The Dealmaker’s Dictionary

The Exit
July 26, 2021

The Dealmaker’s Dictionary

The Exit
July 26, 2021

The Dealmaker’s Dictionary

The Exit
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July 26, 2021

You’re ready to exit your Amazon FBA business, and nothing’s going to stand between you and your well-deserved payday — nothing, that is, except a confusing stream of contracts, legalese and a whole lot of indecipherable acronyms. We understand. Navigating the closing process can sometimes feel like learning a whole new language, but fear not: we can help. Here are the terms you need to know so you can come to the bargaining table ready to go, whether you’re an MBA or just want to sound like one.

You’re ready to exit your Amazon FBA business, and nothing’s going to stand between you and your well-deserved payday — nothing, that is, except a confusing stream of contracts, legalese and a whole lot of indecipherable acronyms. We understand. Navigating the closing process can sometimes feel like learning a whole new language, but fear not: we can help. Here are the terms you need to know so you can come to the bargaining table ready to go, whether you’re an MBA or just want to sound like one.

Defining the Terms You Need to Know When Navigating Your Exit

Amazon Stock Identification Number (ASIN) - a unique, ten-digit alphanumeric code assigned to each product sold on Amazon. The ASIN provides sellers, consumers and even Amazon itself a straightforward way to keep track of products in Amazon’s ever-growing catalogue. 

Asset Purchase Agreement (APA) - a legal agreement that defines the terms of the purchase and sale of a company’s assets. Critically, the APA outlines what exactly is being purchased — such as machinery or inventory — and at what price. An advantage of an APA is that both sellers and buyers have the opportunity to include or exclude specific assets from the agreement, making for a more customized deal. 

Broker - a person or firm who serves as an intermediary between a buyer and a seller during a deal. Brokers handle everything from making initial introductions to seeing the process through to closing, after which they receive an agreed-upon commission for their services. 

Closing Conditions - a list of obligations that each party must complete — whether independently or jointly — before a deal can close. Conditions may include regulatory approvals, written consents from essential outside parties and a satisfactory due-diligence investigation. Closing without satisfying all conditions is at the complying party’s discretion and entails an associated fee. 

Confidential Information Memorandum (CIM) - a document provided by a seller that provides an overview of a company. An effective CIM is designed to appeal to potential buyers and garner an IOI or LOI by showcasing key data, including product information, financial statements, revenue projections and growth opportunities. 

Due Diligence (DD) - the process by which a seller collects, reviews and assesses a company’s financial and operational records. Due diligence informs a buyer of any risk associated with a transaction so they can make a determination on whether to proceed before entering into any binding agreements.

Earn-out - a payment structure in a sale transaction that enables a seller to receive additional compensation if future, predetermined performance targets (e.g., earnings) are met after the company has changed hands. An earn-out provision can help bridge a valuation gap between a buyer and a seller by giving an average of one to three years of additional earning potential to a buyer.

Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) - a measure of cash-flow that excludes the capital (or debt) service of the business, which helps with comparability from one transaction to another. A multiple of EBITDA is the most common used valuation metric for private companies.

Enterprise Value or Total Enterprise Value (EV/TEV) - are economic measures that reflect the market value of a business. Unlike EBITDA, it includes the debt of a company and subtracts the cash and cash equivalents. TEV can be used to compare two companies with different levels of debt and equity.

Escrow - a legal arrangement that enlists a third party to temporarily take custody of funds, property or other assets while a buyer and a seller work to fulfill their remaining obligations. Assets in escrow are released upon the completion of the sale transaction. 

Exclusivity - a party’s sole and contractual right to pursue a business opportunity. During periods of exclusivity, sellers may not seek out or engage with other possible buyers without facing financial and/or legal consequences.

Holdback (HB) - cash set aside in escrow in case any unaccrued or unanticipated liabilities or expenses arise post-sale. Holdbacks are usually accessible for 3 – 12 months, offering a buyer cushion against payments a seller should have foreseen, such as open accounts receivables or customer retention method. 

Indication Of Interest or Express Of Interest (IOI/EOI) - a formal letter that reveals a buyer’s sincere yet non-binding initial interest in pursuing a seller’s company. These are delivered to a seller in the early stages of the transaction — before the buyer has completed due diligence — and will divulge an approximate price the buyer is willing to pay for the company. 

Last Twelve Months or Trailing Twelve Month (LTM/TTM) - a measure of time often used when assessing a company’s financial performance. The LTM can shed light on past patterns and point to future trends.

Letter Of Intent (LOI) - a non-binding legal document that states a prospective buyer’s preliminary commitment to engage with a seller. The key terms of the deal are broadly defined (think hammer, not scalpel) and are used to inform the asset purchase agreement. Once signed, an LOI typically confers exclusivity for the buyer for a set period of time, allowing them to perform formal due diligence. 

Monthly Recurring Revenue or Annual Recurring Revenue (MRR/ARR) - a company’s regularly occurring income from subscription-based revenue (rather than one-off sales). 

Non-Disclosure Agreement (NDA) - a legally binding contract that establishes a confidential relationship between two parties; also known as a confidentiality agreement. The parties bound by an NDA agree not to share each other’s protected, sensitive information, allowing parties to more candidly disclose the information necessary to proceed with a transaction. 

Prior Comparative Period (PCP) - an accounting term that enables financial reports to be compared to a similar year rather than just the immediately preceding year. The PCP can be a more useful metric to gauge performance in cases where the preceding year was exceptional — whether positively or negatively. 

Private Equity (PE) - an asset class that enables investors to buy or take a controlling stake in the equity of a private company. 

Quality of Earnings Report (QofE) - a report prepared during the due-diligence period. This report provides a detailed analysis of all the components of a company’s revenue and expenses, and provides key analysis into the customer revenue, working capital, EBITDA adjustments or normalizations.

Sales and Purchase Agreement (SPA) - the primary, binding legal contract between a seller and a buyer that defines and finalizes the terms of a transaction. Also referred to as the Definitive Agreement. 

Stock Keeping Unit (SKU) - a unique ID assigned by a company used to track each inventory item. It is good practice to allocate SKUs in a systematic and pragmatic way, ensuring that each variation has its own unique identifier.

Underwriting - in business, the act of analyzing the financial risk associated with an investment opportunity and committing to provide the capital required to complete the transaction.

Year Over Year (YOY) - the process of comparing one year over another year, both from a financial statement perspective as well as other management data. Common YOY metrics are revenue, sales, receivables, payables, inventory and customer counts.

Now that you’ve got the lingo down, why not take the next step? The Elevate team is here to answer any questions you may have when it comes to exiting your Amazon FBA business. Whether you’re just getting started or are ready to make your move, we’d love to chat with you.


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