T12 Business Acquisition Template

Description
When acquiring e-commerce businesses, especially with leverage, prospective buyers often focus on the trailing twelve months (T12) and trailing three months (T3) financial data. These metrics provide insight into the business's performance over the past year and quarter, which are crucial for informed decision-making. Let's explore how this works. The below points were all taken into account when building this acquisition template.


1. Understanding T12 and T3 Metrics

• Trailing Twelve Months (T12): This represents the last twelve months of financial data for a business. It provides a comprehensive look at the business’s annual performance, including potential seasonal fluctuations and overall trends.
• Trailing Three Months (T3): This represents the last three months of financial data. It provides a more immediate snapshot of the business's recent performance, which can highlight recent trends, changes, or anomalies.

2. Analyzing the Metrics
When evaluating T12 and T3 data, several key financial metrics are considered:

• Revenue: Assessing the revenue for both T12 and T3 helps determine whether the business is growing, stable, or declining. An increasing T3 revenue compared to T12 can indicate recent growth.
• Gross Margin: This shows the profitability after direct costs. Consistent or improving gross margins in both T12 and T3 indicate stable or improving profitability.
• Operating Expenses: Understanding operating costs helps evaluate the business's efficiency. A significant increase in T3 operating expenses might signal operational issues.
• Net Income: This is the bottom line after all expenses. Positive T12 and T3 net income suggests profitability, while contrasting trends can indicate recent changes in profitability.

3. Using Leverage
Leverage involves using borrowed capital to finance the acquisition. It's commonly used in:

• Leveraged Buyouts (LBOs): In an LBO, the acquisition is financed primarily with debt. The business's future cash flows are expected to service the debt.
• Seller Financing: The seller provides financing for part of the purchase price, reducing the need for external financing.
• Key Considerations for Leveraged Acquisitions:
• Cash Flow: It's crucial to ensure that the business's cash flow, particularly in T12 and T3, can support the debt repayments.
• Debt Service Coverage Ratio (DSCR): This ratio compares operating income to debt service. A DSCR above 1 indicates that the business generates enough income to cover its debt obligations.
• Interest Rates and Terms: The terms of the borrowed capital, including interest rates and repayment schedules, directly impact the affordability of the leverage.

4. Decision-Making
Using T12 and T3 data, potential buyers should:

• Evaluate Trends: Compare the T12 and T3 data to identify trends. Consistent growth or stability in revenue and profitability across both periods indicates a healthy business.
• Assess Risks: Identify potential risks, such as declining sales or increasing expenses in the T3 data.
• Project Future Performance: Use the historical data to project future performance, ensuring the business can sustain leveraged financing.

5. Conclusion
Acquiring e-commerce businesses using leverage requires careful analysis of both T12 and T3 data to assess the business's health and future prospects. By focusing on key financial metrics, evaluating leverage options, and understanding potential risks, buyers can make informed decisions that align with their strategic and financial goals.



This template is also included in three bundles:

• Industry-Specific
• All Models Bundle
• Joint Venture Waterfalls