The online business industry includes all e-commerce and service businesses with an exclusive online business model and no brick-and-mortar locations. Many players in this industry have an asset light model and practice drop shipping, while some may have warehouses for inventory management. Key suppliers for this industry include web developers and content marketing agencies, logistics software companies, packaging and delivery services, consumer electronics manufacturers, and consumer goods wholesalers. The industry targets various end users across different age groups and demographics. Working professionals and parents with young children form a large portion of the target demographic. The industry is currently in its growth stage and an increasing number of consumers have been switching to online retail options due to ease of access and convenience factors. Going forward the industry is expected to continue to demonstrate strong growth globally due to rising exogenous income and standard of living for the average consumer. Strong demand from growing economies like China, India and Brazil will drive e-commerce sales. In addition, social media influencers and social media marketing will allow high visibility for online business models like these. The industry has low barriers to entry and is lightly regulated. Apart from a few major players like Amazon, Alibaba, Walmart and Costco, the industry is highly fragmented and characterized by a high competition and price sensitivity.
Macroeconomic Factors – Consumer sentiment and willingness to consume are largely influenced by a few macroeconomic factors such as inflation, economic growth, changes in disposable income, etc. Periods of economic growth tend to correlate with more robust consumer spending in the e-commerce industry.
Social Media – as online businesses become increasingly integrated into social media, the industry has extended beyond its traditional form and into the day-to-day life of consumers. Information transparency and consumer engagement have also contributed to higher growth within the online business industry.
Comparison Websites Shift Buyers – Electronic shopping sites are competing more directly as new comparison websites are developed. Comparison websites use product descriptions and item codes to compile a list of websites that sell the product. They compare prices, options (color, size), shipping rates, customer ratings and other data of major electronic shopping sites for customer convenience. These sites can drive customers to lowest-price websites, forcing electronic shopping sites to keep prices competitive or risk losing the sale.
Selling an Online Business
Consolidation and M&A activities frequently occur in the online business industry, as many businesses are asset-light and therefore are more easily transferable to other business owners. As Canada’s leading private market M&A Advisory firm, Beacon understands that selling a business is an important decision. A dedicated business owner not only seeks to extract maximum value from the sale of a business but also seeks to sell the business to a competent buyer who can continue the company’s legacy. Beacon has worked on valuation and M&A advisory mandates in the entertainment industry, bringing extensive experience in deal negotiation to the table. Our experienced advisory team will assist your business in navigating the entire sell-side M&A process.
As an entrepreneur or business owner who is exploring a potential sale, it is important to understand some key factors specific to the online business industry that might impact the likelihood of a potential sale. These are factors that determine business attractiveness for potential buyers and investors.
Supply Chain Management – For products to reach consumers, e-commerce businesses must maintain good supply chain management to ensure efficiency and quality every step along the way. Some stakeholders involved in this supply chain include transportation companies, manufacturers, etc.
Inventory Management – Overstocked inventory can lead to decrease in company cash flow, whereas understocked inventory can lead to product delivery inefficiency. Successful companies have business models that allow them to accurately assess and purchase inventory.
Cash Flow – Online businesses that receive upfront payments from customers before ordering products from suppliers are typically always cash flow positive.
With 140 years of combined experience serving businesses within Toronto, Ontario, and abroad, the Beacon transaction team has extensive knowledge and experience successfully working for several online business companies from a variety of industries. Whether it be a valuation or sale, our team can provide expertise and resources found only at larger corporations, paired with the personalized touch of our M&A Advisory team. Contact us today to get in touch with one of our advisors.