Assuming these numbers here now fill in the gaps so that we can go to somebody with realistic numbers. If you were to implement this within these variables, you would estimate this much revenue coming through and this much overhead.” We use a third-party accounting firm for that. The numbers were documented versus us just saying, “If you do this, you could have $40 million more in revenue,” or something like that.

At the end, what was the final product? Did they have a report that was presentable to a potential buyer or what was the end product?

The end product ended up being a report that would show a forecasting model for each year, for five years. It would give a full marketing strategy saying, “These were the plans that we had in place. Here’s what you would need in terms of expenditures to implement them.” It was almost like a roadmap to say, “If you take this now, here’s the exact roadmap that as long as you follow it, you can be at this number within five years.”

That is very commonly done in the M&A world. Were you scaling significantly at the time? Was your year-to-year very different from the previous year or were you mostly flat?

Surprisingly enough for that industry, we were able to maintain anywhere from 15% to 25% growth every year. We were still on an upward trajectory. That was one of my thought processes in the back of my head. When I was going to sell, I wanted to make sure that it was on a growth trajectory so that if I handed it off, I felt good about the fact that somebody would be able to continue to keep that growth instead of plateauing or worst-case scenario dropping. That was one of my motivations. It was like, “We’ve done this now for several years when we’ve had at least, 20%, 25% growth. Now might be the time to pass this on to somebody else that can take it to the next level.”

[bctt tweet=”Just because you think there’s value in the business doesn’t mean that the buyer thinks there is.” username=””]

Now that you have that forecast done, you go out to the market now with an M&A firm behind you. I got to imagine that the asking price was substantially higher.

They are significantly higher. The way our business operated, we couldn’t use a standard platform like a Shopify or Magento or any of these other things that are built for eCommerce. We built a lot of custom technology, everything from our shopping cart solution to how we handled shipping. We made a couple of different apps plugged into our system. While we were doing that brainstorming session, one of the things that came up was they’re like, “You guys have so much technology, you can be a technology company that happens to sell physical products.” That was one of the angles that we took. We repositioned the company to say, “We have all this underlying technology that you can take any physical product and plug it into. You don’t have to go out and build it anymore. It’s scalable. Everything’s manageable internally. There’s no more expense.” The selling feature was the fact that either private equity firm or a small business can come in, buy it and they could scale it by adding new products to it.

One of the things that a forecast like that is valuable for is the line of work that we are in, which is to field inquiries from buyers. What do buyers do? They’re trying to find a deal that’s appropriate for their needs. Pushback on price is the most common thing we deal with. When you have a five-year forecast in your hands like that, where you can show where this company is going to go, that pushback becomes a lot different story and a lot different negotiation, doesn’t it?

It does. You’re giving them a vision of where it could be versus where it is now. At least in my mind, that’s the difference in the conversation. They’re focusing on the future.

I found that with a lot of business owners, the idea of spending time on a forecast is a very difficult prospect. They’re trying to get through the day of life. You can’t see sitting down and spending three months trying to prepare that. At the end of the day, it’s valuable. Let’s talk a little bit about working with some of these buyers. You mentioned when you were with the business broker, you had a lot of tire kickers, a lot of people who wound up being not terribly serious even though they portrayed themselves as being serious. Do you have any tips on how to determine who’s a tire kicker and who’s real? Did you determine anything through that whole process?

The thing I would say is get a full background on what their business acumen is. I tried to avoid direct competitors coming in because I knew that they were looking more for the financials than the bias. With the M&A firm, we ended up doing a reach out to strategic buyers, which was the key. A strategic buyer is going to be more likely to pull the trigger than somebody that’s looking at the business, at least in our case, to have the cashflow as their income. If I look at some of the commonalities, the previous buyers that fell through, they were trying to figure out how they squeeze out every penny to keep that as their income versus scaling it or merging it in with another business, or looking at it from a growth strategy. I’d say that’s the biggest takeaway is looking for people that are not relying on the revenue as their income. They’re thinking strategic and long-term on it.

That’s an interesting point you’re making here because after having done many deals, a lot of times, we business advisors and even owners of businesses, we will tend to want to discount or discredit a buyer who maybe is not in the industry for which this business is being sold. A lot of times, we’ll look at their lack of that industry experience and say, “This guy is not real.” It sounds like from your experience, you had better luck with people who are not necessarily your direct competitors and not necessarily in your exact line of a business. Is that a fair assessment?

Yes. It gives you some context as to why I picked the one that we ended up going with. They didn’t have the highest price. It was a combination of they had the same customer base that we did. They were buying it for the customer interaction and other things that they could sell to their customers whereas some of the other people were not. I also knew that they were going to keep the actual company where it was and protect all the employees. Those were my deciding factors on it even though they weren’t directly in the cabinet business or the kitchen industry as we were.

Did you feel like you made a bunch of mistakes that you wouldn’t make again when it was all said and done?

I always say I don’t live with any regrets. I came out with a number that I was happy with, which is great. I’d say if there was one thing that I would do over in the whole process, there was a bunch of technology that we lumped into it, and I thought that I was creating a much of value by giving it to them. At the end of the day after we closed, they didn’t even want that technology. It was something that I could have kept and done something else with. I got a number that I was happy with, I’m not going to complain. The takeaway that I had from that was that just because I think there’s value in it, it doesn’t mean that the buyer thinks there is. I would’ve kept some of that and leased it if they wanted it versus lumping it all into the business.

BEP 3 | E-Commerce Business

E-Commerce Business: If you’re selling, make sure that the business is on a growth trajectory so that somebody would be able to continue to keep that growth instead of plateauing or, worst-case scenario, actually dropping.


Most business advisors are representing the sellers of companies. As management advisors because we’re a specific to one industry, property management and property related businesses, we do work directly with buyers trying to find deals for buyers, which most business brokers and advisors don’t do. I know that you are now doing some counseling and some business advice work, aren’t you?

After I sold the company, I got a lot of inquiries from other eCommerce companies saying, “Can you help us?” Some of the strategies that we use were pretty unique. I’ve been doing business coaching for eCommerce companies for the last few years. The last few months, I got back into the eCommerce space and started buying up companies again.

If you put your buyer hat on, do you have any thoughts about some of the things that you think buyers commonly make mistakes for or commonly don’t do correctly when they’re trying to pursue an acquisition? I’ll give you one if you want a moment to think. One of the things I always tell buyers is in the business sales universe, don’t get overly preoccupied with the asking price. Almost everything out there is going to be overpriced by a good 20%, 30% to 40%. It’s a given in the marketplace. My advice to buyers is don’t get preoccupied with the fact that this is a seller who is asking too much. Chances are hopefully very good that they know they’re asking too much. You know after you’ve looked at some financials and some historicals that they’re asking too much, but get past the price is my advice. Don’t get too hyper-focused on that because this may be a good fit other than for that.

Sometimes people skip over it because they think that some business owner is going to be not reasonable when you bring them a good offer. The reality is the price is just a component of the whole deal. Terms is a big part of it. Personality and fit are a huge part of it. I can’t tell you how many deals I’ve had where the buyer and seller wound up getting to like each other, and where the seller saw that the buyer would be a good fit. Maybe that buyer wasn’t at the highest price. Maybe that buyer wasn’t even at the best terms. Things happen when you get people together.

Two things popped in as you were saying that. One is understanding the seller’s motivation and that plays into the terms and everything that you’re talking about. Do they need the cash right away? Are they looking to retain some equity and grow with you? What is their motivation and that helps with structuring the deal? Some of the companies that we’ve bought, we’ve gotten to the point where those zero cash down. We brought so much to the table that the seller was willing to forgo their upfront cash to be able to have a higher backend component.

The other thing that I’d say that a lot of buyers tend to make the mistake on is they sit back and they wait for deals to come to them instead of proactively looking for them. One thing that we did was we found all the big brokers that were specific to the industry that we were focusing on. We proactively reached out to them and said, “Here’s the type of company we’re looking for. If anything comes across your desk, please keep us in mind.” We were able to get to look at a couple of companies before they hit the market. That’s the big thing that has been helping us is that we’re getting access to potential companies for sale before everybody else gets a chance to look at it.

You said in the last couple of years, you’ve made a couple business acquisitions. Did you do all that groundwork and legwork on your own? Did you find the deals and did all the due diligence yourself or did you hire a broker to help you with that? What did that look like?

It’s a combination. We looked at what was already on the market and went through whoever the broker that was handling it. We also did a scrape on that particular industry. It was very specific. It’s eCommerce and pet brands that were doing anywhere from $200,000 up to $10 million. We looked at the players in the industry that have traditionally sold those types of companies and proactively reached out to them and said, “Here’s who we are, here’s our experience.” They got comfortable with the fact that if they brought us a deal, we had the potential to scale it. We let them know that we were out there versus where a business hits the market, then you have to wait for people to find it online or within your mailing list or whatever.

One of the things that also I applaud you for is realizing how important in the business sale process the whole idea of your technology, your systems, your SOPs. All of that plays a tremendous role in investors and individual buyers coming in and realizing that they can take this and run with it. You understood that at a granular level. I applaud you for that.

In fact, one of the businesses we bought was underperforming, it was losing money. The organization and processes that he had in place, it made sense for us because then we can apply it to every other brand that we were buying. It was more of a strategic buy even though the company was losing money. That’s why it’s also important to not just focus on the EBITDA if there are other opportunities within the company to do something with it.

[bctt tweet=”In the business sales universe, don’t get overly preoccupied with the asking price.” username=””]

You mentioned trying to approach business owners directly or independently, most investors out there find it daunting and an impossible idea to go out, canvas, physically get phone numbers and get email addresses for hundreds upon hundreds of different prospective businesses out there. Is that an impossible task? Could somebody go out and look for property management companies in the Western US and find 5,000 names and start calling? How would you approach something like that?

Ours was a little more strategic. For something like that, you’d have to go geographically. We took the approach of we want to become either an affiliate partner or something along those lines where we have an inroad association with them, so they can get to know us a little bit better before we go down that road. After 1 or 2 months, it would be like, “We’re doing so well with this. Have you ever considered selling?” Just have those genuine open conversations. That’s where people get a little too salesy. They’ll send the generic email out to a bunch of companies to see if they’re interested instead of taking that ground approach, and genuinely starting some relationship with them first before you try to approach them about selling.

We brokers get those constantly. They send a very formulaic emails saying, “Here’s our criteria and here’s what we’re looking for.” It doesn’t prompt a lot of action to be honest. I applaud you. You learned the hard way and you got through it by advancing to a more sophisticated level of company and advisor. It was a bit of a gulp. M&A companies asked for pre-substantial fee upfront and monthly retainers in a way that business brokers don’t usually ask for. Some business brokers don’t ask for any money upfront. I’m sure that was a bit of a gulp to put that money where you wanted to make it work, but it sounded like it was worth it.

It could have been just the experience I had with the first business broker. I know not all of them operate the same way. Through the M&A firm, I had developed a relationship with a guy over the course of 6 or 7 years. I had some trust factor there that I knew if I was going to have to put out that money that you would make sure that I got it back.

We’re not here to try to bash whatever business broker you had hired. I don’t even know who it is. We have all had companies that we were unsuccessful in selling. It happens. Unfortunately, the failure rate in our industry is significant. It does happen.

To their defense, as I look back at it, even though they had sold businesses before for people that I had known, the profile of the businesses they had sold were different than mine, with the brick and mortar and eCommerce. It was a little bit different than just a straight eCommerce sale. Their process works well for simple businesses, whereas mine was a little more complex than I should have understood when I was going into the relationship with them.

What’s challenging you now? Are you actively looking for new businesses in the pet eCommerce space? What are you doing now?

We’re closing on another one. We’re looking on an average of anywhere from 15 to 20 per month. We have a pretty strict criteria in terms of what we’re looking for. We’re not just entertaining every opportunity that’s out there. The most challenging part that I’ve never experienced before was trying to merge multiple companies together. That’s something that’s challenging and something that we’re learning as we go. There are nuances to that like everything else. It makes it a little more difficult when you have different platforms, vendors, all these different things coming together and trying to merge them under one umbrella.

That is a separate conversation right there. When a business buyer comes in and has the seller exit within a couple of months, that is one thing. When you have to spend 1 or 2 years merging systems and integrations, that is a whole different discussion. Gary, I appreciate you taking the time with us. Thank you so much for doing this. It’s a great story. I applaud your success and your entrepreneurial spirit. You’ve been great. I appreciate it.

Thanks for having me on.

Thank you. Take care.

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About Gary Nealon

BEP 3 | E-Commerce BusinessGary Nealon is a serial entrepreneur and founder of Nealon Solutions, offering strategic marketing help to owners of e-commerce businesses. Among his recent successes was the completed sale of RTA Cabinet Store, an online cabinet wholesaler.