The e-commerce business with one supplier holding 60% of its costs
A strategic buyer was evaluating a direct-to-consumer electronics retailer at against .5M EBITDA — a 4x multiple. Shopify ran the storefront cleanly. 15,000 orders over 18 months, refund rate stable at 1.2%, fulfillment timestamps in place. Revenue and execution were governed. The story being sold was a clean, scalable e-commerce operation.
Revenue is verified. Margins are healthy. Customer base is stable. Proceed at asking.
The revenue story is real. The cost story has a single point of failure that nobody negotiated against. Reprice and require contractual protection before close.
Four of five lenses came back healthy. The fifth — cost commitments — surfaced a structural risk that quality of earnings work had not flagged: the entire margin profile depended on one supplier relationship with no contract behind it.
Three of twelve suppliers operated under written contracts. The remaining nine — including the one carrying 60% of cost of goods sold — operated on handshake terms, with prices and lead times that had drifted informally over years. The current owner had personal relationships with each. A change of ownership exposed the buyer to the risk that the dominant supplier could renegotiate, delay, or walk, with no contractual recourse and no alternative supplier qualified.
DVTA returned a REPRICE signal. The deal closed, but on materially different terms.
Final valuation came down from to .14M — a 14.2% adjustment reflecting concentrated supply chain risk. The buyer required written supply agreements with the top three suppliers as a condition of closing, plus a 6-month diversification plan to qualify a backup source for the dominant SKUs.
The seller agreed. The buyer acquired the business with the supply chain risk priced in and contractually contained.
A healthy P&L can hide a fragile supply chain. DVTA looks past the income statement to the operational dependencies that make those numbers possible — and surfaces them in time to be negotiated.