Case Study: How we found the perfect buyer for a $300,000 WordPress Template Business.By Jamie Toyne
Case Study: FeastDesignCo.com
With Shay Bocks: Founder of Feast
May 03, 2018
“For me, selling Feast was about getting a fresh start. An opportunity to dig deeper into work that changes lives for my clients.” Shay Bocks, founder of WordPress Theme business for food blogs— Feast Design— shares valuable insights into parting with her first self-built and successful online business.
This case study delves behind the scenes of the sales process. Selling a business will always have its frustrations and challenges, and this honest Q&A will certainly provide food for thought for anyone considering an exit strategy for their business. We discuss the experience and benefits of working with a broker on the sale of a business. And we see how Dealflow was able to overcome these challenges, finalizing a successful sale in just a 5-month period.
We have broken the sales process down into the following 8 phases. Let’s dig in.
- Initial discussions
- Listing Preparation
- Active Listing
- Due Diligence
- Purchase Agreement
- Escrow / Asset Transfer
1. Initial discussions
We began discussing the possibility of brokering your business in the first week of June 2017. During this phase, we provided an initial ballpark valuation of 1.9x to 2.1x of your trailing twelve month Net Income.
What were your initial thoughts regarding this valuation?
The valuation was pretty much exactly what I expected, thanks to some googling on average valuations.
Was it higher or lower than you expected?
Neither. I was comfortable with the valuation.
While we were analyzing your business, you were reviewing Dealflow’s Exclusive Brokerage Agreement (EBA). You had several concerns and questions including:
- The cancellation fee
- Timeline of the sale
- Closing process & escrow
As the business owner, can you describe why you were concerned with the above? (Please include and detail any other questions you had prior to executing the EBA.)
I was worried that if I chose not to proceed with the buyer that was interested, it would be a very costly decision. I didn’t start the process with a bank account full of cash, so that was a major concern. Regarding the timeline, I knew that once I set my sights on a new venture, the value I brought to my current business would diminish and the value of the company could drop.
I was hoping for a quick turnaround process to get the company into new hands as soon as possible. Since I had never sold a business before, the closing and escrow process was foreign to me. I still didn’t understand it properly even when going through it, but I was thankful to have legal representation to guide me through that part of things.
Were your questions appropriately addressed by your broker?
Yes, Dealflow was always helpful and attentive.
Why did you ultimately decide to move forward?
I knew it was time for me to put Feast in new hands and move on with something new myself. I was thankful to find a buyer who was in a similar situation and could understand that.
2. Listing Preparation
After you executed the EBA, we began our final analysis and listing preparation around mid-June. This process took approximately two -weeks. During this phase we requested many of the documents required to prepare your listing and finalize your marketing materials, and asking price, including:
- Historical monthly P&L statements
- Monthly bank records
- Tax documents
- Follow-up seller interview questions
- Inquiries about your website’s traffic performance etc.
Can you provide some detail regarding how you approached these deliverables? Specifically, how did you prepare the information and touch on any challenges you encountered along the way.
Thankfully, we keep great documentation at Feast and so I was able to pull up most of this information rather quickly. There were a few revenue streams mixed into our accounts. Therefore, the most time-consuming part was separating out and redacting anything from a different revenue stream that wouldn’t be included in the sale.
Were any challenges you encountered due to how you had been operating and accounting for your business?
Yes. I wish I had the foresight to separate things out from the beginning!
Having been through the listing preparation process, do you have any tips or advice for a business owner about to start this process?
Just be prepared to be wide open. Everything gets pulled apart and picked through., It’s best to have a great handle on how your business actually works before trying to explain it to others.
Dealflow ultimately valued your business at ~2.48x Annual Net Income, $410,000. FeastDesignCo was valued significantly higher than the industry average multiple for template theme businesses. This was in-part due to\ the consistent performance, quality of the products, and popularity of the themes.
At the time, was the valuation what you had expected or hoped for? Explain why or why not.
The valuation was higher than I expected (I expected around 2x). It felt great to know that I had built such a reputable business that warranted a higher valuation.
What was your confidence level in the valuation you received? Did you believe you were going to be able to sell if for that amount?
I was unsure I’d be able to sell for that much considering the uneasy climate of the WordPress Theme industry. I had complete confidence that the business could continue to do amazingly well under the right leadership (and it has!), but seeing other theme businesses fail in the changing climate turned off some potential buyers.
3. Active Listing
We began marketing your business in the beginning of July 2017.
Describe your feelings when the prospectus was completed and the business officially launched. Were you excited or nervous?
Very excited. I was ready to sell right away.
What were some of your initial expectations? Did you expect to be speaking to dozens of buyers in the first week?
Yes, I expected to be vetting and interviewing buyers right away. I thought that the process would be very fast. When it wasn’t, I felt like I might have been wasting my time on this process when I could have been doing things to grow the company instead.
Your business struggled to gain traction or serious interest during the first 6 weeks of the sale. While there was a high level of inquiries and initial interest, a serious buyer failed to materialize.
Describe how you felt and what you experienced during the first few weeks of your business being marketed.
I felt like I was wasting my time. This process was actually more time consuming than I expected. I was willing to invest the time for a condensed period –to transition it quickly and move on. But when the process dragged on, I thought I might run the business into the ground by being too distracted with the sale. Especially with already moving into my next venture thinking the sale would have already been completed.
Was it what you expected? Were you worried or disappointed?
The timing wasn’t what I expected at all. I thought it would take weeks and it actually took 6 months. I was very worried at how I was spending my time and disappointed in what my lack of focus did to sales numbers. I was no longer present in the business. In my mind, I had already disinvested myself from it in order to go through with the sale process. I couldn’t get energized to continue growing it, which was a disservice to our customers and to the new owner.
Did your broker provide a high-level of service, including updates, feedback, etc. during this time?
Yes, Dealflow was always quick to reply to me. I’m not so sure of the level of communication with potential buyers, though. When we lost what could have been a perfect buyer, I wondered if it was because of a lack of communication. Because I wasn’t supposed to reach out to buyers myself, I felt stuck and worried that this buyer didn’t have the information or motivation he needed to make a decision quickly. The new owner of Feast ended up bypassing Dealflow at one point and started emailing me directly to move the process along. I’m sure there was strategy involved, but it was frustrating for both me and Skylar.
Around August, several serious buyers materialized. You had multiple conference calls with a variety of buyers with different backgrounds who had a serious interest in acquiring your business.
Describe your experience meeting with buyers for the first time.
Not knowing what to expect, I went in open to everything. I was more interested in hearing about what strengths and skills the buyer had than selling them on the business. I wanted to ensure that I was putting Feast in great hands.
Was it beneficial to have your broker on the calls with you to outline the call, facilitate, and assist with questions?
Absolutely. I would have been way too forthcoming and would have compromised way too much if Dealflow wasn’t there to facilitate the conversations.
Did you have a positive experience communicating with buyers? Please detail why or why not.
Yes, we had great conversations with everyone.
Did you feel the buyers were appropriately vetted before you were introduced to them?
Not so sure about that. Nathan knew just a few details about Skylar before we spoke with him. I knew more about Bjork, –but Nathan was disadvantaged in that Bjork and I were already acquainted. Of the other potential buyers that we never spoke with, it seemed like most of the information that was passed on to me came from LinkedIn profiles.
After most of the conference calls, buyers asked additional follow up questions and made requests for additional financial and business reports. Describe your experience preparing the information they requested.
I was fine to continue supplying these. It was just time-consuming.
Would you have done anything differently regarding the conference calls?
Do you have any tips for a business owner who is about to engage in conference calls with buyers?
Just be yourself and try to connect with the buyer. Personality makes a big difference when making such a big decision.
Between weeks 7 and 8 of your business being actively marketed you received multiple offers and had several other buyers seriously interested. The first offer was for $175k (42% of the original asking price). This buyer asked a lot of questions requiring your input and requested several reports which required a lot of your time.
What were you feeling when your broker informed you of the offer? Were you discouraged, did you feel optimistic due to the other interested buyers, were you worried, etc.
I actually don’t remember this offer, so I must’ve not considered it very in-depth.
Due to the low offer we received and the lack of other serious interest at this time, we decided to lower the asking price by 5% in the hopes of garnering more interest.
Shortly after the price reduction, you received increased interest and secured a buyer, who had expressed interest in acquiring your business early on.
This buyer made a formal offer (offer 2) to acquire FeastDesignCo. The offer was above the original asking price. It entailed a 50% cash payment due at close with the remaining 50% financed over several years.
What did you think about this offer initially? Did you have concerns about the structure? Were you pleased with the overall purchase price?
The price was very enticing, but that was offset by the uneasy risk of only getting a 50% payout upfront. The remaining 50% was dependent upon the buyer’s performance, which made me uncomfortable.
Why did you ultimately decide to accept this offer?
Ultimately, it was the only reasonable offer on the table and I had already disinvested myself from Feast, so I had to make that decision if I wanted Feast to survive. I was ready to put the company in new hands. While the payout structure wasn’t incredible, the full purchase price would be helpful to me. I consulted with legal counsel and worked out payment terms I could be comfortable with. I was then able to see that Skylar’s expertise was exactly what Feast needed to continue growing.
Were you concerned about your anticipated timeline to close the deal?
I was hoping to close as quickly as possible. Legal matters extended our timeline even further, ( such as international buyer and extended payout terms).
While you were considering offer 2, another buyer expressed interest whom you knew and had worked with previously.
This buyer, who after several weeks of discussions with you, conference calls as well as document and /report requests, ultimately decided not to make an offer for your business. We postponed accepting offer 2, from the eventual buyer, in order to fully vet this new buyer.
Describe how this made you feel.
Bjork’s company and Feast would have been a match made in heaven. Unfortunately, Bjork went to outside sources to get information about Feast, rather than speaking with me or Nathan, and he was given information that caused him to back out. Jealousy runs deep when your company has been on top for as long as mine has. And that got in the way. I wish that I felt more open to communicate with Bjork myself and alleviate his fears. I don’t think he truly believed we had another offer on the table, especially above asking. Therefore he thought he had more time to make a decision.
In retrospect, would you have done anything differently?
Yes, I would have spoken with Bjork myself and kept a line of communication open with him.
Would you have accepted offer 2 sooner if you had the opportunity to do it again?
Do you have any regrets about the offer you accepted?
You eventually decided to move forward with the offer 2 (50% down / 50% financed), and began working with the buyer on finalizing the LOI (Letter of Intent) agreement. After six weeks of negotiations and numerous iterations of the agreement, the LOI was executed.
What were the hang-ups with the LOI? Why did it take so long to agree on the terms?
Honestly, I still have no clue. Lack of communication? After communicating directly with Skylar and making it clear that I didn’t have any more time to invest in this process, we were able to get the LOI executed.
What was going through your mind during this time? Were there moments when you thought the deal was going to fall apart?
Several times. We couldn’t come to agreeable terms and both of our lawyers kept making rounds of changes to our agreement. Every time we thought we were close to signing, they’d bring up something new. It was quite frustrating. In the end, I’m happy with the agreement we have and I’m glad we both had representation to protect our interests. They thought of things we’d never consider. And now it’s smooth sailing because those details were handled before the sale.
Why did you persist? Did you ever consider backing out?
Yes. I was ready to walk away several times. If Skylar was unwilling to agree to certain terms that would protect me in the repayment process, I didn’t have an option but to walk away. There was a minimum financial need that had to be met before I could sell my main source of income.
What did you learn from this experience with the contract negotiation?
It takes 6 times as long as you think it will! And there’s a lot of back and forth. Ultimately, legal representation was very expensive and I wish I had considered that upfront. But I will never go through this process again without a lawyer from the start.
Do you have any tips for future business owners looking to exit their business?
Consider the costs; the broker fees, escrow fees, legal fees, taxes, time investment, and mental and emotional exhaustion. If it’s still worth it to you after all of that, then it will be so rewarding!
5. Due Diligence
Did you ever meet the buyer in-person?
6. Purchase Agreement
The final legal document, the Asset Purchase Agreement (APA), was finalized November 30th, four weeks after the LOI was completed. The first draft was sent out for the buyer’s review on October 27th.
The agreement was finalized on December 1, 2017.
While negotiating and finalizing the APA you had several concerns. These included provisions regarding the payments of the financed portion of the purchase price, governing body of jurisdiction applied to the APA, and the escrow payment vehicle.
Did you anticipate any of these challenges?
No, but I’m glad my lawyer did.
Did you ultimately feel comfortable with how the negotiations concluded?
Ultimately, both the buyer and seller employed legal services to finalize the APA and escrow payment.
Do you feel that legal counsel’s delayed or progressed the closing process and timeline?
Delayed. But it wouldn’t have happened at all without them.
Had the buyer not sought counsel, would you have still sought legal assistance during this phase?
Yes, because it was an international sale with extended payment terms.
What advice would you provide a business owner in your position?
Get a lawyer.
Your broker reduced Dealflow’s commission fee by 20% to help compensate for the unexpected legal costs during this phase. How did this make you feel?
It was reduced to 12% from 15% and I believe the intent was to keep me in the process because I asked to stop the process on 10/24. After getting the process back on track, and after the reduction, I did mention that it would help with legal fees.
7. Escrow / Asset Transfer
You provided an asset transfer document that you and the buyer used to keep track of all of the assets to be transferred.
How long did the transfer take?
One evening for me to transfer everything. I think it took a couple of days for Skylar to verify everything.
Did any complications or obstacles arise during the asset transfer phase? If so, please detail.
Things went smoothly with our checklist.
Would you have done anything different?
What advice would you give to a business owner about to encounter the asset transfer phase of the sales process?
Use a collaborative tool to keep track of what’s been done and what’s left to do. Keep things simple.
The sale officially closed on December 1st, 2017., This was approximately 5 months after the business was initially listed for sale publically.
Did the length of time from listing to close align with your original expectations? Why or /why not?
No, it took much longer than expected. I thought it would be sold and transferred within a month.
Would you have done anything differently? If so, what?
I would have tried to communicate more myself rather than rely on the broker as much. I would have taken more control over the process earlier on.
The payment did not go through one of the neutral third-party escrow services Dealflow partners with. Instead, the buyer chose to use his legal counsel as the escrow agent.
Did this have any impact on the closing process?
Yes, it made things easier for us and saved some money.
How did this make you feel initially? Did you have any concerns?
If so, what made you ultimately feel comfortable and agreeable to these terms?
We trusted our attorneys to handle the funds transfer, so that worked well for us.
If you could do it again, would you insist on using a neutral third party escrow service like Escrow.com? Why or why not?
Do you have any tips for a business owner deciding where and how to set up escrow?
Work with an attorney who is familiar with this process.
It has been 6 months since you officially sold Feast Design. You agreed to a number of training and support obligations.
What post-sale training and support terms were agreed to in the purchase agreement?
I agreed to remain available for three months after the sale. My involvement was more intense early on, but Skylar made his best attempts to set me free as soon as possible.
Provide and overview of the training and support you have provided the buyer post-sale.
Just a couple of calls, some guidance on github and HelpScout, email consultations, etc.
How many hours did you spend helping the new owner the first week after sale vs week 2, 3, 4, 5, 6, etc?
Do you have any contact with the new owner now? If so, how often? How much time per week is spent communicating with the new owner?
Occasionally, we’ll email to check in with each other.
Do you anticipate continued interactions with the new owner 6 months from now?
Yes, I am invested in the success of the business, so I’ll continue to support the new owner as much as possible.
Have there been any complications or issues that you are aware of? If so, please describe.
I would say the only complication would involve changes in policies. These had to be done, so I wouldn’t say they’re necessarily negative. But it means that customers are getting reacquainted with the new culture of Feast and Skylar is building a new team to support his venture.
Were the post-sale training and support in-line with your expectations before you sold the business? Explain why or why not.
Yes. I gave Skylar what I could and directed him towards resources that would help him learn the rest.
How is the business performing?
As far as I know, the business is performing similarly to last year. Feast may be recovering some sales from StudioPress, but Foodie remains the #1 seller at studiopress.com. Skylar is launching some new products and offerings, which is exciting.
Is there any advice you can offer a business owner specific to preparing for post-sale training and support?
I think it all depends on who the buyer is and what they’re personality is like. In our case, Skylar is very confident in his own abilities and didn’t need much from me, so it worked out well.
50% of the purchase price is being seller financed.
Provide a brief overview of the payment terms agreed to in the APA.
45% of revenue is paid to me monthly as part of the repayment terms until the remaining balance is satisfied. At the end of two years, the full remaining balance is due regardless of revenue.
Has the buyer made timely payments up to this point?
Do you feel all terms have been upheld by the buyer up to this point?
Do you have any concern about receiving the full amount of payments?
Looking at the process overall, is there anything you would have done anything differently?
Of the eight phases, which was the easiest? Hardest? Most time-consuming?
Easiest was getting started, we had –lots of energy, motivation, excitement. Hardest was closing, –getting all of the agreeable terms and finalizing everything.