Buying a Daily Deal Business

There seems to be plenty of activity in the buying and selling of daily deal sites of late. We wrote a little about it in a previous post. Most recently and noteworthy was the acquisition of Buywithme by Gilt Groupe in the US, Given that Buywithme was seen as the 3rd largest deal site, that is an interesting occurrence. What transpired was that Buywithme simply ran out of money. Their costs were way too high and growth too slow to motivate their executive team and investors and VCs to keep going. Gilt Groupe swooped in and essentially saved Buywithme from further dissaster. (some of the VCs who funded Buywithme also invested in Gilt Groupe)

In Canada, there are several sites for sale right now across the country and several more that will be up for sale over the next few months as owners of Daily Deal sites realize that their fortunes will not be made in this industry. Costs are too high to grow the business and acquire new customers and merchants. Nevertheless, for those that can obtain customers, have access to merchants, and know how to operate a lean business,  then this industry can be lucrative. For those that still have the stomach and the balls to enter the daily deal space, the question of do I start from scratch, do I buy an existing site or do I follow another strategy is always present. We would like to share the following seven strategies in terms of evaluating how to enter the Daily Deal business. Give us a call if you would like to go over them in more detail.

 

  1. Buy a smaller daily deal site. There will be many that would be willing to sell over the next few months as the owners realize that their budget limits them from growth, yet they already have some subscribers and merchant relationships and revenues. I would not buy any site that does not already produce $30k per month in gross revenues.
  2. Consolidate many small sites, start a new brand or takeover an existing brand that makes sense from the sites purchased. Example, buy 4 sites, each with 50,000 subscribers…This strategy will cost less than buying a larger site with 200k subscribers.
  3. Buy a more established site. Buy a site with 150k subscribers or more and over 150k per month in sales. This will cost more but enable you to be in the game immediately.
  4. Buy an aggregator. More and more people are buying from aggregators, but 90% of them have no budget and thus will stay small. So unless you can significantly scale..don’t bother. But if you can scale, then an aggregator lets you build an audience without the risk if getting deal inventory yourself or hiring sales reps and you earn around 15% on affiliate fees. If your audience gets large enough, you can offer your own deals once and a while in order to increase revenues.
  5. Consolidate various smaller aggregators across the country. In order for you to make any kind of stable money, your aggregator needs to have over 100,000 subscribers.
  6. Buy larger consumers portals with large audiences across the country and then start and aggregator to offer this audience all deals pertaining to their interests. Use an aggregator white label technology to do this. These can be restaurant portals, spa portals, Golf, activities, etc
  7. Same as # 6 except launch your own deal service through the portal.

 

So how do you value a deal site or an aggregator? Depends. You can focus on classic multiple of EBITDA, or another financial measure.  There is financial value to determine, branding value and perceived value. But it really comes down to 3 things: number of subscribers, revenues per month and gross profit.

As always, you get what you negotiate.

If you are looking to sell you daily deal business, contact us. We have interested buyers.

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