I last spoke with Mark Daoust in late 2022. His company, Quiet Light, a digital business brokerage, had just witnessed a post-pandemic hangover from cheap money and to the rise of e-commerce. A normal acquisition market had returned.
We connected again last week. I asked him for an update on the state of buying and selling e-commerce businesses.
No one is more qualified for this update than Daoust. His firm has grown since its creation in 2007 and now has 13 full-time advisors ā all former entrepreneurs ā who, with Daoust, have collectively experienced the frenzy of the markets and vice versa.
The full audio of our conversation is embedded below. The transcript is edited for length and clarity.
Kerry Murdock: What is the state of mergers and acquisitions in the e-commerce sector at the end of 2023?
Marc Daoust: The theme of the year was more or less the same. Transaction flow remained stable during the year from 2022.
The pandemic has been very good for the acquisitions industry, as it has been for many e-commerce businesses, including aggregators Amazon.
This trend began to slow on both fronts in the middle of last year. Pandemic-related spending began to decline and the rush to aggregators began to stabilize. We’ve seen a pullback from the record levels of 2021. Over the last 18 months or so it’s been pretty stable – no major changes – maybe a slight cooling of the market, but nothing too alarming.
Murdock: Last year you said that 2021 was unusual in terms of huge volumes and prices.
Daoust: Yes. 2021 has been such an abnormal market. It was incredibly hot. I used the analogy of driving a car very fast and then returning to normal speed. It seems slow.
I have been selling digital businesses since 2007. The market we are in now is normal or maybe a little down, but not at all alarming. Just slightly cooled.
Murdock: Can you cite one or two deals from this year as an example?
Daoust: Of course. We’ve had a number of great e-commerce deals over the past year. One of them was a site selling patriotic gear and clothing. It sold at a healthy multiple of 4x EBITA, excluding inventory and working capital. It was a bigger, seven-figure deal. Apparel continues to be pretty solid overall. A number of transactions in 2023 involved clothing.
Sports and leisure niches continue to attract buyers. Popular niches don’t change much when comparing strong markets to bear markets. Consumables such as tea, coffee, makeup, health and beauty are good examples, as are, again, leisure niches such as pets and gaming. These still have a strong buyer’s market.
Murdock: You mentioned Amazon aggregators. Do Amazon-centric businesses have the same acquisition demand as branded e-commerce sites?
Daoust: Amazon is the expectation of many buyers. But it depends on the category. There is certainly a subset of buyers who are very interested in businesses selling on Shopify, BigCommerce, WooCommerce, and other platforms. There are fewer of these companies for sale, so it’s a little harder to find these opportunities. But there is a critical mass of buyers for non-Amazon merchants to support a good price.
Murdock: ChatGBT has taken the world by storm in 2023. Has this impacted e-commerce acquisitions?
Daoust: Not really.
Murdock: Let’s say I own a business selling primarily on my ecommerce site and a few other channels. My annual income is $3 million. I’m thinking of selling it. What should I do?
Daoust: My advice is to always talk to a knowledgeable person to get a sense of the demand for your business and the levers that affect value. It’s not as simple as just assigning a multiple of, say, 3.5 to the company. Will buyers be excited? What will scare them? We are still seeing good activity on the buyer side.
Last year, weaker companies didn’t move as fast as stronger ones. This always happens after a boom. In the 2021 rush, people bought everything they could because they had raised so much money with a warrant.
If I had a business like you describe, looking ahead to 2024, it is essential to have a realistic assessment of how buyers would assess risks and opportunities. Can the company triple in size in the coming years? Is it easily transferable? Are the books and records clean and reliable?
Murdock: Do buyers evaluate a seller’s specific technologies and tools?
Daoust: It’s rare to go into this level of detail. Sometimes a buyer has expertise on a particular platform. And the technical setup can be a drawback if it’s too obscure or seems difficult to use. But there is no impact as long as the seller uses a major, well-supported platform.
Murdock: Is financing available for buyers of e-commerce businesses?
Daoust: Yes. A good percentage of our transactions are carried out with external financing. It’s available. Rates are higher, but banks and other lenders want to make deals. For example, in 2023, approximately 20% of our transactions used SBA financing.
Murdock: What are the acquisition prospects for 2024?
Daoust: I expect a shift in the market next year with more activity than we have seen over the past 18 months. Iām looking into a crystal ball here ā I could be wrong. But over the years I’ve developed a sense of building dams, and that seems to be the case now, both on the sellers’ and buyers’ side.
Many buyers were waiting to deploy their cash. On the seller side, with the decline of aggregators and overall economic uncertainty, many sellers have positioned themselves for an exit.
We’re hearing from owners wanting to get into the market in 2024, so I expect the market to ease a bit next year with more transactions.
However, the big caveat concerns the US elections, which could slow things down. I’ve seen this over the years with midterm elections and especially with presidential elections. So I anticipate that some buyers and sellers from July to November will adopt a wait-and-see mindset. Then, regardless of the outcome, people tend to relax 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.