back of envelope math on e-commerce deal

April 13, 2021

by a searcher from Webster University in Westchester, Los Angeles, CA, USA

I'm curious if I'm thinking about this financial statement I'm looking at correctly:
- This eCommerce business has about $500,000 in annual profit
- So just swagging a multiple of 2.5x, it should be worth $1.25M
- It has a shareholder loan on the balance sheet of a little over $1.5M

So if the business can't justify a higher multiple, does that mean it's unsellable without discharging some of that debt, or some other deal complexity?

Reply by a searcher
from National Defense University in Santa Rosa Beach, FL 32459, USA

I assume you would pursue an asset purchase not a share purchase, so any existing debt would have to be dealt with by the current owner and shouldn't have any impact to the buyer. (Additionally, a 2.5 multiple is probably a little low if it's a successful and growing e-commerce business.) Community - correct me if I'm missing something or have this wrong.

Reply by a searcher
from Pepperdine University in Boise, ID, USA

It doesn’t really matter since most of us agree this should be an asset sale and cash flow should exclude debt service. Is the debt service showing on the financials as owed to someone other than the seller? If it’s to an outside lender, that would tell me the asking price is working back from the outstanding loan amount.

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