Acquire.com Office Hours - Feb 11, 2022

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Benjamin and Khalil, if you have questions that you want to submit, feel free to do so in the Q and A button at the bottom. And Paul, our in house M and a advisor and VP of M& A Marketplace. We'll be happy to answer those for you. Please post your questions now as we wait for people people to to join in and then we'll start addressing the questions within the next minute or so. We already got a good one. What is average exit multiple for marketing agency? And yes there are quite a few variables there but we can give a good answer to that one. Given this is going to be a smaller event, we'll have much more time to answer specific questions. So feel free to put your questions in the chat. No question is a bad question. Feel free to submit anything that you'd love to get Paul's assistance on. We're here to help.

Let me unmute Khalil right now and then ask a question.

Perfect.

How are you doing well, how are you?

Hello from Central Florida. Appreciate you guys time. Yes, I'm in the midst of just recently listed my my agency and want to get some idea on potential exit multiples. Of course there are a ton of variables like the infrastructure of the business of course, you know profitability and so forth but just want to kind of get an idea as I've seen a variety of ranges on multiples for a small and medium, you know for a small agency. So I've seen anywhere from something say 2x of earnings all the way up to 6x earnings. So just want to get an idea on what is kind of more of a middle of the road or makes the most sense.

Want me to go Andrew, up to you. I can answer, I can give a good answer to that one. If you don't have one can answer.

The multiple part and then I'll talk to something else as it relates to market conditions when listing.

Yeah so from what we've been seeing, we're going to be releasing a report that specifically shows what we've been seeing agencies get acquired for. But the one thing I can say for certain is agency multiples do command lower multiples than say a SaaS business or an E commerce business and what we've been seeing and again there's variability on you know, the size of the business, the growth opportunities left in the business. Sure. But I would say you know rule of thumb based on like averages with all of the agencies you've seen acquired is usually around 1 times revenue. So 1x revenue we have seen higher. We have seen lower, but when it's all averaged out, usually about 1x revenue because the revenue is not recurring. So that's why SaaS and E commerce would typically command a higher multiple. So you should expect a lower multiple than you would see with a different business model.

Solid. Solid. Yeah. We actually did recently add a white label software component to it which has begun to grow, although it's a smaller percentage, of course, of the revenue. So we have added a reoccurring component to the model as an additional profit center.

Nice. Yeah. Yeah. So what I would do is I'd recommend probably price around like, yeah, 1x just TTM revenue trailing just the last 12 months. TTM stands for trailing 12 months of basically last 12 months. And then you can even add, you know, an additional multiple on the recurring revenue, which is usually between like 2 and 5. But we'll be sharing, we have a full detailed report based on all the acquisitions that we helped close that we'll be sharing next week. So that, that'll, that we'll get, we'll get that over to you and that might bring more clarity.

That's perfect. Ironically, I guess it actually sounds like I'm close to that number what we listed, ironically, so sounds like I'm at least in the ballpark, so that's good.

Awesome. Yeah, it's, it's, you know, I, I've been in the, in the M and A and Main street environment for like the last 20 plus years. And yes, there, there's. For any type of business, there's various methodologies for assessing value. And you know, typically, like, if you were to hire somebody to go out and do a proper valuation, you know, they'll do three different methodologies and you'll kind of get the weighted mean weighted average and that's where you would go to market with. However, even with all of the data, all the comps, all the valuation methodologies, it is not an exact science. There's so many not only conditions that are nuanced with your own business, but with the, with the market itself. So it really is, I mean, it sounds, it sounds like a lame answer, but the reality is that your business is worth what somebody at that moment in time is willing to pay for your business. So the other part of that is, you know, really assessing what you need, what a founder needs. Why are you exiting? You know, and if you're exiting because, you know, maybe you're retiring, you've got some Runway to really test market stress. Test the market, let the market give you feedback. That's a Different scenario than if you, you know, just won the lottery and you just want to sell it. You're going to price it differently. Right. So it really your personal conditions and your reasoning for selling affect the pricing.

Fair enough.

Appreciate it.

Thanks. Thanks. Khalil, I'm gonna disable you talking then move on to Taihan right now. Thanks for asking the question.

Thanks, guys.

All right, so Taihun, did I pronounce that correctly? Please ask your question. Can you hear me?

We can, yeah. How you doing?

Hi.

I'm good. Thanks for this office hour. So I guess the question I had was. So we initially list our app for sale about like a few months ago and then during that time we couldn't make any sales. We kind of honest them and now we're relisting again with a higher profit.

Higher profit.

But we haven't been getting much of the inquiries after we release them. So I was just wondering like, what would be our best way, best approach to go from here?

I think it's again, the same thinking as I just shared with Khalil is that what is your reasoning to sell? Do you have some, Is there pressing reasons that you're wanting to sell the business? Do you have a little bit of time? Are you reinvesting in something else and what's the reasoning there?

Yeah, we are probably going to use this as seed money for a new.

Startup dropping into your listing right now to see, learn anything. You know, unfortunately I would have to say that with the amount of traction we're seeing and Andrew, you could speak to this better, but on average we're getting like 30 to 35 unique buyer inquiries for every listing across the 2500 listings we have. Right?

Yeah, that definitely is, is what we're seeing. And it's also important to note those don't all come at once. So, you know, first week of listing, you could probably expect, let's call it 10 depending on the business. Every business is different. Some receive 10, some receive 30. And so when you're announced on social media, you get say another 10. And then when you're featured in the newsletter, that's generally where you'll get the most attention. So I would say, you know, in terms of, you know, when are the buyer requests going to come in? Just being patient, you know, I. We've seen businesses sell again. We got this fascinating report. I wish we could share it, but we're, we're just buttoning it up. But if I can ask, what, what kind of business is it again? What category? What business?

Mobile?

Yeah, mobile. So you know, on average, you know, we can see businesses sell for like days on market, 127 days and then the fastest sale, seven days. So, you know, sometimes it can take, you know, a couple months to find a buyer. So I would say just be patient, get feedback from buyers that, you know, do express interest and then from there, like Paul always says, treat every buyer as a potential buyer until they're not. So I hope, is that helpful? Really, just being patient can be the best strategy. Because selling a business takes time, building a business takes time. And finding the right buyers, the same thing.

And I'm making some notes, I dropped into your listing and there might just be some simple things here that could be tweaked to get a little bit more traction. So I'm making a note to follow up with you separately.

Yeah, that would be super helpful.

Yeah, thank you for that. Thanks, Diane. I'm just going to be talking. Benjamin had a question in the Q and A. So we had a similar question about coming up with an asking price valuation for two sided marketplace platforms. So similar to Khalil with agencies, but two sided marketplace platforms. Do we have any kind of feedback here in terms of valuation, pricing? I'm guessing it's going to be a little bit similar in terms of the answer, but you guys want to tackle this one?

Andrew, you want to go?

Yeah. Benjamin, what is your revenue on the marketplace?

Yeah, so last 12 months was about 2.5 million.

Nice. Good for you. So based on what we're seeing below 100,000 revenue, we're seeing multiples on average of 2.4x and then between 100k to 1 million, we have the average marketplace revenue multiple of 1.2 and then we've seen a good amount at 3 and 4. So I would say probably given the scale below, multiples are kind of interesting. When your revenue is below 100,000, multiples kind of go out the window because the buyer is really buying the ip, the assets. And it's really hard to put a multiple on revenue when it's a small amount. But given that you're at scale, the average that we're seeing is 1.2. I only have data right in front of me for 100k to a million. But as I'm looking at this a little bit more, I think probably 2 to 3 is probably where I'd price it. I would probably go on the higher end. And then if there's, you know, substantial interest, you can always, you know, adjust from there. But that's kind of what we're seeing for marketplaces, which I will also note is higher than E Commerce, but also lower than SaaS.

And Benjamin, I believe we have a call like in an hour too, right? Yeah, I think we had one scheduled. Yeah. So I could, I could follow you up with. I have a couple questions, but I could follow up with you there as well.

Awesome.

Yeah, that's really helpful.

Then also some other cool data I'll share on marketplaces and this will all be out next week. We're just still adding more to it, double checking the numbers. But average days on market for marketplace startups, 184 days. So that would be six months. Six months and the fastest sale was 38 days.

Awesome. Thank you.

Yeah, my pleasure.

Thanks, Benjamin. We do have a question from Jason who did register, but I don't think he's here and he asked a question. What should you include in the file section on the profile versus save for diligence? I don't know if we want to tackle that. Andrew, if you have any feedback there.

I could speak to that. So, and this is kind of how following up on Andrew's comment earlier about treating every buyer, there's a process, there's a process to building the inquiries and vetting them and filtering them in or out. And so when you're setting up the profile, you do want to have your deal books and your, you know, if you're just using the deck that we've provided or if you want to create a proper deal book, a SIM confidential information memorandum, you would add it there as well. However, you're not going to give access until you've done a couple things. And what I've been recommending is when you get that first buyer inquiry, and we've seen it where that first one might be very. You might get the wrong impression of the buyer from the initial message because some of them will say, interested? Can you send more information? So that's not a very. Hi, I'm Paul Kelly. I'm from Micro. You know, it's not telling much. However, those are, they're real buyers are. You know, we've seen real buyers doing that. So I would have a canned response where you cut and paste back into chat. Thanks for your inquiry question. Do you have any recent experience in class or E Commerce or whatever is into your business? After they respond to that appropriately, then the next question I would ask is, great, if we got there, how would you fund this? How would you pay for it? Right. If they answer that one again appropriately, I would. Depending on the level of confidentiality that you want to have. I still would send a confidentiality agreement, a very vanilla, easy to sign one. It's not so much about protecting confidentiality at this point, it's about having that buyer perform. So you want to see that they're real buyers and that they're performing. And with those three steps, hey, do you have experience? Hey, how would you pay for this? Hey, I could send you a deal, but I've attached confidentiality. If they perform those, those three tasks for you, then you know, you have something real on your hands and then that's when I would release the visa.

Awesome. Paul and Jason had another question around logistics, like, how does the listing day go? Are you given any kind of heads up or is it surprise, 24, 48 hours after you submit? I can take this one. We do give a confirmation email once you go live on the marketplace. Once you click submit, though, once you finish your profile, once you click submit, our team takes a look at your listing, kind of clean it up a little bit. It gives you feedback on anything that we need more information on. But otherwise, once you click submit, just wait for that confirmation email from us that you're going to be live on the marketplace and then you'll be live there. And then we have another question from Khalil in the chat. What is the vetting process for buyers?

I just covered that. I mean, it's. Are you talking about to come on platform or your process?

I think you come on, come on platform.

That's. I mean, there's a step by step thing for the buyers. You can speak to that, I think.

Yeah, the vetting process for the buyers. So as they come in and register as a premium buyer, we screen every single one. So we'll ensure that they have a proper profile picture, a working LinkedIn profile and a bio as well. And if they don't have those things, we ask them to add them before we actually let them begin speaking with sellers. So if you do come across, you know, buyers reaching out LinkedIn profiles and work links out to Bill Gates or something weird or something like that, please let our team know. You know, we have a, a support team that's here to help you with anything that seems suspicious or just weird and that we also see that on from buyers as well when they come across listings that just something doesn't add up and we take all of that feedback and that input very seriously. So if you do come across a buyer that doesn't seem legitimate, doesn't seem to be acting in an ethical manner, definitely let Us know and we'll be happy to look into it.

Right. And we have one more from Shane. So he filled out the pre webinar but he's not here. He just had to pretty much one quote like pre revenue sale advice. I don't know if we want to touch on that or any kind of advice here.

Well again Andrew, you can probably speak to that better but I do know that very, I mean pre revenue we don't listen. There's some proprietary IP or unique technology associated with that. Is that accurate?

Yeah, that's, that's, that's been an internal. You know when you, and this is just general advice for anyone building a startup is you can't please everybody. And what we want to be at Microquire is the marketplace to buy and sell profitable startups. And so we've made the hard decision to no longer list pre revenue startups. We do make exceptions in very rare cases. So it's not a hundred percent no, but it's generally a 95% no. It would need to be something with you know, maybe it was product of the day on product time, maybe it has some users some sort of traction. But if it's just a piece of software without any traction at all, it will most certainly get a rejection.

And you know, to take that a little bit further, we do see a lot of very early stage startups trade on Microacquire and it's the plain buy versus build strategy. So if you build out a valuable product and it's good, you're helping somebody get to market faster and increase their business. However you need to validate your offering by having users that actually are willing to pay for it and then it's, it shows that it's, it's working a viable product.

All right, so we have a little bit more time but I think that's all the questions that we had. We really have this office hours for you guys, the sellers to ask any questions you have. So if you guys don't have any more, I think, I think we'll cut it early and just kind of not just to send this to you guys as a, as a replay for all those that did register. Yeah. Let us know if you have any other questions. Otherwise I think we'll call this one today. Yeah, yeah.

I have one more comment though. You know when, when sending the follow up to you guys we'll also include the, our, our previous you know, more in depth seller education webinar that we did a couple weeks back and that really walks through process from the beginning to end at a high level, but it gives you the steps and kind of understanding of what to prepare for and, and expect. And then we'll also drop in links to our MMR tool, which is a evaluation kind of range estimator. So that'll help you as well. So yeah. So thanks for joining. We appreciate the questions and as you know, anytime through your process, if you guys have questions, use me as your point and I'm happy to, to help where I can.

Yeah. And I'll just close it out with thanks everybody for attending. We're going to be doing these more frequently. This one was, you know, small invite just so we can really deep dive into your businesses and that's something we really want to do more of. So thanks for joining. And if there was any questions that pop up along your journey selling a microquire, please feel free to reach out to our support team. If it's a question that is applicable for an M and A advisor like Paul, it'll be routed to him. If it's just a general question around how Microcore operates or really anything, please lean on us because we're here to help and want to see you all succeed. So thanks for joining us today and happy Friday. Hope you all have a great weekend. Sam.