Frank Kosarek is the co-founder of BizPort, a mergers-and-acquisitions market launched in November 2025. Earlier than that, he was head of acquisitions for a big ecommerce aggregator.
He says patrons of ecommerce companies immediately give attention to discretionary earnings, not income, and search recurring gross sales, equivalent to subscriptions.
He addressed these gadgets, the state of ecommerce M&A, and extra in our latest dialog.
Our total audio is embedded under. The transcript is edited for size and readability.
Eric Bandholz: Who’re you, and what do you do?
Frank Kosarek: I’m the co-founder of BizPort, a market that helps founders exit their firms. I lead BizPort’s ecommerce division, connecting patrons and sellers. Earlier than BizPort, I used to be the pinnacle of mergers and acquisitions at OpenStore, an aggregator in Miami, the place I acquired about 50 Shopify manufacturers. That have uncovered me to ecommerce transactions and what founders ought to and shouldn’t do when getting ready to promote their companies.
One of the vital ideas in exits is the vendor’s discretionary earnings. It’s the muse of most ecommerce valuations. SDE begins with an organization’s annual internet revenue (what’s on the tax return), then provides again the proprietor’s wage and advantages, and any one-time or non-recurring bills.
For instance, if a enterprise earns $250,000 in internet revenue, the founder pays herself $100,000, has $40,000 in advantages, and incurs a one-time $10,000 authorized expense, the SDE could be about $400,000. That quantity is then multiplied by a valuation a number of, sometimes 2x to 2.5x for many ecommerce manufacturers, and as much as 5x for class leaders.
The most effective recommendation for founders is to trace SDE month-to-month. Know your true internet revenue and add-backs. It provides you a transparent image of development and future valuation.
Eric Bandholz: What’s the demand for ecommerce acquisitions?
Frank Kosarek: Ecommerce skilled excessive acceleration in 2020. We noticed years of development compressed into about 12 months as Covid reshaped shopper conduct. Throughout that interval, valuation multiples elevated, and plenty of ecommerce companies launched that most likely shouldn’t have. Some lacked product-market match or a reliable, repeat buyer base.
What’s modified since then is purchaser conduct. Aggregators, particularly, have pulled again or refined their methods. Consequently, sellers can now not assume there’s a simple, fast exit ready for them. Acquirers are extra selective and extra disciplined about what they purchase.
Corporations that exist at high multiples are likely to resemble subscription companies. A one-time buy product, equivalent to a youngsters’ tricycle, doesn’t create a lot long-term worth if the shopper by no means returns. Evaluate that to classes equivalent to skincare or dietary supplements, the place shoppers can subscribe and reorder. Patrons focus closely on lifetime worth and the way a lot income they’ll generate from a buyer after paying to amass them.
That’s why manufacturers with out repeat or subscription-driven income typically see leaner valuations, whereas sturdy subscription-heavy manufacturers can nonetheless command multiples nearer to 5x SDE.
Eric Bandholz: What’s the minimal income stage to promote an ecommerce enterprise?
Frank Kosarek: At BizPort, we typically search for manufacturers doing at the least $1 million in annual income earlier than getting concerned. At that stage, ecommerce margins normally present sufficient money movement to underwrite a transaction, whether or not by way of a mortgage, capital injection, or each. That’s sometimes the minimal dimension the place an acquisition turns into possible.
When annual income reaches $30 million, potential patrons embody non-public fairness corporations or bigger strategic patrons. These acquirers usually tend to consider companies utilizing income multiples as a substitute of earnings multiples. There isn’t a tough line, however it’s an vital distinction for founders to concentrate on as their manufacturers scale.
Eric Bandholz: How do founders separate private attachment from truthful market worth?
Frank Kosarek: M&A for small ecommerce manufacturers is rather more artwork than science. There’s no one-size-fits-all deal construction. Most ecommerce founders have very excessive expectations for his or her firm’s worth, typically pondering in massive multiples of income.
That’s comprehensible as a result of constructing a model from the bottom up requires an enormous quantity of labor, a lot of which doesn’t present up on an revenue assertion. That effort is intangible, and out of doors patrons can’t absolutely admire it from financials alone. Plus, many founders don’t understand {that a} a number of of discretionary earnings, not top-line income, sometimes values ecommerce companies. That always results in a actuality verify.
Eric Bandholz: How typically do earn-outs fail?
Frank Kosarek: Some sellers need a full exit with no ongoing involvement, and patrons typically perceive that. Nonetheless, a sensible purchaser will normally negotiate a transition interval, typically three to 6 months, to assist switch operations and institutional information. Further help can flip right into a short-term consulting settlement through which sellers obtain a hard and fast month-to-month payment. In that case, sellers now not have fairness or performance-based upside; they’re merely serving to with continuity.
I’ve seen conditions the place sellers and patrons conflict operationally or strategically. When that occurs, earn-outs typically endure. Sellers miss targets and don’t obtain extra payouts, and patrons battle as a result of the transition doesn’t go easily.
Bandholz: What can cease a deal or damage valuation?
Kosarek: One main piece of recommendation for sellers is to promote when your numbers are sturdy. Don’t wait till efficiency begins to say no or the market turns towards you. Be open to exploratory conversations, particularly after a banner 12 months. Ready till the curve crashes makes exits a lot tougher.
One other widespread mistake is overspending on advertising to inflate top-line income. For smaller ecommerce manufacturers, valuation is often based mostly on revenue, not income. Pumping the highest line on the expense of the underside normally doesn’t earn a premium.
One other crimson flag is a scarcity of operational construction. Patrons don’t need to stroll right into a enterprise and need to construct the whole lot from scratch. They need to see techniques and processes in place. That features working with a third-party logistics supplier for achievement and returns, clear possession of selling features, and documented processes.
Patrons’ confidence within the deal will increase after they can rapidly perceive how the corporate operates and distributes work.
Bandholz: The place can individuals observe you, attain out to you?
Kosarek: Our website is Biz-port.com. Yow will discover me on LinkedIn.
