The ecommerce landscape has shifted dramatically in recent years, especially regarding mergers and acquisitions (M&A). Selling your business today is more complex than it was just a few years ago, and understanding the new dynamics is crucial for ecommerce entrepreneurs looking to exit. Recently, Yael Cabilly, co-founder of Fortunet, an investment bank specializing in ecommerce business sales, shared her insights on the evolving M&A landscape for ecommerce businesses and how sellers can prepare for a successful exit.
The Evolving Market for Ecommerce Exits
A few years back, most ecommerce exits were dominated by aggregators—firms that quickly scaled by acquiring dozens of brands in similar niches. However, the market has changed. Today, private equity firms, strategic buyers, and well-established ecommerce operators are more active, making it essential for sellers to know their potential buyers and how to appeal to them.
Yael emphasized that while aggregators are still in the game, a large portion of today’s transactions are with private equity firms and strategic buyers. Strategic buyers, for instance, seek brands that complement their existing portfolios, looking for synergies that can boost their current operations. Meanwhile, private equity firms focus on scalability, growth potential, and strong financial performance.
Key Factors that Drive High Valuations
To maximize the value of your ecommerce business, understanding the key factors that drive high valuations is crucial:
- Recurring Revenue Models: Businesses with subscription models or other forms of recurring revenue streams are beautiful to buyers. Predictable revenue reduces risk and allows for more accurate forecasting and planning. If your business can develop a subscription model or any recurring revenue component, it could significantly increase your valuation.
- Product Differentiation and Innovation: Brands with unique, patented products or innovative features stand out in the market. Yael shared an example of a kitchen brand with design patents on multiple products and a dedicated team constantly innovating. Such differentiation drives premium valuations and appeals to buyers looking for unique products that are challenging to replicate.
- Operational Excellence: A well-structured, efficient business is more accessible for buyers to integrate. This includes having a competent team, streamlined operations, and robust supply chain management. Yael noted that businesses with strong operational frameworks are more likely to receive better offers, as buyers are confident in their ability to continue growing post-acquisition.
Steps to Get Your Business Ready for a Sale
Preparing for a sale isn’t a last-minute effort—it requires deliberate planning and execution. Here are some practical steps that Yael recommends for ecommerce entrepreneurs:
- Conduct a Comprehensive Business Assessment: Start by evaluating your financial health. Understand your profitability, margins, and growth trends. Compare these metrics against industry benchmarks to see where you stand.
- Prepare for Due Diligence: Begin the due diligence process early by getting your financials, trademarks, and legal documentation in order. Seller Accountant has helped countless ecommerce businesses create due diligence-ready, investor-grade financials for a successful exit.
- Engage Potential Buyers Early: Building relationships with potential buyers well before you are ready to sell can give you valuable insights into what they are looking for. Some buyers make pre-emptive offers if they see strong potential in your business.
- Create a Strong Narrative: Buyers need to understand your brand’s growth potential and how it fits with their strategy. Articulate a compelling story about your business, its successes, and the opportunities for future growth.
Start Planning for a Strategic Exit Today
Selling your ecommerce business is one of the most significant decisions you’ll make as an entrepreneur, and being prepared can make all the difference in securing a favorable deal. Understanding what buyers value—such as recurring revenue, differentiation, and operational efficiency—is crucial as the landscape shifts. At Seller Accountant, we specialize in helping ecommerce sellers optimize their financials and business strategies to align with the expectations of today’s market.
If you’re thinking about an exit, contact us to see how we can help you prepare for a successful and strategic sale. For more insights, listen to the full podcast episode here.