Website Valuation in a Tough Economy
The last 6 weeks have been quite a shock to most Americans and people around the world. The economic upheavals have been monumental and without precedent. In our business as website business brokers, we have seen multiple deals fall apart or not move forward as a result of the uncertainty and fear in the marketplace. Of course, in any economic swing there will be people and businesses that reap massive profits and actually thrive. However, the vast majority of people and businesses feel the effects both financially and emotionally as a result of the meltdown on Wall St and now Main Street.
In this climate, there are definitely more sellers than active buyers in the internet business sales and acquisition field. The point is – is that there are buyers! These buyers are being extremely selective and cautious and are literally cherry picking the most attractive website business opportunities available providing the price is right. Sellers with online business opportunities that are stable or still growing despite the economic malaise because of the niche they are in, stand the best probability of consummating a deal in this period. The other sellers that will succeed in closing deals will be those that are more aggressive with their selling prices.
Just like in real estate, the seller that drops his price lower than the rest of the market gets more attention and sells quicker. If you hold out too long for a premium price or average price in volatile markets, you can find that you wind up selling for much less in the long term if things get even rougher.
A year ago, the average multiple on an average website business with solid fundamentals was 3-3.5 times the net trailing 12 month profit. In this global financial crisis, average sites are tending to be moving if they are priced between 2.0 – 2.5 times the trailing 12 months all cash at close. The selling price may be higher if more owner financing is involved, which, with the current credit crunch, has become more prevalent. The risks of a further down turn are tangible, so buyers are factoring this in when making offers. As I mentioned earlier, there will be lots of good deals to pick up for buyers with good capital reserves but buyers needing financing are just not able to secure the funds to get a deal done currently. The best opportunities will still get a better multiple on their business because they are able to thrive in this environment, but the pressure from the market means that it is a buyers marketplace and sellers will need to adjust their price expectations if they want to get acquired. The other choice is simply to ride this out and hope there is a quick turnaround later in 2009.