Click here to download our Q2 2024 eCommerce Brand Valuation Report
Click here to download our Q2 2024 eCommerce Brand Valuation Report

6 Factors That Drive eCommerce Valuations

6 Factors That Drive eCommerce Valuations

Blog Summary

This blog post provides insights into factors that drive eCommerce valuations for entrepreneurs considering an exit. The factors discussed include global M&A activity, eCommerce trends, public market comparables, eCommerce M&A activity, brand metrics, and deal dynamics. The post highlights the importance of understanding these factors to accurately evaluate a business, time the exit, attract the right buyer, negotiate the best offer, and successfully close the deal. The Fortia Group is also mentioned as an investment bank specializing in the eCommerce market that can assist entrepreneurs in achieving the best valuation and exit strategy.

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Key Takeaways From The eCommerce Acquiror Conference – NY 2024

January 23, 2024

Summary

Our 2024 eCommerce Acquiror Conference took place Jan 16th in New York, hosting eCommerce acquirors and eCommerce operational experts from around the world. The agenda was to discuss key trends driving eCommerce valuations and discuss operational areas within eCommerce acquirors. We thank our title sponsor Airwallex and all our other sponsors for making this great event a success and we look forward to seeing you all and some new faces at our next annual eCommerce Acquiror Conference.

1.eCommerce Environment

Participants: Furhaan Khan at UBS, Bill Pecoriello, CEO at Consumer Edge.

Key Takeaways:

  • UBS and Consumer Edge kicked off discussions reviewing the macro landscape impacting eCommerce valuations.
  • Based on public company comparables, eCommerce valuations have softened. Consumers spend is forecasted to transition from post covid high sectors such as travel however consumer spend in general remains subdued by caution towards inflation and interest rates.
  • Medium view (2025-2027) is that M&A volumes will be expected to increase once again as inflation starts to curb and the cost of capital stabilizes.

2.Acquirors

Participants:

Session 1 Panellists:

    • Philipp Triebel, CEO at SellerX.
    • Mark Goldfinger, VP of Growth at unybrands.
    • Ben Cogan, Co-Founder at Agora.
  • Insight provided separately by Tushar Ahluwalia, CEO of Razor, who have a successful record in consolidation of aggregators [Stryze & Valoreo].

 

Session 2 Panellists:

  • WTB Co-CEOs, Jaschar Hupperth and Nicolai von Enzberg.
  • Olsam Group Co-Founders: Ollie and Sam Horbye.

Key Takeaways:

  • Announcing 2 New Mergers Of Aggregators: The Fortia Group was proud to announce the merger of We The Brands and Mantaro Brands, two German based aggregators, a deal that The Fortia Group had been appointed M&A advisors.Weeks before the conference the eCommerce world learned about the successful merger between Olsam Group [UK based] and Dwarfs [NL based].It was noted that while these are logical strategic moves and something many in the aggregation space will be considering, these deals do take longer due to the complex nature of appeasing a larger group of shareholders. Deal timelines were from 6 to 12 months in duration.

 

  • Consolidation (MoA) and Acquisition Trends: Acquirors in the space are communicating more discussing topics and solutions to issued being created. Consolidation within the market is an important topic.The macro implications of cost of capital in the current environment consolidation are a lot more complex than straight M&A due to the fact they are share deals with limited cash changing hands.The main reason for consolidations are as follows:
    • Strengthening Balance Sheet
    • Scale
    • Cash
    • Leverage
    • Group EBITDA

 

  • Challenges of Market Conditions: Panellists discuss the challenges faced over the past year, including lower consumer spending due to inflation, pressure on margins, the rise in interest rates, and the general move towards a survival mode among companies.
  • Direct-to-Consumer (DTC) Focus: The preference for DTC over Amazon (FBA) due to control over customer data, customer support, marketing, and the overall customer experience (CX) is emphasized.Amazon remains a focus, but many are becoming more interested in diversifying into DTC or gain back more control through this channel, particularly as increasing Amazon operational fees are forecasted for 2024.

 

  • Integration of AI and Technology: eCommerce players have a range of tools available to help them achieve success in the markets.AI is delivering solutions for cost savings removing resource requirement on content, customer service benefits by reducing SLA’s pricing and demand planning.

 

3.Acquisitions

Participants: Alex Lukashov, CEO at Fintent, Muddy Mat, Johannes Rossner [on behalf of Alpin Loacker and BBG), Daniel Mc Carthy, Co-Founder at Theta, Paul Hanley, Co-Founder at The Fortia Group and Withum CPAs.

 

  • Our Shark Tank Brands Were A Big Success:
    • Introducing Muddy Mat – Impressive omnichannel pet brand coming to market in Q1 2024. Matthew, Andrew and Ikho gave a fantastic demo and financial performance overview of the brand.
    • Alpin Loacker – EU based tech hiking clothing and equipment omnichannel brand.
    • Berlin Brands Group – US portfolio. BBG wish to refocus efforts and as such are open to offers for their current US portfolio.

To learn more about any of the above deals, please contact The Fortia Group directly.

  • Daniel Mc Carthy, Co-Founder at Theta educated the crowd on valuations with this talk on “Uncovering Hidden Valuation Insight through Predictive Customer Value Analysis”, followed by a poll on current valuations observed in the market.

Poll no.1: What is the typical valuation range you are seeing for profitable Amazon FBA led brands?

  • Average valuation range: The average lower bound of the valuation range is approximately 2.86x, and the average upper bound is approximately 4.13x.
  • Lowest valuation range: The lowest valuation range given was 1x.
  • Highest valuation range: The highest valuation range provided was 8x
  • Please note all valuation ranges are EBITDA multiples.

Poll no.2: What is the typical valuation range you are seeing for DTC led brands?

  • Average valuation range: The average lower bound of the valuation range is approximately 3.78x, and the average upper bound is approximately 6.06x.
  • Lowest valuation range: The lowest valuation range given was 2x.
  • Highest valuation range: The highest valuation range provided was 12x.
  • Please note all valuation ranges are EBITDA multiples.

 

  • Paul Hanley, Co-Founder at The Fortia Group brought the audience through the firms new Buy-side diligence offering. The Fortia Group have been servicing investors and credit funds but are now formalizing their Buy-side diligence offering, a rapid initial target screen, to learn more please contact The Fortia Group directly.

 

 

04.Value Creation

Participants:

Will Holtz, Head of Operations at SourceMedium

Daniel Mc Carthy, Co-Founder at Theta

Robert Sperling, CEO at EastWest Basics

Rupesh Sanghavi, Founder & CEO at Ergode

Jim Stine, VP of sales at ShipPlug

Naseem Saloojee, Co-Founder at Carbon6

Kevin Fischer, President At KAPOQ

Bill Tauscher, CEO at Farallon Brands

Balaji Kolli Co-Founder at Saras Analytics

CFO Josh Holley at Bare Performance Nutrition

Jacob Cook, CEO at Tadpull

Heath Barnett, Head of SMB & Growth, North America at Airwallex

Jim Mann, VP of Europe at Getida

Ben Fletcher, CEO at The Mothership

Joseph Falcao, CFO at Orva

Shawn Dougherty, COO at Society Brands

Alex Urdea, Founder at Deep Ocean Partners

 

Key Takeaways:

  • Title sponsor Airwallex spoke about the important of localised payment options and how this was going to be crucial as part of a hyper-localised targeting strategy for eCommerce today and into the future.
  • Local payment methods accounted for 77% of transactions worldwide.
  • 44% of consumers are likely to trust online shop that offers their preferred payment methods.
  • The supply chain panel agreed that the rise of manufacturers going direct to the customer via marketplaces will continue to cause difficulties for eCommerce acquirors. It will be difficult to compete on price, however, as always obsessing over CX, branding and marketing strategy always have their place in combatting this type of competition.
  • A common theme throughout value creation talks were the importance of visiting and developing relationship with suppliers globally. Often this can open up different credit terms or cost efficiencies over time.
  • Predications for 2024 on supply chain were mixed as we move further from a covid container spike yet current situations in Suez Canal may continue to cause delays and additional cost.
  • KAPOQ and Carbon 6 explained that obsessing over performance metrics and investment benchmarking were crucial for brands and operators to double down on, with new Amazon marketplace fees forecasted to hit 2024, operators should be focusing on where they can make savings and efficiencies within the P&L.
  • CFO Josh Holley brought this to life with insight into how his brand, Bare Performance Nutrition are optimizing with data support and help from Saras Analytics.
  • Scrutinizing costs and ensuring you are setup for future success was a common theme, Bill Tauscher at Farallon Brands explained the importance of agility in retail, the role of eCommerce and marketplaces, and a view on timing when discussing growth plans with big retail.
  • Conference Partners Jake Cook, CEO at Tadpull and Daniel Mc Carthy, Co-Founder at Theta discussed the importance of understanding and using data sets to help with prediction analysis or growth forecasting.

 

Poll no.3: What is your top financial and operational priorities for 2024?

  • Become cashflow positive: 45%
  • Increase corporate EBITDA margins: 23%
  • Revenue growth: 13%
  • Reduce leverage: 12%
  • Improve inventory turns: 7%

Poll no.4: What is your target for corporate EBITDA by end of 2024?

  • Unprofitable: 0%
  • 1-5% margins : 20%
  • 6-10% margins: 10%
  • 11-15% margins: 60%
  • 16-20% margins: 10%

Poll no.5: What will drive the biggest valuation (profit multiple on exit / listing) of aggregators?

  • Financial profile e.g. corporate EBITDA margin: 15%
  • Brands: revenue quantum, growth, net margins: 54%
  • Being truly omnichannel: 8%
  • Tech & Data competence: 0%
  • Scale efficiencies: 8%
  • Other: 1%

 

Need some comments from the finance and operations panel.

Need a comment from an investor in the space [ don’t name Alex Udea].

Need success stories comment, don’t need too much detail on that.

 

We thank all our sponsors, without them conferences like this would not be possible. We look forward to working closely with you all throughout 2024.

  • Airwallex | ConferenceTitle Sponsor
  • BigCommerce
  • Carbon6
  • Eastwest Basics
  • Factored Quality
  • Getida
  • Grips
  • KAPOQ
  • Saras Analytics
  • ShipPlug
  • Withum

As we mentioned at the event, this will become an annual event, and together, we look forward to making the next one bigger and better.

 

Blog Summary

This blog post provides insights into factors that drive eCommerce valuations for entrepreneurs considering an exit. The factors discussed include global M&A activity, eCommerce trends, public market comparables, eCommerce M&A activity, brand metrics, and deal dynamics. The post highlights the importance of understanding these factors to accurately evaluate a business, time the exit, attract the right buyer, negotiate the best offer, and successfully close the deal. The Fortia Group is also mentioned as an investment bank specializing in the eCommerce market that can assist entrepreneurs in achieving the best valuation and exit strategy.

Read Time: 3 minutes

If you are an eCommerce entrepreneur considering an exit in the near-term, understanding the factors that impact the value of your business allows you to:

 

  1. Accurately evaluate your business.
  2. Best time your exit.
  3. Attract the right buyer: Each buying firm has a specific acquisition criteria. To pitch to the right firm you need to understand the valuation of your business.
  4. Aggressively negotiate the best offer (SDE/EBITDA multiple) within the bounds of the market.
  5. Close the deal.

In this post, we will look at six factors that drive eCommerce valuations.

 

These insights were taken from our quarterly eCommerce Valuation Report. Contact us at  exits@thefortiagroup.com to request the full report.

 

1. Global M&A Activity

There is a correlation between global deal activity and eCommerce M&A activity. Global volumes decreased in 2022 and Q1 2023 vs. Q4 2022. However, volume increased each month in Q1 2023. The outlook is positive, 62% of private equity professionals believe M&A activity will increase in 2023 vs. 2022.

 

2. eCommerce Trends

It has been a difficult period for the eCommerce sector which is reflected in the price performance of listed comparables. However, there are positives. For example, the post Covid hangover is complete implying that comparables are more favorable and declining freight costs will improve margins.

 

3. Public Market Comparables

eCommerce indices, DTC IPOs and DTC stocks have all declined significantly over the last 12 months. This is a difficult backdrop for valuations of unlisted eCommerce brands. For additional context, the revenue multiples of the 5 listed eCommerce brand aggregators ranges from 0.31x to 1.48x revenue.

 

4. eCommerce M&A Activity 

The peak of eCommerce deals and valuations was 2021. H2 2022 was quiet. However, there is increasing dealflow in 2023.

Three examples: i) the $26m acquisition of Belami eCommerce by SKYX for 6x EBITDA; ii) Victoria’s Secret $400m acquisition of Adore Me; and iii) the acquisition by an aggregator of Jayflex Fitness.

 

5. Brand Metrics 

Entrepreneurs have control over how they run their brand and the resulting metrics. The top financial metrics acquirors analyze when considering valuation are revenue, revenue growth, gross margin, net margin and trajectory of net margins. There are several operational metrics that vary from Direct-to-Consumer [DTC] and Fulfillment-by-Amazon [FBA] led brands.

 

6. Deal Dynamics

There are several dynamics that can influence valuation e.g. capital markets and aggregator funding, quantum of dry powder available to private equity, the specific situation of seller or acquiror, quality of advisor, deal marketing and distribution strategy, synergies, deal structure and valuation expectations of seller.

 

Valuation 

Valuations declined in 2022 due to factors outside the control of entrepreneurs (1-4 above). Today the typical range for a performing FBA led brand is 2x-4.5x SDE and 2x-10x EBITDA for DTC led brand. The valuation a brand gets within the range depends on how it scores in two areas (5, 6 above). Diamonds price above these ranges.

 

Note: Multiples include up-front and deferred consideration but exclude inventory.

 

Partner With The Fortia Group

As an Investment Bank that focuses specifically on the eCommerce lower and middle market, The Fortia Group differs from other firms and secures the best deal by:

  1. Offering an Exit Ready programme to prepare your business to go to market, even 1 –3 years out.
  2. Running a competitive auction with all the relevant buyers including PE firms, family offices and strategics to achieve the best valuation.

 

If  you are an eCommerce entrepreneur seeking to maximize your exit in 2023 or 2024, contact us today to explore the best exit strategy for you.

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