Ecommerce due diligence for a mid-market private equity firm: is the target's online business real?
A mid-market Canadian private equity firm needed a clear view of the ecommerce readiness, management capability and size of prize of the companies it was evaluating. Looking Glass Group supported its due diligence on acquisition targets and then supported the portfolio companies after the deals closed.
The situation
Ecommerce performance is easy to overstate in a data room. A target can show online revenue that is really a distributor’s, a marketplace account that one departing employee runs from memory, or a growth curve built on a single promotion. The firm needed someone who had run these channels to say whether a target’s online business was real, whether the team running it could scale it and how much upside was actually available.
What we did
Size-of-prize assessments
For each target we sized the online opportunity in its categories on the relevant platforms, using category sales data, so the investment case rested on a market number rather than a management forecast.
Management capability reviews
We reviewed whether the people and the process behind the target’s online business could take it further: who owns the channel, how it is reported, what the listings and advertising look like from the outside and what would have to be hired or built.
Channel readiness evaluations
We evaluated how ready each target was to grow on Amazon, Wayfair and the other marketplaces: catalogue, content, pricing across channels, fulfillment and the account relationships in place.
Support after the deal
Once a transaction closed we supported the portfolio companies on the same questions, which is where diligence findings turn into a plan.
The result
Ongoing due diligence and portfolio company support across multiple transactions. The firm has an operator’s read on every ecommerce claim it evaluates, before and after close.
Why it worked
Diligence written by people who run marketplace accounts asks different questions from diligence written by analysts. It looks at attribution, review flow, buy box, price parity and who actually logs into Seller Central, because those are the things that decide whether next year’s number is achievable.
This is the assessment work described on our Marketplace Assessment page, applied to an acquisition rather than a brand’s own channel. If you are evaluating a company with an online business and want to know whether it is real, start there.
Related: Marketplace assessment · Beyond Amazon services · Amazon services
Key facts
- Client: a mid-market Canadian private equity firm (anonymous)
- Service: ecommerce due diligence and portfolio company support
- Scope: size-of-prize assessments, management capability reviews, channel readiness evaluations
- After close: ongoing support to the portfolio companies
- Engagement: ongoing, across multiple transactions