Selling Your Website to Financial Buyers vs Strategic Buyers
Every website for sale generally attracts 2 types of website buyers: financial website buyers and strategic website buyers.
Financial website buyers are buyers who are looking to acquire the website for sale strictly on its financial merits. That is, they seek to invest money in the website and receive cash-flow from the business to achieve their intended ROI. Financial buyers see value solely in the website’s financials.
Strategic website buyers are buyers who are looking to acquire the website for sale to combine or share its assets with other websites that they own or operate. Strategic buyers see value beyond the website’s financials.
Generalist websites tend to attract more website buyers than specialist websites.
A generalist website is a website that does not require specialized knowledge to successfully operate the website.
For example, a website buyer does not need any specialized knowledge to run a WordPress blog that produces AdSense revenue. The webmaster doesn’t need to know how to write software code. He needs basic Internet skills to simply publish new articles on the website. And, in many cases, the buyer doesn’t even need to have expert knowledge of the subject matter of the content. Creating content can be outsourced to freelance writers at affordable rates. The revenue is generated through AdSense automated ads.
Specialist websites tend to attract primarily strategic buyers.
A specialist website is the opposite of a generalist website. A specialist website requires specialized knowledge to operate.
For example, a website buyer would require expert knowledge about black hat and white hat search engine optimization (SEO) or search engine marketing (SEM) to successfully operate a web-based SEO firm. The business owner, a member of his staff, or a contractor must have this knowledge in order to successfully run this website business.
Many financial buyers can afford to acquire a web-based SEO business. But they would not be ideal candidates for acquiring the business if they lacked SEO knowledge. Hence these businesses tend to attract knowledgeable strategic buyers.
Strategic buyers can pull additional value out of websites by sharing resources between different websites that they operate. There are a lot of cost-savings to be mined out of a strategic website acquisition.
Shared Website Hosting & Technology:
Some websites such as large game portals with millions of monthly visitors can be quite expensive to host. After acquiring a game portal, the buyer could add the new portal to the hosting account for his other portals.
This produces instant cost-savings for the new owner. Lower costs mean higher profits which means higher return on investment.
The same logic applies to any other proprietary software that runs the website. The same software can be used on multiple websites owned by the acquirer.
Shared Email Lists:
When a website buyer purchases a website, she acquires the email list of the website. This is a very important asset in any website acquisition. Customer acquisition costs on certain types of websites can be high. It is generally significantly cheaper and faster for a buyer to acquire an email list through a website acquisition than for her to build a list herself.
In some cases, a strategic acquirer may own certain products that can be offered to the acquiree’s customer list. This can generate additional revenue for the acquirer.
For example, a reseller of domain registration products could buy a reseller of domain hosting services. The acquirer could then offer the new domain hosting products to his customer email list of domain registrants.
Expanded Product Lines:
The previous example of the domain registrar reseller acquiring the domain hosting reseller also indicates how an acquirer can quickly expand his product line through a strategic acquisition.
About 2 years ago, a website buyer who owned a lottery website contacted us. He made an offer to acquire an astrology website from another one of our clients. He educated us on the fact that people who gamble and play lottery games tend to be very superstitious and interested in astrology. They are curious about numerology, what their lucky numbers are for the day or week, and they check their horoscopes regularly. The buyer intended to promote the astrology website’s information and products to visitors and registered users of his lottery website.
This is another unique example of how a strategic acquisition can expand an acquirer’s product line. And how new products can be offered to users with similar interests.
Shared Workforce:
Websites run 24/7 on automated software but human labor is still necessary to operate a website business successfully. Website content must be updated and customer support must be provided to users regularly.
An acquirer can very easily add to his daily tasks the responsibility of managing an additional website that he acquires. His team can take over the new website’s operations with little to no additional labor costs incurred by the acquirer. Again, this produces cost-savings for the new owner, and increases his potential ROI.
A Summary of differences between Financial Buyers and Strategic Buyers
1. Financial buyers tend to be generalists. Strategic buyers tend to be specialists.
2. Financial buyers buy website businesses for their cash-flow. Strategic buyers buy websites for cash-flow and non-financial assets.
3. Financial buyers buy website businesses in multiple diverse niches. Strategic buyers buy website businesses in a few niches.
4. Financial buyers usually have full-time jobs or businesses and the website acquisition is designed to be an additional part-time income stream. Strategic buyers usually run their website businesses full-time.
5. Financial buyers tend to invest less than $100,000 per website. Strategic buyers tend to invest over $100,000 per website.
6. Strategic buyers tend to pay higher earnings multiples for websites than financial buyers.
Finally, financial buyers tend to sell websites more often than strategic buyers in order to exit their investments and cash out at a profit.
Strategic buyers tend to buy websites more often than financial buyers in order to build up their website portfolio and generate additional cost-savings with each website investment.
So when you list your website for sale, look out for these 2 types of buyers – financial website buyers and strategic website buyers. You’ll need to present the assets of your website business to each buyer differently in order to get maximum value out of your website sale.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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