Looking to sell your Amazon FBA business? 5 things that will help attract an institutional buyer
Updated: Mar 30, 2020
By now, many Amazon Marketplace sellers have heard or read about the possibility of selling their business to cash in on many years of hard work. But figuring out who would buy their business and what those people look for can feel elusive and difficult.
Over my career, I've evaluated hundreds of businesses (including a lot of Amazon businesses). In the Amazon FBA space, there's often a fairly consistent set of criteria that institutional buyers look for. I can’t promise that this criteria applies to all transactions and all institutional buyers, but based on the conversations we've had, it's pretty close.
At the end of the day, institutional buyers are looking for something called “sustainable cash flows”. That means the buyer has to believe the business / product / brand has enough strength and a competitive moat around it that will allow the buyer to continue to operate it profitably for many years without significant effort or investment.
To get confidence you have built a business with sustainable cash flows, there are 5 important attributes an institutional buyer will look for when evaluating a potential acquisition of an Amazon Marketplace / FBA seller. Note that these are not necessarily in priority order - a buyer will look for all of these things. Being particularly strong on 1 might help make up for weakness in another, but all are important.
1. Large majority of your revenue (and earnings) from “winning products” - “Winning products” are products ranked near the top of organic search for the most relevant keywords and that have review counts and ratings that hold up well vs competitors. The reviews/ratings and organic ranking of these "winning products" creates a defensible moat vs competitors and are most likely to have sustainable cash flows.
2. Trademark + Brand registry 2.0 - this is absolutely essential. Without it, the value of your ratings and reviews is almost nothing as anyone can get on your listing and drive price down to the point of zero margin.
3. Scale / Size - many (but not all) institutional investors prefer to look at businesses with over $250,000 of SDE (Seller Discretionary earnings - your take-home profit) in the last 12 months. It’s almost as much work to buy a small business as a large business, so investors need to focus where they'll get more bang for their buck. Some investors have an even higher threshold to consider an acquisition.
4. A well-run and transferable business - Institutional investors look for entrepreneurs who have invested to create a business that can last, have good record keeping, have not engaged in black hat tactics, and have relationships that are strong enough to hold up through a transition to a new owner. You don't necessarily need to have a bunch of software like Quickbooks or Xero (though that can help), but you do need to be able to show you have a solid understanding of your operations and costs.
5. Product category that is relatively stable - Institutional investors generally stay away from products that feel highly fad-driven. Many people made a lot of money on fidget spinners, but it’s hard to pay a multiple of earnings for those businesses because no one knows when they’ll decline (and they usually decline rapidly)
Obviously there is a bunch more detail behind each of these that I can’t put in a single post, but hopefully this gets you started. Feel free to reach out with any questions!
Do the above apply to you? Thinking about selling your Amazon FBA business? Reach out, we’d love to learn more: info@perchHQ.com
Perch buys Amazon businesses and is known for a quick, fair, and transparent process. Perch is a technology-driven platform that acquires leading brands and enables them to thrive in the large and growing 3rd party marketplace ecosystem.