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We speak to 7-, 8- and 9-figure Amazon FBA business owners every day that are considering an exit in 2023, and all of them want to know two things: 

(1) How much is my business worth today, and could I get a better price if I wait to sell it? 

(2) How much of the exit process can I do on my own, and how much needs to be outsourced? 

Question 1

Without taking an in-depth look at the business (eg. financials, governance, market share), it’s impossible to estimate how much a business is worth or will be worth. 

That said, our recent Survey of FBA aggregators (July 2022) revealed some buyer insight into acquisitions and market valuations, that included:

• M&A has slowed due to a contraction in the market (inflation, rising cost of money) resulting in many buyers shifting focus to operations. 
• Average valuation multiples have decreased due to a slowing in acquisitions creating less demand for smaller businesses. 
• Deal structure ratio is shifting away from upfront cash toward earnouts. Rising operating costs combined with decreasing consumer demand has resulted in aggregators seeking ways to de-risk acquisitions.   

While FBA aggregators are acquiring fewer businesses in 2022, according to top CEOs in the FBA space, the market is STILL OPEN and they are willing to pay higher valuation multiples for great businesses. 

Watch “Aggregator CEOs Discussing the Future of the Space” for a full breakdown of current buying trends.

Question 2

To give you an idea of how much of the exit process you can do on your own, and what needs to be outsourced, we created this Definitive Guide for Selling an Amazon FBA Business in 2023, divided into five sections:  

#1 Exit Planning | When Should you Start Planning your Exit 

#2 Buyer Criteria | What FBA Aggregators Look for in FBA Brands

#3 Exit Ready | How to Prepare your FBA Business to Exit  

#4 Exit Process | The Fortia Group Seven Step Process to Exit

#5 The Benefit of Hiring an Experienced Advisor

At The Fortia Group we have decades and billions of dollars in M&A experience across hundreds of deals. We can assure you that only the best prepared eCommerce businesses achieve premium valuation multiples when they exit. 

The first step to successfully selling your FBA business in 2023 is an accurate estimation of your brand. Contact us today and we’ll help you take that first step. 

#1 Exit Planning | When Should you Start Planning your Exit 

The simple answer is you should start planning your exit from the beginning. 

There is some discussion around launching eCommerce businesses specifically to exit, and how that can render short-term decisions palatable that ultimately can affect the long term viability of the business. 

For example, some Amazon sellers launch a lot of new ASINs, which can bolster revenue in the short-term. However, this strategy increases operational complexity and often dilutes the overall performance of the brand, which will be reflected in any offer a buyer makes for the business. 

We have hundreds of buyers in our network, including FBA/DTC aggregators, PE firms, family offices, corporates and strategics. All of them are looking to buy great brands with upward trending revenue and healthy margins. 

• Great brands forge a value perception beyond the product itself making it hard for new entrants to replicate and steal market share. 
• Growing revenue signals opportunity and longevity. 
• Healthy margins show sustainability.

“Plan your exit from the beginning” is just another way of saying build the business right – focussing on brand, revenue and margins, so if or when your choose to sell, there’s a market for it.    

In a recent article we looked at issues that were discovered in due diligence that cost significant time and money to resolve. Each issue could have been avoided in the early stages of the business had the entrepreneur known or was willing to pay. 

For example, buying cheap reseller barcodes instead of industry standard GS1. This may cause issues during their FBA pick, pack, and ship operations from Amazon warehouse. Furthermore, a mismatch of product listings to entrepreneur caused by reseller codes can result in significant delays in due diligence when you choose to exit.

For an in-depth look at other exit planning themes check out sections 1 & 2 in Exit Guide for Amazon FBAs.

#2 Buyer Criteria | What FBA Aggregators Look for in FBA Brands

With recent headwinds and market constraints, FBA aggregators are becoming more selective in the categories they operate, and increasingly inflexible in their filtering criteria. 

Below are some of the top-line criteria from leading FBA aggregators in the space taken from our buyers’ survey.  

Preferred Category

Earlier this year we wrote about the rise of the niche aggregator – FBA aggregators that build expertise around category, geography or theme (marketplace). Many FBA aggregators claim to be category agnostic. However, as we enter a bear market, more and more aggregators have realized there are operational advantages to focusing on one niche/category. By narrowing their focus, they can create efficient growth strategies that are scalable across their portfolio of brands.

In today’s market, popular hard-line categories include garden and outdoor, sports and fitness and lifestyle arts, with pet and baby being in high demand. These are considered recession proof categories as they relate to “need” not “want” purchases. 

As acquisitions are done by paying multiples against a brand’s net profits, FBA aggregators generally avoid fast fashion and risky trends. These also include brands of perishable goods with a limited shelf-life that are hard to store in Amazon warehouses, and complicated electronics that require a lot of customer service. 

>2 Years Operating History

Aggregators want to invest in enduring businesses. A minimum of two years’ operating history allows a buyer to analyze year-on-year financials, benchmarked against different market conditions, and study brand growth trends post-Covid.

>20% Net Margins

Buyers want to acquire high margin businesses. One reason for this is that acquisitions are primarily funded with debt, so cash is needed to repay these loans. 

In a recent webinar, the Senior VP of M&A at The Stryze Group shared that there are exceptions when it comes to net margins. He continued by saying that their latest acquisition had smaller margins (10% – 12%), but more than six years of consistent growth. In this case, longevity offset the lower margins. 

Watch full webinar here:

 

Selling Primarily Via Amazon

Naturally, most FBA aggregators are focused on buying brands that trade primarily through Amazon. Initially, aggregators wanted to see at least 75%-90% of sales to be via Amazon. 

However, these numbers have softened. As barriers to entry have lowered resulting in category saturation, it is harder to defend market share on Amazon. As a result, omnichannel businesses are becoming more attractive to FBA buyers.  

3rd Party Fulfillment

There is a strong requirement for third party fulfillment e.g. FBA. Given inventory issues in 2021, several brands are also using fulfillment by merchants (FBM). 

Revenue >$3m LTM

The significant majority of FBA aggregators are seeking to make acquisitions of brands with revenue between $3m – $10m. There are exceptions to this –– large microbrand marketplaces like Flippa attract private buyers looking for smaller assets (revenue $1m). However, we are seeing aggregators increase their minimum revenue, buying fewer but bigger assets in a calendar year.  

Note: PE firms in our buyer network are typically not interested in any business under $10 million. 

Strong RRR Scores (Ratings, Reviews, Rankings)

A key criteria for most buyers is a large review moat. This acts as a barrier to entry versus the competition. In addition, buyers want to see high seller ratings and product rankings (>4.5/5.0). 

Long-Term Growth Potential

Buyers want to acquire brands with great long-term growth potential. They are seeking businesses that will be around in 5 to 10 years, not fads. 

When engaging FBA buyers, few brand owners do a good job articulating the long-term growth potential of their brand eg. new product ideas, and how to scale the business model.

When you partner with The Fortia Group to sell your eCommerce business, this is something we cover in detail in the first step of our Seven Step Exit Process.  

#3 Exit Ready | How to prepare your FBA to Exit

In March 2022, we hosted seven legal experts divided down seller and aggregator lines to discuss the significance of the letter of intent (LOI) in the exit process. Both sides agreed, only the best prepared businesses achieve a high valuation multiple and a smooth exit process. 

Hence, our mantra at The Fortia Group is “Fail to prepare, prepare to fail.” 

Here are eight steps you can take to prepare your FBA business to exit.   

Step 1. Maximize your Sales Revenues

Growing sales revenues can be limited by resources: money, time, expertise, and staff. Whether launching new markets, new product lines or marketing channels, to maximize your valuation, we advise entrepreneurs to explore all brand growth options. 

Step 2. Optimize your Seller Discretionary Earnings (SDE) and Net Margins

FBA is a relatively fixed commercial model. Therefore we encourage Amazon FBA sellers to focus on each of their investment groups as a percentage of revenue. If your SDE margin target is 20%, then the total percentage for your investment groups cannot exceed 80%. 

These include:

• Cost of Goods (COGS)
• Fixed Operational Costs (% Commission + logistics based on size and weight of product on Amazon marketplace: shipping costs, long term storage fees etc.,)
• Variable Marketing Costs (social media, influencers etc.,)
• Variable OPEX Costs (less add-backs)

The higher the SDE margin percentage, the more attractive your business will be to FBA buyers, as it signals an opportunity for growth and return on investment.  

Note: Most providers in logistics (freight forwarders etc) are also looking for longer, more stable contracts. Renegotiating in the current market with more favorable terms for both parties should be expected and is a simple way of reducing your COGs. 

Step 3. Boost your Brand Equity

 As Amazon handles all logistics (Amazon fulfillment centers), it is very easy to launch products. Yet, it can be more difficult to maintain brand differentiation as the barrier for new market entrants is low. 

Here are some ways to develop brand equity:

• Strong portfolio star ratings
• High quality review volumes

• High volume of subscribe and save (SnS)
• Strong parent category Best Seller Rankings (BSR)
• Strong ASIN performance against KPIs e.g. Clicks, Conversions, etc., 

• Retail pricing stability

Step 4. Diversify your Sales Revenues

FBA aggregators like to see either sales revenue diversification by product, by market, by marketplace or a combination of all three. Do not fall into the trap of having one ASIN (Amazon Standard Identification Number) doing 100% of the sales revenue. 

Amazon has a history of updating rules of engagement for sellers by increasing operating fee’s and restricting commissions. Your Amazon store will become increasingly attractive to buyers if it can demonstrate the ability to de-risk these threats. 

Step 5. Articulate your Brand Growth Plan 

Potential buyers of your eCommerce brand will focus heavily on growth opportunities. This includes both tactics for increasing sales revenues and SDE/net margins. 

We encourage FBA entrepreneurs to articulate the opportunity their brand offers potential buyers with increased capital and resources. These data points should be shown with forecasted P&Ls (profit and loss documentation) when engaging aggregators.  

Step 6. Ensure your Accounts & Financials are “Buyer ready”

Retain an experienced accountant. 

Simple miscalculations on your net profits can negatively impact your valuation. This is why it is essential to get your finances in order before engaging Amazon FBA buyers. 

Covered in detail in Section 4.1 & 4.2 of our Exit Guide for Amazon FBAs

Step 7. Ensure your Business is Legally Prepared

Retain a lawyer with eCommerce experience. 

Organizing the legal aspect of your business can be time consuming. That said, it should be something you prepare ahead of due diligence –– as it will delay negotiations which could cost tens of thousands. 

This is covered in detail in Section 5 of our Exit Guide for Amazon FBAs with contributions from US based firm Tarter Krinsky & Drogin. 

Step 8. Maximize your Proceeds Through Tax Advice

It pays to obtain smart tax advice in advance of an exit process as no seller wants to pay more tax than they need. For example, structuring the deal as a stock purchase agreement (SPA) or an asset purchase agreement (APA), can impact the tax rate applied. 

Covered in detail in Section 5.1 & 5.2 of our Exit Guide for Amazon FBAs

Do you know that The Fortia Group is the only global M&A firm for eCommerce that offers an Exit Ready programme? To learn how The Fortia Group can help prepare your business for sale – even 1 to 2 years out – check out our programme today.  

#4 Exit Process | The Fortia Group Seven Step Process to Exit

To get the best valuation, we have created a step-by-step process for selling your FBA business.  Engaging FBA aggregators without a clear understanding of current valuation multiples, acquisition criteria and the due diligence process will only the buyer and lead to a lower offer.  

Let’s take a look at each step of the exit process for Amazon FBAs.  

Step 1. Preparation

We have hundreds of buyers in our network, including DTC and FBA aggregators, PE firms and corporate ventures. As we do not want to waste any buyer’s time, we start by identifying a list of potential buyers for the FBA business at hand. 

Then we create:

• In-depth >50 page confidential information memorandum (CIM) with product listings, seller accountant data, product research, business model and more. 
• Confidential dataroom with thorough financial data that can be accessed by interested parties. 
• High quality teaser, a two page document with relevant data like acquisition highlights, net margins, SDE, ratings, growth opportunities and more. 

Step 2. Marketing, Distribution & LOIs

Circulate the teaser to potential buyers, interested parties sign an NDA and are granted access to the dataroom. 

Then we organize introductory calls and create deadlines for LOIs (letter of intent). We aim to get as many LOIs as possible. This results in a competitive bidding process, which increases the value of the brand. It also gives the seller a choice of deal structure. 

Step 3. Negotiation & Signing of LOI

We review and compare LOI offers, and make sure the seller understands how the final valuation is reached and all the key acquisition components. Once the preferred buyer is chosen, due diligence begins. 

For an in-depth discussion on the Letter of Intent (LOI) check out this webinar. 

Step 4. Due Diligence

Due diligence is a professional negotiation involving a number of different workstreams (financial, legal, supply chain, product etc.,). 

It can be difficult for a FBA seller to oversee this process while continuing to run the business. It should be noted that if the performance of the business slips post LOI, it will be reflected in a lower offer at close. 

Although we ensure all the buyers in our network are ethical in their negotiations, they are trying to achieve the best outcome for their firm. This is where partnering with an experienced M&A advisor can be the difference in a seven and eight-figure outcome (more on this below). 

Step 5. Review of Formal Offer

We oversee a commercial review of all the transaction documents and the final offer. We aim to negotiate as much of the payment upfront as we can, as deferred payment only favors the buyer. That said, recent market conditions have impacted current deal structures, so it’s important to understand the nuances of the earnout before signing. 

Step 6. Close

Sign order, confirm all documents are executed by both parties, and funds are transferred. 

Our recent client switched from a U.S. brokerage firm to our service and received $2.5 million more in the final offer. You can look up the case study, here. 

Step 7. Post Completion

In our experience, FBA aggregators are eager to begin the migration of the business. Business owners are accountable for the transition of operations.  

Due to market conditions, deal structure, post-completion involvement and the stabilization and earnout period are all being revised. 

In a recent webinar, Zack Flint, Chief M&A officer for D1 Brands stated that brand aggregation in the future will be more of a partnership between Amazon seller and FBA aggregator. This way, they will share in the upside and also the risk. 

For a more detailed rundown of current valuations and deal structures, check out Ecommerce Valuations for 2022 – 2023. 

#5 The Benefit of Hiring an Experienced Advisor

A seminal study from the University of Alabama (Does Hiring M&A Advisers Matter for Private Sellers, 2018) discovered having an experienced sell-side M&A advisor increased the valuation of the final offer by up to 25%. 

This is achieved by:  

• Leveling the negotiation table. Businesses were typically sold at a lower valuation due to entrepreneurs with no M&A experience negotiating against well resourced teams. 
• Creating a stronger bargaining position for the seller. A direct sale a FBA aggregator is less visible against the market, rendering the bidding process less competitive. This leads to lower valuations. 

In our recent survey of eCommerce entrepreneurs who sold their business in the last 18 months, we asked: 

If you could sell your FBA business again, what would you do differently? 

75% answered if they could go back and do it again, they would retain an advisor to oversee the exit strategy and process. The respondents further qualified their answer by stating an experienced M&A advisor will:

• Maximize the valuation of the business.
• Better prepare the business to avoid costly mistakes during due diligence.
• Reach a larger network of buyers (including PE firms and corporates) thereby creating a competitive bidding process for the business, resulting in a higher offer.  

Furthermore, 67% stated that they signed a letter of intent (LOI) too quickly, and that under the proper advice they could have received a better offer.    

Is maximizing the valuation of your FBA business your top priority when you sell? Partner with The Fortia Group for a Lucrative Exit in 2023. Contact us today for a consultation. 

Have you Downloaded our Exit Guide for Amazon FBAs?

“Fortia’s Exit Guide is the most comprehensive document for ecommerce enthusiasts demystifying M&A and its processes, an invaluable resource for any seller looking to maximize valuation proceeds.”

Philipp Lehnen, Senior VP of M&A, The Stryze Group

The Exit Guide for Amazon FBAs is a free 98 page exit manual with contributions from >20 FBA aggregators, top lawyers and accountants, and entrepreneurs that successfully sold their eCommerce business. Everything you need to know in one guide.