Who Should You Trust When Selling Your Online Business?

Written By Alex

The past few months have seen leading M&A advisors, curated marketplaces, and acquisition marketplaces, all sharing their insights on their performance and clients.

We’ve been lucky enough to take a look at the inside of businesses like MicroAcquire, Flippa, Empire Flippers, and FE International, all through avenues like blog posts, twitter threads, and formal reports. From the perspective of someone like a business owner looking for exit strategies, this kind of information can be invaluable.

Of course, looking at the marketplace experiences or M&A experiences is an important step to see what the best fit for your specific circumstances may be. Here are a few things you should keep in mind:

  • Is your business model being understood?
  • Do they have the experience to evaluate your business and marketplace?
  • Is an M&A advisor or marketplace necessary for you?
  • What kind of buyers are being represented? Are they applicable to your business in the long run?

Considering how much time and effort has been invested in your business, its important to ensure it doesn’t end up with the wrong management.

Here are some things to keep in mind, all of which has been pulled from information they volunteered themselves or from their competitors.

Are They Buyer Centric or Seller Centric?

Recall that M&A advisors and marketplaces will all involve differences in setup. Lets consider the biggest difference between acquisition marketplaces and advisory firms: Marketplaces focus on representing both buyers and sellers, but M&A advisors are only going to represent either a seller, or a buyer – not both.

As a result, marketplaces aren’t going to have a serious interest in the success of your business. In contrast, a quality M&A advisor will engage in significant legal, marketing, accounting, and due diligence investments during their process. Marketplaces will typically invest minimal input costs, but a solid M&A investor is going to be spend on ensuring and maximizing returns.

MicroAcquire is an acquisition marketplace that focuses on micro start-ups. There is a $290 yearly fee in order to access the platform with a premium experience, but this gets you a zero-fee selling experience. Apart from this, there are no additional services to sellers, and an emphasis on buyer experience instead. Due to the buyer subscriptions being the base of their revenue model, the platform doesn’t have any incentive to ensure that sellers close their deals. If you’re trying for that high multiple, MicroAcquire and other marketplaces like it may not be your top choice. MicroAcquire also appeared somewhat recently with the goal of competing against Flippa.

Flippa is quite similar to MicroAcquire, and also provides opportunities to upgrade for a price. Extra exposure can be obtained for an increase in price and an additional sales commission. Flippa also provides some services for buyers and asks 2.5% on successful sales. Note that this appears to amount to a conflict of interest, since Flippa is essentially collecting money on both ends of the same deal.

Empire Flippers is more of a curated marketplace. Buyers need to perform identity verification and verify that they have the requisite funds before participating. There is no listing fee – unlike many of their competitors. However, they will collect a fee when the business is sold, based on what the listing price was. EF claims to help get a big audience of buyers for your business, meaning it caters more to the needs of the seller experience, as opposed to Flippa or MicroAcquire. If owners are in the 5 to 6 figure range, this might be a good option to consider.

FE International is an M&A advisory firm. This means they will only work with sellers to help them through the process of negotiations, marketing, due diligence, auditing, and all the other ins and outs of an exit. FE takes on a more traditional strategy to find individuals and firms that might have high net worth, looking amongst their network of over 80k. Then, they aim to pitch one-on-one to secure the best possible terms for their clients. If your business is in the range of 6-8 figures, an approach that focuses on the seller may be what you’re looking for.

What Types of Businesses Do They Work With?

When looking for a marketplace or M&A advisor, something you should keep in mind is how much similar experience they have with similar deals. There can be major differences in online businesses, so just having worked with an online business doesn’t necessarily mean a wealth of experience in your particular area.

Note that the 2021 State of the Industry report from Empire Flippers reported a low number of SaaS Deals in the previous year. Specifically, they reference the boom in SaaS businesses in general, but the lack of appearance in their specific marketplace.

If you take a look at Flippa, you’ll find that most listings are in the e-commerce and content area, with very few SaaS businesses appearing in the mix. Obviously, finding an advisor who is well versed in your specific space will be crucial to selling your business.

Taking a look at FE International’s website will reveal that they list special experience in advising SaaS, content, and e-commerce business. They include testimonials from sellers in those relevant business models as well, some of whom work in Fulfillment by amazon, advertising content sites, subscription products, and more.

MIIcroAcquire tends to accept working with any level of online business, but they tend to take on relatively unprofitable ones. Some of their listings display revenues of $0.
Likewise, Flippa also accepts any domains or online businesses.

How Will They Value Your Business?

We all know how important an accurate valuation is. A valuation that is too low will put you at a disadvantage when looking for buyers. M&A advisors and marketplaces will also offer varying services, with multiples reflecting these strongly.

Flippa’s website claims that they will compare your inputs to thousands of similar sites that were also sold on Flippa, taking into account factors like age, category, and business model.

Empire Flippa reports using EBITDA each month to value businesses. Notably, it seems that valuing SaaS businesses has come with some difficulty. This is because a lot of SaaS founders hope to get a valuation that accounts for the future potential of their business and not based just on the profits they’ve already produced. This has proven to be a challenge, since its atypical for EF to value businesses based on their profit generating potential rather than their profits.

FE International has a track record when it comes to valuing all kinds of businesses. Since they have that experience, they use their collected data as a precedent alongside things like comparable sales analysis, revenue regression, historic price regression, and DCF modeling. Since FE has also worked with in-house experts, they have an extra wealth of experience. All of these factors combined contribute to an accurate and thorough valuation. FE actually claims a delta of 5.8% in between their selling and asking prices, as well as an impressive success rate at 94.1%.

Note: Flippa and MicroAcquire don’t offer valuation analyses.

How Successful Have They Been at Selling Your Type of Business?

Most of Empire Flipper’s 2020 growth was the result of Fulfilment by Amazon businesses, but they did see a significant amount of growth that year. However, this data seems to paint them as a “one trick pony”, since they didn’t conduct any SaaS deals during the entirety of 2020. They are not equipped to evaluate SaaS businesses, as mentioned in their 2021 report on the industry. Their track record portrays them as more of a lower to mid range FBA or e-commerce business marketplace. They also have some room in the content division, since they did see a modest 7% growth in 2020.

On the other hand, 2020 did appear to see an influx of sellers moving to M&A firms. One factor might have been a more difficult trading environment that year, making sellers hesitate to leave any value behind. Possibly as a result of this, FE International had significant gains in performance that year. This M&A firm reported an all time high in e-commerce, content, and SaaS acquisitions that year. This included an incredible 40% rise of SaaS acquisitions. They also reported a major rise in the number of offers per deal that year, reporting incredible demand for business that came to an average of 6-8 qualified offers on every deal. This doesn’t even factor in the number of unqualified offers, which played a large part in pushing up the multiples in general.

In contrast to the other discussions above, MicroAcquire doesn’t have a market report that we can examine for the kinds of businesses sold during 2020. They do have a publication on their website reporting a total of 300+ businesses sold at present. In addition, their CEO has tweeted that they have surpassed $450,000 in ARR, a figure that comes from their subscription fee model.

MicroAcquire is not in a position to bring in as much revenue as FE International and Empire Flippers, since they mostly work with deals on the lower end of the value spectrum. However, buyers searching for a business at the proof of concept or start up stage may find what they’re looking for at a location like MicroAcquire.

Flippa also failed to release a 2020 report, and has not reported any relevant information via their social media platforms.

Who Are Their Buyers?

Yes, there are going to be major differences in the types and quality of buyers you’ll find on various acquisition platforms.

Flippa reports over 300,000 buyers are currently registered, but they aren’t transparent on what criteria must be fulfilled to make a buyer eligible to make a transaction. At present, we’re only aware that buyers and sellers must go through ID verification in order to be registered. Flippa also offers the “Flippa Finder”, which provides first-time buyers with a consultation to clarify and outline what their goals are on the platform. This comes at a price of $50 with the addition of a 2.5% acquisition fee if a purchase is completed. Note that this does appear to be a conflict of interest, allowing Flippa to make a profit on each side of an acquisition.

MicroAcquire has reported 30,000 users on their platform so far, but out of those, only 1583 of them are subscribers, meaning they’ve paid a buyer subscription fee. This reveals that a mere 5.3% of their reported buyers may actually be qualified.

In addition, there is a $290 yearly fee that constitutes a fairly low-cost price to provide access to buyers – a level of access that takes place outside of a more formal environment with data rooms and etc. There are some IP and security concerns that come with this, especially with privacy being a major issue at present, and some question around how client data might be handled.

As a result, sellers are going to require a “middle man” at relevant levels of their acquisition/exit process. Its necessary to have legal and financial advice to ensure that sales are fair and in the seller’s interests.

At present, Empire Flippers report 190.7K active buyers and sellers. However, they haven’t shared a formal definition for what constitutes an “active” status. In addition, they haven’t clarified what percentage of their users are sellers or buyers. What they do provide is a report that their buyer network is worth more than one billion dollars of capital, which is likely a serious advantage on Flippa or MicroAcquire.

Empire Flipper does have a process of vetting their buyers, which starts with agreement to Empire Flipper’s Terms. Then, buyers need to provide ID verification and proof of their funds. All this must be completed prior to receiving any privileged info about sellers. Finally, buyers have a set number of “unlock uses” that they can use to see listings. This number will be set according to their liquidity.

FE International has divulged that they have a network of more than 80k buyers. They have provided information in their 2021 Outlook report on how their buyers undergo vetting before receiving any information about potential deals – based on their history and financials. Their report at the close of 2020 reports more than $20 billion of capital on their network, which is distributed amongst content and commerce.

However, a larger chunk of that capital belongs to SaaS buyers. FE International also keeps tabs on which buyers are high-end and consistent, meaning their sellers can rely on proven data. The advantage of having experienced buyers includes being used to vetting processes, legal procedures, data rooms, NDAs, and so forth. FE International appears to be a good fit for higher end acquisitions, more so than Empire Flippers, Flippa, and MicroAcquire.

What to take away from all this?

Businesses opportunities in tech are growing every day, and so are your options for selling those businesses. Decision fatigue is inevitable with all these options, but its most important to make sound choices given that all your options will come with pros and cons.

At the end of the day, you need a company that is trusted and has a proven track record of data behind their results. Don’t let your business become their testing ground.

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