Interested in selling your e-commerce business? If your Amazon FBA business is reaching the level of $1M in annual revenue, there may be an investment group ready to buy it.
A growing number of them are looking for owners interested in selling an e-commerce business that’s been built around use of Fulfillment by Amazon. It’s called the “FBA rollup” model. Private equity groups focused on acquiring successful vendors from Amazon’s Marketplace have sprung up by the dozens in the last several years. Their aim is to help grow thriving cottage industries into great brands through more sophisticated economies of scale, analytics and management.
This new investing model is seen as a way to quickly jumpstart real brands. In most cases, the business manages a physical, tangible product, and already has all the logistics handled. Many started with a Shopify store and are using extensions that allow them to sell through multiple channels besides their own store.
After acquiring the e-commerce business, buyers will often expand the business by opening channels into other marketplaces like Walmart, eBay, Houzz, or Rakuten.
So, who’s buying?
One that’s been making a lot of news is Berlin-based Razor Group. This PE business is not even a year old but is already on track to cross $120 million in sales from the 30 brands it has acquired. They buy e-tailers in categories such as personal care, sports and home furnishings.
Thrasio, one of the first startups to build this investing marketplace, has 100 brands in its stable, the result of an aggressive capital raise in the hundreds of $millions. The firm is already reporting profits.
Other major e-commerce investment groups include Branded; Heroes; SellerX; Perch; Berlin Brands Group (X2); Benitago; and Valoreo.
In a recent list compiled by Ecomcrew, there were more than 40 different acquisition groups around the world currently shopping for e-commerce brands to buy. Most of the time, businesses targeted for acquisition have revenues of $1 million to $15 million per year. It’s estimated there are over 140,000 current Amazon FBA businesses that fall in this category.
The Contrarian
The rise of the e-commerce consolidation industry has prompted its own contra movement. Jungle Scout, which itself recently raised $110 million, provides tools to Amazon third-party sellers designed to help them stay independent or, at least, to increase their valuation in the eyes of potential acquirers.
How much can you expect to make when selling an e-commerce business?
When you decide to sell your e-commerce business (assuming you’re already at the $1M+ annual revenue level), you might be surprised how many investors are interested in buying.
The standard pricing formula
According to brokers active in the space, the average sale price multiple for an Amazon FBA business is 23x, or 23 times the net monthly profit of that business.
The pricing can vary by the types of products sold as well as operating margins. In 2020, the average multiple for those selling an e-commerce business was 20–50x.
What are Amazon FBA rollup firms looking for?
Each acquisition group will have its own criteria, but there are some general guidelines they all follow:
- Private Labeled Products: The business sells its own branded products. They’re not interested in retail arbitragers or drop shippers.
- Profitability: Some look for a minimum of 15% net margins. For some product categories like electronics, 10% net margins are acceptable.
- Fulfillment by Amazon: Most groups will avoid brands that rely on in-house logistics. Being part of the Fulfilled by Amazon program is a key part of the valuation. They don’t want to deal with logistics services, and FBA status also automatically gives your products that consumer-preferred Amazon Prime status.
- White Hat Only: If your business practices have any potential to trigger deactivation of your account, no one will want to touch it.
- No”fad” products: Acquirers are looking for businesses and products that have a great scope and a timeless appeal to consumers.
- Brand Registry: The brand is already defended with Brand Registry trademarks.
Tips for selling an E-commerce business
Diversify your selling channels and regions to mitigate perceived risk. The more places your products are selling, the less vulnerable they are to downturns in any given marketplace. This means looking for opportunities to develop more SKUs and expanding your Country markets on Amazon to places like Canada, Australia, or the EU.
Start keeping complete records. Make it a habit to go into Seller Central and pull your Amazon reports (by SKU, inventory, ACOS, and PPC stats) every single month, since most of these aren’t accessible after three months.
Don’t wait for your book of business to decline to think about selling. A stable or growing business is much more attractive and will fetch a higher price than one that’s seen as a turnaround case. Valuation isn’t the only thing that matters in selling an e-commerce business. It’s also about leverage in negotiations. If you’re astute about your timing, you’ll have both a higher multiple and greater leverage.
Make sure the contract terms don’t violate Amazon’s Terms of Service, which state that users cant sell accounts to third parties. So far, Amazon has not clamped down on the practice because, presumably, these investors also invest in some good lawyering to prevent problems down the road. But it’s a good thing to ask about.
How long can this FBA Rollup ball keep rolling?
According to Alex Champagne of EmpireFlippers, a third party platform that brokers sales for Amazon FBA businesses, the entry barriers for DTC brands selling on Amazon are getting higher every year. He says that building a trusted brand and finding ways to offer additional value to customers is the best way forward. With so many FBA Rollups expanding their acquisitions, competition is ramping up quickly and before long it will be difficult for new players to get in on the game, especially in big niches. If the current trend continues, these consolidated brand groups will dominate the Amazon Marketplace landscape as time goes on.
