If you want to stay at the cutting edge of affiliate marketing, you're in the right place. Join me for this week's episode and let's get started. Welcome to the Affiliate Insider Affiliate Marketing Podcast. And today I'm absolutely thrilled to have Mr. Ben Robinson from RB Capital. Hi Ben, how are you?
SPEAKER_02I'm very well. Thank you very much for having me. Very excited to be on your podcast.
SPEAKER_01Yeah, I'm excited to have you here because we're going to be talking about a really hot topic, which is the mergers and acquisitions of when affiliate entrepreneurs want to get their business ready to sell or when brands want to get ready to buy. So really, really interesting uh space that we're going to be talking about today. But before we kick off, I'd like you just to talk a little bit about what RB Capital is and what it does and who you serve so that people listening to this podcast will understand the industry that we're going to be covering.
SPEAKER_02Certainly. So uh RB Capital, uh, we're we're a specialist MA and funding brokerage. Uh we combine best in breed expertise for growth, investment, and mergers and acquisition across gaming, fintech, and also media verticals, uh including affiliates.
SPEAKER_01So very much in sort of iGaming space, fintech space, um, and covering everything from operations to entrepreneurial businesses that want to exit, basically.
SPEAKER_02Yes. Yeah, absolutely. Uh both both both partners have extensive experience in in the online gambling industry. Uh, my business partner is a serial entrepreneur and has uh multiple exits to uh the likes of Google, Vodafone, uh so it's a blue chip. Uh and we we uh we are both uh heavily heavily invested uh uh and and um have expertise in in the online gambling sector, uh having invested in in businesses ourselves. So so we we we're not only uh well we're definitely not purely transactional, we we uh we invest our own money in into certain projects uh and we uh we also work with the sellers post-transaction and help them find uh places to to put that investment uh into into new and exciting ventures that that yield returns.
SPEAKER_01So cradle to grave, before you want to sell, whilst you're building selling, and then what do you do with your investment after you've sold?
SPEAKER_02Reuse, recycle, absolutely.
SPEAKER_01I love it, very sustainable business. Um Exactly, exactly. So today I wanted to talk a little bit about the MA market and what that's looking like right now, and if there's still quite a lot of activity, because in the last kind of three to five years we saw a lot of major buyouts. Um some of these deals you actually brokered and and orchestrated and completed. Um so how are we looking at that space right now? And has the pandemic kind of slowed people's propensity to buy and sell businesses down, or has nothing really changed? Talk to us a little bit about where the MA market is.
SPEAKER_02Sure, sure. Well, obviously the global pandemic has uh taken its toll on a lot of uh industries and and verticals. Um online gambling has um well, it's been incredibly buoyant. I think most of the businesses that we work with have seen growth uh and significant growth in in most parts. We have transacted within the the uh pandemic uh two rather significant transactions. They've certainly taken a lot longer than uh ordinarily would do. Uh obviously, not having the opportunity to fly to location, uh, meet senior management and executives does make things a little bit harder than than um pre pre-COVID times. Uh, but it certainly doesn't mean that the industry is not active. Um, specifically with respect to the online gambling sector uh and affiliation, I think the affiliates have pressed the pause button. Um we haven't seen as much activity in the affiliate sector. But that's not that's not a bad thing. I think like you know, if you if you look at a a stock chart, you you will see periods of of flows and and and ebbing. So we we see this as a period of consolidation for affiliate uh conglomerates who are biding their time, uh their coffers are uh are full to the brim, and we're starting to see a lot more activity, and you know, we're we're having we're having regular conversations with with buyers uh at the moment who are really quite keen to do a deal, whether that's um a large merger type uh deal or smaller bowl films. Um we we see a lot of the frenzy from 2017 where there was a massive roll-up exercise and the likes of Katana and Rape Tech, XL Media, Better Collect, they've all participated, and that has in some ways dried up. We have certainly seen uh such a such a large amount of activity of the medium-sized players being consolidated that there just aren't you know many affiliates left to acquire. I mean, obviously there are there are there are thousands and thousands of affiliates out there, but the one to five million eBIT businesses are few and far between at the moment. Uh and this they're they're they're starting to pop up now because you know in 2017 they weren't doing a million, they were doing half a million, and they weren't of interest to Gitana or uh some of the other larger affiliate conglomerates, and and and now, fast forward four years, they're probably doing two two to three million either, and they are becoming viable acquisition targets.
SPEAKER_01So and is that the kind of magic number, the kind of one to three, one to five that makes you a sort of attractive target to go and exit? Is that really what people are looking for? Or are there players out there that are kind of purchasing smaller, you know, the 250,000, 500,000 and building networks? Is is that has that is that something that's come across?
SPEAKER_02Yes, yeah. I think there are fewer buyers who will want to tackle those those quantums. And the reason for that is is the time and energy and money it takes to acquire a company, it doesn't really matter whether it's a half a million entity or a five million entity. They're in in some way or other they are very similar. So it it it comes down to uh scale, and you're better off uh concentrating on a deal that's going to provide you with with a lot more value uh and and return on investment. Uh so it's it's it's much easier to manage one deal than ten smaller deals. So but there there are there are certainly companies out there who are looking for those smaller deals and have have had uh plenty of success in transacting at those quantums. So it's not to say that um they those buyers don't exist, uh there's just a slightly smaller, smaller pool of buyers interested out.
SPEAKER_01So let's talk a little bit about how you value an affiliate business. What are some of the key components that a buyer looks at when they're looking into an affiliate business?
SPEAKER_02Sure. So there are numerous businesses that they look at. Uh sustainability is is one, uh growth is is another factor. Uh and and and I think those those are the two main ones that that uh a buyer is going to look at. I think growth growth is important because if a if a buyer is going to pay uh a multiplier of of your e bit dar, then the the the buyer really needs to understand what their return on investment is. And if your business is flat or it's declining, then your your multiple is going to be uh heavily affected by that. If you conversely have you know a high growth rate, then you will be able to achieve a higher multiplier.
SPEAKER_01What are the typical multipliers? Because that's a common question that I get asked. And is it like you know, two times, ten times, five times? How do we calculate that multiplier? What is that whole kind of science that sits kind of?
SPEAKER_02So again, it it comes down to the sustainability. Now, sustainability you can look at the the geographical location. Uh is is your business facing uh Turkey? Is it is it facing Australian casino? In in that case, then you know your your your business is is really not going to be worth it the type of multiples that most people look at when when comparing other transactions. Uh if you look at the flip side of that and you look at somewhere like the US, where there's there's a there's a buying frenzy akin to 2017 uh in in Europe, which we can get on to a little bit later. Now, somewhere in the middle is is the kind of I guess the the standard multiplier, uh and that shifts uh um with supply and demand. So I think at the moment we see multipliers between four and six times. That that's that's I'm I'm gonna I'm gonna put that out there as a as a rough multiplier for for affiliate businesses.
SPEAKER_01And does that um impact the type of traffic that an affiliate so like an SEO site compared to a pay-per-click site or a you know app marketing site? Does you know does a buyer look at that kind of thing as well?
SPEAKER_02Absolutely, absolutely. And and and that, you know, if you look at um transactions at Hakimi, um Richard Skellhorns, Business Rise Media, you know, that that um business uh was sold to Better Collective at around about the 5x, I believe. That was the I think that was publicly um reported around that that figure. Um PPC businesses generally don't achieve a high high multiples. Um SEO businesses that are highly leveraged on uh link building and aggressive link building will not achieve high multiples. Businesses that are focused on uh publishing led uh marketing uh and and content, these businesses have evergreen content and and are valuable uh for SEO purposes. So those types of businesses we we we tend to see do quite well on on the multiplier. But it again it comes back to growth. If your business is is just flatlining, then you you won't get a decent multiplier because it it purely focuses on this concept of return on the investment. Uh, and the the multiplier, the concept of a multiplier is a very shorthand basic way of calculating the the discounted cash flow of the business, which is a financial model used uh to determine what a business is worth uh based around what a value what the value of a dollar today is versus a dollar in five years' time. Uh so I think that that really has to uh come into the seller's mind when they're thinking about the valuation. It it it's it's not purely on um you know their their market, it's it's not on any one factor. There are myriad factors to consider.
SPEAKER_01Okay. So it's very much a case-by-case basis. It's very much looking deep under the bonnet of an affiliate's business to understand how their infrastructure is set up, how they're gathering their traffic, how they're building their content, um, and then also looking at whether they're actually constantly topping up with new customers or if they're living on their revenue share kind of commission models from affiliate accounts of old. I mean, all of that kind of stuff goes into the due diligence of researching whether a business or a network of sites is a good product to buy, correct?
SPEAKER_02Yeah, yeah. If if if the business that's being sold can easily be run and scaled up by the buyer without the seller, that also helps.
SPEAKER_01Okay. So what is the typical kind of thing? Because I know we did speak about this before we got on the podcast, and I want to bring it up again. Is is it typical for affiliates to kind of sell and exit and kind of like hand over the keys and leave on the on the last day, or do they or do are there some deals that are going through where the affiliate or the owner of the company is actually kept on to do a smooth transition, and that could be anything up to like 12 months? Or what's the typical kind of plan of action when when you look to sell?
SPEAKER_02Sure. So there's there's always a period of handover. Um, you know, you can't expect to to hand over a business generating millions of millions of dollars overnight. It it is a process. Um we typically, you know, if if a seller just wants to leave as soon as possible, the shortest time frame is is three months. Um that that's generally the the um the time frame that we we look to. If you're talking about a business that um is foreign to the buyer, uh, or there are certain aspects that you know the seller needs to decouple himself from the business uh and and educate the buyer of how the business works, then six to twelve months is is is the is the is a is a reasonable, yeah, it's an acceptable time frame. Uh but that look if you're handing over a business uh and you're not being paid for it, then that that's another consideration altogether. So I I I think it's important to um look at the type of transaction. If you're doing a a deal based on the historical revenues, then three months it's fine. But if you're if you're if your buyer is is putting forth a um a structure where it's it's an earnout, and you're expected the seller is expected to work and to meet certain targets, whether they're milestone-based or or they're um they're financially motivated. Uh these these milestones um can be inserted into the the uh the structure over a 12-month, 24-month period. Uh and the seller needs to really be comfortable with how they work with the buyer uh and and how their remuneration will will continue during that period.
SPEAKER_01So there's quite a lot of things to think about when you want to actually get into buying or selling a business. So let's talk about the next question, which was what do you need to do to prepare yourself for selling your affiliate business? I mean, clearly number one in my mind is get expert advice because there seems to be a heck of a lot that you need to be thinking about before you even think about selling. So, what are some of the kind of top tips that you can give people listening to the podcast in terms of you know, not only just getting yourself mentally ready to sell and understanding that you might have to walk away within a three-month period or a 12-month period, depending on what kind of buyer you're getting, but what are some of the kind of internal infrastructure things that that affiliates need to get done before actually presenting themselves to you know people that want to either invest or buy?
SPEAKER_02There are some basic uh house cleaning items that that affiliates need to really be prepared to have when they walk into a sale uh scenario. Uh it may say it sound a little bit simple, but um having having your financials in order is is important, um, and having those broken down month by month. Um most buyers will want to see your accounts for the last at least twenty-four months, uh some further back, depending on um how your business is performing. Um FTDs, um uh NRCs, so newly registered customers or newly depositing customers, those those figures are key elements to a buyer's analysis uh and and their understanding um of the the player value, if you will. Um they they're they're the main ones, uh I guess from from an analytical point of view, you need to have all of that information in place. Um if if your business is is uh just yourself, then um it can be a little bit more simple uh to decouple everything uh as long as it's well organized and documented. But if you have a business that uh is being run by by a team, uh then those things need to be taken into consideration. And and it's it's quite a complex process or can be a complex process of decoupling yourself from the business uh and then selling it. Um I would say that um from a preparation standpoint uh we tend to look into a business in in the same way a buyer would. Uh and we understand through through our experience of dealing with these transactions, we understand what comes up in due diligence. So we'll take a business through a uh a life due diligence process to uncover any issues that might arise uh and ensure that they're either rectified before we commence the process or we've got credible answers to to some of those uh issues that that come up. So we're not dumbstruck when they they ask uh these questions.
SPEAKER_01And I'm sure that also helps towards the kind of mediation process as well, because the more information you have, the more you can validate what's happening on the numbers, the easier it is to actually get down to the nitty-gritty of what is this worth and why is it worth this. Um, because obviously there's always the buyer who thinks it's worth this and the seller who thinks it's worth that, and then how do you kind of mix mix that into the middle and and and how do all of these things influence what their price point is? And that comes back to the multiples that you were talking about, you know, between four and six is what you've mentioned. So yeah. Um it seems like it's quite a tricky process. It's not just as easy as going, hey, I'm not sniffing it and I want to sell it. There's quite a lot of background stuff that goes on, and I think that's what I wanted to sort of cover in in the in the talk today, just that people can get a very clear idea and understanding of what they actually need to prepare for and what it is and and also understand what the buyer is going to be buying because sometimes they just think they're selling their assets. But you've just touched on the point that you know they're also selling their their people. So what are their contract terms with their people? Does the buyer actually want to bring those people on? Do we have to let those people go? All of those things need to be taken into account in in the process, in the conversation in terms of what that deal is and how it looks. So what are some of the let's talk about the things that happen um that could go wrong because obviously there are things that could go wrong. So talk to talk to us about some of the kind of nasty mistakes that you've seen sellers make when they are parading in front of buyers.
SPEAKER_02We've had sellers come to us they've already been through a process themselves and it's it's failed for whatever reason quite often they have they've taken their their contact book and they've just spammed everyone they know saying we're for sale that's a that's a big no no I think that's that's one of the biggest mistakes because you're effectively well you you're in danger of creating a situation where it's it's a fire sale scenario. And that's the impression that that um buyers make what does that mean talk talk about what that what does that mean for people that don't understand that term if if everyone has heard that your business is for sale then they're like okay well um well why but i if if they're hearing it from multiple directions then it it just creates a fire sale scenario. People just think okay what's wrong with that business what why everyone's trying to push this business it MA should be discreet and and there are reasons for why um firstly the the fire sale scenario but if if you have um if you have staff members obviously you don't really want them knowing that the business is for sale as as soon as a staff member gets wind that you know you're you're you're gonna sell the business they start becoming a little bit worried about their position whether it's just disruption and change uh or or whether they fear that they'll be let go either way it creates disruption and it creates a scenario where the the business will be affected. What what you want during a process is continuity. You want you want the business to be growing in the same way it was growing before you entered into the process and and and that is very difficult. If you're a business owner and you're day to day you're concentrating on your business and then you say okay I'm gonna sell the business and I'm just gonna do it I'm I'm gonna do it on my own you're taking yourself out of the seat of of operating your business and growing your business and a sale process it well it can be quick but more often than not you're looking at three to six months depending on the size of the business and depending on buyer and seller uh we've we've just completed a transaction and it was just shy of a year it was a it was a it was the buyer was a a publicly publicly listed um US entity so that had some complexity and obviously the COVID uh had had an impact but generally speaking looking at all the deals that we have done over the past seven years the average is four to six months uh I would say so if you're taking yourself out of your business for four to six months it's gonna impact your business it's gonna imp exactly exactly um and and that's just at a time where you want the business to be hitting home runs so you know just because you've got a buyer to the table as well doesn't mean that after the three months of of sitting opposite a buyer that they're actually going to complete. They might look at the numbers going down and go right sorry we we don't want to do this deal anymore or they'll say I'm really sorry but your business isn't performing the way that we thought it would we're only going to give you this much. So interesting that so the conversation can start at a price point at the beginning of the conversation and it could end at a very different price point because you've dropped the ball in between the conversation and and how because because if they're looking at like previous three years worth of revenue like how important is the last three months does it can it make or break a deal you're only as good as your last month Leanne's good to know I mean this is what people not really obviously you know game gaming's seasonal and you do get these dips uh in in specific months and you get winners on casino businesses. So it's not necessarily um you know you're only as good as your your last month but uh you know as I was saying these processes can take three to six months and if you are going you are going downhill month on month then yes uh that will impact the the purchase price and we have seen on multiple occasions where businesses you know for whatever reason something comes up in due diligence uh that was obfuscated from us and you know it it it creates a scenario where that that purchase price that was originally agreed is is jettisoned and you have to start you either start from scratch or or or the deal collapses or you know you you're taking a serious haircut on that original purchase price.
SPEAKER_01And the other thing to also think about from an affiliate's perspective is you don't want your business to be highly reliant on you because then that doesn't make it an attractive proposition for a buyer because ultimately they're buying the business from you they're going to expect you to exit and what they don't want to see is that when you are focused on something else and the business revenue goes down you know clearly that gives an impression that perhaps the business is all around you and they're not buying you they're buying your business so having that infrastructure in place and having that team in place to actually manage which is what you said at the beginning is one of the things that buyers do actually look at from an affiliate business because often affiliates are you know experts in their field they're experts at SEO they're experts at PPC they know how to drive traffic they know how to build websites but what you're selling is is a brand and an asset a site but you're also selling a a viable opportunity that can continue without you because that is what a business is basically otherwise you've just got a consultancy yeah yeah so the I mean the term we use is it's it's it's a business is a going concern.
SPEAKER_02That's what you're you're selling and you know if we are approached by a seller uh and they have time on their hands and they're happy to talk to us with a view to selling in in 12 to 18 months time we will advise them you know if they're running a business with uh teams and then to find somebody to to take their place. If they want to just exit the business and they want to concentrate on something else or a new project uh then they they need to be prepared um to to to walk away and you can only do that if you remove yourself from the business within a certain time frame before the transaction completes. So if if you've if you've found a managing director and you've inserted them and then 12 months later the business is sold then the managing director can can run the business and the owner can sign on the dotted line they can they can they can skip off into the subject yeah exactly they can see the money rolling into the account and and just say thank you very much and move on obviously it's it's it's uh something to consider that um we haven't touched on it is is non-compete um and and that's something that believe it or not um doesn't often get picked up until the contract stage uh in in well obviously not when when we are uh managing the process obviously we we talked to the seller about that from from an early early point because it's you need to consider what are you going to do next do you want to remain in in in this sector do you want to remain working in this particular vertical and if that's the case and the the consideration that you're going to receive from the business business isn't uh isn't material enough to to warrant a a two-year hiatus then you you really need to consider whether or not you want to sell because a non-compete is it's standard uh we've we we've we've never done a deal where a non-compete hasn't existed now there are ways to protect the seller and ensure that they are able to operate in in within the industry but the the trick is to ensure that you're you're quite narrow on the definition of what the seller is prepared to to not compete against and it's it's it's usually um you know what is the business doing if the business is is a casino affiliate then the business or the owner runner is is not going to be able to start another online casino affiliate business. That competes yeah we should we should be able to uh you know agree and negotiate the ability for that individual to start up a uh a bingo affiliate or to start up um you know a sports book affiliate or operator or what whatever it as long as he's not he or she is not competing with the business they're selling then it's then it's uh then it's perfectly acceptable to expect a non-compete you know with that in mind.
SPEAKER_01Okay. So we've discussed what to do to get your business ready to sell we've discussed some of the pitfalls that could happen while you are busy in the sales process we've prepared everybody to understand what they can expect when they go into an MA acquisition. Where do you think the market's going to be headed now you spoke a little bit about the US being a bit of a frenzy at the moment but where are other places that affiliates that have traffic like in emerging markets for example what do you think the next big thing is going to be and and you know if somebody's looking at their business right now and wanting to get it ready for sale where should they be focusing in order to make that happen in like two three years time?
SPEAKER_02Sure I mean the next big thing is the US you you can't really deny that obviously there are other markets that are attractive emerging markets like India it's a that's that's a huge market. It's got massive potential Africa also has has a lot of potential Asia is uh wow it it it certainly has potential it's it's quite a it's quite a difficult market to to uh to tackle um Japanese uh affiliate businesses and and Japanese um market in general uh is is is huge uh and the player values are astronomical compared with any other uh country in the world um but looking looking at a more sustainable uh accessible uh market I think India um the US and Africa are all viable viable options um I guess the majority of people on on listening to this podcast will be speaking English uh so the US is is probably uh the the the key market and I think any affiliate uh who who has been operating um in this market for for any length of time is is going to be very excited about it most likely they're they're looking at it and they're either looking at it from the sidelines and trying to figure out what what their niche will be uh or or or they're they're trying to get stuck in in in some way or other. I'm interested to see why you haven't um spoken about Latin America has that been something that you've left off the mark uh Latin America is look it it it it definitely is uh an interesting market uh it's growing um it's been growing for for quite some time I I I think the North America has really taken the spotlight um us and Canada I mean we can't forget that can Canada is uh is rolling out their regular regulation uh and I I think you know South America yes it's it's interesting um it's just not still a little bit it's still a little bit volatile um you know currency fluctuations uh are are going to be challenging in that market uh but it's not to say that you know that they're they're unattractive they're they're just you know the the spotlight on the US the spotlight is is clearly focused on on that market and it's just a matter of whether or not you want to jump in with the rest of the crowd uh and and pour all your focus in on that market uh or whether you want to fill the the vacuum that's been left uh by everyone you know focusing on that market and and focus on another market that you feel is underserved. I don't necessarily think that the US market is is going to be right for everyone.
SPEAKER_01It's very particular in terms of picking your your state and becoming a leader in that space um because it is it's a closed kind of environment it's step by state it's not actually you know the continent as a whole so I do agree I think any affiliates listening here need to think about what their strap plan is and what their exit plan is and then go and focus on that.
SPEAKER_02Yeah it's it's going to be hugely competitive and and it will be difficult to to find um your your niche in that particular market. Streaming affiliate I mean different types of affiliation I think is is where it's going to be interesting for affiliates.
SPEAKER_00I think that isn't something that I I'll explore on on this channel it's probably something that you will talk about on your on your round table uh but I I I think it's definitely um uh a question that you're going to want to look at for from a valuation perspective whatever you're doing if you're if you have traffic in the US it does increase your your enterprise valuation significantly so it is a factor uh and if if if I had an affiliate business myself I would be I would be concentrating on it I I wouldn't necessarily be throwing all my resource and and and funds towards that market but I would certainly be positioning myself there in in some way or other whether that's you know just having websites that are gaining traffic without licenses and just having a foot a foothold uh that that could be one strategy um but your your your your valuation will thank you if if you are facing the US okay awesome thank you so much for coming on the podcast today I think this is you've kind of given people at least some stuff to think about and prepare um if they are looking to sell their businesses in future so how do people get hold of you if they want to talk to you Ben at rb.capital I guess is is the best way to to reach out to me um yeah thank you very much for coming on the podcast it's been great to have you here today Ben You're welcome thanks for having me want to get your affiliate program noticed need new client leads for your digital or marketing style service or are you an expert agency looking to get that next new client affiliate inside that help you get these and help Google news approved content and news help and this content of digital and affiliate marketing new sort of audience to get the auditors and needle download a video option inside data full of contact on email inside data audit falling on