From Stress to Success: An FBA Seller’s Journey to a 46x Multiple Exit
October 20, 2021
When the time comes to sell your business, you want to make it as attractive to buyers as possible.
Most business owners think this means covering up any flaws and pretending the business is running smoothly. The truth is, many buyers would prefer purchasing a diamond in the rough instead of a sparkling crown jewel.
Being upfront about the business’s shortcomings allows buyers to identify areas of improvement that they can leverage to grow the business further.
What you see as weaknesses, buyers see as growth opportunities.
This level of vulnerability and transparency may seem scary, but it can help your business stand out from the crowd.
This is something one of our recent sellers was well-aware of. Having maxed out on their capacity to grow the business, the seller was ready to step aside and let the business soar to greater heights with a new owner.
The seller was open about the challenges the business had endured, confident that this approach would attract a buyer with the right skill set to scale the business further. The seller’s tactic paid off and the business was sold for $1,300,000 on our marketplace.
I’m sure you’re eager to learn more about this incredible business so let’s dive right in!
The Makings of a Successful Business
Back in 2014, the seller started an Amazon FBA business selling kitchenware and storage products.
The products were sold both in the United States and across Europe where the seller was based. This gave the business great geographic diversity and access to a larger pool of consumers.
The Seller was part of the PAN EU program, so the European inventory was shipped to the nearest warehouse (usually Spain) and then distributed by Amazon to neighboring EU countries.
As the business gained traction, it experienced strong year-on-year revenue growth, and the products accumulated thousands of positive reviews on Amazon.
The business offered a total of 64 SKUs, 48 of which were sold in Europe and the remainder in the United States.
By the time the business was seven years old, it was making a whopping monthly revenue of $128,661, with the seller taking home a monthly net profit of $28,281.
Every Rose Has Its Thorn
Unfortunately, as the size of the seller’s business grew, so did the headache of managing increasingly complicated and time-consuming areas of the business.
With no other employees to help distribute the workload, overseeing the logistics of such a large product offering took up a lot of the seller’s focus.
This left little time to concentrate on other aspects of the business, like advertising on Amazon or expanding the American product line. The seller spent about 20 hours per week on the business, all while managing a local business in Portugal that was demanding more and more of their attention.
Amazon storage space penalties were another pain point for the seller.
Amazon has drastically changed their storage fees and it has left sellers in a bind. We covered this subject in great depth on the Opportunity Podcast with inventory management expert Chelsea Cohen. As an FBA seller herself, she shared valuable insight on how to manage stock effectively and how to stay calm under the pressure of unexpected storage limit changes.
Increased shipping and storage fees, Brexit, and the restrictions put in place as a result of the pandemic only compounded the seller’s problems further.
Unforeseen problems like these are a stark reminder of the fragility that comes with running an online business. Global disasters and events outside of your control can derail years of hard work overnight.
You can mitigate these risks by diversifying your revenue streams, but the only surefire way to ensure that you capitalize on your business’s success is to sell your business while it is still profitable.
Don’t Sweep Your Business’s Problems Under the Rug
It’s all very well to say that you should exit your FBA business while it is still successful but, unfortunately, business owners don’t have a crystal ball that will warn them about impending problems.
For this reason, it’s extremely rare for an owner to sell a business that hasn’t weathered a few storms. When you decide to place your business on the market, your instinct may be to try to cover up or disguise these blemishes in your business’s history.
As tempting as this is, we recommend the opposite approach.
If your site has experienced security issues, talk about it. If your revenue dipped for a few months, explain why. If you, like the seller, don’t have the capability to pursue certain growth opportunities, be open about your limitations.
This level of transparency helps build trust, deters unqualified buyers, and allows qualified buyers to identify areas of the business they can improve and grow.
Remember, most buyers don’t want to simply maintain your business after they’ve bought it. They want to grow it further!
If you’ve already explored all avenues for growth, there’s not much a buyer can do to improve the business. By identifying your business’s weak points, you are effectively highlighting all of the untapped growth opportunities a buyer can take advantage of.
This is a strategy that the seller wholeheartedly agreed with.
Identifying the Right Time to Exit Your Business
The seller’s business weathered the storms of 2020 and bounced back in 2021 with a 42% increase in profits. Despite this promising recovery, the seller knew that they had reached the limits of their capacity for growing the business further.
They recognized that this was an ideal time to make a profitable exit from the business.
The seller stated, “One of the reasons that I would like to sell this business is because I can’t dedicate enough time to it. I think that someone with the time, professional structure, and knowledge to manage this business will do a better job on PPC campaigns, and on the logistics side, not going out of stock as many times as I did. I think they can double the global sales easily and in a short amount of time!”
The seller submitted their business on our website and highlighted these unique growth opportunities to our vetting team. The seller also made it clear that they would not accept anything less than $1,000,000 for the business.
We took this into consideration, along with the business’s growing revenues and good product reviews when calculating the value of the business.
We also took into account the fact that a few of the big brand aggregators that frequent our marketplace have been offering 48x multiples upfront for European-based FBA businesses.
Europe’s FBA Boom
One of the reasons the seller’s business experienced such rapid growth was its strong presence across Europe.
Last year, Amazon added an extra two marketplaces, in the Netherlands and Sweden, to their European division. These additions created a grand total of eight individual Amazon marketplaces in Europe and signaled Amazon’s intent to grow its presence on the continent.
This change in the Amazon FBA industry created a new pool of consumers who often follow different buying patterns than US customers. This allowed the seller to reduce seasonality and capitalize on peak sales numbers year-round.
The European Amazon marketplaces are a lot newer than their US counterpart so, for now, there are fewer sellers and therefore less competition. There is also greater potential for finding untapped niches to conquer.
Aggregators and private equity firms are well aware of these opportunities and have been actively seeking out European-based FBA businesses to acquire.
This targeted focus from aggregators and private equity firms played right into the seller’s hands and made his business a highly sought-after asset.
A Surprising Buyer Scores the Business
Once we had finished valuing the business, the seller agreed to list it with an asking price of $1,358,526 and a multiple of 48x.
This valuation was in line with the seller’s goal of taking home $1,000,000 after commission and fees.
With the business live on our marketplace, it wasn’t long before offers started pouring in. 19 potential buyers unlocked the listing in the first 24 hours.
A grand total of 47 interested buyers unlocked the listing before it was sold three weeks later.
Among these interested buyers were many big brand aggregators, but it was a brand new strategic buyer that beat out the competition and succeeded in purchasing the business.
There is a range of different negotiation tactics that buyers use when attempting to purchase a business. A common tactic is to open negotiations with a low offer and let the seller talk you into a slightly higher sales price. This approach can often help you secure a great deal, but the initial low offer leaves the door open for other buyers to out-bid you.
This is one area where new players in the market can beat out established firms and aggregators. We saw this scenario play out during the sale of the business.
While the other buyers and aggregators opted to start the negotiations with fairly low offers, the strategic buyer came in strong with an offer of $1,100,000 with an additional $200,000 as a performance earnout.
The seller accepted the deal, walking away as a millionaire, while the strategic buyer gained a powerful new asset to begin building a portfolio with.
Marketplaces Are Ideal for New Buyers
Newly formed aggregators and Private Equity firms have a lot of responsibility resting on their shoulders. They need to source quality businesses that will create reliable returns for their investors.
Without help, this can be a long and arduous process. Finding a quality business is hard enough, but it then needs to be thoroughly vetted and the assets need to be carefully migrated over to the new owner.
We have built up a large following of aggregators and high-net-worth individuals who regularly visit our marketplace because we provide a smooth sales process.
Our marketplace features quality businesses that have gone on to be “cornerstone” assets for aggregators. These assets have helped them to create great returns, earning enough revenue to buy more businesses and build powerful online business portfolios.
This is good news for sellers, as our marketplace attracts a large pool of buyers who have the necessary capital available to purchase businesses quickly.
You’re One Simple Choice Away From Changing Your Life
Quitting your day job and starting an online business gives you control over your own life. You control the hours you work, the type of work you do, and to a large degree, the income you earn.
But are you truly free, or have you simply become a slave to another master, the business itself?
Many business owners say that while they may work less than 40 hours per week, the business consumes their thoughts every hour of every day.
Selling your business frees up your mental bandwidth and gives you enough capital to give yourself a true taste of freedom.
If you’re ready to reap the rewards of years of hard work, schedule a call with one of our expert sales advisers who will walk you through our sales process.
Alternatively, calculate the value of your website or online business!
