Unlocking Opportunities in Online Business M&A
In Flippa’s insights report, we dig into the data driving the world’s #1 marketplace to buy and sell online businesses. The report provides insight for both prospective acquirers and those looking to exit. We uncover the recent trends and opportunities that have shaped online business M&A over the last 6-months, from January to June 2023.
We delve into:
a) Trends that influence acquisition and exit multiples
b) Demand drivers
c) Average sales cycles
Whether you are a seasoned investor, an aspiring entrepreneur, or a business owner looking to capitalize on the thriving marketplace, this report will help you understand the current online business M&A market as we move into the tail end of the year.
Note: The data in this report is taken from sales that have occurred on the Flippa Marketplace from January to June 2023. For the purpose of the analysis we have looked at revenue generating assets and online businesses only, analyzing deals between $10 thousand and $10 million.
Online Business M&A Insights from January-June 2023
The start of 2023 showcased an interesting dynamic between macroeconomic challenges and resilient buyer intent. Despite a slight decrease in average profit multiples, a closer analysis revealed intriguing shifts in buyer preferences. This report aims to shed light on the factors influencing profit multiples, the rise of new and promising business categories, and the evident attraction that buyers have to well-established businesses with a proven track record.
We also explore the relationship between profit multiples, business age, and buyer appetite, offering valuable insights for sellers seeking to maximize their returns.
Additionally, we assess the average time it took to close deals and provide valuable takeaways for sellers navigating the market’s evolving dynamics.
A Slight Dip in Sales Amidst Record Buyer Demand
Flippa bucked the global trend and reported half-on-half increases in 2022 before a slight dip in the most recent half, January to June 2023, with deal numbers down 11% from 2592 to 2306.
While small businesses represent a distinct segment of the M&A market, the trends resemble those of the traditional M&A environment. As noted by Bain & Company, in their report titled M&A Midyear Report 2023: It Takes Two to Make a Market, overall global M&A value is down 44% in the first five months of 2023.
Notwithstanding the slight dip, we are forecasting a substantial increase in deal volume this upcoming half-year as a function of record buyer demand with an incredible 145,541 joining in prior the 6 months, increasing the total buyer pool to just over 2 million (up 7.59%).
Another leading indicator for deal numbers is messaging volume which increased 14.4% half-on-half. This surge can be attributed to both new buyers entering the marketplace and the release of Flippa’s AI buyer matching engine in early February. Messaging, among other activities, reflects buyer intent, and improves confidence that deal volumes will increase this half (July – December 2023).
Graph 1: Volume of Sales for Revenue Generating Assets from July 2021 to July 2023
This graph represents transactions of revenue generating assets across all business models and asset types including Ecommerce, Content / Advertising, Apps, SaaS and Emerging Models like Plugins, Podcasts, YouTube Channels and more.
Graph 2: Weekly Messaging as a Reflection of Platform Activity
The graph represents the number of absolute messages between buyers and sellers. Higher messaging volume is typically a reflection of marketplace liquidity and a leading indicator for deal numbers.
Who is Buying?
While companies and institutional buyers dominate higher value deals, accounting for 67% of all $1 million plus transactions, individuals characterized as Acquisition Entrepreneurs and Side Hustlers are dominating sub $1M transactions. These individuals represented ~63% of all deals sold between $250k – 1M and ~84% of all deals sold under $250k.
Table 1: Shows the percentage of transactions completed by each buyer type by two distinct price cohorts.
As expected, company buyers have higher budgets overall and will typically be buying to acquire revenue and fast track overall business growth. An example of this is Eagle Publishing, which acquired Day Trade Spy, a 13- year- old options trading resource for low 7-figures, to complement Eagle’s existing stable of wealth-building advisory products and resources.
|Buyer Type||Preferred Deal Size|
Flippa Success Story
From little things big things grow… The story of a Serbian DJ and 250 plus acquisitions.
Flippa’s global community of buyers and online business owners (see our ‘online business M&A IS global’ analysis below) continues to mature both as new buyers and business owners hit the marketplace but also as buyers evolve through the platform.
In Serbia, a professional DJ and PHP developer, started his journey on Flippa back in 2019. Since that time, he’s acquired 250 online businesses, averaging 5 deals monthly for nearly 5 years.
It all started with a humble $600 buy, but most recently, he has bought a wiki biography site for $61,000 (2.2x multiple) and a digital entrepreneurship blog for $102,000 (2.2x multiple) making his total transaction value greater than $800,000.
We’ve mapped his acquisition journey here –
Yes. Profit Multiples are Down… But Only Slightly
In the first half of 2023, the average profit multiple across the marketplace showed a slight decline compared to the previous half. This can be attributed to macroeconomic pressures and buyer confidence, with some buyers choosing to push harder on negotiations, referencing the 2022 slow-down in public market multiples and big tech valuations.
The reality is that they are quite different industries.
Public market and tech multiple are different to small business (sub $25M acquisitions). Why?
Big tech and public market valuations operate on a different scale and set of considerations compared to small business valuations, leading to lower multiples. Here’s why:
- Total Addressable Market (TAM): Big tech companies often target a vast global audience, giving them a massive Total Addressable Market (TAM). This potential for expansive growth justifies higher valuation multiples. In contrast, small businesses predominantly cater to smaller markets, which will often have limited growth potential, leading to more conservative valuations.
- Market Liquidity: Public markets offer high liquidity, meaning investors can easily buy or sell shares. This liquidity premium can inflate valuation multiples. Small businesses lack this level of liquidity, as selling a stake or the entire business can be a lengthy and complex process.
- Economies of Scale: Big tech companies benefit from economies of scale, allowing them to reduce costs and improve margins as they grow. This scalability is a significant factor in their high valuations. Small businesses might not have the same opportunity to scale, which can constrain their valuation multiples.
- Innovation and Disruption: Prominent tech companies often operate at the forefront of innovation, disrupting traditional industries and creating new markets. This potential to revolutionize sectors can lead to higher valuation expectations. Small businesses, while innovative in their own right, might not have the same industry-shaking impact.
- Diversified Revenue Streams: Large tech entities often have multiple revenue streams, spreading risk and increasing their resilience to market changes. Small businesses might rely on a narrower set of income sources, making them more vulnerable to market fluctuations.
Don’t mistake them. This is a different segment of M&A. Small business has never been overvalued and still today, this is an under-valued asset class. It’s crucial for investors and business owners to understand these differences and not erroneously tie small business valuations to public market or tech business multiples.
3.03x Multiple: The New Average.
Despite macroeconomic challenges, Flippa’s average deal multiple had in fact been increasing half-on-half, up until recently where we saw a decline, from a historic high of 3.2x (Second Half of 2022) down to a multiple of 3.03x during the first half of the year.
Obviously, averages can be misleading with outliers impacting the data set. Accordingly, we have provided a comprehensive table below, categorized by asset type and price range. This table offers insights into the potential range of minimum and maximum values, based on different asset types.
|New and Emerging||4.1||4.1||4.1|
|New and Emerging||0.1||0.7||5.0|
Best of breed –
- Trading-education.com sold for a 5.93x profit multiple, as a 6-year–old business showing profit 16x greater than the average of other content sites sold during the first half of 2023.
- Xandrox.com sold for 4.7x profit multiple. It was a 19-year-old site operating at a 96% gross profit margin.
- The highest multiple achieved for a Service business was 5x annual profit. The business was a growth marketing agency that sold for $2.7 million to a buyer based in Cyprus.
- Onboardible – practice management software for accountants – sold for 4.6x annual profit multiple.
- A 5-year-old privacy app with over 1 million downloads and outstanding daily active user rates sold for a 3.9x annual profit multiple.
- A growing influencer marketplace with world recognised corporate clients sold for 23x profit multiple
Ageism is Real
It’s like location in traditional real estate. Similar to how people gravitate to the best neighborhoods, age in small business M&A has a tremendous impact on the salability of an asset. In other words, your rocket ship 12-month-old company is less likely to appeal when compared to a consistently performing 5-year-old business. It’s the predictability and repeatability that investors in this asset class like a lot. They are just not looking for speculative assets.
During the first half of 2023, the average age of a sold business was just over 2.5 years, and in certain business models, like content and even across new and emerging asset types like plugins, podcasts, Facebook Groups etc, the average asset was ~4 years of age.
This is the impact – the mean profit multiple for a business aged under 3 years is 2.58x and for businesses over 3 years of age, the average profit multiple is 3.15x.
|Business Age||Profit Multiple|
|Over 3 years||3.15|
|Under 3 years||2.58|
Graph 3: Average Age by Business Type Represents each business model sold on Flippa and the average age for those assets that sell.
Time to Sell
In the first half of 2023, over 50% of all sold listings on Flippa found their buyer within 30 days of going live to market – in short, buyers move quickly.
Tip: First Access offers unique advantages, giving buyers a first look at each deal that goes live. Within two months of launch, 565 subscribers have become First Access members. Find out more here.
The analysis below breaks down the duration to finalize transactions based on price cohorts, revealing that lower value deals close quickest (as you would expect), with most deals sub $50,000 closing within 50 days of going live.
Flippa’s efficiency comes down to both buyer competitiveness as well as our recently launched AI matching tool which has increased deal speeds across the board.
Median closing time:
- Sub 50k deals – 15 days
- 50k – 250k deals – 49 days (~1.5 months)
- 250k plus – 73 days (~2.5 months)
A Global Network Representing 193 Countries.
The Flippa marketplace stands out as unique with buyers and sellers agreeing to do deals from thousands to millions, regardless of location or language.
- The Flippa marketplace represents buyers and business owners from 193 countries
- 67% of all deals occurred cross-border, marking this one of the most geographically and culturally diverse platforms on earth.
- The most geographically distant deal completed was one between a business owner in Spain and an investor / buyer in New Zealand. That’s 19,812 km apart and a challenging time difference to contend with.
This map represents cross border deals completed in the first half of 2023 with a line between buyer and seller for each deal.
Find Out How Much Your Online Business is Worth
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