Online Business Acquisitions (M&A) - AMA

[Y.B.]

Hey everyone,

It's been a very long time since I was active on this community but I still drop in from time to time to read some great posts and knowledge bombs here.

I've seen a few people post threads here asking about acquisitions, microacquisitions, etc.. so I thought I would jump in to do an AMA

I handle strategy and acquisitions for a company that just recently IPO'd on Nasdaq (small raise)

 

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[Johnny boy]

So you are responsible for acquiring other companies and bringing them into the company you are working for?

How many have you acquired? What was your role in acquiring those companies? Overseeing everything?

 

[GuestUser4aMPs1]

I handle strategy and acquisitions for a company that just recently IPO'd on Nasdaq (small raise)

Congrats.

1: What are the most important acquisition criteria for a company your size? I'm on the sell-side and most acquirers on the public market are only interested in cashflow, and evaluate based on EBITDA multiples. How much weight do you give non-tangibles, such as IP or other "strategic" attributes?

2: Do you source deals internally or seek the help of brokers, referrals, etc. for deal flow?

3: How many deals do you usually look at before you find something worth acquiring?

 

[Y.B.]

So you are responsible for acquiring other companies and bringing them into the company you are working for?

How many have you acquired? What was your role in acquiring those companies? Overseeing everything?

When we first started, we had a different business model. We would help acquire the businesses for investors and run them for a management fee. Over time, that model changed to where we would just acquire them for ourselves.

When we acquire them, we aren't rolling them up into 1 company or under 1 umbrella. We continue to operate them independently, although if it makes sense, we have no problem rolling up businesses together under 1 brand.

I handle the deal flow - so I find and review all the businesses for sale, help with the due diligence, negotiation on terms, work with lawyers on the asset purchase agreement, etc... I also help with the digital marketing strategy and also operate some of the businesses in our portfolio.

 

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[Y.B.]

Congrats.

1: What are the most important acquisition criteria for a company your size? I'm on the sell-side and most acquirers on the public market are only interested in cashflow, and evaluate based on EBITDA multiples. How much weight do you give non-tangibles, such as IP or other "strategic" attributes?

2: Do you source deals internally or seek the help of brokers, referrals, etc. for deal flow?

3: How many deals do you usually look at before you find something worth acquiring?

1. Yes we are one of those companies only interested in ebitda. We care about other intangibles but only if the ebitda is healthy. I see lots of companies for sale who have 6 or 7 figures in revenue, operating at a loss, have raised funding and are asking millions for their business. I doubt any of those actually get sold unless there is some crazy IP and a competitor wants to get their hands on it. We're not some VC backed company that is ok waiting 20 years to get back an astronomical return on our investment. We operate similar to other holding or roll-up companies that you've probably seen in the news (like Thrasio), but we don't focus exclusively on a specific traffic source like Amazon FBA.

2. I look on all major marketplaces and work with all the brokers to find deals. Additionally we do have some inbound leads from our website and I also do outreach as well.

3. It's a good question. I should probably keep better track of this. I'd say I probably look at 30-100 businesses before finding one or two I really like. I've looked at so many businesses now that I can spot issues pretty quickly with different things.

 

[jdm667]

1. Yes we are one of those companies only interested in ebitda. We care about other intangibles but only if the ebitda is healthy. I see lots of companies for sale who have 6 or 7 figures in revenue, operating at a loss, have raised funding and are asking millions for their business. I doubt any of those actually get sold unless there is some crazy IP and a competitor wants to get their hands on it. We're not some VC backed company that is ok waiting 20 years to get back an astronomical return on our investment. We operate similar to other holding or roll-up companies that you've probably seen in the news (like Thrasio), but we don't focus exclusively on a specific traffic source like Amazon FBA.

2. I look on all major marketplaces and work with all the brokers to find deals. Additionally we do have some inbound leads from our website and I also do outreach as well.

3. It's a good question. I should probably keep better track of this. I'd say I probably look at 30-100 businesses before finding one or two I really like. I've looked at so many businesses now that I can spot issues pretty quickly with different things.

What are the absolute deal-breakers for you (automatic "no" criteria) when you are looking at companies to acquire?

Do you have a minimum deal size? (e.g is it worth going through due diligence and getting lawyers involved for a biz worth $100k.)

 

[Y.B.]

What are the absolute deal-breakers for you (automatic "no" criteria) when you are looking at companies to acquire?

Do you have a minimum deal size? (e.g is it worth going through due diligence and getting lawyers involved for a biz worth $100k.)

Deal Breakers:
If a business is illegal or violates the terms of service (see these frequently)

We used to acquire content websites but have since stopped. Content sites (especially sites like Amazon affiliate sites) have one point of failure. If organic rankings/traffic drop, there is no way to make these sites profitable with paid traffic. So I won't even look at these businesses anymore. We don't buy Amazon FBA businesses either - too much risk putting everything in the hands of Amazon. We like businesses that have diversification of revenue and traffic.

Deal Size:
Ideally in the $1m-5m range

As a publicly traded company, we have to follow certain requirements that an individual/business doesn't need to follow so it's a bit different for us.

I've seen plenty of 6 figure transactions get done without lawyers involved. However, it's always helpful to have a lawyer create a contract (even if it's only for $100k) to make sure you are protected if something goes south.

 

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[GuestUser4aMPs1]

When we first started, we had a different business model. We would help acquire the businesses for investors and run them for a management fee. Over time, that model changed to where we would just acquire them for ourselves.

When we acquire them, we aren't rolling them up into 1 company or under 1 umbrella. We continue to operate them independently, although if it makes sense, we have no problem rolling up businesses together under 1 brand.

Interesting.

Do you hire operators / managers? If so what's the process look like?

What sort of incentives do you give an operator to perform, a % of the upside?

 

[Y.B.]

Interesting.

Do you hire operators / managers? If so what's the process look like?

What sort of incentives do you give an operator to perform, a % of the upside?

I'm not in HR so I don't have all the details around that. But when we acquire the business, we ideally acquire it with a full team in place and prefer to promote someone from within to step up as the operator. You don't always need to pay a % of upside to an operator. I personally don't see any reason to and would prefer to just hire someone on salary just like most employees.

 

[S.Y.]

1. Yes we are one of those companies only interested in ebitda. We care about other intangibles but only if the ebitda is healthy. I see lots of companies for sale who have 6 or 7 figures in revenue, operating at a loss, have raised funding and are asking millions for their business. I doubt any of those actually get sold unless there is some crazy IP and a competitor wants to get their hands on it. We're not some VC backed company that is ok waiting 20 years to get back an astronomical return on our investment. We operate similar to other holding or roll-up companies that you've probably seen in the news (like Thrasio), but we don't focus exclusively on a specific traffic source like Amazon FBA.

2. I look on all major marketplaces and work with all the brokers to find deals. Additionally we do have some inbound leads from our website and I also do outreach as well.

3. It's a good question. I should probably keep better track of this. I'd say I probably look at 30-100 businesses before finding one or two I really like. I've looked at so many businesses now that I can spot issues pretty quickly with different things.

for (2), if you look at the percentage of deals you find through online marketplaces, do they provide great companies to buy? Or should one assume that those companies are less attractive than ones that are not listed?

 

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[Y.B.]

for (2), if you look at the percentage of deals you find through online marketplaces, do they provide great companies to buy? Or should one assume that those companies are less attractive than ones that are not listed?

I wouldn't say necessarily assume a listed company is worse than a non-listed company.

You should however keep one thing in mind. A broker selling a business represents the seller only. He is incentivized to sell the business for as much money as possible. Brokers are fine with selling businesses that might be illegal or violate the terms of service of a company. The are fine with adding add-backs that should not be there and doing other things that help the seller maximize their sale price. They are not the buyers friend, they are the sellers friend.

Also remember a marketplace like flippa or microacquire lists all businesses for sale without a good verification system so marketplaces will have scams that (hopefully) won't make it through the checks that large brokerage companies do before they list. I see all kinds of scams especially on flippa so that's why should always do your due diligence in the acquisition phase.

The main advantage of buying a business off-market is that you might be able to get it at a better price/multiple than a listed business. Once a business is listed, it's aggregated across a large number of sites and newsletters so there's a lot more competition for a good business and it can sell for more than asking price if there is a lot of interested. With off-market deals, it's usually just you and the seller so you can sometimes find a good deal, be patient with negotiations, etc..

One thing I learned which is that the price listed for a business on a prospectus is not really the final price. So in legal language, the price there is not an offer to buy that business for that price.

 

[AppMan]

Hey everyone,

It's been a very long time since I was active on this community but I still drop in from time to time to read some great posts and knowledge bombs here.

I've seen a few people post threads here asking about acquisitions, microacquisitions, etc.. so I thought I would jump in to do an AMA

I handle strategy and acquisitions for a company that just recently IPO'd on Nasdaq (small raise)

Have you ever bought any business from Flippa that claim it generate income ?
What type of business is more easy to verify its numbers before buying ?

 

[Y.B.]

Have you ever bought any business from Flippa that claim it generate income ?
What type of business is more easy to verify its numbers before buying ?

No....Once in a while flippa might have something decent but overall their inventory isn't very good, often see illegal sites on there, scams, etc..

As far as verification - I suppose some might be easier to verify than others if the revenue is coming from a single source which you can track back to the payment provider and confirm with bank statements. However, there's always ways to cheat the "system".

For example, seller might be commingling income from multiple sources and claiming it came from one business. This is why it's always a good idea to have a lawyer and a contract, go through escrow, etc..

 

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