Margins, not momentum, to drive web M&A
Article Date: Nov 12 2008
Traffic growth is no longer the main goal
Potential acquirers of young web ventures rate profitability above page impressions, according to Ben Holmes, a partner at Index Ventures.
Speaking at an event in London yesterday, Holmes said, ‘Entrepreneurs may look back at the [earnings] multiples seen a few years ago and think they are still appropriate when trying to sell their business. Unfortunately, they’re not.’
He added, ‘In the current downturn, the emphasis [for potential acquirers] is on margin expansion, not traffic momentum as it was last year.’
At the same event, entrepreneur and business angel Doug Richard agreed with Holmes’s view.
‘The CEOs of public companies are going to be obsessively focused on maintaining their earnings,’ Richard said. ‘You are more likely to be acquired [by such a company] if you can demonstrate the potential for earnings amplification.’
Richard added, ‘It’s not about driving revenues or momentum now, but showing profit – and that’s not necessarily your profit but potential profit [in the hands of the acquirer].’
Holmes and Richard were speaking at Essential Mediatech, an event aimed at early-stage web companies and investors in the sector.
