Sean Frank@Seanfrank
Everything you need to know to sell your brand:
Ecom valuations are going to rise again in the next 24 months.
Here is everything you need to know if you want to make money during this window.
1- How are companies valued?
Almost everything will be sold on a multiple of earnings.
If you are small, you will use "Seller discretionary earnings". The money you as an owner can take every year.
If you are bigger, it will be a multiple of EBITDA.
Right now, a mid growth brand (growing 20%), in an average category (clothing, not beverage), with a solid team and clean financials, with 10 million in trialing 12 month EBITDA could get 8x-10x.
That means they will sell for 80 million to 100 million.
What makes the multiple go down?
- not at all time high revenue (shrunk one year)
- weak margin / too discount focused
- bad channel mix (too amazon, too wholesale)
- platform risk (tik tok shop)
- tariff risk (all china)
What makes the multiple go up?
- good product mix (multiple hero items)
- very diversified revenue (omni)
- best in class margin
- very strong LTV
- HIGH MER
But this brand will not trade on REVENUE.
If someone told you that, they lied to you or are old.
PE buys profit.
The only things trading on revenue will be beverage or the most elite CPG. Gruns could get a rev deal done.
Ridge cant.
But valuations, multiples, will continue to go up.
why?
2- Interest rates are coming down.
SAAS is being crushed.
All this money needs to seek a return and ecom/brands/cpg have been suppressed for a while.
It is a natural ebb and flow-
Dollars are going to come in, valuations are going to go up.
Covid highs we would see this appeal brand go for 10-14x EBITDA.
In 2022-2025 the lows got as bad as 4x.
So we have already recovered a lot from the low, but we are still 50% off the peak.
Do I think we will see 20x EBITDA deals again?
Or 3x revenue deals?
no.
But I think the asset class is still underpriced and will turn out to be pretty ai resilient.
3- Understand timing and terms.
Part of the rise in valuations will be doing deals on forward looking projections.
The past 4 years every deal was being done on trailing 12 months.
I suspect in the next 12 months, more deals will be done on forward or current year numbers.
SO doing a deal in June, but getting credit for the projected ebitda for the entire fiscal year.
The flip of this, in the past 4 years most deals have been very preditorary.
Lots of coupons, dividends, participation snuck in.
I saw deals being done at 10x EBITDA, but its a minority deal where the buyer basically is guanreteed a 4x on their money...
Someone was buying 25% of something but getting so many protections its like they owned th3 whole thing.
Thats all going to go away
4- Hire help.
If you are small use a broker or a lawyer.
For 50k a lawyer can save your ass on a 3 million dollar deal.
If you are bigger, 3-5m in ebitda and up, hire a banker
they will charge 1-5% of the entire deal, but every banker pays for themselves.
they will find more buyers, tighten the screws, and guarantee a deal closes
also- if you want to sell, dont miss the window.
the windows are open 2 years every 6 years.
Eventually everything goes to shit and you gotta wait out the bad times
anyway-
this is actually a series and this is part 1 of 5 suckers
see you soon
