I last spoke with Mark Daoust in late 2022. His firm, Quiet Light, a digital business brokerage, had just witnessed a post-pandemic hangover from cheap money and booming ecommerce. A normal acquisition market had returned.
We connected again last week. I asked him for an update on the state of buying and selling ecommerce companies.
No one is more qualified for that update than Daoust. His firm has grown from its founding in 2007 to 13 full-time advisors — all former entrepreneurs — who, with Daoust, have collectively experienced frenzied markets and the opposite.
The entire audio of our conversation is embedded below. The transcript is edited for length and clarity.
Kerry Murdock: What is the state of ecommerce mergers and acquisitions in late 2023?
Mark Daoust: The theme of the year has been more of the same. Deal flow has been flat during the year from 2022.
The pandemic for the acquisitions industry was very good — as it was for a lot of ecommerce businesses, including the Amazon aggregators.
That began to slow down on both fronts during the middle of last year. The pandemic spending started to dwindle, and the aggregator rush started to level off. We saw a pullback from the record levels of 2021. For about the last 18 months, it’s been fairly steady — no big changes — maybe a slight cooling of the market, but nothing too alarming.
Murdock: Last year you stated 2021 was unusual in terms of huge volumes and prices.
Daoust: Yes. 2021 was such an abnormal market. It was incredibly red hot. I’ve used the analogy of driving a car very fast and then returning to a normal speed. It feels slow.
I’ve been selling digital businesses since 2007. The market we’re in now is normal or perhaps a bit down, but not alarming by any means. Just slightly cooled.
Murdock: Can you cite a deal or two from this year as examples?
Daoust: Sure. We’ve had a number of good ecommerce deals over the last year. One was a site selling patriotic gear and apparel. It sold for a healthy multiple of 4 times EBITA, excluding inventory and working capital. It was a larger deal, mid-seven figures. Apparel continues to be pretty strong overall. A number of deals in 2023 involved apparel.
Sports and hobby niches continue to attract buyers. The popular niches don’t change much when we look at strong versus down markets. Consumables such as teas, coffees, makeup, and health and beauty are good examples, as are, again, hobby niches such as pets and games. Those always have a strong buyer market.
Murdock: You mentioned Amazon aggregators. Do Amazon-focused businesses have the same acquisition demand as branded ecommerce sites?
Daoust: Amazon is the expectation by a lot of acquirers. But depends on the category. Certainly there’s a subset of buyers very interested in businesses selling on Shopify, BigCommerce, WooCommerce, and other platforms. There are fewer of those businesses for sale, so it’s a little harder to find those opportunities. But there’s a critical mass of buyers for non-Amazon merchants to support a good price.
Murdock: ChatGBT took the world by storm in 2023. Did it impact ecommerce acquisitions?
Daoust: Not really.
Murdock: Say I own a business selling mainly on my ecommerce site and a few other channels. My annual revenue is $3 million. I’m thinking about selling it. What should I do?
Daoust: My advice is always to talk to somebody knowledgeable to get a sense of demand for your company and the levers that affect value. It’s not as simple as just throwing a multiple of, say, 3.5 on the business. Are buyers going to be excited? What will scare them? We’re still seeing a good amount of buy-side activity.
Last year, weaker businesses were not moving as fast as the stronger ones. That always happens after a boom. During the 2021 rush, people bought anything they could because they had raised so much money with a mandate to acquire.
If I had a business as you describe, moving into 2024, it’s critical to have a realistic assessment of how buyers would evaluate risk and opportunities. Can the business triple in size over the next few years? Is it easily transferrable? Are the books and records clean and reliable?
Murdock: Do buyers assess a seller’s specific technologies and tools?
Daoust: It’s uncommon to get into that level of detail. Occasionally a buyer has expertise in a particular platform. And the tech setup can be a drawback if it’s too obscure or looks difficult to operate. But there’s no impact so long as the seller uses a major platform that’s well-supported.
Murdock: Is funding available to buyers of ecommerce companies?
Daoust: Yes. A good percentage of our deals happen with outside funding. It’s available. Rates are higher, but banks and other lenders want to do deals. For example, in 2023 roughly 20% of our deals have used SBA financing.
Murdock: What’s the acquisition outlook for 2024?
Daoust: I expect a shift in the market next year with more activity than we’ve seen in the past 18 months. I’m looking into a crystal ball here — I may be mistaken. But over the years I’ve developed a sense of dams building, and that seems to be the case now both on the sell and buy sides.
A lot of buyers have been sitting on cash, waiting to deploy it. On the sell side, with the decline of the aggregators and the overall economic uncertainty, many sellers have been positioning themselves for an exit.
We’re hearing from owners wanting to go to market in 2024. So I’m anticipating the market to loosen up a bit next year with more deals happening.
However, the giant caveat is the U.S. election, which could slow things down. I’ve seen this over the years with midterms and especially with presidential elections. So I anticipate some buyers and sellers in July through November to adopt a wait-and-see mindset. Then, regardless of the outcome, folks tend to loosen up and move on with their lives.
Murdock: How can owners or investors get in touch?
Daoust: Our site is QuietLight.com. They can also email me. I love talking about the market.
