2020 Half-Yearly eComm Business Sales Review

What impact did COVID-19 have on the marketplace?
What was the largest eCommerce business which sold so far this year, if any sold?
What did the list price multiples reach?
Which niches are the most popular and which sell the quickest?
All these questions and more will be answered in our 2020 ½ Year Review

Introduction

The team started researching and collecting market information in 2016 as we wanted to gain insights into market trends which could not be found elsewhere.

Since that time, we’ve published reports on businesses listed and sold based on publicly-available information.

We search for ALL listings available online and compile the data. Although limited to publicly-available data, we rely on brokers and websites to update data when listings are sold, including the current price and deal details.

Note: Where it’s relevant, we refer to market pulse data by the International Business Brokers Association (IBBA). It’s sourced from IBBA and M&A Source members who participate in quarterly surveys.

Further details and reports can be found here: IBBA Industry Research

Page Contents

Introduction
Overview of the Numbers
Sold Listings Data
Largest Sold Listing
Days on Market
Top Amazon Categories
List Price Multiples
Buyers

An Overview of the Numbers!

This 2020 Half-Year In Review report focuses on businesses with a $500k+ list price (or the potential to be $500k+ if they don't have a price noted).

From January 1 through June 30, 2020, we tracked a total of 250 FBA businesses listed for sale.

This consists of 121 listings carried over from 2019, plus 129 new business listings we found during the year.

Here’s how the first-half of the year ended.

Let's look at how these 250 listings break down based on the list price.

During the first six months of 2020, there were fewer listings available than in 2019. We can safely say that COVID-19 is the likely cause for this downturn.

Overall, across all price points $1MM and above, the number of listings and the percentage of the market are down over last year. And in some cases they are as low as the 2018 levels of available deals.

Only 44 listings in the $5+ million segment were on the market (18% of the total), whereas last year there were more than 50 deals of this size available

We identify Main Street as businesses in the $500K - $2MM range.

Main Street businesses represent half of the listings (51%) while there are 41% of businesses over the $2MM+ segment. The IBBA reports that 37% of deals were delayed in closing of business valued at $2 million or above.

Of the businesses listed for sale during the first quarter of this year, 27% were noted as earning $5 million or more in revenue (68 of 250).

By breaking up the data into calendar months we see that February had the highest number of new listings (36).

May and June show the highest number of sold businesses (4 each). It is also intriguing that there were no sold listings in January, whereas in past years this has always been an active month.

News of the widening pandemic in Europe occurred in late Feb and mass-hysteria didn’t really kick in until around late March, so it is unknown if investors were simply ahead of the curve compared to the financial markets.

Or as the virus first began in China in late 2019 and the vast majority of goods, packaging or other related ecommerce products are produced there, this may have led to the weariness of January sales.

New listings to market also dropped off dramatically as many sellers decided it wasn’t the right time to take the business to market.

This could be due to the huge growth spurred on by the increase in online shopping. Or, it could be due to declines in revenue for some niches due to a lack of demand with stay-at-home orders in place around the globe.

Sold Listings Data

The big question on everyone’s mind for 2020 is: “Are any businesses actually selling”?

Of the 250 active listings during the first half of 2020, the number of sold listings decreased dramatically to only 12.

However we are tracking 49 pending listings as of June 30, 2020, which could still see a positive comparative year-end number for 2020.

From January to June 2020, we tracked 12 businesses reported as sold, which equated to a mere $27.3 million in list price value.

Whereas during the same period last year there were 26 sales noted with a total deal value of over $75 million, making this a 54% decrease in sales for 2020.

With only 6 months of data thus far and very few sales to speak of, it is difficult to make any clear statements about market trends.

What we clearly see, though, is that very few deals closed between January and June. Of those that did, it was the $1-2 million range that had the most activity with 10% of deals noted as sold.

The IBBA Q2 report notes that 12% of pending deals were canceled in Q1 and 10% in Q2, with a whopping 37% delayed to close.

Delays were attributed to the buyer (51%), the seller (28%), and to bank financing issues (15%) and they suspect that the markets won’t return to pre-March 2020 levels until Q1 2021.

Largest Sold Listing

A $10.7MM branded air filtration & purification business takes the honor of the largest business known to have sold in the first half of 2020.

It was listed at a 4.5x annual net profit multiple, which sold after 74 days or 2.4 months on the market. It sold around March 20th, which means it snuck in to close before the world changed to the new COVID-normal.

Days on Market

Taking a closer look at the sales by month we see 3 things:

February saw the lengthiest days to sell at an average of 250.
Sale closings all but stopped in March & April.
Sales picked up from May, which indicates that the market was beginning to stabilize.

The days on market are trending up over time for business in the $500k-$1MM Main Street segment. This indicates that these deals are the least attractive to buyers and therefore stay on the market longer, while waiting for the right purchaser to come along.

Of the deals that closed in 2020, it appears they were quickly snatched up with the average days on market being much lower for each of the other price points. Buyer competition is definitely increasing, which is also another reason why deals are closing quicker.

Days on Market for Active Listings

At the beginning of 2019, the marketplace had 115 active listings, whereas, as of January, 1 2020, there were 123 active listings. Of these listings, 50% had been on the market for more than 6 months and only one fifth were less than 90 days old.

Top Amazon Categories

Of the 12 sold listings in the first-half of 2020, 10 listed at $1MM or above. This is where we focus our time. Below are the sold Amazon Categories in the first half of the year.

List Price Multiples (active listings)

The data suggest that those businesses that eventually sold had a slightly lower multiple than the overall average active listing, except for the $5MM listings.

The $5MM listings sold for a better than median multiple of all those listed.

When a deal is large enough to attract financial and strategic buyers, they often end up in a bidding war. Supply and demand pushes the price higher on these businesses.

The IBBA reports that of the sold listing the lower middle market ($5-$50MM) was the only segment to achieve 100% of the asking price.

As few deals pass across investors' desks and the ability to travel for deals reduces, those solid businesses with great inverter metrics are being highly sought after.

The below IBBA table (Figure 9 from the Q2 report) shows the multiples of all business models for sale, not just ecommerce.

They note that for the first time since they began recording, multiples in the <$500k range dipped below 2x of annual SDE.

Buyers

In early April buyers in the space got a plethora of media attention after one company raised $100 million in capital to roll-up Amazon FBA brands which almost took them to unicorn status.

In fact, later in July, they did indeed hit such a prestigious goal bringing along with it an abundance of new buyers to table.

Kyle Griffith told the IBBA that “In the $5 million and up sector, private equity made five-times the acquisitions over existing companies in Q2. That’s a significant presence and one we haven’t seen to such an extent in the past.”

PE firms make up over 60% of the buyers currently in the lower middle market and we, at the The FBA Broker team have also seen this influx of interest from these buyers. As COVID-19 shut down malls, restaurants and many local businesses, everyone turned to ecommerce to buy their goods.

It is this boost in ecommerce sales, plus the unicorn valuation which is driving huge buyer demand in the ecommerce consumers product brands market.

The IBBA data backs up this finding showing that Consumer Goods feature predominantly in many market sectors.

Source: IBBA Q2 Report

Now more than ever if you’re a business owner who has built a solid brand over the past 3 year and you’re achieving revenues of $5 million plus, supply and demand is in your favor.

That’s it for this half yearly 2020 review.

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