Valuation for e-commerce "turnaround" situation

searcher profile

June 13, 2022

by a searcher from EDHEC Business School, Lille and Nice in London, UK

Hi there,
I am looking at an e-commerce business with negative EBITDA. There is nothing badly wrong with the underlying of the business. The owner got completely distracted. With a bit more rationale resource allocation, the company will go back to its former glory. No doubt in my mind.

How would you approach valuation in this case?
I already got the seller to finance a huge part of the consideration but there is a bit more of a battle on the consideration amount itself.
Clearly we both see there is value in the business (although for very different reasons).

Cheers,
Tom

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commentor profile
Reply by an intermediary
from New York University in Menlo Park, CA, USA
Looks like this business can also trade for 0.67x revenue.
https://www.searchfunder.com/bvr/sector/290


For a negative EBITDA eCommerce business, I'd be concerned about the gross margin on the sales. If the gross margin is healthy, then there is excessive overhead in the operations which can likely be fixed.
commentor profile
Reply by a searcher
from EDHEC Business School, Lille and Nice in London, UK
Thanks gents - Yes, reviewing unit economics was the first thing I did. Literally in this case the seller just stopped spending on paid ads even though the return was there. It is the case of a solo owner, self taught, not comfortable with numbers and not wanting to get professional help.
In any case, we could not get in agreement with the structure of the deal. So up to the next one!
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