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Frank Kosarek is the co-founder of BizPort, a mergers-and-acquisitions marketplace launched in November 2025. Before that, he was head of acquisitions for a large e-commerce aggregator.<\/p>\n
He says buyers of e-commerce businesses today focus on discretionary earnings rather than revenue and seek recurring sales, such as subscriptions.<\/p>\n
He addressed those items, the state of e-commerce M&A, and more in our recent conversation.<\/p>\n
Our entire audio is embedded below. The transcript is edited for length and clarity.<\/p>\n
Eric Bandholz: <\/strong>Who are you, and what do you do? Frank Kosarek: <\/strong>I\u2019m the co-founder of BizPort, a marketplace that helps founders exit their companies. I lead BizPort\u2019s ecommerce division, connecting buyers and sellers. Before BizPort, I was the head of mergers and acquisitions at OpenStore, an aggregator in Miami, where I acquired about 50 Shopify brands. That experience exposed me to e-commerce transactions and what founders should and shouldn\u2019t do when preparing to sell their businesses.<\/p>\n One of the most essential concepts in exits is the seller\u2019s discretionary earnings. It\u2019s the foundation of most ecommerce valuations. SDE starts with a company\u2019s annual net income (what\u2019s on the tax return), then adds back the owner\u2019s salary and benefits, and any one-time or non-recurring expenses.<\/p>\n For example, if a business earns $250,000 in net income, the founder pays herself $100,000, has $40,000 in benefits, and incurs a one-time $10,000 legal expense, the SDE would be about $400,000. That number is then multiplied by a valuation multiple, typically 2x to 2.5x for most ecommerce brands, and up to 5x for category leaders.<\/p>\n The best advice for founders is to track SDE monthly. Know your actual net income and add-backs. It gives you a clear picture of growth and future valuation. Eric Bandholz: <\/strong><\/strong>What\u2019s the demand for e-commerce acquisitions?<\/p>\n Frank Kosarek:<\/strong> E-commerce experienced extreme acceleration in 2020. We saw years of growth compressed into about 12 months as COVID-19 reshaped consumer behavior. During that period, valuation multiples increased, and many e-commerce businesses launched that probably shouldn\u2019t have. Some lacked product-market fit or a dependable, repeat customer base.<\/p>\n What\u2019s changed since then is buyer behavior<\/a>. Aggregators, in particular, have pulled back or refined their strategies. As a result, sellers can no longer assume there\u2019s an easy, quick exit waiting for them. Acquirers are more selective and more disciplined about what they buy.<\/p>\n Companies that exist at top multiples tend to resemble subscription businesses. A one-time purchase product, such as a kids\u2019 tricycle, doesn\u2019t create much long-term value if the customer never returns. Compare that to categories such as skincare or supplements, where consumers can subscribe and reorder. Buyers focus heavily on lifetime value and how much revenue they can generate from a customer after paying to acquire them.<\/p>\n That\u2019s why brands without repeat or subscription-driven revenue often see leaner valuations<\/a>, while strong subscription-heavy brands can still command multiples closer to 5x SDE.<\/p>\n Eric Bandholz:<\/strong> What\u2019s the minimum revenue level to sell an e-commerce business?<\/p>\n Frank Kosarek:<\/strong> At BizPort, we generally look for brands doing at least $1 million in annual revenue before getting involved. At that level, ecommerce margins usually provide enough cash flow to underwrite a transaction, whether through a loan, capital injection, or both. That\u2019s typically the minimum size where an acquisition becomes feasible.<\/p>\n When annual revenue reaches $30 million, potential buyers include private equity firms or larger strategic buyers. Those acquirers are more likely to evaluate businesses using revenue multiples instead of earnings multiples. There isn\u2019t a hard line, but it\u2019s an essential distinction for founders to be aware of as their brands scale.<\/p>\n Eric Bandholz: <\/strong>How do founders separate personal attachment from fair market value?<\/p>\n Frank Kosarek:<\/strong> M&A for small ecommerce brands is much more art than science. There\u2019s no one-size-fits-all deal structure. Most ecommerce founders have very high expectations for their company\u2019s value, often thinking in large multiples of revenue.<\/p>\n That\u2019s understandable because building a brand from the ground up requires a tremendous amount of work, much of which doesn\u2019t show up on an income statement. That effort is intangible, and outside buyers can\u2019t fully appreciate it from financials alone. Plus, many founders don\u2019t realize that a multiple of discretionary earnings, not top-line revenue, typically values ecommerce businesses. That often leads to a reality check.<\/p>\n Eric Bandholz: <\/strong>How often do earn-outs fail?<\/p>\n Frank Kosarek:<\/strong> Some sellers want a complete exit with no ongoing involvement, and buyers generally understand that. Still, a savvy buyer will usually negotiate a transition period, often three to six months, to help transfer operations and institutional knowledge. Additional support can turn into a short-term consulting agreement in which sellers receive a fixed monthly fee. In that case, sellers no longer have equity or performance-based upside; they\u2019re simply helping with continuity.<\/p>\n I\u2019ve seen situations where sellers and buyers clash operationally or strategically. When that happens, earn-outs often suffer. Sellers miss targets and don\u2019t receive additional payouts, and buyers struggle because the transition doesn\u2019t go smoothly.<\/p>\n Bandholz: <\/strong>What can stop a deal or hurt valuation?<\/p>\n Kosarek:<\/strong> One significant piece of advice for sellers is to sell when your numbers are substantial. Don\u2019t wait until performance starts to decline<\/a> or the market turns against you. Be open to exploratory conversations, especially after a banner year. Waiting until the curve crashes makes exits much harder.<\/p>\n Another common mistake is overspending on marketing to inflate top-line revenue. For smaller ecommerce brands, valuation is typically based on profit rather than revenue. Pumping the top line at the expense of the bottom usually doesn\u2019t earn a premium.<\/p>\n Another red flag is a lack of operational structure. Buyers don\u2019t want to walk into a business and have to build everything from scratch. They want to see systems and processes in place. That includes working with a third-party logistics provider for fulfillment and returns, clear ownership of marketing functions, and documented processes.<\/p>\n Buyers\u2019 confidence in the deal increases when they can quickly understand how the company operates and distributes work.<\/p>\n \u00a0<\/p>\n<\/div>\n\n\n <\/p>\n
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