04 Dec Domain Name Valuations for Website Mergers & Acquisitions
The value of domains has steadily reached an equilibrium, especially since the overly-bloated days just before the .com bubble. Search engine algorithms also now play a huge role in determining traffic volumes for a particular web property, hence devaluing sites which use exact match domains (EMDs) as the primary source for leads and sales. Strong brands will almost always hold the trump card as they can take millions of dollars and years to build well. But there is still value in domain names above and beyond the $10 paid from any number of domain registrars. The value of a domain is a key factor in website and internet mergers and acquisitions, but fails to take into account all the factors involved.
If your domain name is the driving force behind your businesses success, you have a flawed and dying business model.
In most cases, a domain name is not valued as a stand-alone in the sale of a business. This is especially true if the domain is not the driving force behind site traffic. Some businesses rely on non-organic search traffic and other methods for monetization, thus diminishing the value of the domains stand-alone value. The information in this post is to help in the separate valuation of a domain name in the event that the site itself is sold off separately. Here are some fundamental questions to ask in the sales process for putting your website on the market.
- What type of internet business do they operate? Is the site focused on eCommerce, business services, news or lead generation? Is the site focused on a B2B audience or are they targeting consumers directly?
- How is the site monetized? Is the site run on an ad-based business model (affiliate or otherwise)? Are there products sold on an eComerce site? Is the site solely based on the ability to gather leads?
- How long as the site been in business? Determining whether the internet business just had a good year as a new entity is highly sensitive. Flash-in-the-pan online companies are a dime a dozen. Most sophisticated website investors
- What type of backlink profile does the site have? Are the site’s backlinks legit? Do the links have staying power?
- Is the content unique and evergreen? If the content is unique and timeless and there is a great deal of it, this will continue to remain the greatest value in the business. I repeat, the greatest value of any website is the rights to the content it contains!
While these and other questions are helpful in determining what a standalone website might be worth, they fail to tell the story of full profitability. Investors want cash flow. They live for it, they buy into streams of it, they often bet their portfolios on it. If you’re intent on M&A opportunities with your website, it better be throwing off tons of cash. Domains can be worth a great deal, but from our experience they are generally only worth what someone is willing to pay for them ($2 million purchase of http://www.social.com ring a bell?). True eCommerce and website business valuations are mostly done using a traditional cash flow or EBITDA multiple methods, not stand-alone, quasi-tested methods. In fact, selling eCommerce companies is perhaps the most similar to traditional business M&A in the online realm in that they carry product and sell inventory.
When doing true website M&A deals in the middle market, the focus will be traditionally on EBITDA and general cash flow, not arbitrary numbers and dreamy valuations. Our analysts may have helped to determine domain name valuations, but they were usually sold off in a separate asset liquidation event as part of some divestiture, not as part of the overall corporate M&A valuation process.