2015 was another hugely successful (and busy) year at FE International. We reached the significant milestone of 350 successful online business sales, which has been the result of 5 hard years of work to build a team filled with great people, investing heavily into market education and continuously improving both our proprietary systems and processes in order to provide the best possible service to our clients. No other broker sold more five, six and seven-figure online businesses than us and we hope to maintain our market leadership as the best website broker for years to come. With revenues of over $2M in 2015, we are well on track for our 10-year growth plan and are extremely proud of the steps taken and achievements made so far for the good of the industry as a whole.
In this post we’ll take a look at what happened in 2015 for sellers and the same for buyers. We’ve then made some predictions for 2016.
Views from the sell-side
2015 has been the busiest year we have ever seen, with over 3,000 inquiries from potential sellers, up 50% on 2014. To maintain the quality we are renowned for, we rejected over 95% of those leads and 75 were successfully sold.
We expect to see a steady increase in 2016 and we already have $5M in new pipeline inventory ready to list in January 2016 and beyond.
Reflecting on 2015
Read this in 5 seconds:
- 2015 has been the best year yet to sell
- Buyers less focused on a specific business model
- Demand in all niches
- Get in touch early in the process!
“I expect 2015 to be the best year yet for sellers. With more consistent and formal sales processes, well-funded buyers will continue to enter the space and look to acquire businesses through reputable brokerage firms. I expect to see even fewer fluctuations around multiples, with more buyers willing to pay good multiples for solid businesses, rather than taking the more risky route of buying privately (which very rarely benefits the seller).”
This prediction was on point. Through a combination of our ever-improving team, processes, and a rapidly growing buyer base, 2015 was a great year to sell an online business. With our proactive use of data from precedent sales and the huge increase in buyer demand, final sales multiples were closer to the initial listing price than ever before. We pride ourselves in setting realistic expectations and this will continue to be at the core of our long-term values.
“Buyers will also continue to improve their own infrastructures, teams, and knowledge, meaning an increasingly wide range of businesses become viable propositions (SaaS, e-commerce, large content sites requiring teams and so on).”
This also panned out as expected. We sold a wide range of businesses in 2015 including a number in spaces we had never specifically dealt with before (Amazon Kindle and Amazon FBA both come to mind).
With a limited supply of quality businesses for sale at any one time, buyers have been more creative with their acquisition strategies and have been more engaged in vertical integration rather than horizontal to capture value.
What about 2016?
Read this in 5 seconds:
- More established sellers divesting non-core assets
- Greater awareness and more buyers expected
- Exit planning as important as ever
- More SaaS, Amazon-based businesses, and content/AdSense sites
- Final thought: partner with a broker with experience in your business model to maintain high deal execution certainty as more buyers trigger bidding wars
2016 is an exciting year for FE International. Our team has almost doubled in size and our reputation as the industry leading SaaS broker continues to increase. Many of our exit-planning clients will be coming to market and we expect to service at least 50% more sellers than in 2015.
In 2016 we expect to see a number of established online business owners rebalance their portfolios by selling non-core assets to focus on their main businesses, much like Rob Walling did recently.
As the process of running a competitive process through a broker has proven to be more effective than selling privately (both faster and higher exit multiples), many will decide to use our services instead of going it alone, bringing a greater number of high-quality listings to the market. This means more awareness, more buyers and a greater pool of demand for all sellers.
Better prepared sellers
We have had a number of compliments about the quality of our content and how it has helped sellers prepare for a sale. Exit planning is not always an overnight process and we often work with clients for 6-12 months before hitting the market. Being patient and spending the time to get a business ready can be extremely lucrative as shown by a recent $700K listing that was worth less than $50k 12 months earlier! Exit planning often means higher offer multiples, more execution certainty and a quicker, less onerous sales process.
Going into 2016, more sellers than ever have been given the information required to improve and prepare their businesses ahead of a sale. If this isn’t the case for your business, that process should start today.
Business models: what to expect
2014 saw the emergence of SaaS as a business model with a liquid resale market. This continued in 2015, with private wealth individuals (sometimes backed by SBA lenders) and funds eager to snap up these businesses. These types of buyers are expected to increase in volume so SaaS owners should be prepared with clean financials and ample technical documentation. This will continue to be a focus for FE International in 2016 (and beyond) so expect far more exit planning and educational material for SaaS businesses in 2016.
We also expect Amazon-based businesses to be in high demand in 2016 after several successful affiliate and FBA business sales in Q4’15. The affiliate model has always been popular and Amazon seems to have a simple and hassle-free program for those operating content sites (versus more restrictive networks). FBA businesses are now also becoming more sought-after as an alternative to traditional drop ship or fulfillment e-commerce businesses due to the wide-scale online and offline appeal of the platform and again, the ease of use. Exit planning is vital and sellers should follow our simple guide to ensure value maximization at time of sale.
Finally, content businesses have seen a huge resurgence in Q4’15. Google did a great job in removing subpar content sites over the past few years and those that remained stable or improved after the fact have started to resurface as sale candidates. Sale multiples may remain slightly lower as the fear of another update will never go away, but it is expected that most updates will now be small and frequent which adds some confidence to the market. Each content business we listed in Q4’15 went under offer within a week (at asking) so there is plenty of demand out there.
With the supply of great businesses remaining relatively small it is extremely competitive for buyers looking to buy an online business. Buyers have to act fast, make a competitive offer and have the ability to close efficiently in order to be successful.
As more buyers enter the space there is a greater likelihood of bidding wars and buyers putting in higher than expected offers or exaggerating execution certainty in order to get ahead of others. This is only going to benefit sellers.
Sellers should make sure to partner with an experienced internet business broker who is most likely to meet your valuation goals with a very high success rate. We had a record 95% success rate in 2015 and are hoping to increase this in 2016, too.
Views from the buy-side
It has been another interesting year for the industry with many of the predictions made in 2014 coming to fruition, albeit in some cases to a greater extent than previously expected.
With our buyer list growing threefold in 2015 and more websites for sale, there are plenty of key takeaways for the buying community.
Reflecting on 2015
Read this in 5 seconds:
- 3x more buyers
- 34% more deals completed
- Still low volumes of quality inventory
- Escrow.com’s domain holding service has taken off
- Flight to quality brokers
Taking a look back to December 2014 here’s what I thought would happen.
“2015 will be another exciting year for our industry. I see volumes increasing right across the piste with more inventory coming to the market than ever before.”
Clearly a relatively safe bet to make. Each year with an increasing number of industry participants (brokers, advisors and finance partners) the market is getting larger. We’ve seen our deal volume rise c.40% YoY and we expect the same in 2016.
We’ve led the market in the number and quality of SaaS businesses coming to market in 2015 and we expect this to continue further in 2016. With quality deal flow still hard to find, we have seen more buyers than ever relying solely on our inventory for opportunities.
“I see rising awareness of the industry amongst alternative asset investors with more offline ‘baby-boomer’ types as well as more micro-cap private equity and family office investment funds coming in at the high six and seven-figure level.”
By far the largest constituent of FEI’s buyer network (now over 10,000 strong) is offline corporate/career individuals looking to invest into online businesses for passive or early-stage retirement income. Despite coming from non-technical backgrounds, this buyer group is quickly assimilating the knowledge and resources required to operate or part-operate an online business.
This isn’t surprising given we’ve been involved in educating this part of the market extensively through our recent Advanced Guide to Buying an Online Business and E-Commerce Guide. This is an ongoing strategy to popularize the asset class to the benefit of both buyers and sellers. Giving this industry a wider reach and by attempting to standardize the way businesses are bought and sold, we aim to develop both the reseller market for entrepreneurs and for investors looking to divest assets they are buying now in years to come.
“There will also be more creative deal structures than ever before as buyers realize there is scope to negotiate a better deal once they use their imaginations.”
On the whole this hasn’t taken off just yet. Investors seem to have a preference for more vanilla deal structures with upfront cash, owner financing and occasionally a risk-adjusting holdback.
We have seen a good adoption of Escrow’s domain name holding service which has given sellers more confidence in financed deals as there is a clear and efficient recourse process should buyers default on payments. This has been a huge step forward for the industry.
“I see more competition for brokers but there will be a concerted flight to quality as industry standards get better and sellers demand to work only with the firms that have the best brokers, give the most honest advice and have the best reputations.”
This has been borne out extensively. We spoke at Rhodium Weekend about the importance of buyers doing as much due diligence on the broker as they do on the listing they are looking at and I think that’s truer than ever.
There are many stories of buyers struggling with low-quality advisors and sometimes this has leaked into listing quality as well.
As a general rule of thumb some key questions I always suggest buyers ask include:
- How much experience does the broker have?
- What precedent transactions have they completed?
- What is their reputation like in the market and do they attend industry events?
- What is their infrastructure like? How many team members per listing?
With answers to these, buyers can feel more comfortable about moving on listings.
Looking to 2016
Read this in 5 seconds:
- Funds becoming more popular and well-organized
- The year of Amazon-based businesses?
- Debt funding likely to become a real option
- Buyers with complete execution platforms will succeed
It was a relatively quiet summer but an incredibly active Q4 and some interesting trends have started to emerge that will play out in 2016 and beyond.
Greater organization of capital, connections, and operational resources to leverage better deals.
It has taken a little time to arrive but as the industry has increased in sophistication, so too have the buyers and their acquisition strategies. Many investors are looking to collaborate either by pooling their funds or more deeply through sharing resources and contacts across the space.
Kevin Petersen seems to have started a trend with WebFolio Management and there are a number of other investment syndicates looking to mobilize capital in 2016.
This can only be a good thing for the industry. It will bring greater demand to high six and low seven-figure listings (often the desired acquisition targets of these funds) and increased sophistication in the deal execution process. It’s good for the buyers too who often are limited by their personal investment means and pooling enables purchases of otherwise unobtainable assets.
For those completely new to the space that elect to go down the passive return route, there are now options available for investing without the burden of day-to-day operational management.
SaaS, Amazon FBA or the year of something else?
Making predictions about the mix of supply in the market is usually tricky but we have a strong SaaS pipeline and expect this to continue to be our focus.
This year could also see FBA become prominent acquisition opportunity. Amazon spent a lot of time and money through 2011 to 2013 promoting marketplace sellers onto FBA (using Prime as the carrot) and now there is a wave of successful FBA businesses with the track record to come to market.
It’s an interesting development, particularly in light of the simplicity of the business model, and they’re likely to be well received by new and seasoned investors alike. We wrote a couple of pieces on how to sell an Amazon FBA business and how to buy an FBA business to help owners and investors when the time comes. There have been a few rumblings about the T&Cs of transferring but our experience (and from a meeting with Amazon reps) is that it is fine as long as the entire seller account is handed over at the point of sale and account information is changed out. This is an area where using the best website broker is invaluable.
Content sites could also be a surprise growth area next year also. It’s something of a debate in the office but we’ve all noticed traditional display advertising (i.e. AdSense) sites have been quiet this year and we think it’s been a mixture of “recover and hold” since 2014’s slew of Penguin and Panda updates and the slightly overstated but still meaningful impact of MobileGeddon this year.
With a smooth run in the second half of 2015, we have already started seeing a few sites come to market and sell very quickly (at asking price) so if this is an area of interest, be ready to move quickly. Multiples are still slightly below the market average so there is plenty of value to capture by buying now and holding for a few years until multiples fall in line with averages.
Emergence of debt funding for online business deals.
One the major liquidity drivers for the secondary market in offline businesses has been the provision of SBA-backed loans by major lending banks in the US. Until recently it was almost impossible to find a bank that would lend for online business acquisitions, citing the lack of tangible assets for use as collateral.
In recent months though we’ve established relationships with a number of online-friendly SBA partners that aim to provide debt financing for these opportunities. The rates are attractive (prime + 2.5%), the deposits relatively modest (15-25%) and the tenure favorable to the business’ cash flows (10 years).
They’re not without their obstacles, however. The loans require clean business tax returns (not often the case) and buyers with a strong financial profile and management experience. To be competitive in an offer process, it’s essential that buyers get pre-qualified with a banker.
Despite the hurdles, we are excited for the use of SBA on larger deals which will help those with $100K-$300K in the bank leverage up to the $1M mark.
We are excited with the recent addition of LendVo into online funding space. Co-founders Patrick and Ben are leading the path in becoming the alternative asset lender of choice and their 2-3 day approval times for loans of up to $100K will make them an effective source of liquidity in the $100-200K space, be that for bridge or full acquisition loan facilities. We have already successfully transacted with LendVo in 2015 and expect more in 2016.
Going into 2016, buyers are better positioned than ever. The amount of educational materials being published, quality of businesses coming to market and amount of fund syndication and financing options has never been better. The winners will be those that best position themselves for deal flow by working closely with reputable brokers and setting up their execution platform ahead of purchase.
It’s going to be a great year!
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