M&A: Avoid Due Diligence Disaster When Buying and Selling Affiliate Businesses

New-breed buy and sell business marketplaces like Empire Flippers provide a level of transparency that is difficult to find elsewhere in the M&A space.

LOS ANGELES, CALIFORNIA, UNITED STATES, March 21, 2023 /EINPresswire.com/ -- TopRanked, an authoritative directory offering reviews of over 1000 affiliate programs, today revealed the biggest pitfalls awaiting buyers and sellers of affiliate businesses if they don’t get the vetting and due diligence process right.

“After 30 years in the affiliate industry, we’ve heard more than enough disaster stories from affiliate business buyers and sellers. And while some of these were unavoidable, like buying a travel niche business right as Covid-19 hit, many were simple cases of due diligence and vetting gone wrong,” said TopRanked founder Dom Einhorn.

For sellers, the most considerable risk identified by TopRanked was the high probability of deal abandonment by potential buyers. A typical scenario heard was that buyers would engage sellers in lengthy due diligence and negotiations, only to abandon the deal at a late stage for no apparent reason.

“Abandoning buyers come in all shapes and sizes,” said Einhorn. Indeed, even in large public company M&A deals, the rate of cancellation was forecast at 26% according to a 2018 study by S&P Global, with what we colloquially term “cold feet” being a leading factor cited as the cause of transactions failing to close.

Einhorn continued, “However, as the armies of lawyers and analysts fall away in proportion to deal size, the more insidious issue of time-wasting tire kickers becomes a real problem for sellers. This can be especially problematic when sellers find themselves pouring time and resources into dead deals, often at the cost of losing legitimate buyers.”

However, while non-committed buyers are a significant problem facing sellers, they still only count as a minority in causes for deal abandonment. A more significant problem TopRanked identified was buyers backing out due to sellers failing to clear due diligence, whether it was down to inappropriate or insufficient documentation, valuations misaligning with available audited information, or any number of other issues.

For buyers, the due diligence stakes are even higher, with the main risk being the potential to overpay for a business that ultimately fails to live up to the hype. Buyers also need to vet other business risks, such as whether they’re inheriting impending or ongoing lawsuits with the business.

TopRanked co-founder and COO Lucas Caneda said, “If one thing is clear to us, it’s that due diligence is a high-stakes game for business buyers and sellers. This highlights the importance of engaging a trusted third party as an intermediary in any transaction.”

To this, Einhorn added, “Unfortunately, we see many people putting too much confidence in marketplaces as trusted third parties. But as we reviewed the options out there, it became clear that many business-flipping marketplaces were acting as little more than dressed-up escrow agents.”

Among the online business marketplaces TopRanked reviewed, many did little more than make basic checks for business registration, domain ownership, and other surface-level verifications. Meanwhile, TopRanked also noted a prominent platform charging additional fees for due diligence reports in addition to its base platform listing and transaction-related fees.

“When all was said and done, the only online business marketplace that we could wholeheartedly recommend to both buyers and sellers was Empire Flippers. They’re the only platform we found that puts every business through a thorough vetting process before it is accepted onto the marketplace, ensuring that all documentation is in order and a fair valuation is given,” said Caneda.

However, while Empire Flippers does streamline due diligence by ensuring valuations and documentation are in order and well-aligned with expectations, buyers and sellers should be aware that no single platform can eliminate it entirely. Valuations and verification of business fundamentals only go so far, and it's ultimately up to the buyer and seller to ensure the finer points — such as strategic alignment, growth objectives, and monetization — are a match.

“Just because anyone can go and buy anything on Empire Flippers, from an Amazon FBA or dropshipping business to a display advertising or Amazon Associates business, doesn’t mean they should. While they will get a fair deal owing to Empire Flippers’ thorough vetting process, that can all fall apart if they aren’t qualified to run the business once they take possession of it,” said Einhorn.

Indeed, a study published in Harvard Business Review found that between 70 and 90 percent of successfully-completed business acquisitions fail once the new owners take control. The leading causes were largely down to acquirers not fully understanding the nature of the business they were buying into.

While there is no one-size fits all approach to this element, buyers should start by filtering opportunities by the business monetization model. Empire Flippers makes this easy with comprehensive marketplace filters covering everything from subscription models (SaaS, subscription boxes, etc.) and affiliate businesses to numerous Amazon programs (Associate, FBA, KDP, etc). They also offer an intuitive and easy-to-use Business Valuation Tool.

On this point, Caneda concludes, “While Empire Flippers will never alleviate the due diligence burden for buyers and sellers entirely, it does eliminate most of it. Further, its full ‘done-for-you’ service means buyers and sellers have access to brokers to help negotiate deals, along with full post-transaction support, making it the only online business marketplace I would recommend to friends, family, and associates.”

Dominique Einhorn
ChallengerX plc
+1 310-929-0760
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