How to Sell Your Amazon FBA Business

It is no secret that E-Commerce has been experiencing an incredible boost in the past few years. Amazon reported a profit increase of 84% in 2020 vs. the prior year — and the E-Commerce giant is not the only one benefiting from this up roaring success. Amazon’s market places consist of thousands of third-party sellers, who have a convenient way of operating via the Amazon FBA (“Fulfilled-by-Amazon”) model. In the past year, plenty of Amazon FBA aggregators such as SellerX or Thrasio entered the ecosystem, looking to consolidate the fragmented market by acquiring the most promising businesses.

But do you know how exactly you can sell your Amazon FBA business? No matter if you hit a ceiling with your business when approaching the first millions in revenues, or just started to think of retiring early, you do not need to spend thousands of dollars on courses and gurus to find out how you can craft your perfect exit strategy. In my day-to-day job as an e-commerce investor, I have witnessed quite a few acquisitions myself and learned about what makes an E-Commerce business interesting, what evaluations sellers can expect to sell their business for, and how the acquisition process looks like.

Let’s talk numbers — how does your FBA business gets valued and what can you expect to receive for it?

With increasing competition in the space, the market rates for selling FBA businesses are increasing and are currently around 3–4x of your Last Twelve-month Earnings. These are often referred to as your LTM SDE (Seller Discretionary Earnings). What is the difference between Net Profit and SDE? If your business has operating expenses that a buyer would not need to carry forward once they acquire your business (such as the salary you pay to yourself), those are treated as add-backs and will be added back on the figure that your business gets valued at.

But what makes your business get valued at a higher multiple?

1. The profitability of your business — The higher your LTM SDE margin is, the more an aggregator will be willing to pay.
2. Intellectual Property — If you are in the Brand Registry and have patents and/or trademarks, your business will automatically be worth more. (Amazon offers an easy way into the Brand Registry with its IP Accelerator program!)
3. Review Moat and Ratings — Does your top-selling SKU have more than 1,000 reviews? Does it have solid ratings of at least 4.2? Does your business have a high review moat vs. your competitors?
4. Niche of your products and growth opportunity — Are you operating in a niche which growing in demand? (Do keyword research via Helium) Is there untapped expansion potential in other marketplaces you have not entered yet?

If you want to have a rough estimate of what your business is worth, all you need to do is calculate your SDE and multiply it by the multiple you expect it to be worth.

Let’s say you make $5,000,000 in net sales. After deducting all of your expenses (for example COGS, FBA fees, logistics cost, as well as marketing & marketplace fees, etc.) you end up with a Net Profit of $800,000. After adding back some of the expenses a new owner would not carry, for example $200,000, you end up with an SDE of $1,000,000. You negotiate a multiple of 3.0x for your business- that means your business is worth $3,000,000 + your inventory of (e.g.) $500,000 + a target Earn-Out of e.g. 1.0x SDE ($1,000,000). You receive $4,500,000 for your business.

As you see, selling your business can be highly rewarding and save you years of hard work until you reach that sum on your own.

You decide to sell your business — what does the process look like? How long does it take to sell your FBA business, and when can you expect to receive the funds?

The process is fairly straightforward — you establish communication with an FBA investor and sign an NDA with them so you know all communication and data exchange is treated confidentially. Afterward, all you need to provide is usually the P&L of the past 2–3 years, data on your marketing, as well as a sales split (by SKU/Channel/Geography for example). The easiest way to do this is by giving the aggregator demo access to your sellerboard account, however, you can also have your accountant prepare the data for him. In some cases, aggregators may need some additional data from you so be prepared for follow-up questions — that is normal and not a negative sign. After 1–2 weeks, you can expect to receive an LOI (“Letter of Intent”) from the buyer. Most importantly, the LOI shows the offer structure — how much of the money you receive upfront (usually 70–80%), how much you receive as a stability payment after a year, and how high your target Earn-Out will be.

Furthermore, the LOI sums up at what cost your inventory is priced, whether it is a share deal or an asset deal, how long the transition period after the acquisition is structured, as well as the details of the DD (“Due diligence”). Be prepared to enter an exclusivity, meaning that you will not be permitted to speak to any other aggregator for a fixed period after signing an LOI, with the market standard being at 6 weeks.
It is important to keep in mind that the sum in the LOI does not necessarily mean it is the sum you end up receiving. Therefore it is also called an “indicative offer”. After signing the LOI, the DD begins where an external DD provider confirms the previously shared data on different work streams — financial, commercial, legal, and tax usually. For example, a financial DD provider will verify your financial statements and confirm all the financial figures.

If you agreed on a multiple of 3.0x and previously shared numbers showing an SDE of $500,000, but during the DD it turns out your SDE is only at $400,000, you would receive $1,200,000 (3x400,000) instead of $1,500,000 — therefore it is crucial to be as transparent as possible right from the start to avoid confusions.

When choosing which aggregator to go with, make sure to indeed listen to your gut. Unfortunately, some sellers deal with aggregators that end up trying to find excuses to reduce the SDE (or the multiple offered on it) during the DD. Therefore, please be careful with which aggregator you decide to go with, and if possible, ask around in your seller network about experiences with certain players in the industry. However, don’t be scared — the chances of this happening are low as the vast majority of Amazon FBA aggregators are very fair and cannot risk developing a bad reputation.
Ideally, you will be in talks with a reputable and large Amazon FBA aggregator such as SellerX, where you will have a transparent and fair process from the start until the end. There are other reputable firms out there, too, so make sure to do your homework.

After 4 weeks, your DD should be completed. If no major findings come to daylight, you can expect to receive a binding offer from the seller which would be ideally the same sum as previously offered in the LOI. After another 3 weeks, where the final documents are drafted and signed, the funds are wired to your bank account and you complete the transfer of the business to the buyer. You receive the funds already, however, there will be one final step for you — completing the 3-month transition period, where you will introduce the buyer to his new business and show him everything that needs to be known to run it. Some sellers decide to stay up to 12 months onboard in an advising role to have at least an indirect way of positively influencing the brands' performance to increase their Earn-Out and Stability payment. No matter if you decide to leave your brand for good after 3 months or decide to stay on board for up to 12 months — after you hand over the keys for good, all that can be said to you is — Congratulations! As a new millionaire with plenty of time, you can now enjoy your newly won freedom and decide calmly without any pressure on your next steps in life.

Are you an FBA seller and have thought about selling your business? Send me an e-mail at kaan [at] sellerx.com and let’s talk!