How to Sell a 7-Figure FBA Brand for More than its Listing Price
April 28, 2021
When deep in the trenches of running your business, scaling your business is all that’s on your mind. But how will you answer when the call comes to sell?
The great news is that this is the season of the seller. In our State of the Industry report, the data reveals that FBA businesses are in high demand. Listing prices, sales prices, and sales multiples are increasing year-on-year as institutional buyers and private equity (PE) firms see the value of these types of assets.
Everything points to the fact that now is as good a time as any to sell your business.
One seller started their exit planning early. When they completed their initial seller questionnaire, they thought they’d only receive $1.6 million for their business. Once they listed their business for sale, the valuation went up and was listed at $4.3 million, which is just shy of 3X their expectations.
In the end, they ended up exiting for a cool $4.5 million and they walked away for $200,000 more than the listing price!
While selling for more than the listing price doesn’t happen very often, the fact is that top class FBA businesses are high in demand now more than ever, as this case study will show.
Strong branding, in-demand products with thousands of popular reviews, and streamlined operations means FBA businesses command high multiples and attract a large buyer pool. The competition heats up for these types of digital assets.
Let’s look under the hood of this business to see how it arrived at such a high valuation and sales price.
The DNA of a 7-Figure FBA Business
To understand why this business attracted a lot of attention, it’s important to understand some of the characteristics of buyers who look for high six-figure and seven-figure FBA businesses.
At that price range, buyers are looking for a business that doesn’t need too much involvement from the owners and commands a strong brand.
Let’s break down the each facet of what PE buyers are looking for:
Number of SKUs
Based on previous sales on our marketplace, a top-of-the-range FBA business has a product range of 30 or fewer SKUs to keep things manageable.
So how did this business square up against these requirements?
Created in 2014, this FBA store had 48 SKUs when it was listed for sale and included the Amazon Seller Central account. Over the course of six years, the seller carved themselves a niche in the fitness industry, which is well known to be competitive.
While the SKU range is higher than what PE and institutional buyers tend to look for, this is a smaller issue when the majority of SKUs are size or color variants of a few best-selling products.
This business in particular had a few core products, and the majority of SKUs were different colors of these items.
Branding
The popularity of the products is shown by the reviews as well. A reputable brand is reflected in an average rating of 4.5 stars across thousands of reviews.
As of writing, the best-selling SKU of the business has an average 4.5-star rating for over 9,000 reviews. It’s been labelled as an Amazon’s Choice product, meaning it’ll be recommended to people who visit the category for the first time on Amazon.
Considering how many reviews this business has, maintaining this high average rating on a best-selling product is impressive!
The number of reviews and SKUs play a large role in how attractive an FBA asset is to buyers who can afford larger businesses, but there were some other attributes that strengthened the deal.
Social Media Channels
One thing we always advise FBA sellers to do is to diversify their traffic channels as much as possible.
Many FBA sellers advertise only through PPC advertising. Leveraging social media platforms is a great way to drive customers to your product listings when they’re developed.
In the case we’re looking at, the seller built up a large social media following with over 280,000 followers on Facebook and a private group with over 11,000 members that served as an important traffic channel.
An exclusive group with a large membership base is valuable because it allows you to learn what your customers’ wants and needs are, which you can then follow up on. Also, it connects people within a community who identify with your brand—a huge win for FBA brands.
Sizable Email List
Another interesting asset included with the sale was an email list with over 15,000 subscribers.
In this case, the email list wasn’t monetized yet.
However, the seller managed to build up the subscriber list through curated newsletters and content to a sizable amount, and monetizing it wouldn’t be an issue since they’d already built up an addressable audience who wanted to hear more about new products.
Growing an email list is a great way to diversify your revenue streams without relying on Amazon’s search engine or paid advertising.
Hands-Off Operations
Investors want to acquire an asset, not buy a job.
The fewer tasks that the owner needs to be responsible for, the more time they have to expand the business in other ways. The seller did a great job in making this business hands-off by hiring four freelance VAs to manage the day-to-day operations.
Some of the tasks they helped with included social media scheduling and responding to customer queries while the seller managed inventory levels and optimized the product listings.
Outsourcing more of the time-consuming tasks frees you up to focus on growing the business.
How involved the owner needs to be with a business will impact your business’s valuation. On our marketplace, listings where the buyer works 40 hours per week or more tend to receive a lower valuation, especially among ecommerce businesses. Lowering the number of hours required to maintain the business can make your listing more attractive to a wider pool of potential buyers.
Preparing for a Sale
The seller first approached us in August 2020 so that they’d have enough time to prepare their business for sale.
One of the biggest things to prepare that many FBA sellers leave to the last minute is getting their finances in order.
When exit planning, ensuring that you have more than enough time to gather all your documents will make the selling process much easier, as the profit and loss (P&L) statement will be one of the most important documents you’ll need throughout the entire procedure.
After a few months of working with our experienced vetting team, the business went live on our marketplace in December 2020. It was listed at $4,317,488.00 with a multiple of 46X.
This pricing is in line with recent trends of rising multiples year-on-year for FBA businesses given this FBA business’s trailing twelve month (TTM) performance.
As seen in our State of the Industry report where we compared FBA sales in 2019 and 2020, the average sales multiple increased by 14% while the average FBA business sales price increased by a huge 80% when comparing the two time periods.
This business commanded such a high multiple because it was relatively easy to run, had SKUs that sold well on Amazon in their niche, and also had great reviews.
Once it was live, it was time to wait by the phone for interested buyers—and the seller didn’t have to wait for long.
Listing Goes Live, Buyers on High Alert
The listing went live on a Monday as new listings normally do. However, interest in this particular business was strong.
Within 24 hours, 11 active buyers put money down to unlock the listing and view more intimate details. People liked what they saw so much that out of those 11 unlocks, 10 buyers scheduled calls to discuss more granular details with the seller.
To make sure only qualified buyers can view your listing, we have a system that protects sellers by requiring buyers to show proof of funds that they can afford listings they’d like to buy on our marketplace.
We go into much more detail on how this system works here, but rest assured that PE firms and institutional buyers can put their money where their mouth is.
Working a Deal Out
Of the 10 people who hopped on a call with the seller, two were high net worth individuals (HNWI) and eight were PE firms. PE firms have been snapping up FBA businesses more and more over the past couple of years as they recognize this is an alternative asset class with impressive ROI.
After 22 days of being listed on our marketplace, the seller signed a Letter of Intent (LOI) when an offer was made by one of the PE firms they spoke with.
In short, an LOI is a document that a seller signs if a buyer wants exclusive access to your business. When a buyer proposes an LOI, it locks in a due diligence period and signals strong intent to acquire the business. In this FBA business’s case, the PE firm requested 50 days to inspect the business’s operations and finances closer.
With the LOI signed and the due diligence period underway, the seller continued to update their P&L statement and ran the business as normal.
We highly recommend you continue running your business as usual even when a deal is being worked out. A drop in performance because you neglected your business at this time could muddy the waters and even lead to buyers pulling out of deals when the numbers don’t match up to what was originally advertised.
The buyer agreed to pay $3.4 million in cash up front, $500,000 after 12 months if the business met certain revenue targets, and $600,000 in cash after 6 months of the finalized sale.
In total, the seller will potentially make $4.5 million from this deal.
Is Deal Structuring Good or Bad for Sellers?
Deal structuring is often misunderstood as a buyer’s advantage during negotiations because the payout is delayed in some shape or form.
While earnouts and seller financing terms for every deal are different, it’s important to note that the seller can also use deal structuring as leverage for themselves. In this instance, the seller managed to negotiate a total higher sales price than what the business was listed for.
This compromise can be fair since the seller would be delayed in receiving the total amount. There isn’t a right or wrong choice on whether you should agree to performance-based targets or time-based goals.
The seller was confident the business would meet the buyer’s expectations based on the work done over the four years prior, and they could offer seller support to ensure the business continues to thrive after the transfer of ownership.
We created a comprehensive guide to deal structuring so you can work out better terms during negotiations when offers come in for your FBA business.
Once the deal was finalized, all that was left was to migrate the business.
Migrating a 7-Figure Business
Moving house can be torture. All the packing, organizing your stuff into a logical order so it’s easy to unpack, finding the right people to help you move—it’s no easy feat.
Neither is migrating a 7-figure FBA business.
It’s not just a case of simply emailing your login details to the buyer and patting yourself on the back. There are many things that can go wrong during this time if the right parties aren’t informed that a transfer of ownership is happening and the right documentation isn’t submitted in time.
As of writing, we’re the only broker with a dedicated migration team who’ve helped with the transition of 1,500+ businesses, so we know a thing or two about making sure a migration goes smoothly without any hitches.
If it’s your first time selling your business, we recommend choosing a broker that helps with the migration process so you can focus on the deal itself.
A Buyer for Every Business
This case study should give you some insight that if you have a large FBA brand and you’re thinking of an exit strategy, there are buyers who are willing to pay you for what it’s worth.
This sale wasn’t just a one-off, either. In 2020 alone, we sold 33 7-figure FBA businesses just like the one we featured. Buyers on our marketplace have proved they can afford these types of transactions, as we have over $1.5 billion in verified proof-of-funds.
What’s more, sale prices are increasing every year. Compared to 2019, FBA businesses sold in 2020 on average for 80% more and sales multiples (TTM) increased by 14%.
Where you sell your business is important. You may find a great deal through a private connection. If you choose our marketplace, you’ll find institutional buyers and savvy investors competing to acquire a profitable and reputable brand.
We have a strong concentration of PE buyers able to buy at the 7- and 8-figure range. If you’re not sure how much your business is worth, try out our free valuation tool that will give you a ballpark figure in minutes.
If you’re thinking of a profitable exit, you can schedule a call to speak to one of our experienced business analysts to start planning your exit strategy. Even if it’s just a thought, preparing now will help you get a higher listing price and increase the likelihood of a sale further down the line.
