In the past year, we have seen growth of buyers outpace the growth of sellers (at least for the good businesses) This is especially true for businesses making less than $100K per year.
The three main buyers of Ecommerce businesses we see are:
Boutique private equity companies.
Small investment firms have popped up with increasing frequency over the past few years. They raise anywhere from $2 million to $10 million from investors. Then they’ll acquire a portfolio of businesses, streamline the operations and use their expertise to scale the businesses.
They are typically focused on businesses upwards of $1 MM and likely won’t be interested in businesses making less than $500k / yr.
There are a good number of people who see the appeal of the digital entrepreneur lifestyle. Typically these are people with a finance or engineering background who see the value in owning a small business and would rather work 3 hours per week and spend time with their family than pursue their current career.
In addition, many buyers based in the US are eligible to use assets from qualified retirement accounts to purchase businesses. At Upward Exits, we always go the extra step to help buyers explore financing options. This also helps the seller get cash offers and higher valuations.
Current ecommerce owners
We see a number of folks who are already running ecommerce businesses purchase additional businesses to expand their product offering. Often times they already have a fulfillment process, marketing process and customer service teams in place. This means that they may only increase their workload 1-2 hrs. / week and can get a great return on their investment.
We have also seen a good number of Amazon sellers purchase ecommerce businesses with the intent adding Amazon as a sales channel. This may present a lucrative growth opportunity for the purchaser.
If you are entertaining the thought of buying or selling your ecommerce business but you’re not sure what the standard valuation are, have a look at our Ecommerce Valuation Multiples article to learn more.
How Do I Sell my Ecommerce Business?
How Long Will My Business Take to Sell?
The ecommerce marketplace has stayed somewhat stagnant for the past 12-18 months, while we have seen a meaningful increase in the number of Amazon, lead generation and affiliate businesses on the marketplace. It is still true with ecommerce businesses and with other digital assets that the smaller the businesses (priced < $250K) sell faster than the larger ones.
This is because the lower end of the market often sells to buyers who are experts in their field and can greatly increase the profits of these small businesses in a short period of time. Sellers of larger businesses (over $500K) often find that it takes a while to find an appropriate offer with cash that is able to close.
Aside from size of the business, the main factors that will make it sell more quickly are”
Diversified traffic sources
This could either mean that the seller has an employee or team of employees that run the business. Or, the business operations are streamlined enough so as to not need much attention from the seller.
3 or more years old
Will I Get A Cash Offer For My Ecommerce Business?
Cash is king, always has been and always will be. For businesses under $250K, many transactions close for 100% cash or for a very simple deal that results in the seller getting cash within 3-6 months of closing. For the larger businesses, only 15-25% will close for cash offers. Your chances of getting a cash offer greatly increase if your business has been around for more than 3 years and if your have clean books and records. Having US based tax returns for your business is also a plus as it will allow some qualified buyers to get SBA acquisition loans. These situations are beneficial to both the buyer and the seller.
In addition to cash offers, there are a couple other deal structures that we see periodically, they are:
A hold back means that a portion of the agreed upon purchase price is not paid at the time of close. Instead, the cash is held by the seller until the business meets some agreed upon criteria. This criteria can be as simple as 30 hours of training by the seller, or can be revenue based such as the business needing to hit $100K in revenue.
An earnout provision typically states that the seller gets a cash payment at close and a percentage of revenue or profit if the business performs very well over the coming 12-18 months.
This structure is typically used for businesses that are rapidly growing. The buyer is able to keep a portion of the upside and the seller mitigates some of their risk by getting a slightly lower purchase price.
Ecommerce Business Brokers
At Upward Exits, we work with buyers and sellers of digital businesses. We have deliberately decided to keep a small staff and be selective on the deals that we take. We aim to provide a true white glove experience with knowledgeable professionals in lieu of hiring a staff of 40 and taking every deal that comes our way.
If you are interested in selling your business, we hope to be your first stop. You can fill out our Ecommerce Valuation Calculator and we can get in touch with you to give you a preliminary valuation on your business, get introduced and answer any questions you may have about the process. If we don’t have the capacity to serve a you at this time, we will be happy to point you in the direction of one of our capable competitors.