Let’s break it down:

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In the digital world, distressed websites represent a unique opportunity for savvy entrepreneurs to acquire valuable assets at a fraction of the cost. These websites may be experiencing a decline in traffic, revenue, or both. The reasons for this decline can vary, but the important thing is that the potential for growth and profitability remains. In this article, we will explore the benefits of buying a distressed website, analyze a recent example, and outline the strategies for valuing, negotiating, and revitalizing such an acquisition.

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Table of Contents

1. Why buy a distressed website?

2. A recent example: Sports Newsletter: How I valued this Content website

3.1. RPM

3.2. Worst-case scenario

3.3. Medium-case scenario

3.4. Best-case scenario

4. Negotiating the deal 

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Distressed websites offer a unique opportunity to invest in an established business at a reduced price. These websites typically have existing content, a user base, and sometimes even an existing revenue stream. By acquiring a distressed website, you can leverage these assets to revive the site and turn it into a profitable venture.

A recent example: 

Sport Journal, sports newsletter for aussies is a perfect example of a content site that needs a little love and it could be generating high 4 figures in monthly revenue. The newsletter is dedicated to Australian sports. It is not adding new subscribers since the end of 2022 by lack of time from sellers to promote it more. The open rate needs attention, a cleaning of the database is necessary to improve the Open Rate.

How I valued this declining website

Valuing a distressed website can be tricky, as you need to consider not only its current performance but also its potential for growth. Here's how I approached valuing Sport Journal

The P&L

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After taking a look at the p&l I noticed a couple "red flags"

• The Newletter been around for 3 year years but the seller only provided the last 14 months of p&l.
• most of the revenue for this publisher comes 1 single contract. no revenues from any other sources puts their high profitably is jeopardy should anything happen to that revenue stream.

in light of these finding lets take a deeper look at the audience and revenues.

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RPM (Revenue per Mille)

First, I analyzed the site's revenue per 1,000 content views (RPM). This metric is crucial in determining the potential for advertising revenue. By comparing sports journal’s  RPM with industry benchmarks, I was able to identify areas for improvement and growth. 

Avg  monthly impressions: 108K

Avg monthly revenue: $1800

Est RPM: $16.67 (not too shabby)

Typical range for industry $7-$25

Worst-case scenario: Cash Exit

In the worst-case scenario, most of their revenue comes from 1 advertising contract from a major sports betting app. With renewals coming up in August 2023 its a tossup as to whether they will renew. From a valuation standpoint that contract represents 100% of the brands current revenues and is a major justification for a 4x rev valuation. If they don't find a buy before august, it could all go up in smoke.

Medium-case scenario: Seller Financing

In the medium-case scenario, I assumed that I would be able to stabilize the website's performance and maintain its current revenue. This allowed me to calculate the site's value based on a reasonable return on investment.
Additionally, the fact that the current owners have not been actively promoting the newsletter and have not added new subscribers since the end of 2022 suggests that there may be significant untapped potential for growth. If we are able to successfully address the open rate issue, clean up the subscriber database, and implement effective marketing strategies, we could potentially increase revenue and justify the asking price. but we don't want to be on the hook for all the downside in event of a cash exit.

so here's what I'd do:

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with an average annual revenue of $21k its take 3 years to break even on the site. But, by leveraging an seller financing we'd be limiting the capital risk of an upfront payment.
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Seller Financing:

1. Simpler deal structure: Seller financing can be a simpler deal structure than an earnout, as it does not require the buyer to meet specific performance targets or have the seller continue to be involved in the business post-acquisition.
2. Eases financing burden: If the buyer is unable to secure outside financing or does not want to use their own cash reserves to purchase the newsletter, seller financing can be an attractive option that eases the financing burden.
3. May result in lower overall cost: If the seller offers financing at a lower interest rate than a bank or other financing source, the buyer may end up paying less overall for the acquisition.

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Best-case scenario: Earnout

Finally, in the best-case scenario, I estimated the potential for growth and increased revenue if I successfully revamped the site's content, improved its SEO, and capitalized on its niche. This helped me establish the maximum price I would be willing to pay for the website. which is in the 55k range so not too far off from asking.

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Earnout:

1. Protection against downside risk: An earnout can protect the buyer from downside risk by tying a portion of the purchase price to the newsletter's future performance. If the newsletter's revenue or subscriber metrics decline post-acquisition, the buyer may be able to pay less than the full purchase price.
2. Incentivizes seller: An earnout can also incentivize the seller to continue growing the business post-acquisition, as they will receive a higher purchase price if the newsletter performs well.
3. Potential for higher return on investment: If the newsletter exceeds the agreed-upon performance targets, the buyer could potentially earn a higher return on investment than if they had financed the deal themselves but due to the downside capital risk we don't think a cashout is a viable play.

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Negotiating the deal

Armed with these valuations, I’ll be reaching out to negotiate a deal that makes sense for both parties. By demonstrating my understanding of the website's potential and presenting a clear plan for its revival, hopefully we can to secure a favorable purchase price.

what would you do?

Stay tuned for updates 

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