When I first became involved in digital businesses, they were often treated as something separate from the traditional corporate world. A website was a website. Software was a product. An online audience could be difficult to value in conventional terms.

That has changed considerably.

Today, some of the most important assets inside a business are digital. They may be software, data, an established customer base, proprietary technology, a strong online brand, distribution, search visibility, a payments capability or an audience that has taken years to build.

Through my work at Acquiry, I spend a significant amount of time speaking with buyers looking for these types of businesses and assets. Increasingly, they are not viewed as peripheral additions. They are being considered as direct ways to grow, enter new markets or acquire capabilities that would otherwise need to be built internally.

I think that shift is one of the main reasons digital businesses are becoming a much more established part of the M&A market.

More enterprise value now sits in digital assets

The distinction between a digital business and a conventional business is becoming less useful.

A software company may have limited physical infrastructure but thousands of paying customers and workflows that are deeply embedded into their operations. A digital publisher may own a valuable audience and distribution channel. A payments company may have technology, commercial relationships and regulatory infrastructure that would take a buyer years to reproduce.

These are real assets, even if they do not sit on a factory floor or appear on a balance sheet in the same way as property, machinery or inventory.

For an acquirer, the important question is usually not whether an asset is physical or digital. The question is what owning it allows the buyer to do.

Can it bring a product to market faster? Can it provide immediate access to customers? Can it open a new geography? Can it add technology that would otherwise take years to develop? Can it provide distribution the buyer has struggled to build organically?

When the answer is yes, the strategic value can be significantly greater than the standalone financial profile initially suggests.

Strategic buyers are looking beyond the P&L

Revenue, profitability and cash flow obviously matter in any acquisition. But in digital M&A, I think there is a tendency to focus too heavily on a simple multiple and miss what the buyer is actually trying to acquire.

Two businesses producing exactly the same EBITDA can represent completely different acquisition opportunities.

One might have highly recurring revenue, low customer concentration and software that is deeply embedded into its customers’ operations. Another might generate the same profit but depend heavily on a single traffic source or a small number of commercial relationships.

The headline financial result may look similar. The underlying quality of the asset is not.

The reverse can also be true. A relatively small business may own something that is extremely useful to a much larger acquirer.

That might be a piece of technology, a licence, a domain, a customer base, proprietary data, an established brand or a particular distribution channel. In the right hands, one of those assets can create substantially more value than it produces independently.

That is why I prefer to start with strategic fit rather than simply applying a multiple.

Acquisition can solve a time problem

One of the most underestimated parts of an acquisition is time.

Companies can build almost anything if they have enough capital, talent and patience. The more useful question is whether building it internally is actually the best use of those resources.

If another business has already spent five years developing a product, building its customer base, establishing its reputation and solving the operational problems that come with scaling it, acquiring that business can compress a very large amount of work into a single transaction.

This becomes particularly relevant in markets where the competitive environment moves quickly.

A company may be technically capable of entering a market from scratch, but if doing so takes several years while a competitor can acquire an established position immediately, the cost comparison becomes more complicated.

The cheapest option is not always the option with the lowest upfront cost.

Lost time, delayed market entry and missed distribution can be expensive.

Digital diligence has to go deeper

This does not mean digital acquisitions are straightforward.

In many cases, they require a different type of diligence because much of the risk sits outside the traditional financial statements.

If I am looking at a digital business, I want to understand where its customers come from, what drives retention, how dependent the company is on third-party platforms, whether the technology is genuinely proprietary, how concentrated the revenue is and what happens if an important distribution channel changes.

I also want to understand exactly what can be transferred.

Domains, software, customer contracts, intellectual property, licences, databases, social accounts and commercial agreements can all have different transfer requirements. In some transactions, the majority of the value may be concentrated in only a handful of those assets.

The structure of the transaction therefore matters considerably.

It is possible to acquire an apparently strong digital business and discover that an important part of what made it valuable was dependent on something that does not transfer cleanly to the buyer.

That is not a reason to avoid digital acquisitions. It is a reason to understand the asset properly before deciding what it is worth.

Smaller digital assets can carry significant strategic value

One area I find particularly interesting is the market for individual digital assets and smaller online businesses.

Not every acquisition needs to involve an entire company.

A buyer may only want a particular website, software product, domain, technology platform, brand, content library or other piece of intellectual property.

These transactions can be highly strategic because they often solve a very specific problem.

A company entering a new market may prefer to acquire an established digital property rather than start with no audience. A software company might acquire a smaller product because part of its technology fits naturally into a broader platform. A larger digital business might acquire an audience or distribution channel that would be difficult to recreate economically.

In each case, the purchase price needs to be considered in the context of what the buyer can do with the asset after completion.

That is often where the real acquisition rationale sits.

The buyer and the asset have to fit

I do not think the most important question is whether a business is objectively cheap or expensive.

The more relevant question is what that business is worth to a particular buyer.

A financial buyer may value an asset primarily on the cash flow it can generate independently. A strategic buyer may be able to integrate the same asset into an existing platform, reduce duplicated costs, improve monetisation, introduce the product to a much larger customer base or use the acquisition to enter a market immediately.

That can produce a very different valuation.

It is also why the highest headline offer is not always the strongest transaction. Certainty of completion, transaction structure, integration capability and the buyer’s ability to preserve the value of the asset all matter.

For sellers, understanding who should logically own the business is often just as important as determining the financial valuation.

Buyers are becoming more selective

I expect digital businesses to continue becoming a larger part of M&A, but I do not think that means every digital business becomes more valuable.

Quite the opposite.

As buyers become more comfortable with digital assets, they also become better at identifying weak ones.

Being online is not a competitive advantage by itself. Having traffic is not enough. Having software is not enough. Even rapid growth can be misleading if the economics underneath it are poor.

The assets that attract serious buyers tend to have something that is difficult to reproduce.

That might be proprietary technology, recurring customers, intellectual property, a trusted brand, regulatory positioning, unique data, strong distribution or an established position in a market that matters to the buyer.

The strongest transactions usually have a clear strategic reason behind them.

Where I think the market goes from here

I think we will continue to see the boundary between traditional M&A and digital M&A disappear.

Software, payments, digital media, online marketplaces, gaming, data businesses and technology infrastructure are already part of normal corporate acquisition strategy. The next stage is greater sophistication in how these businesses are identified, valued and integrated.

Buyers are also becoming more specific about what they want.

Rather than asking generally for a company in a particular sector, many of the better acquisition mandates begin with a capability gap. The buyer knows what it wants to achieve and then works backwards to identify which company or asset could accelerate that objective.

That is an approach I expect to become increasingly common.

For me, good digital M&A comes down to a relatively simple question: why is this asset more valuable in the hands of this buyer than it is today?

If there is a convincing answer to that question, there is usually the basis for a serious transaction.

Joash Boyton is the founder and CEO of Acquiry, an M&A firm focused on the acquisition and sale of digital businesses and assets across technology, software, fintech, gaming, media and other digital markets.