It has been a cold winter in dotcom land, with many a stricken Internet start-up sending out SOS signals, launching distress flares and manning the lifeboats.
What had appeared to be agile, sleek ocean- going liners in early 2000 have now materialised as flimsy hulks, holed beneath the waterline by a lack of robust business planning and inward investment.
Likewise, valuations that had leapt into the millions at the beginning of last year have now plummeted to a mere fraction. The problem with valuing companies according to their potential earnings is that they take a hiding when reality proves to be a little less rosy than predicted.
The question then, is whether something can be salvaged from the wreckage? Or will the talent, technology and knowledge accumulated by these firms sink Titanic-like into the murky depths of business failure?
According to Jim Tucker, director of corporate recovery at consultancy KPMG and the lead director in the insolvency of European online fashion retailer Boo.com, there are opportunities out there.
“There are a number of companies struggling to raise the funds that their business plans said they would need [if they were] to survive and break even. You can pick up a start-up now for much less than you could in the early part of 2000.” Tucker believes that the large number of dotcoms up for sale is partly down to the fact that they did not plan for anything but outright success. “Companies that are in a bad situation need a robust plan B or C for when trading goes off plan. This is a key attribute for any business, especially for startups.”
The key, says Tucker, is having enough time to make a difference. “The more time you have to work on plan B or C, the more chance you have of resurrecting a company.”
Tucker and the KPMG team were called into Boo.com on the night before it was wound up and put into liquidation. Once a company has reached this stage, there is nothing left but to get the best price for its parts.
“Once a company is in liquidation, there is a great deal of uncertainty – we had a very small window to sell Boo’s assets.”
But it is not only business failure that can bring a dotcom and its assets to the market. Many of those that are up for sale are thriving small businesses that have just gone as far as they can under present ownership. They may be run out of someone’s bedroom on a limited budget, or perhaps the proprietor wishes to move on to another challenge.
“There will always be a market for people wanting to buy and sell companies and their assets,” says Marcus Markou, managing director of Businessesforsale.com. His company reacted to the increasing number of Internet start-ups seeking buyers by setting up a dedicated New Economy section of the website last December. It currently has 300 firms for sale in this part of its site.
“We think that this market will be particularly intense for the next 18 months,” he adds.
Another website, Tradeyoursite.com, launched last October, has specifically targeted the dotcom market. The Belgian-based site also lists dotcom assets such as domain names, databases, mailing lists, technology and staff.
Apart from websites like Businessesforsale.com and Tradeyoursite.com, buyers seeking to pick up a dotcom and its assets on the cheap can also go through the traditional channels, says Tucker.
“Once companies go bust, most receivers advertise them for sale in the Financial Times’ Businesses-for-sale section. There are quite a few at the moment. We also contact companies that we think may be interested.”
Once in liquidation, dotcoms and their assets are likely to be worth much less money. The single saleable asset for most such companies will be their intellectual property – their brand, domain name, database and the knowledge of staff that worked for the company. Most dotcoms lease their premises, office furniture and computer equipment and don’t have much in the way of inventory. The sale of these assets needs to take place quickly and is usually done in a sealed-bid process. Companies wanting to take part in such auctions need to move fast, says Tucker, describing the sale of Boo.com’s assets in Recovery, the magazine of R3, the Association of Business Recovery Professionals.
“Unfortunately, a number of very-well-known companies in the IT sector and retail sector who had expressed an interest in the business were unable to proceed in the timeframe available. We were left with only a short list of parties who were willing and able to proceed quickly.”
A number of high-profile deals have already proved that there are bargains to be had.
E-commerce outfit Bright Station obtained Boo.com’s much-vaunted fulfilment technology for £250,000, together with some of its programmers, while US company Fashionmall, bought the domain name and trade mark rights.
Similarly, retailer Great Universal Stores snapped up online IT systems retailer Jungle.com for £37m, a snip compared to its pre-crash valuation of around £700m.
“If you are being clever, you are buying technology, functionality and traffic on the cheap,” says Markou. “I know how much this costs from setting up our own site.”
Judging from the publicised deals that have taken place so far, most of the buyers swooping on dotcoms and their assets have been retailers seeking to augment their existing online operations, or e-commerce suppliers seeking to pick up some technology on the cheap.
However, with more and more dotcoms sticking up the For Sale sign, voluntarily or not, there must surely be opportunities for everyone.
Businessesforsale.com’s New Economy section has around 300 companies for sale, only some of which are start-ups that are in financial trouble. The site charges an up-front fee for companies to join its listing – the standard rate being £30 for 2 months, with a premium rate of £50 to be listed on the front page for 24 hours.
Interested parties just click on an email to contact the sellers. Larger companies that are for sale will be referred to agents or chartered accountants, with Businessesforsale.com taking a cut of any sale price.
Examples of companies for sale:
Definingedge.com, a UK housewares site with 3,000 visitors per month, a burn rate of £35,000 a month and an asking price of £600,000. CD Europe.com, an online music store with annual sales of $300,000 and an asking price of $850,000. The B2B computer trade website has predicted annual revenues of $1m and an asking price of $2m.
Tradeyoursite.com is a public auction-site launched in October 2000. It specialises in selling dotcoms and their assets – domain names, databases, mailing lists, technologies and teams. CEO Solon Ardittis says it is free to advertise on the site, but a 5% commission fee will be charged on any successful sale.
Example of sale items: UK gardening portal, Gardenexchange.co.uk; asking price of $5,500. US business portal; asking price of $1,000,000. Biotech investment site, bioshares.com; asking price of $100,000.
Domain name, coolnetstuff.com; asking price of $2,000. Museums database; asking price of $1,500
Grabbit: Dotcoms for sale
This was first published in February 2001