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eCommerce Valuation

Posted by Dipen Mengar in Articles


Recently, we have had a number of clients come to us in hopes of finding a resource to put a value on their eCommerce Company – namely a particular website and/or Amazon Company they operate. Many of these business owners have never spoken to a business broker, intermediary or investment banker – they simply worked hard on building their Tech or Internet Company and now it’s time to think about exiting the business.

Putting a value on an eCommerce company requires a much different analysis and approach than, say, a Brick & Mortar company. And most business brokers are not involved in, nor do they have any idea how to begin the process of selling, a website, Internet Company, Amazon Seller Central Account or any other variation of an Internet Company operating in the digital space. This is why it’s important that business owners look for those intermediaries that operate directly in their space for advice, consultation and exit strategy assistance. These brokers are often referred to as Internet Business Brokers., and its sister company, ValleyBiggs, each have a strong foothold in this sector, both from a perspective of Small-to-Medium-Sized businesses as well as Mid-Market Internet and Tech companies. Our brokers only sell Tech, eCommerce and Internet Companies, and since we’ve sold hundreds of companies, our experience is vast and measurable.

When we begin the process of discussing valuation on an eCommerce Business, as with all companies looking to exit, we first begin with financials. Since 2011, the retail eCommerce space has seen a spike in exit activity from startups specializing in products they manufacture, to those that sell a number of manufacturer’s goods. Over the same period, the range of exit valuation multiples for private retail tech companies has varied from, on average, between 2.5X to 7X Discretionary Income.

While there are cases of multiples going outside this “standard range”, the typical eCommerce transaction falls somewhere in this range. And while EBITDA is often used when identifying the multiple for a strike price, EBITDA is not the norm for privately-held sellers. The more accurate multiplier is based on Seller’s Discretionary Income, which is arrived at by going through the seller’s Income Statement and identifying the company’s cash flow PLUS any add backs to income – in other words, any personal expenses built into the P/L that a buyer would not have as an expense of the company.

Placing an eCommerce company at the top of the 2.5-7X multiple range is key, and that is where a solid intermediary comes into play. A broker that is unaware of the industry, or how a particular kind of business works will find it very difficult to see the key features of a business that make it stand out, and just as important, the kinds of features that internet entrepreneurs are looking for in an acquisition target. For this reason, it is critical that business owners do their due diligence on the right brokerage to represent their company at market. Someone who doesn’t just look at financials and peg you at a 3 times multiple, and someone who can talk the talk with not only smart, sophisticated buyers, but also the lending institutions that are likely to be involved in the process.

Every business we sell is different. Different attributes, different founding principles, different marketing tactics and different opportunities for growth. However, the one thing that all of them have in common is that we were able to achieve over “normal” market rates for their companies because we could both coach them on selling at the right time, and because we know how to put a value on companies by bringing out the distinct features they hold.

You owe it to yourself to give us a call. We don’t charge anything – in fact we never get paid until we sell your company. But we spend a lot of time on the phone with entrepreneurs, and virtually all of them come back to us when it’s time to sell.