We enter 2011 with a sense of optimism with regards to mergers and acquisitions. We believe it will prove to be a good time to sell an internet business and although we see some systemic risks such as interest rate increases and continued slow credit availability, (Stay tuned for my colleague’s, 2011 forecast coming shortly). there are signs of a rebound in confidence in the marketplace resulting from a strong second half of 2010. Reports have shown ecommerce sales in the 4th quarter to be up over 13% compared to the 3% in traditional retail. There is a lot of money on the sidelines looking for great businesses to purchase or invest in at fair multiples. From a valuation perspective, its not 2006, its likely those days are gone for the foreseeable future. We’ve recovered from the doldrums of 2009 returning to sound valuation and deal structure models. The internet as a marketplace is maturing and with it so to are the metrics and methodologies that drive the value of a company.
With this in mind, we felt it good to start 2011 offering some tips to those considering selling their website business or technology company.
1) Clean Books – We can’t stress this enough. You need to be able to prove ALL revenues and expenses. Keep accurate records and set up your financial book keeping so that you can run monthly reports. The more detailed and documented your records the more likely you are to attract a favorable valuation.
2) Limit Add Backs – Everyone understands a small business may have certain expenses one the books of the company such as a vehicle or cell phone. Make an effort to limit this as a high percentage of add backs (termed such because we add back to net to reach an adjusted cash flow). Be able to provide a granular look at all expenses.
3) File your taxes – Make an effort to file on time or within a limited extension period. Tax returns will be requested as part of a due diligence process
4) Avoid large investments with pay back periods extending beyond your anticipated exit from the business. These large investments from which you will not reap the rewards of could possibly reduce the current valuation of your internet or technology business.
5) Review operations for effiency and make changes well in advance of selling your business. It’s much harder to capture additional value from buyers when these efforts have just begun. Plan ahead and you or your m&a advisor will be able to point out to buyers that as a result of these changes net profit margins have increased by x%. Historical P&L’s matter more than Pro Forma ones!
6) Review your marketing budget. Make an effort to really know your where your marketing dollars are going and what is successful and what is not. SEO, Conversion Rate Optimization (CRO) and social media, are hot buttons today. Look for opportunities to fine tune your marketing. Too often our clients seem to blast away in broad fashion in their marketing without spending more time on careful analysis of what generates the most ROI. The marketing budget should be a consistent percentage of gross revenues/sales year over year. Growth in top line revenues is great but growing your net margin percentage is fireworks to buyers eyes.
7) Review any vendor contracts for issues that could effect sale such as transferability
8) If your business relies heavily on a limited products or a single vendor review opportunities to expand into areas of synergy. Companies serving a niche market can receive premium valuation at times but if you are at the mercy of a single vendor that represents significant risk to a buyer. Often these types of changes may not be feasible but we suggest a review nonetheless.
9) Can the business survive and thrive without you? If the answer is no, you need to think of changes to insure it can, in other words be sure to implement an exit strategy. Email us to obtain iMerge Advisors’ Exit Strategy Planning Guide.
As an internet business broker we can tell you just about anything has some value in the market at some price point. The goal is to maximize valuation alongside attracting the maximum number of buyers.
Additional Tips for growth in 2011
7) Social Media – Make it a priority to engage social media if you haven’t already. Build a Facebook page and Twitter account. Start a blog and contribute to forums in your industry. Engaging your customers versus just selling them product is what today’s internet marketplace is about.
8) Become knowledgeable in Google Analytics or other traffic data tools. The more you know about your customers and visitors the better.
9) Review your site for keyword optimization. While a single keyword may be your industries largest traffic generator achieving placement on page one of Google may be unrealistic in the short run. Look for long tail key words that while drive less traffic individually, may in aggregate be fruitful and convert better.
10) There are so many changes in the internet marketplace today taking shape. Social Media, Mobile Commerce, Local Search, Performance Based Marketing etc… Be a “citizen of the industry” and don’t get caught standing still.