Revision Legal is a law firm focusing on e-commerce and internet law with deep experience in providing legal services with respect to mergers and acquisitions of e-commerce businesses. E-commerce is, of course, businesses that make money online. But that “online” aspect presents unique legal and practical challenges for e-commerce acquisitions. Any business acquisition requires a well-crafted purchase agreement and unique due diligence and attention to the sale consummation contingencies. If you need legal assistance with an e-commerce acquisition, call us here at Revision Legal. We have been legal counsel for one of the largest brokers of digital assets, to e-commerce aggregators, roll up funds, and holdcos. We have provided legal advice regarding the closing the sale for 100’s of online businesses and have handled all aspects of e-commerce business financing, including venture capital, debt, equity financing, and credit facilities.

The first question, of course, is whether the acquisition is an asset purchase or a purchase of the full business including its corporate form. There are advantages and disadvantages to each type of acquisition.

Further, a successful e-commerce acquisition requires careful attention to details, many of which are unique to e-commerce businesses. For example, if the e-commerce business uses a sales platform like Amazon, due diligence will be required with respect to the target business’ metrics and status with the online platform. This due diligence will be needed for each online platform utilized. Other due diligence matters include:

• Compliance with state of the art cybersecurity — including review of data storage and any loss of or unauthorized access to consumer data and/or business information (or attempted unauthorized access or theft)
• Status with respect to data collection, storage, use, sharing/selling, etc., including review of agreements with respect to same
• Compliance with various State and federal laws concerning consumer privacy, sale/sharing of personal information/data, etc.
• Status of social media influencer agreements (if any)
• Status of the e-commerce target business with respect to terminated merchant file/Match list
• Compliance with regulations promulgated by the Federal Trade Commission concerning advertising and deceptive business practices — compliance with State laws should also be addressed
• Proper registration and protection of domain names
• And more

Due diligence is also needed with more traditional matters that attend any purchase/sale of a business. These include:

• Status of trademark, trade secret, copyright and other IP — are registrations up-to-state and current?
• Actual or threatened litigation and/or regulatory investigations including potential IP infringement
• Compliance with State and federal labor laws for employees — for example, are notices and policies current and compliant?
• Review of all contractual agreements including employee, independent contractor, vendor, distributor, and supplier agreements including non-compete, non-disclosure and confidentiality agreements/provisions
• Review of licensing agreements
• Status of corporate books
• Status of assets (real or personal) to be transferred — whether collateralized or free from claims, etc.
• Review of tax-related matters including status of payroll taxes
• And more

Contact The E-Commerce Acquisition Attorneys At Revision Legal

For more information, contact the experienced E-Commerce Acquisition Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.

Purchase Price Structure: Earnouts and Seller Financing

The purchase price in an e-commerce acquisition rarely consists of a single fixed amount paid in cash at closing. Sophisticated acquisitions frequently employ earnout provisions and seller financing. An earnout ties a portion of the purchase price to the target business’s post-closing financial performance — common in e-commerce acquisitions where buyers are uncertain whether the seller’s revenue performance will be replicated post-acquisition. Earnout provisions are among the most litigated elements of acquisition agreements. Key drafting issues include: defining the earnout metric (gross revenue, net revenue, EBITDA, or units sold); specifying the accounting methodology; addressing post-closing decisions by the buyer that could reduce the earnout; and specifying the earnout period and payment timing.

Seller financing — where the seller accepts a note for a portion of the purchase price — is common in smaller e-commerce acquisitions. The note terms (interest rate, repayment schedule, security interest in the acquired business, and acceleration upon default) require careful legal drafting to protect the seller’s repayment rights post-closing when the seller no longer has operational control.

Platform Risk: The Amazon Dependency Problem

A significant percentage of e-commerce businesses being acquired are Amazon FBA businesses whose revenue is substantially dependent on their seller account status. This creates a category of acquisition risk with no parallel in traditional business acquisitions: the risk that Amazon will suspend or terminate the seller account before or after closing. Account suspensions can occur for policy violations, performance metric failures, or intellectual property complaints, and can devastate revenue overnight.

Due diligence for an Amazon FBA acquisition must include a detailed review of the seller’s account health metrics (Order Defect Rate, Late Shipment Rate, Pre-Fulfillment Cancel Rate), the history of any policy warnings or past suspensions, the status of any active IP complaints filed against the seller, and the terms of any active advertising campaigns. The acquisition agreement should address what happens to the purchase price if the seller’s Amazon account is suspended or terminated within a defined post-closing period, and should include representations and warranties by the seller about account health and absence of known violations.

Intellectual Property Transfers in E-Commerce Acquisitions

An e-commerce acquisition is fundamentally an acquisition of digital assets: the brand, domain name, seller accounts, supplier relationships, and customer data. Each requires specific legal transfer mechanisms:

• Trademark assignments. Registered trademarks must be assigned via a written assignment recorded with the USPTO. Until recorded, the transfer is not effective against third parties. The assignment should be executed at closing and recorded promptly.
• Domain name transfers. Domain names are transferred through the registrar’s transfer process. The acquisition agreement should require the seller to initiate the transfer within a specified period after closing.
• Seller platform account transfers. Amazon, Walmart Marketplace, Shopify, and other platforms have specific policies governing account transfers. Amazon generally does not allow transfer of seller accounts — the buyer must create a new account and transfer inventory, ASIN ownership, and Brand Registry access. The acquisition timeline must account for the time required for platform compliance processes.
• Customer data transfer. Transfer of customer email lists, purchase history, and CRM data is subject to applicable privacy laws, including the CAN-SPAM Act, CCPA, and the privacy policy representations made to customers. The acquisition agreement should include representations about the legality of the customer data and restrictions on its use.

Revision Legal’s e-commerce acquisition attorneys provide end-to-end legal support for buyers and sellers of online businesses, from term sheet negotiation through post-closing integration. Contact us at (855) 473-8474.