Who Buys eCommerce Businesses?
In the past year, we have seen the growth of buyers outpace the growth of sellers, which means that valuation multiples have risen across the board. This is especially true for businesses doing over $500,000 in profit.
The three main buyers of eCommerce businesses we see are:
1. 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 $1M in profit and likely won’t be interested in businesses making less than $500,000 per year.
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2. Career Changers
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 three hours per week and spend time with their family rather than pursue their current career.
Many buyers U.S.-based are eligible to use assets from qualified retirement accounts to purchase businesses. At Raincather, we always go the extra step to help buyers explore financing options. This also helps the seller get cash offers and higher valuations.
3. Current eCommerce Owners
We see many people who are already running eCommerce businesses purchase additional businesses to expand their product offerings. They often have a pre-existing fulfillment process, marketing process, and customer service teams in place. This means that they may only increase their workload a couple of hours a week, and can see a great return on their investment.
We have also seen a good number of Amazon sellers purchase eCommerce businesses with the intent of adding Amazon as a sales channel. This may present a lucrative growth opportunity for the purchaser.
How Do I Sell My eCommerce Business?
If you are new to the idea of selling your eCommerce business, start by reading our article entitled How to Sell Your eCommerce Business. There are many moving parts to the process, but we aim to simplify the process greatly for our clients.
How Long Will My Business Take to Sell?
We have seen a meaningful increase in the number of Amazon, lead generation, and affiliate businesses on the marketplace.
Smaller eCommerce 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 can close. Aside from the size of the business, these main factors can help your digital business sell more quickly:
- Three or more years old
- Evergreen products
- Clean books
- Diversified traffic sources
- Passively run (meaning that the seller has an employee or team of employees that run the business. Or, the business operations are streamlined enough to not need much attention from the seller)
Will I Get A Cash Offer For My Ecommerce Business?
Cash is king. It 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 three years and if you 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 of other deal structures that we see periodically, they are:
A holdback 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. These 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 can keep a portion of the upside and the seller mitigates some of their risks by getting a slightly lower purchase price.
eCommerce Business Brokers
At Raincatcher, we work with buyers and sellers of digital businesses. We take the time to learn about your needs and your business, and we care to find the perfect fit for your business, whether that’s the right buyer or a period of time where you can build value today towards a sale date in the future. We aim to be your trusted partner alongside you on your selling journey.
If you are interested in selling your business, we are here to talk. You can contact the Raincatcher Digital Team directly here to set up a time. We also have a Pre-Score Valuation that can provide insights into where you stand regarding preparedness to leave and post eCommerce ownership.https://raincatcher.as.me/mark...
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