Internet & eCommerce Valuations - ValleyBiggs

"Hello and welcome. ValleyBiggs is a boutique M&A firm focused on the representation of Middle Market Owners and Investors looking to exit their technology companies. Our intermediaries focus on target acquisitions with a purchase price of $1 Million and up. Our concentration is specific to the digital space, including Technology Companies, Internet Companies, Websites, Amazon companies, Ad Networks, Digital Marketing Firms, Software & App companies and much more.

Today we are going discuss Mid-Market Valuations. Obviously … companies and their investors are looking to maximize the purchase price of their company upon exit, and equally as obvious is the fact that as an incentivized M&A Firm, we are just as driven by price since we are paid to perform on a purely success-based scenario. So … the lower the price, the lower our commission. It is also important to note that there is a consistent battle and reoccurring theme that takes place between a Seller’s exit valuation and what the market is actually willing to bear. We regularly have people come to us and claim the sale of their company should be like a “Dutch auction” … with the spoils going to the highest bidder. This is not the reality … or healthy … for most M&A deals. In the end, the Market will dictate the price range, but a good intermediary will always drive that number to the top of the price range.

There are a lot of variables in play when placing a value on a digital company, and the first lies in funding. A company and its investors will not sell the company unless they can walk away with a payment at Closing that meets the entire board’s exit expectations. There are a number of ways to value a company. One way is to look at the company’s cash flow and create a purchase price multiple from that cash flow. Whether a Small Business or Enterprise Level company, many M&A transactions end up following this course.

Multiples for Middle Market companies can vary dramatically, based on the particular sector it operates within the digital space, and whether the kinds of factors investors and buyers are looking for are present. The key for buyers is to find an intermediary, like ValleyBiggs, that understands the marketplace, the technology being sold and the potential buyer pool in order to maximize the multiple. There are several factors that can influence a multiple.

One is, of course, positive metrics and trends. These would include mature middle market companies with tenure of 4 – 5 years or more, sales that are increasing at a double digit pace, operations in a sector that represents stability and longevity, and comparables in the marketplace. There can be negative influencers on multiples as well – things that should be addressed up front and prepared for in order to ensure the momentum of the deal continues forward despite the potential for such negative influence. Some of these include, selling products that are less than mainstream, a relatively short tenure, erratic sales,