In our last blog article (link), we already showed that the turbulence of the last few years is slowly easing and the e-commerce market is stabilising again. Despite ongoing uncertainties, M&A activities are gradually picking up again. Investors and buyers are becoming increasingly active, though they are approaching opportunities with more caution and selective criteria. In this multiple update, we would like to take a closer look at our experiences from the last few months, the current developments and the outlook for the second half of 2024. We will first examine Amazon-native (>50% Amazon share) and D2C brands (>50% shop share). In the second part, we will focus on marketplaces and SaaS companies.
Amazon & D2C Brand Multiples
Amazon Brands
Amazon undoubtedly dominates the e-commerce market. For many consumers, the shopping experience both begins and ends on this platform. Many brands use Amazon as their primary sales platform.
For well-managed and established Amazon brands (>50% Amazon share) with a stable financial profile, multiples currently paid are usually around 2.00x to 3.00x on EBITDA. A stable financial profile means EBITDA margins (excluding adjustments for relevant salaries or similar) of at least 10-15%+ as well as stable to positive sales development with low fluctuations or at least fluctuations that can be explained by special effects.
Of course, there can also be stronger fluctuations up or down here. The range of multiples extends from 1.00x to 4.50x EBITDA, depending on the specific risks and growth potential of each respective brand. It is important to note that not every brand can be sold anymore. Many, especially smaller brands with products in competitive categories, have difficulty finding buyers. Investors have learned from their mistakes, becoming more selective and focusing on brands with clear competitive advantages, unique products or particularly resilient business models.
Brands with c. $500k SDE
After the sharp downward movement in 2022, a bottom was formed. Accordingly, multiples have remained largely stable compared to the previous year. While uncertainties (high interest rates, looming recession) in the market remain high, the values for 2023 and 2024 show that the extreme fluctuations that were still observed in 2021 and 2022 are easing. The lower valuation level, which originated on the buyer side, is now increasingly being accepted by sellers, and the number of transactions is rising again - including in the Amazon segment. Investors will continue to focus on solidly managed brands with stable business models and attractive margins. Small, poorly differentiated brands or owner-dependent brands will continue to struggle to find buyers.
D2C Brands
Despite a setback after the COVID-19 peak, the e-commerce market continues to grow. In addition to increasing sales on marketplaces, we are also observing a rise in pure direct-to-consumer (D2C) brands. These brands sell directly to the end customer, in most cases via their own website. This enables direct control over their brand (brand identity and pricing), a direct customer relationship, and generally greater flexibility (e.g. product range changes or fulfilment). If a brand is successful in this, it often results in greater customer satisfaction and higher margins. For such D2C companies, the EBITDA multiples are between 2.50x and 7.50x.
Lower Bound | Lower Mid Bound | Higher Mid Bound | Higher Bound | |
Amazon EBITDA Multiples | 1.00 | 2.00 | 3.00 | 4.50 |
D2C EBITDA Multiples | 2.50 | 3.50 | 5.50 | 7.50 |
Source: Sellside Partners
Compared to pure Amazon brands, we see slightly more attractive valuations for D2C brands due to their direct customer relationships and higher brand awareness.
General market development over time
Our observations in the e-commerce sector are consistent with the development of the overall market. The macroeconomic changes negatively impacted the M&A activities across countries and industries. The e-commerce sector, which had benefited greatly during the COVID-19 pandemic, suffered an additional setback when local stores reopened. The graph illustrates the development of sales multiples in recent years and closely resembles our multiple chart for e-commerce above.
Source: Own illustration based on data from Dealroom.
The company valuations in the graphic are significantly higher because larger deals and other industries were included. It is therefore crucial to always consider multiples in the context of the company size and the respective industry.
Marketplaces and SaaS companies
As an e-commerce advisor, our expertise extends to the broader online sector. This also includes marketplaces and SaaS companies. Just this month, we supported the sale of the Dutch men's fashion marketplace Winkelstraat to the listed company The Platform Group AG (publication).
While we examined EBITDA multiples in our update for Amazon brands and D2C companies, revenue multiples are relevant for marketplaces and the SaaS industry. EBITDA multiples are used for Amazon brands and D2C shops, as these are often more focused on profitability.
Revenue multiples, on the other hand, are applied to marketplaces and SaaS companies because they promise growth, scalability, and the potential for future profitability.
Marketplaces
In the marketplace segment, we currently see revenue multiples between 0.70x and 3.40x. At the lower end of the spectrum, at 0.70x, you often find established marketplaces that generate stable revenues but have limited growth potential and low profitability. In the middle range, with multiples of 1.36x to 2.28x, you find marketplaces with a solid market position that are experiencing moderate to strong growth. At the upper end, at 3.40x, we see marketplaces that are either growing quickly or have a particularly strong market position with correspondingly high margins.
When evaluating marketplaces, there is the so-called "Rule of 40", which states that the sum of sales growth and profit margin should be above 40. This serves as a guide to assess attractiveness for investors.
Source: Dealroom
The graphic shows the applied "Rule of 40" for various marketplaces worldwide. On the x-axis, we see the Rule of 40, the sum of sales growth and profit margin, and on the y-axis, the valuation, i.e., the ratio of company value to sales in 2024. The line illustrates the positive correlation between the Rule of 40 and the valuation.
SaaS companies
The SaaS industry has experienced a remarkable boom in the last ten years. Venture capital financing in this sector has increased almost sevenfold, growing six times faster than in other industries. SaaS is no longer a niche product, but has developed into an indispensable business model that is being adopted in more and more sectors. This drives continued high interest from investors, who are particularly attracted to the strong growth potential and high margins. Additionally, these business models are often more robust than those in e-commerce, where one-off purchases are much more common.
Source: Dealroom
The chart shows the rule of X, where for software X equals 3. The R-squared value is 0.75, indicating that 3x growth and 1x EBITDA margin explain 75% of the valuation multiple. Simply put, if a SaaS company attains 20% revenue growth and a 40% margin, it will result in a revenue multiple of approximately 15x.
In the current market environment, where SaaS companies are increasingly in demand due to their scalability and recurring revenue, such multiples are not uncommon.
In contrast to the chart shown above, we currently observe average revenue multiples in the SaaS sector of 2.00x to 6.00x. These values are significantly lower because the chart does not focus exclusively on SaaS companies but on the broader software industry, with particular focus on larger and publicly traded companies. Nevertheless, our multiples are still significantly higher than the valuations of the previously shown sectors. Investors understand that growth and scalability are crucial in SaaS companies - and they are willing to pay for it.
However, as is the case everywhere, the market remains volatile, and careful analysis is essential to determine the true value of a company.
Lower Bound | Lower Mid Bound | Higher Mid Bound | Higher Bound | |
Marketplaces Revenue Multiples | 0.70 | 1.36 | 2.28 | 3.40 |
SaaS Revenue Multiples | 2.00 | 2.80 | 4.50 | 6.00 |
Source: Dealroom, Aventis Advisors
Thus we see that SaaS companies typically achieve higher revenue multiples compared to marketplaces. While marketplaces are more affected by external factors such as competitive intensity or price increases, SaaS business models stand out for their recurring and scalable nature. They benefit from a stable, predictable income stream through subscriptions and often achieve higher margins, as the cost of scaling is relatively low. Additionally, they often offer high customer retention and long-term contracts, which further strengthens the company's valuation.
Conclusion
In conclusion, multiples in the overall market have stabilised in the first half of 2024 and tend to be slightly higher compared to the previous year. While e-commerce brands are heavily dependent on platforms, D2C brands achieve better valuations thanks to their independence. On average, marketplaces perform even better due to their significant growth potential and higher customer loyalty. The highest valuations are achieved by SaaS companies, which stand out for their exceptionally high customer loyalty rates and margins. This is why the sector is particularly in demand among investors even in times of higher interest rates. In any case, careful preparation, strong relationships with relevant buyers and choosing the right partner are crucial for the sale of a company.
Why Us?
To find the right buyer for your company, it is crucial to conduct a targeted analysis of the market environment and valuation multiples - regardless of whether you run an Amazon brand, a D2C brand, a marketplace, or a SaaS company.
How we support you:
Targeted buyer approach through our network
Thanks to our network of Amazon aggregators, private equity investors, and strategic buyers, we understand the purchasing criteria and interests of the relevant players. This enables us to specifically target the right interested parties and enable quick feedback and negotiations through direct contact.
Comprehensive evaluation through market analysis
We conduct a detailed analysis of the relevant valuation multiples and the market environment for your specific business model. Whether it's a D2C brand, marketplace, or SaaS company - we know what's important when it comes to valuation in your industry. With our experience in numerous transactions, we can optimally position your company and highlight its strengths, ensuring that its value and synergies are clearly visible to potential buyers.
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Many brokers are well connected, but often have hidden interests that can lead to a suboptimal sale price. We are on your side - with no hidden fees or quick deals at the expense of your goals. Our focus is solely on getting the best deal for you. Our goal is not only to present you with the right buyer but also to ensure a fair and market-based valuation. This way, you get the optimal price for your company and find the right partner who aligns with your strategic goals.
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Sources:
Dealroom, Aventis Advisors, FirstPageSage, Equidam