Possible Acquisition: Sell or Hold

[webuniverse]

Hello everyone.

I run a popular website in a certain niche and was recently approached by a large company about selling it. I see that many website owners frequent this forum, so I wanted to ask for an opinion/advice on the sale. I am still undecided as to whether I should sell or keep the site. To make the whole story short and straightforward, I am providing all key insights below.

1) Monthly visits/pageviews: 900K / 15M
2) Annual revenue: $240K (AdSense 75% + Direct Advertisers 25%). Annual profit: $235K.
3) Overheads: none, except 30 minutes of work per day.
4) Loyal, repeat audience. Somewhat a brand - 15% of the traffic is type-in traffic; plus, four out of the top five keywords that bring in traffic are variations of the domain name.
5) It has been growing over the years and does have further potential, has not hit the niche ceiling.
6) Proposed Offer: 2.35 million, cash

Would you sell or hold? Thanks for the advice.

[koan]

10 times your annual profit? I think people here will tell you it's a generous offer.

[webuniverse]

Correct, the offer is not bad from the profit-only perspective. The earnings, however, have been doubling every year for the last three years and are growing on a monthly basis. While $2.35M is a desirable amount of money, I do not see why the site could not become a $400K-a-year effortless cash machine by 2012. This is the main concern.

[jinxed]

You can never predict the future, anything may happen.

Personally I would say you have a very fair offer on the table. But if you think you can make more in that 10 year period - decline it.

[LifeinAsia]

While $2.35M is a desirable amount of money, I do not see why the site could not become a $400K-a-year effortless cash machine by 2012.

So you're talking about 6 years to "break even" from the offer on the table. A lot can happen in 6 years. A lot can happen in just one year. My vote would also be to take the offer.

[Jane_Doe]

I'd jump on it. Then either work on some of your other sites or start some new ones.

[wheel]

I'd snatch the money out of their hands so fast I'd leave them with papercuts. You're selling a non-tangible, repeatable asset in an industry where good offers are few and far between. There's a pretty good chance you'll never see another offer like that again.

You'll have a bit of melancholy after selling a site like that, but you get over it :).

Congratulations!

[Swanny007]

There's more to it than that... yes, a 10-year valuation is a fair one IMHO. However if you still enjoy running the site, you'd be stupid to sell now. If you don't mind running it for even 1 or 2 or 3 more years that offer could be much higher. If past performance shows you that you are one of the leading sites in your niche you probably have a very good chance of staying there and making more money.

I too have some high-value, high-profit sites, but since I still have interest in running them, no amount of money will make me sell. Not right now. I had an offer to sell my largest site about 3 years ago. I turned it down and I'm making WAY more money today. I'm VERY glad I DIDN'T sell. It's worth a lot more now. And I still get contacted by that company at least once a year, to see if I'm interested in selling (may be the same company who made an offer to you!).

In terms of the offer, it's fair. But is it the right time to sell, for you? Only you can answer that.

I would be curious to know:
- How old is the site?
- How long have you been running it?
- Do you want to walk away from the site?
- Do you still have interest in running the site?

Based on the 1/2 hour a day work for 235K/year profit? Are you crazy? Don't sell!

Also, keep in mind how much tax you would pay if you sold now. How much of that $2.35M would you actually be left with? Around these parts I would wind up paying up to 44% in tax to the government!

[webuniverse]

You're selling a non-tangible, repeatable asset in an industry where good offers are few and far between.

Actually, offers come every now and then. In the span of the last four months there were offers from other parties, one of which was from a public company. In fact, the very last offer that I declined a month ago was 1.7 million.

[webuniverse]

If past performance shows you that you are one of the leading sites in your niche you probably have a very good chance of staying there and making more money.

Exactly right. The website is the second in the market niche, after the leader, and has been catching up with them. Moreover, I have the information that a direct competitor site that is slightly lower in traffic than mine was crazy enough to ask for an eight digit number. But they do make more money, meaning that my site is still somewhat "undermonetized."

Based on the 1/2 hour a day work for 235K/year profit? Are you crazy? Don't sell!

Yes, this is another very strong point that I am debating, especially when you see websites that make a million in revenue but zero in profit due to overheads only to get acquired at x25 revenue multipliers.

I would be curious to know:
- How old is the site?
- How long have you been running it?
- Do you want to walk away from the site?
- Do you still have interest in running the site?

- 7 years old
- 7 years
- Yes, I can
- Yes, I have

[wheel]

Well, it's personal consideration then :), whatever suits you best.

As I've noted previously, I have a client who got offered a good chunk of change from Yahoo for his domain. He declined, waiting for the big bucks. Today he wouldn't get 1/10th of what the original offer.

And you may not be at the top of the serps forever. Three or four of these suitors decide to drop $500K over the next year or two, and your revenue can change quickly. There's something to be said for 'potential', there's also something to be said for the opposite - the revenue can dry up fast.

I had a guy call me years ago who bragged about his large house. He called it 'the house that Google built'. He made out like a bandit for a few years, top of the serps for a competitive industry. Then one day his rankings died and never came back. He'd put enough away that he wasn't too concerned. So there's always the 'bird in the hand' consideration as well. If you sell, and the rankings drop in 2 years, or 3, or 4, you've still got 7 figures in the bank :).

[brotherhood of LAN]

whatever suits you best

That's it, though a very generous offer all the same.

Consider how a cut to your traffic sources (google penalty or re-ranking for instance) would affect you if you owned the site, this makes a 10x earnings offer seem more generous considering it can happen at any time. Traffic from them is very easy to get used to.

Saying that, not many sites will get as much type-in traffic as you do.

Perhaps also consider if the niche has the same earning potential in 10 years?

[Sparrow Nine]

I had a similar situation a few years ago and I sold. I was offered 10x and pushed for 15x, even though I was penniless at the time. I was happy with the income to be honest, but I was nervous about what the future would bring. The internet moves fast. The clincher in the end was the tax rate. In the UK I was paying an effective 45% income tax + national insurance whereas with the sale I paid 10% flat capital gains. This meant it would take me 20 years to earn the same return in income (of course I would still have the website too). But it was a great move, and I don't regret it one bit. I miss working on the site though, it was my baby...

[BillyS]

It's a personal decision. Not sure what you're really looking for here with this post. In fact, I find it pretty strange.

If you're asking for personal opinion, given what you're saying, I wouldn't sell.

[bmcgee]

These numbers look made up to me. The offer is 10x your profit? Was the offer based on knowing what your profit is?

Further, you've got 240k revenue and only 5k expenses?

And you are not willing to take 2.35M guaranteed as opposed to risking it that you can maintain your revs for another 6-10 years?

Ok

[Jane_Doe]

These numbers look made up to me. The offer is 10x your profit? Was the offer based on knowing what your profit is?

Further, you've got 240k revenue and only 5k expenses?

And you are not willing to take 2.35M guaranteed as opposed to risking it that you can maintain your revs for another 6-10 years?

You forgot to mention that he is a first time poster and the site only takes 30 minutes a day to keep up!

Nice work if it for real, but it does seem improbable.

[buckworks]

Numbers like that are not common, but are indeed possible. I say that from personal experience.

The most important advice so far in this thread is being sure to compare after-tax dollars when making the decision to sell or hold. Consult with an accountant who has strong experience in the disposition of intellectual assets in your country.

Another factor to consider: what would happen to the site if you were hit by the proverbial bus? Who besides yourself depends on that income stream? Do you have a succession plan in place so that someone else could step in, operate the site and make sure the income continued to benefit your family? If not, that would be a point for the "take the money and run" column.

[webuniverse]

bmcgee: Yes, $240K revenue and $5K in expenses (mostly hosting). The traffic and earnings numbers are quite common for UGC-websites that run on "autopilot." In fact, in 2007 I sold one of my other sites that operated a similar business model to Internet Brands out of El Segundo, CA. The multiplier in that sale was higher than 10x.

Jane_Doe: The assumption that a number of posts on this forum is somehow proportional to a degree of success is somewhat irrelevant. In fact, one of the reasons I barely post in the forums is due to the trolling behavior of their inhabitants.

buckworks: This is correct, tax-wise we are speaking about 35% (ordinary income) vs. 15% (capital gain).

I am more inclined to sell now. So thanks, everyone, for the input, and with all that, I am stepping out.

[maximillianos]

I was in your same boat. Decent offer (not as good as yours). Spent ten grand in legal fees preparing for the sale.

4 days before closing Panda hit (Googles latest algorithm update). My site got caught up in it. Sale fell apart.

Take the deal. You never know when your going to take a hit.

The positive side of keeping the site for me is that I had not figured out my next thing. So I still have my sites. :-)