Exit Ready Masterclass: How to Prepare, Value & Sell Your Business for Maximum Profit

slowly got a few coming in quite a few

note takers we'll kick off in about a

minute G to shut down all my

notifications welcome lots of familiar

faces few new

ones thanks for joining us today

okay I'm going to get started um hello

tractor and blacknova portfolios liia

doy here I look after the tractor

Community tractor partners and

additional capital for existing

portfolio Welcome to our exit ready

Master Class how to build value and sell

your business for maximum profit brought

to you by the team at first and foremost

in the spirit of reconciliation track

adventures and Black Nova Venture

Capital acknowledges the traditional

custodians of country throughout

Australia and their connections to land

sea and Community we pay our respect to

their Elders past and present and extend

that respect to all Aboriginal and

torist state Islander people today we've

been looking forward to this one sure to

be a great session there'll be over 50

of us here I am sure today's uh actually

um Blake do you want to jump to the next

slide

please thank you well yeah there we go

today's master class will be run by

Blake Hutcherson Blake is CEO of flipa

the largest global platform to buy and

sell online businesses he has led growth

in commercial teams at some of the

world's fastest growing companies

including zero luxury escapes and Lonely

Planet and regularly speaks on

leadership sales growth marketplaces and

m&a uh next slide please

Blake before I hand over to Blake allow

me to run through some housekeeping um

love you to set your name to your full

name and Company example of mine there

um on the deck this event is being

recorded and will be circulated after um

the event please keep yourself on mute

if you're not speaking we do love video

um keeps the session a bit more

personable so um if you don't mind leave

your video on apology for the dog in the

background and the last part of the

session will be reserved for Q&A you can

ask questions um either in the chat

throughout if it's burning um or use the

hands up function um or you can leave it

to the end about 20 minutes

Q&A uh with that um I will hand over to

Blake Blake over to

you thank you Olivia appreciate that um

thank you so much for putting this

together and really nice to meet you all

uh as Olivia mentioned my name is Blake

Hutcherson I'm the CEO here at flipper

we are a global platform although

headquartered here in Melbourne

Australia and for 15 years been building

out our platform to support business

owners from all over the world but I'm

here today to talk to you all a little

bit more about getting exit ready um how

the process goes from end to end and

hopefully give you some I guess pointers

on how you might think about an exit be

that today or be that in the distant

future um for context uh we do represent

business owners from all over the world

we complete just an excess of 11,000

exits of all across all values each year

and we have a very large buyer and

investor Universe of in excess of 1.4

million buyers from Individual acquirers

all the way to strategics and

institutionalsales

um they're actually really helpful uh

because I can understand where you would

like me to go so if you do have any yell

at at anytime um or as Olivia said just

use the chat function

um and if I happen to miss a question in

there Olivia just yell out and I'll make

sure that I get to

that so kicking right in um the first

thing that we like to talk about here at

flipper this concept of getting ready

early and so the exit journey is quite

complex it's relatively long most people

think it's going to be quicker than they

anticipate and so it's important that we

start off with a very rudimentary view

of the journey to an exit and so first

and foremost we'll talk a little bit

about deciding to exit and the

decision-making criteria that most

people go through we'll talk a bit about

building a business with an exit in mind

um and for most out there it's actually

very similar to building a business with

an investor in mind be that Venture

Capital worth family office or

or be it a little bit nuanced we'll talk

about the buyers and who they are and

the differences between them and

therefore what they look for we'll talk

about valuation and we'll give you some

real life examples of that and then

finally I'll make some closing comments

just on the due diligence and and the

the deal closing process so we're going

to try to cover a lot through the

session um and that's probably a good

place to just mention my direct email in

the event that you want to ask any

questions post chat as well so you can

get me at Blake b

a flipper.com in the event that you have

questions about excuse me things I've

covered today but haven't gone into

enough detail

on all right so first and foremost

deciding when to exit so most successful

exits start with ear planning this has

become very obvious to us here at

flipper it's less likely that you get a

successful exit having decided today um

and not necessarily having thought about

it prior to that and not necessarily

putting in place the requisite processes

plans and financial maturity that you

might need to

exit and so ideally you want to start to

plot your pathway to Exit 12 to 24

months prior to sale

and so what that means is looking ahead

and thinking about what a good exit

scenario sounds like for you uh and then

trying to understand exactly what buyers

will be looking for so that you can

reverse engineer that exit

scenario so generally speaking the way

we think about it is that

okayish should spend at least 3 to 12

months optimizing their business

performance as essentially taking those

weaknesses and turning them into

strengths over a 3 to 12 month period of

time once that has occurred and yourself

and your advisor um be that flipper or

anyone else for that matter um have

agreed that your business has been

optimized to a level that makes sense

for the market then of course it comes

down to prepar preparing your financials

and the documentation most commonly

referred to as a an information

memorandum that process is actually

quite time consuming because it's very

much about storytelling it's very much

about not only getting the documentation

in order but then figuring out a pathway

to telling the story that is going to

most likely resonate with your preferred

buyer and of course we'll talk about

those buyers in a minute but the way a

strategic buyer looks at your asset your

business versus the way an Institutional

buyer might look at your asset or

business is quite different

the process then will typically require

buyer matching and so in many cases a

broker or an m&a advisor will literally

use the equivalent of their a Rolodex

which of course is their their iPhone or

a CRM here at flipper we do 425,000

programmatic AI matches each week over

20 million annually so we have an sort

of um unfair advantage in finding buyers

for particular uh business owners and

those looking for an exit but regardless

everyone will then pursue this pathway

of Discovery figuring out a fit between

your business and the preferred buyer

and then of course providing that

preferred buyer with as much information

as possible and trying to establish

whether they are acquisition ready and

you are exit

fit that feedback loop is almost always

on and in our case we will have weekly

touch points with our clients just to

make sure they understand all of the bu

that have been matched the discussions

that are being had and give you an

always on feedback loop to understand

how the deal is going and the process

and progress that we are of course

making on your behalf and that's a

really important part because sometimes

those people who are pursuing an exit

forget that they're a critical part of

that process as well um and they either

fall asleep at the wheel and not

necessarily run their business to the

optimum um or they're not as involved in

the exit process as possible possible

and they limit the chances of a deal

getting done in the way that we would

hope of course these are much like

finding an investor for your business it

is very much a marriage so it's about

not only whether the investor will give

you fair market value but it's also

about whether that investor is going to

be a good fit for you and your business

long term noting that in most cases you

are talking about um some kind of

earnout Andor stability payment which

ensures that you stay the business for a

short Andor in some cases longer periods

of time so very important piece being

that feedback loop and then finally we

get asked this a lot but the average due

diligence process is is between 30 and

90 days and so that will um essentially

dictate whether a deal gets done so

start to think about the exit process 12

to 24 months out and then recognize that

you're talking about a almost six-month

process from the time you go to market

uh to the time you ultimately um find

that pathway to exit so very important

that the exit journey is is understood

and respected because it is time cons

consuming and often a little bit

exhausting so I want to give you a

couple of examples here of two

businesses one that chose to sell and

was exit ready had put in place that

level of preparation and one which had

to sell because they essentially had

gotten to that point where they decided

that they needed to get a deal done in a

very short period of time and the um the

differences are quite Stark in both the

emotions involved in the process as well

as the deal and how the deal ended up

going so I'm just going to fast forward

through this a little bit uh and give

you that context there just going to

minimize the 10 days from minute there

so I've got two examples here I've got

one on the left hand side where the

owner and founder uh was able to

essentially choose to sell while the

owner and founder on the right hand side

had to sell now in one case it was a

bootstrapped Founder in the other case

it was a venture backed

founder the first was a day trading Ed

Tech business so educational technology

and you can see there that in one case

one was a Marketplace on the right hand

side on the leftand side this day

trading edtech business that I'm

alluding to was a SAS business 60% of

their revenue was SAS driven um the

remainder was advertising driven they

were a relatively small business so sub

10 million which is where we specialize

here at flipper so tends to be the

context from which I am talking and you

can see here that in this particular

case the trailing 12 Monon total

turnover um or as identified here as

Revenue was just an excess of $3.5

million and it was a predominantly us

oriented business uh Us customer base

now there's a couple of things about

this business um the business was

bootstrapped and so that uh pressure of

growing extraordinarily quickly wasn't

there for this particular founder and

they were able to out 25% year-on-year

growth for some period of time if I

remember correctly it was around a 3 to

5 year um 3 to five year consistent

performance of 25 year 25% year-on-year

growth now in this particular case the

owner was looking to retire so um they

were happy to keep working um but you

know opportunistically they recognized

it was a good time to exit the business

had done well and there were enough

buyers in the marketplace that could

give them what they wanted

now in our particular case we are we are

rich with Buyers so we have the uh the

ability to match up to quite a number of

buyers at scale and you can see there

that in this particular case it was just

short of 6,000 buyers that were matched

up we had over 168 people demonstrate

some level of interest and it was

ultimately acquired by a financial news

publisher for 4 point just over four and

a half times Revenue now the interesting

thing about that process

was due to the fact that it was

bootstrap due to the fact that it was

consistently growing due to the fact

that the owner whilst looking to retire

was quite flexible in the approach they

took to the

exit it was a relatively easy pathway

for both his founder as well as the

advisory team here at flipper in going

through these buyers and and essentially

triaging them and finding the perfect

buyer now the speed at which we had to

act and the um sort of emotional

heartache um that we dealt with in the

case of the right hand side case study

was entirely different so this was a

venture-backed australian-based

influencer Marketplace um clearly they

were targeting unicorn growth aren't we

all um in this particular case they had

grown uh but the ultimate outcome for

them at least for the trailing 12-month

performance was 3 A5 million gmv so

gross merchandise value of course

Marketplace is being assessed a little

bit differently to to SAS businesses and

they had quite a high take rate um so

relatively good ability to derive

revenue from their gmv performance and

you can see that they're represented in

the form of $1.2 million trailing

12 they had a lot of Talent on the

marketplace so it was a talent matching

Marketplace matching brands with

influences and they had over 14,000

community members as a part of the

marketplace some good things going for

it um but they had to sell they had to

sell because it was Venture funded the

VCS weren't going to give them any more

money and the growth rate didn't justify

what what that business had set out to

achieve in the first

place in addition to that the founder

was tired and so this is a tricky

situation where the business owner had

essentially decided to wave the White

Flag I.E surrender can't do it anymore

I'm tired I loved this business I no

longer do I want to move on to greener

pastures and I'm looking for a safe

landing so that creates a lot more

stress and a lot more pressure for

everyone um regardless we were able to

obviously find a large number of buyers

interested in it um we don't dismiss the

fact that we were dealing with a quality

asset um but it was acquired a bit

quicker than the asset on the left hand

side and we were um a bit Limited in the

discussions we could have with our

buyers given the speed at which we had

to operate and you can see there that um

it was still a pretty good outcome I do

obviously have the net profit multiples

on these case studies as well which I

can give you over email but you can see

there that it was acquired by a highet

worth uh for just short of three times

revenue and so this is really just the

difference between preparing for an Exit

12 to 24 months out and really getting

desperate around the process that you

want an advisor or someone like a

flipper to undertake so context around

um the difference between preparing

versus having to sell could just jump in

if you don't mind there's a couple of

questions in the chat um great slide um

James has asked um what years these were

these exits were um also interested to

know rough gross margin and

IIT and Andrew has asked about their

profitability

profitability great questions the

influencer marketplace on the right hand

side was 2023 the day trading edtech

business was 24 second half of

2024 um as it relates

to um profitability on the right hand

side the marketplace was barely

profitable um we talk about

profitability on a on a seller

discretionary earnings basis where we

essentially remove non-c carry forward

costs we add those back to the p&l and

we create therefore like an adjusted net

profit line um and that's so as the

buyer understands that on a carry

forward basis those one-time expenses

are unlikely to be absorbed again that

would include things like if you um paid

for Consultants to overhaul marketing or

you paid for a one-time design exercise

that cost you a lot or perhaps you had a

Management Consultant come in so those

would be stripped out to give a better

sense of profitability on a normalized

basis

um the day trading Ed Tech business I

must have been I can't remember the net

profit margin on that but I'll certainly

can follow up VI email with

that is the demand for Us customer based

businesses higher than other countries

absolutely so short answer to that if

you have an American Centric business

you will tend to command a premium and

therefore a also appeal to a buying base

out of the US and therefore likely um be

dealing with American buyers and they

tend to be willing to pay a premium

compared to other buyers around the

world all right so moving right along um

let's just talk for a minute about

building a business with an exit in mind

now for some of you this will be pretty

rudimentary but I think it's pretty

important that we just tackle it briefly

anyway so understanding your business is

really important if you don't understand

your business to the level that you

should buyers get gunshi it is

equivalent to pitching a VC buyers will

expect the same level of detail in your

understanding of how the business

operates it is still very much about

storytelling but unlike say raising Seed

where it's about the opportunity when

you're talking to an acquirer it's very

much about financial best

practices understanding uh the

performance of your business from top to

bottom and that obviously includes your

Revenue line your cost of sales line

Therefore your GP and the GP margin it

will include capex or bet you're

unlikely to have it in your domain um

Opex and how your Opex uh translates to

business performance and then ultimately

uh should you be profitable

understanding profit margin or at least

a pathway to now the best way to achieve

that is through clean and organized

books it is surprising how many good

quality digital businesses and startups

don't have clean and organized books if

you don't have a bookkeeper get one if

you don't have an accountant get one if

you don't use QuickBooks online or zero

or the equivalent of those Cloud

Accounting Solutions use them that's

really important and it's the first

thing regardless of the opportunities

available in your business it's the

first thing a potential acquirer will

want to take a look

at the second thing as it relates to and

I assume that I'm talking to mostly SAS

Founders let me know if that's not the

case drop in various business models

that you might be representing and I'm

happy to talk about them briefly but it

also assumes that you understand the

value of your marketing and how that

translates to winning a customer and

retaining a customer the number of times

we see buyers of SAS businesses ask

about LTV to CAC and LTV to CAC ratio

and I

alignment or misunderstanding for how

that's measured and calculated or in

some cases a SAS founder who just

doesn't know can limit your ability to

have a constructive discussion with a

potential acquirer so get familiar with

your

business growth Trends from top to

bottom of funnel so what is your demand

generation is it growing is it declining

is it vlat and what are your demand

generation channels what does the funnel

look like top of funnel middle of funnel

bottom of funnel and ultimately what

percentage of your funnel do you collect

at each stage of the user Journey these

things are going to be really important

because what a buyer will want to

understand is whether there's

optimization opportunity for them or

whether you're actually running the

business to its full um possible

potential already

today operational excellence um do you

have comprehensive Sops in place now in

this particular case I imagine that I'm

talking to most business Founders and

owners who are running businesses which

are sub $10 million turnover again a

little bit different if you're operating

at scale uh but for those who are not in

most cases your time with the business

once the acquirer takes it over will

probably be limited to 12 to 24 months

post acquisition in which case they need

to know how to operate this thing and

for this size of business yes there can

be some strategics and yes there can be

some

institutionalsales

ourc but regardless they need to put

their money to work to ensure that they

realize the opportunity in the business

that they have Acquired and therefore

comprehensive Sops are

critical do you have cross trained staff

that they can rely upon um and do you

have very very well documented vendor

relationships finally as you would

expect it's all good and well to have a

great product it's also good and well to

say a Horizon 2 and three of my product

looks like this it's also good to have a

large Tam but actually through an exit

process that's a little bit different to

raising money sales solves

everything if you are not

growing and you are not protecting the

financial performance of your business

through investment in sales and

consistent ability to convert customers

to

revenue that is scary for a potential

acquirer no matter what your

opportunities look like in the

future so they want to see a growing

customer

base they want to see declining churn

actually doesn't matter we've found what

your churn rate is so long as it's not

catastrophic but you need to have a

pathway to declining the churn rate and

of course evidence over time of better

conversion rates from top to middle of

funnel well top to bottom of funnel I

should

say so moving right along let's have a

discussion about who will buy your

business and again I'm going to assume

that everyone on the call is sub 10 mil

turnover so let me know if I'm mistaken

in there and essentially um here sorry

for blat and sell for a minute but we

are benefited by seeing the data around

what these buyers look for um and who's

who in the

zoo so we have 1.6 million Global buyers

and we have over hundred billion dollars

in buyer liquidity at any given time

available to the marketplace and this

consists of side Hustlers and

acquisition entrepreneurs but more

probably pertinent to our discussion

today it includes strategics and

institutional

investors so we've got private Equity

we've got what you might call these days

micro private Equity we've got family

offices and of course we've got

strategics now there's just a couple of

brand names on the right hand side to

give you some sense of the the reach of

our Marketplace but everyone from Big

media Brands like Forbes to aggregators

like rainforest to big online Publishers

like launch potato to Big sort of

educational Tech strategics like Rosetta

Stone owned BYL to big software

aggregators like constellation which is

likely familiar to most of you to Big

private Equity like Manhattan based tzp

group now it's a very big list there's

over 6,000 strategics and

institutionalsales tension

which is a good thing alongside

strategics and fin more financial

orientated

investors cross border is really

interesting um because great businesses

are obviously credit all over the world

now and that's awesome because that's

respected it's respected that a good

Australian business can have a US Andor

Global customer base and therefore can

be just as appealing to a global

acquirer um as a local business might be

in um the location of that buyer so the

good news is that crossb deals are more

common than ever before um and you

should capitalize on a global

biobase secondly that um there are lots

of small deals done the world of exits

doesn't just revolve around unicorns and

the media that you see in the age smart

company and the AFR in fact there's

exits happening of all values all over

the world and you can see there that in

a context the average deal size is um in

the low seven

figures buyers own Brands already and

they have a good sense for what is going

to be a strategic fit for their

portfolio and that's what they're

looking to establish and understand

we'll go through that in a minute um and

of course uh you should be working

alongside uh a team of Brokers or

advisors who can help you get a deal

done we we met $1 million turnover

Aussie business yesterday um and for the

last six months they've been trying to

sell their business

themselves um no broker no assistance

and ultimately they've just gone through

a very very exhaustive due diligence

process they're very tired it's now

fallen down at the last minute and

they've now come running um to us for

some help so it is important that

regardless of whether you use flipper or

anyone else for that matter that you've

actually got some assistance by your

side okay so let's just talk about um

the slight sort of differen between

these um types of buyer and give you a

sense of the way they think about the

acquisition process so a strategic buyer

is obviously the easiest to understand

um they're going to be looking for

synergies with their existing

operations so do you slot in to one of

their existing strategic goals or do you

represent a Horizon 2 or Horizon 3

opportunity regardless a lot of people

will say ah yeah my potential acquirer

is this brand that's good it's nice to

have that view and as you probably know

when you go to raise Capital sometimes

there's that conversation about who's

the potential acquire for your

business um the reality is there's very

few strategic buyers for each business

because you do have to have good quality

alignment and also you have to have good

quality alignment at this particular

time so they're looking for synergies

and existing operations and the way to

think about that is really to follow the

news feeds for a lot of the brands that

you think might be a potential aquira

for your

business so get a sense for what they're

talking about

strategically they are often willing to

pay a premium for the right fit they'll

pay overs and this is why valuations are

tricky for businesses because the

Strategic is often not using a

traditional valuation methodology um

they'll be paying fair market value or

fair market value plus

overs and of course um they they are

looking for Market position so it might

be that your solution is a good fit for

their strategic prerogative um but if it

doesn't represent the the right

geography for that strategic prerogative

then it can be tricky so there's lots of

uh things that come into thinking about

whether the position of your business is

a good fit for that strategic acquirer

and of course a good broker Andor

Marketplace platform like ourselves will

obviously flesh that out with you h n

worths and family offices really good

buyers and coming into this space this

sub $10 million sub5 million space

really fast and we're seeing a lot of

interest from inet worths and family

officers um they're looking for subject

matter expertise uh that they don't have

already within their teams or the

existing portfolio companies they're

obviously looking for bolt-on

opportunities uh so perhaps they own a

chain of stores perhaps they need some

kind of digital cap ability to now

complement those stores perhaps your SAS

solution is that so the Bolton is really

important to the family office type

buyer um they value easy to operate

businesses your job is to make your

business sound simple to operate the

minute it's presented as complex um it's

less likely a family office buyer would

be of interest stability is key um don't

try to sell a family office the idea

that you haven't done a good job but the

opportunity is

endless um that's that's less likely to

appeal what they're looking for is a

good quality resilient business which is

shown historical performance which is

predictable and

repeatable private Equity obviously

seeking specific return metrics um they

tend to be Financial buyers therefore

they tend to use traditional valuation

methodology um they're obviously looking

for scalable operations um and they

typically whilst they are coming down

Market have very very strict uh check

size

mandates all right so um this is a

pretty important slide um many of you

for a capital race process um many of

you may be doing that right

now it's actually a

little and this is a really important

distinction between Capital raising and

the exit process

so in a lot of venture scenarios

particularly Angel and

Seed the investor is looking

for they're looking to understand you

and your capability they're looking to

understand the idea um but they're less

likely paying for historical performance

in some cases it doesn't exist at all in

some cases it's relatively

limited whereas in an exit process

regardless of good how good the

opportunity looks long term they're

actually paying for historical

performance even a strategic that's the

first thing on their mind so this isn't

Venture and you are probably again let

me know if I'm mistaken uh but you are

probably not a

unicor so key performance metrics are

absolutely critical Revenue growth rate

customer acquisition cost customer

lifetime value you should obviously know

the metrics that matter to your

particular type of business within your

industry and of course your business

model will be it I think I'm ty talking

to a SAS founder right now so need to

understand the key performance metrics

and they're the things you're going to

have to present first it's not going to

stack up if you start talking about

long-term opportunity because that's for

them to realize given that you're highly

likely to disappear within 12 to 24

months anyway not always the case but

most often the case so they avoid at

this size sub 10 mil turnover they avoid

customer concentration risk

at this size of business it's just too

risky for an acquisition to be limited

to a small number of

customers um they're likely to be a

little fearful of huge amounts of

founder or owner

dependents again different different

adventure and then of course legal and

compliance issues are quite a big no no

when you're looking to do a deal of this

size cu because it's just too costly for

them to mitigate against um and or um

lawyer their way out of a problem the

business isn't big enough to sustain

that level of risk so legal and

compliance issues at this size of exit

tend to be a bit of a no no quite a high

level slide but hopefully um Point has

come across that they pay for

performance um and of course still

consider long-term opportunity but

that's not their first pass at an

assessment

seeing a few more

questions

um there is one there um from bianu

around customer concentration risk um

what is it is it one type of customer

lack of diversity um to just

clarification there yeah so a couple of

examples we've we've seen here would be

simply number of customers so sometimes

Enterprise sales contracts are very big

and they look really attractive they're

really attractive if you can find a new

Pathway to net new logos so continue

continue to acquire those customers but

if you've got an Enterprise sales SAS

business um and you've got five four or

five customers um that customer

concentration risk is

substantial um if you've got one type of

customer that's that's less of an issue

so long as you've got a large number of

them um and the not diverse piece of it

is is probably more around the the fact

that you might have one contract type um

or one price point and so diversity of

customers by you know micro business

mediumsized business and Enterprise

sized business would be helpful albeit

acknowledge that's difficult um as well

as Geographic diversity is often helpful

um if you take something like a um a

business that orientates around digital

assets for in for instance or small

medium businesses something that just

orientates to e-commerce business owners

that can be considered a bit risky if

you're tied to a single platform like

Shopify or Amazon as a pathway to attach

yourself so those types of um risks are

certainly considered but it is nuanced

by

business all right so valuing your

business um valuan methodology um lot of

reporting on this you see a lot of

commentary about this on on socials like

LinkedIn um you can consume a lot of

white papers around this on on platforms

like medium highly encourage that

reading obviously um but in but in most

cases um whilst there are

formulas buyers will ultimately decide

based on how it fits into their business

and what they deem the risk profile to

be and how differentiated they see you

against your

compet so buyers decide fair market

value and that's a really really

important point you then get to agree or

disagree based on the number that those

buyers will um be willing to pay but of

course there are very common valuation

methods so the stte multiple that's

seller discretionary

earnings what this essentially means as

I alluded to very briefly is that your

p&l is adjusted for ADB

backs an addback is something that a

small business owner is able to do when

they uh can position past costs as nonc

carryforward costs so these are one-time

big expenses that you have had to absorb

that it's unlikely unlikely that the

strategical financial buyer in the

future will need to also absorb it

therefore can turn a SAS business that

is not declaring a profit into a profit

making Enterprise and it can give the

buyer some sense of what the profit

opportunity then looks like should they

take out some of those investments in

the business where you are investing

most mostly for growth where the acquir

is less likely to do that in the

future a revenue multiple typically very

common around fast growth SAS businesses

or fast growth Tech businesses in in

General Revenue multiples can be

benchmarked there are lots of reports we

have them as well as there are a lot of

market reports from m&a advisors who

will give you Revenue multiple guidance

for the industry and all the business

business

model um there's asset based valuation

where you essentially say for instance

I've got a large community and I'm yet

to capitalize on that Community um I

have an extraordinarily strong traffic

base and that's a that's a um aote for

me um I have some IP that IP is worth

something I have an AI algorithm which I

can demo to you that works really well

um and I have the data set which I'm

Valu

um but that hasn't been leveraged or

recognized just yet into the business's

Revenue

performance and then there's a

discounted cash flow

model now all of these things are

important but what we've found at

flipper is kind of the best Pathway to

valuation is an indicative valuation

which takes into consideration Market

comps so other businesses like yours

takes into consideration industry

specific multiples so that will be both

business model and

category takes into consideration recent

sales data so what has actually

transpired in the marketplace on a

half-on half

basis and takes into consideration Trend

analysis so how is your business

tracking against the

market now often we will have public

market multiples thrown at

us the challenge with a public market

multiple is of course you tend to be

dealing with a business operating at

scale you tend to be dealing with a um a

market environment where there is

infinite amount of liquidity I.E you can

buy and sell the

stock and you tend to be um dealing with

a business which is

clearly top one to top 10 percentile

within its concept and that less tends

to be the case in sub 10 mil turnover

businesses

that might be what you aspire to be but

it's less likely where you're at then we

often have thrown at us Venture

multiples well Venture is investing for

the future remember these buyers are

buying on past performance whilst

looking to leverage future

opportunity so it is a bit nuanced

there okay this is the scariest slide to

present because Founders get really

scared um so this is not likely as high

as you

think uh but um exiting a business which

is sub1 MIL turnover there is a large

buyer base there is a lot of interest um

it tends to be you can drive competitive

tension as a function of the price

points and how many buyers there are of

in of interest to you for your

particular type of business um but you

can see here um for the sake of brevity

I've included three business types an

Ecom business an app which is is

typically an iOS or Android app or

perhaps a a slack or slack plug-in

Chrome extension those types of things

and then of course um a traditional SAS

business now of course SAS businesses

come in all shapes and sizes by industry

by average contract value and lots of

other factors so it's clearly a generic

reference to SAS but you've got

multiples of Revenue not profit um

showing you back to 2021 half2 now there

is a little bit of a gotcha in this data

in the sense that it's clearly only our

data set so it's flippers data set so

clearly there is um other data sets that

you can capitalize on and get some

information from and some halves we will

sell a lot of SAS businesses and some

halves we will sell fewer um but you can

see back in 2022 half one that we were

selling SAS businesses on a multiple of

Revenue at nearly six

times and of course the public markets

for some high performance SAS businesses

I.E Shopify as an example in some cases

we're trading between 20 and 40

times the Market's changed uh quite a

lot uh but you can see that most

recently um 2024 half one admittedly we

haven't got the half two data here you

can see that the average multiple of

revenue for a SAS business was 3.6

times so it is softened a little bit but

there's still good value and it still is

a great and viable path to a safe

landing for a Founder who's worked their

butt off tried really hard and is now

looking to find a

pathway all right

um looks like I'm keeping to time please

let me know if that's not the case

Olivia um so we continue on here and I'm

going to just give you an example um of

a case study of a live deal to wrap up

and it will give you a sense of where a

negotiation might start and where it

might finish and it's important not to

get offended as a Founder when a

buyer makes their first

pass and so often you can go through

multiple discussions finding agreeable

terms you can then have an Loi and you

can then have an executed Loi you can

then go through due diligence get to an

asset purchase or share purchase

agreement the terms will change through

all throughout all of that as it relates

to what the buyer ultimately ends up

discovering um but it's important to

sort of um stay steady be confident in

the process and not get offended and

just run it out in a pragmatic fashion

so this is an example um again I've

deliberately used examples of sun sub

$10 million turnover businesses hoping

to be that that's the the relevant

audience for us here today and so offer

one for this particular asset um came in

at $4 million Enterprise value on a $5

million

ask the terms are important to recognize

a lot of the times those less familiar

with the exit process think that four

mil e Enterprise Value is four mil

cash not the case uh for Mill Enterprise

Value in this particular case was best

represented by 2.5 UPF front and a 1 .5

million

earnout and the performance measure was

the trailing 12 ebar performance of the

business okay so what the buyer wanted

to do was protect the assets

performance and hedge against downside

risk and they tied that to

iar and instead of forecasting growth in

the business given the macroeconomic

geopolitical environment that we are

living in currently where there's a

little bit of uncertainty the buyer was

willing to tie that to the trailing 12

versus um a forward-looking performance

measure the founders had to stay on for

12 months minimum and there was a

120-day due diligence process now that's

very tiresome and burdensome for all

involved where we ended up getting to

um says offer two there it's really

offer three or four um there were

multiple in between but the ultimate um

outcome for this particular business was

a slightly improved EV at 4.35

mil um that says

8.75% um asking price that's not the

right reference there it's 8.7% 75%

increase on the 4 mil EV from offer one

you can see there the terms have

slightly changed to 2.85 mil up front so

the broker was able to get a little more

out of the buyer to reward the founders

upfront and then there was again that's

stated incorrectly there so apologies

for that but that's a 1.5 mil earnout

and the difference here

is that the founder loses a little bit

of control over the iaar business the

minute that the assets change

hands because in theory whilst it's

unlikely you could have a buyer who

throws a bunch of cost into your Opex

line and therefore

um impacts the Eid performance of the

business and so we wanted to tie this

closer to

revenue and so in this particular case

the terms of the earnout same Quantum

1.5 excuse the uh the error there was

subject to the trailing 12 GP so gross

profit which in this particular case was

obviously Revenue Minus cost of

sales Founders salaries were then added

to the deal um so in addition to the

earnout the broker was able to negotiate

on behalf of the founders very very good

uh fair market fair market value

salaries for each of the founders so

that they were heavily incentivized on a

day-to-day basis in excess of the

earnout opportunity and we reduced the

120-day DD period down to 60-day and put

a bit more pressure on the buyers to get

the deal done so ultimately um

negotiation strategy is to to to know

your walkway price have a view of what

that is uh structured deal terms

obviously favorably which can include

multiple things including upfront

including earn outs or or different

structures as well as in this particular

case founder salaries tend to help ease

the

blow um consider earnout potential and

and the way in which that's structured

and then of course plan for a transition

period because the number of Founders we

meet who say look I'd like to be out of

this business in three months I've

really had it um that's less likely to

fly and so you want to plan for a

transition

period okay that's it I'm going to stop

there because we've only got nine

minutes left and no doubt there's a few

questions so hopefully that was helpful

for everyone and and thanks again for

your

time great great great session Blake

thank you very much um heaps of really

useful information in there there are a

couple of questions um Bianca has put a

question in uh what is a good or what

what is a good or considered to be good

ebit percentage of revenue for an

e-commerce

site first

one

uh good question you I mean good as in

high performance would be 15 to

20% okay

um satisfied Bianca can move on to Nick

yep um how would the earnout typically

be

structured uh All or Nothing if you miss

the target trenches along the way or

something

else yeah so in that particular deal it

it is All or Nothing um but it will tend

to be structured so you will tend to

have um something like 75% of

performance 85% of performance 95% of

performance 100% of performance and then

over

um that will tend to be what you'll see

and so you'll see a table in the asset

and or share purchase agreement which

basically governs that um the other

thing is uh you can have what what a lot

of acquirers will will more simply

defined as a stability payment and it

will simply say that if if performance

achieves x% of trailing 12 then the

earnout is paid so for example 90% of

the trailing 12 performance if that was

achieved then the earnout would be

paid thanks Blake um one from Remco What

proportion of your ultimate buyers are

based in each of these regions Au EU

us so we have um our dominant Market is

the US um now frankly part of that is

flipper strategy so we're not suggesting

that there's not a lot of opportunities

all over the world and it's there not

bias for everyone there of course is um

but flip strategy is geared toward the

us so we have an over supply of North

American buyers um however the good news

is that across Europe and across Asia

including Australia there is um a fast

growing buyer Network um and we are

seeing more uh private Equity become

attuned to the idea of buying digital to

complement their their traditional

Industries and their traditional buying

strategy so plenty of buyas for everyone

thank you um James at Moville has told

us he's got a million questions and it

was a great presentation um he has got a

question here if you have an aspiration

for a strategic exit in 3 to 5 years how

and when would you suggest trying to get

a potential strategic on potential

strategics

Radars it's a really good question kind

of ask myself that ask myself that um so

part of what I would um do is is think

about it as a funnel

so top of funnel is you know who are all

of the potential buyers for your

business um middle of funnel is what is

the um least path of resistance to get

some kind of deal going so can you do an

event together um can you forge a

strategic partnership where there's a

referral agreement in place um can you

build into their app Eco system let's

say for argument sake you think that

zero uh the cloud accounting software

provider here in Australia is is a good

potential exit Target for you um build

to their app ecosystem then attend their

Road shows attend um zeroc con which is

the zero uh conference so so start to

build rapport and relationships with the

executives that are going to be able to

have an influence when that decision and

ultimately when that opportunity arises

for you um so a lot of it just comes

down to being tactical and over a three

to five year period of time ensuring

that you're in the right place at the

right time that's a probably bit of a

cop out of an answer

right um to the point as always Matt

Allen what's the largest exit you've had

on flipper 35

mil good one Ally what's your advice to

Founders who are approached by a buyer

uh but they know it's the wrong time too

early in the optimization

process yeah it's interesting depends on

um how interested the buyer is and and

whether you can get um the type of De

deal done that you think is going to

reward you today and into the future I

mean a bird in the hand right now is

pretty good and I would have that

discussion and I'd take it to the end

and then reserve the opportunity to say

no but I would not flat out reject um

someone who approaches you I just think

that there's there's too much at stake

and you don't know where your business

will be in 12 24 or 3 years time the

number of times we've seen um business

owners say to you say to us look this is

fantastic fli we'd actually love to come

back and work with you in three years

time 12 months passes and the business

is actually in less good shape so if

your business is doing well now um

that's a good time to contemplate an

exit now of course if you're growing 200

300 400% year on-ear that's a different

story and I totally respect that

position

um matter backs out get to term sheets

fast no need to take anything the second

liquidity window often doesn't open um

is this a question from theme we're

considering a crowd fund and wonder how

buyers view crowdfunded businesses

otherwise

bootstrapped yeah they're fine so long

as your cap table isn't crowded with

hundreds of shareholders who you need to

seek approval from so long as you're

giving away ords or you're doing it by

way of an SP PV um or you're not even

giving away Equity then it's it's looked

upon favorably because there's a um a

large number of people who have um

solidified your idea and and given you

the money to keep going so no no issue

there great one from Goose how often

can't see it how often is it a 100% sale

versus majority minority sale with a

transfer of

control in a flipper world it's mostly

100% in a flipper World um now we we do

see obviously deals done where it's 60

70 80

90% um but typically it's a full

transfer of control um it's either 100%

asset sale or 100% share

sale great another great one from Bianca

do you have a support service where you

can help us get ready to sell help us

get our story ride or tell us what

metrics we should show off or even can

we discuss our current operations uh

with you and you tell us any areas that

the buyer might not like or see risks in

because it's

hard yeah so we're all good and bad at

some things I'd say flipp is less good

at that piece of it currently there are

a couple of recent additions to our

business which people should check out

we do now have flipper University um

there's two courses there um and it's

free for uh Founders operators and those

looking to exit um so there is a

um a seller boot camp it's it's free

it's four hours in length you can do it

on your own time you can check off the

modules um and what you will essentially

go through is the exit process from end

to end with a gentleman uh who sold his

business for low seven figures um he's

also an experienced buyer on our

platform and he will take you through

that end to endend it's free it's well

worth a look the other thing is and and

sorry for the the blatant um sell Olivia

but we have the exit podcast and the

exit podcast is guests of lots of

Founders not flipper um business owners

who have sold their businesses and they

tell their stories of how it came about

and the process that they went through

there's over 200 episodes 180,000 plus

listeners per episode it's very popular

check it out it's obviously free and

there's a new episode each

week that's great um I'm copying those

um links thanks Tori we will um add

those um to the recording um in our um

slack workspace make sure all the

founders get it I that's a great Blake

um unless there is any one maybe one

final burning question it is time I know

many of you will have to rush off to

meetings otherwise I will wrap it up um

thanks Blake re-shared your email

address um great session um it's one of

the one of the sessions where I can walk

away and say yep we nailed that um

nailed the topic nailed the uh presenter

um and the indication um of that is the

amount of questions that come at the end

of the presentation I'm sure you'll hear

from many Here Blake thank you for your

time your expertise um in preparation

and here right now today um quick uh

update on our next master class uh TBC

date lik it it'll be the 26th of March

at 12:00 p.m. it is on pricing

strategies it'll be another excellent

master class we'll get it into your

Diaries um in the next week um lots of

thank yous going on in the chat um once

again Blake thanks everyone else thanks

for joining uh great to see so many

familiar faces um lot of lot of tractors

online I think I won there um Alex uh

anyway that's it we can all take off I

will share the recording have a great

day on your way