Case Study: How a $1,050,000 Amazon FBA deal was paid out 12 days after being sold
September 27, 2021
Getting paid for a 7-figure business 12 days after closing the deal is almost unheard of in the online business brokerage space. Business deals can get messy and require specific procedures for a smooth sale that ensure both sides are protected during the transfer.
The terms and security measures that protect both parties in a deal are one of the major reasons why buyers and sellers choose to work with a brokerage over attempting a private transaction.
There is too much at stake to risk losing everything.
As business deals increase in size and complexity, it’s not uncommon for transfer procedures and legal clauses to increase as well. In addition to this, at the 7-figure deal level there is almost always a due diligence phase, which is the time period when a buyer can perform a more thorough business inspection before officially closing the sale.
An increase in these protective mechanisms typically correlate with an increase in time, and for buyers and sellers, time truly is money.
For sellers, it means delaying access to capital that could be used for investing in other businesses, buying a house, or just paying their bills.
For buyers, it means delaying work on the business and the growth of their investment until the deal crosses the finish line.
But what if there was a way you could have both? What would a deal look like to be both secure and fast?
In this case study, we follow a seller who sold their Amazon FBA business for $1,050,000, and by adding specific contract terms and effectively utilizing the due diligence phase, the seller had cash in hand 12 days after closing the sale.
Capitalizing on a Revenue Spike
This Amazon FBA business was in the health and fitness niche selling a brand with 5 SKUs related to exercises that can be done from home. The business saw a spike in revenue at the onset of the pandemic when people across the country were looking for fitness alternatives to going to the gym.
Within the span of a couple of months, the business, at its peak month, saw a 760% increase in revenue compared to the average monthly pre-pandemic revenue, from approximately $36,000 to over $274,000 in sales.
Equally as impressive, this business was selling almost exclusively to customers in Canada; the US and other countries were largely unexplored marketplaces.
With everything going well, why sell? And just as important, how do you know when to sell?
Why and When to Sell: the $1.05M Questions
After hitting its peak, the business began to cool down and revenues normalized in the ongoing months, though they remained well above the prior average.
The question that many sellers face at this point is whether to invest more into the business to try to jumpstart growth or to cash in on their success before it loses steam.
We have a few articles that dive into the topic of knowing when to sell, one of which suggests:
“You should consider selling when you feel that your site has reached its potential — or at least its potential with you at the wheel.”
Perhaps for this reason or that the seller had other investments that took higher priority, the seller contacted our vetting team to value and place his business for sale on the Empire Flippers marketplace.
With over $4.5 billion in verified funds on the Empire Flippers marketplace and some of the world’s largest brand aggregators actively shopping for Amazon FBA deals of this size through us, we turned out to be a great fit for the seller.
The business was listed on the marketplace, and after 16 days and 16 potential buyers viewing the listing, the seller received a letter of intent (LOI) from the soon-to-be owner, indicating that this buyer intended to purchase the business after a successful due diligence period.
Taking Full Advantage of Due Diligence
An LOI not only signals intent to purchase a business but also communicates the terms of the sales agreement.
With guidance from our team of sales advisors, the buyer and the seller added specific terms to the contract in a way that helped this become one of the fastest 7-figure deals on our marketplace to close and receive its payout after the due diligence period.
Here are a few ways the due diligence phase and certain contract terms helped make this happen:
The due diligence period and inspection period were combined
After a sale is closed, all businesses enter the migration phase, which is where the transition of the business assets occurs before releasing the payout to the seller. This phase can take several weeks, and two of those weeks are for the inspection period.
The inspection period is a period of 14 days provided to buyers during the migration phase, where they can review the business performance to confirm there are no gross misrepresentations compared to how the business was advertised. If the business generates at least 50% of the average revenue figures advertised on our marketplace during this 2-week timeframe, it has passed the inspection period’s revenue requirement.
In this deal, the buyer and the seller agreed to verify business performance and consider the inspection period as part of the due diligence phase, and in doing so, this reduced the migration phase by 2 weeks.
The buyer used this time to prepare everything needed for the migration of the business
Another common reason for post-sale delays is if the buyer does not have the information or setup necessary to migrate the business to them.
Our sales and vetting advisors will note some of the major requirements for migrating a business, but there are also details that the seller is likely familiar with and can communicate with the buyer ahead of the transfer.
For example, does your Amazon FBA business sell in the UK and the EU and store some inventory in Germany? If so, the buyer will need to register for a VAT number in any country where inventory is stored. This process can take between 30–60 days, so the earlier a buyer starts the VAT application process, the better.
Are you selling an Amazon Associates business? If so, does the buyer have an Amazon Associates account with at least 3 qualified sales that enables them to apply for an API key? If so, this could reduce the migration timeline by 2–4 weeks.
With a due diligence period of over a month, this buyer had time to prepare everything necessary to perform the transfer immediately after completing due diligence and entering the migration phase.
Structuring earnout payment details
When a deal has an earnout agreement, this means a portion of the payment for the business is released after completing the sale, and the remainder is paid over a certain period of time or depending on business performance.
Some sellers are initially unwilling to accept anything but full cash offers until they realize the benefits an earnout can offer.
Most deals of this size have performance-based earnouts and can provide sellers with a larger buyer pool and offer them the opportunity to make more on the sale overall.
Just as important, an earnout can pay you faster.
In this deal, the earnout structure helped the seller receive a large portion of the payment upfront before all of the assets were transferred.
The buyer felt comfortable agreeing to release a portion of the payment for the business knowing the seller was incentivized to complete the full transaction in order to receive the remaining funds. In this way, the earnout provided leverage for both parties, allowed the deal to close early, and enabled the buyer to begin growing the business immediately.
This was a win-win situation.
Make the Terms Work With You
Arriving at this type of deal can require negotiation and willingness from both parties to make it work. Furthermore, the specific terms can differ depending on the type of deal. For example, selling an Amazon FBA business with only a US account has a different process and timeline than selling one with a UK account.
For this reason, we highly recommend working closely with a sales advisor to guide you through the process, explain your options, and negotiate with the other party to figure out an arrangement that works well for both sides.
If you are curious about the sales process or would like to chat about your options, speak with a sales advisor to discuss your specific situation. You just might find a 7-figure exit on the other side.
