2021 was historically strong for global mergers and acquisitions. Venture capital, IPOs, private investments, exits — all posted record levels across many industry verticals, including ecommerce.
But what about 2022? What is the current state of ecommerce acquisitions? Curious, I reached out to Mark Daoust. He’s a pioneer in ecommerce M&A, having launched Quiet Light, a brokerage, in 2007.
He and I recently discussed the current ecommerce acquisitions market and the outlook for 2023. Our entire audio conversation is embedded below. The transcript is edited for clarity and length.
Kerry Murdock: What is the state of ecommerce mergers and acquisitions?
Mark Daoust: It’s deceiving to look at 2022 because we naturally compare it to 2021, which was the best in history for M&A transactions. This year slowed a bit. Deals took a little longer. What I call “silly money” in 2021 became serious money in 2022, which is good.
Overall, the market has continued to be extraordinarily strong, especially compared to 2020 or 2019. A lot of buyers are looking for quality businesses.
We’ve completed nearly 100 deals this year in a wide range of niches and verticals — home decor, health and beauty, drop-ship — Amazon and non-Amazon.
The fitness industry continues to be strong, and the supplement industry is a love-it-or-hate-it sort of vertical when it comes to buyers, but we still see a lot of activity. Many sellers continue to self-fulfill versus outsourcing.
Murdock: What makes a business appealing to buyers?
Daoust: We look at what I call the four pillars of value: risk, growth, transferability, and documentation.
The risk profile addresses the areas of dependencies. Examples are top-selling SKUs and key personnel. What happens to the business if one or both of those go away?
Buyers analyze a business’s growth opportunities, including its product line.
The transferability of the business is important, too. Can a new owner easily take it over? Are there specialized knowledge, regulations, or other factors that may not transfer?
Last is documentation — the financial statements and other records. Buyers will conduct extensive due diligence. They need to trust the accuracy and completeness of those documents.
A seller should focus on those four items to maximize value.
Murdock: What’s a common mistake of sellers?
Daoust: It always comes back to the financials and documentation and not being prepared for the buyer’s research and diligence. Most business owners know these numbers instinctively. They know what’s important to them, but that doesn’t necessarily translate to what’s important to a prospective buyer.
Murdock: What do you see for ecommerce M&A in 2023?
Daoust: A slowdown in consumer spending might soften the acquisition market, although it hasn’t occurred thus far. I founded Quiet Light Brokerage in 2007. Then the Great Recession hit. But businesses were still sold and acquired throughout that period. The multiples were lower. The risk profile and funding sources were different, but business transactions were still occurring.
I’m anticipating quite a bit of acquisition activity in our space in 2023. A transition from a bull to a bear market can create disruptions, as the expectations of sellers and buyers diverge. But there are still acquirers who are well-funded and looking for good opportunities.
A fundamentally sound business — well run with good numbers — will always sell.
Murdock: Are aggregators still active?
Daoust: Yes, although they have slowed. I often remind people that acquisitions were happening before aggregators. We’re now completing acquisitions that last year would have gone to aggregators.
Aggregators are still buying companies. Many have paused or become more discerning. So that market seems to have cooled off. And it had to cool off. It was way too hot last year, unsustainable.
Murdock: Is funding available for acquirers?
Daoust: Yes. Small Business Administration funding, which guarantees bank loans, is the most common. We have a few of those deals pending as I speak, although SBA funding can be unpredictable in terms of timelines.
There are other funding providers. An example is Boopos.com. They’ve been an excellent partner. I wouldn’t be surprised if more lenders entered the market. It’s a good opportunity.
Murdock: Tell us about Quiet Light.
Daoust: I founded the business in 2007 after going through an exit myself. Our brokers are all former entrepreneurs who have bought, sold, or launched meaningful companies. About 80% of our transactions this year will be ecommerce. Our average deal size is roughly $2.5 million, although many are much higher. Quite a few are lower, in the six-figure territory.
Murdock: How can folks reach out?