Maybe you loathe business administration. Maybe you want to lower your risk and generate liquidity. Maybe you’re simply burnt out.
There are plenty of factors that might make you want to explore exit options for your Amazon business. But deciding to sell is just the first step in a long process — you’ll need to find buyers, evaluate them, negotiate a deal, suffer through due diligence and legal consultations, and more.
Unfortunately, there isn’t a wealth of information out there on how to sell your Amazon business. As a result, sellers often feel like they’re in the dark about how to evaluate their exit options. In this article, we hope to shed a little light on what you can expect when selling your Amazon business.
Look for a Partnership; Not a Transaction
When it comes to selling your business, you’re probably worried about the same thing most sellers are worried about: How do I know I’m not being taken advantage of?
Unfortunately, the amount of information that Amazon business buyers and sellers have access to is not symmetrical — typically, the organizations interested in buying Amazon businesses have had years of experience in doing just that, while sellers will likely only go through the sales experience just once.
There’s a good rule of thumb when it comes to evaluating whether a potential buyer is on the level. Ideally, your potential buyer will treat the sale of your Amazon business as a partnership, not a transaction.
Selling an Amazon business can be a difficult process, one that requires work from both the buying and selling parties. When it goes right, both parties should feel like they’ve gained something from the relationship. If your potential buyer strikes you as having a highly transactional attitude toward the sale of your business, it could be a red flag that they’re not taking this seriously and don’t care about creating a good outcome for you.
What Are Your Exit Options?
Within the Amazon acquisition space, there are a few solo buyers interested in acquiring brands and building them up further. Typically, these buyers will be acquiring brands worth $500k or less due to their limited access to capital. There aren’t many of them out there, and they’ll usually approach you first.
There isn’t anything wrong with deciding to sell at this price point per se, but Amazon brands at this valuation stage can still be scaled up without adding too much additional work on the owner’s part. By working to grow your brand to the point where larger organizations might be interested in buying can be a great path to a bigger payday.
While accelerators can be right for some owners, they aren’t exactly an “exit” so much as — you guessed it — an acceleration.
Accelerators buy your inventory wholesale and resell it for you, accelerating demand and market share in exchange for the profits from your inventory sales. After an accelerator engagement, owners can decide to continue the relationship or take advantage of the new market position once they’ve replenished inventory.
It’s a good option for owners with a relatively young ecommerce business or who are otherwise looking to scale without spending too much effort. But for owners who don’t want the eventual hassle of managing a scaled ecommerce business, accelerators can cause more work for them.
In contrast to accelerators, aggregators (like D1 Brands) buy entire businesses from their owners. These organizations act as an umbrella for multiple Amazon FBA brands. Upon purchasing a brand, aggregators scale those brands in a way that wasn’t possible or desirable for their previous owners.
Aggregators have the benefit of retaining industry experts and sophisticated platforms designed to grow Amazon brands. For brand owners that negotiate an earnout in their deal (that is, a provision that ensures the owner receives compensation should their business continue to grow post-sale), aggregators can be an attractive exit opportunity. After all, who wouldn't want to continue to profit from their business after they've sold it?
Amazon aggregators have become very common in recent years, resulting in a highly competitive space — which is good news for brand owners trying to figure out how to sell their Amazon business. Unlike many of the other exit options on this list, it’s easy for owners to seek out aggregators themselves rather than wait to be approached by one. Furthermore, the competition between aggregators means owners are more likely to get the best deal possible for their brand.
Occasionally, larger brands will make a strategic acquisition of Amazon third-party brands. For example, if your business specializes in selling socks, you might gain the attention of Hanes or Fruit of the Loom. But again, it is difficult to seek out these sorts of deals. Typically, you’d need to wait for them to come to you.
Broker or No Broker?
It’s possible for brand owners to hire a broker in order to facilitate a deal for them. This can be a good fit for owners that really have no idea where to start when it comes to selling their Amazon business. As mentioned above, it can be challenging for owners to find interested buyers for their brand (with the exception of aggregators). A broker mitigates that challenge.
However, brokers do come with some disadvantages. The first is that they’ll be a middleman standing between you and your potential buyer, making it much more difficult for you to assess factors like your buyer’s familiarity with Amazon FBA businesses, their credibility, and so on.
And of course, brokers take a fee, which can be quite substantial. A typical broker might charge between a 10 to 15 percent flat fee, or they could use a fee schedule based on the size of the deal, such as the Modern Lehman formula.
Thus, for brand owners that already have some potential buyers in mind and want to be personally involved in the sales process, a broker can be an unnecessary expense.
How to Evaluate a Buyer
There are three questions you need to ask when evaluating a potential buyer for your Amazon FBA brand.
1. Are They Trustworthy?
Fortunately, you don’t have to rely on just your intuition to gauge your buyer’s trustworthiness. (Although, it never hurts to have a good feeling about a potential buyer!)
You can gather more concrete information to help assess a buyer’s credibility. Namely, ask them for references and see if you can speak to prior brand owners.
Nine out of 10 sellers neglect to perform even a basic reference check, but it's a no-brainer if you want to confirm that your partner will actually follow through on what they promise in their marketing. Taking 30 to 60 minutes of your time at the beginning of this process can save you weeks or months of wasted time should your buyer prove to be less reliable than advertised.
Any organization worth selling your brand to should have prior buyers willing to speak to the quality of the sales process, the level of transparency they felt was involved, and whether their deal was fair.
And naturally, if they refuse to provide references, you should refuse to sell to them.
2. Do They Have Amazon Selling Experience?
If you're like most Amazon business owners, you don’t want to sell your business to some suits with a lot of cash. The best potential buyer for your brand will be somebody who fully understands what they’re buying.
Not only will confirming that your buyer has prior Amazon experience ensure that your legacy is taken care of, it also can lead to a smooth selling process and a better deal.
No business is perfect — in fact, knowing that there are imperfections to improve upon is what makes buying Amazon businesses profitable. If some issue is uncovered during the due diligence process, an inexperienced buyer might panic and seek to change the terms of the deal. Somebody who understands the Amazon environment and feels confident in their ability to address any challenges will be more likely to stick to the deal’s original terms. What’s more, you won’t have to waste time educating them on how Amazon works.
It's important to remember that diligence is a two-way street. Ask your potential buyer hard questions, and if you're not satisfied with the answer, consider whether you trust them to take the reigns of the brand you've spent years building.
3. Do They Have the Capital?
This one can be tricky to evaluate, but it’s absolutely essential. The worst possible outcome is to agree on a deal, mentally commit to exiting your business, and then have it fall apart at the last minute because your buyer had difficulty accessing capital.
(Don't expect them to say this is the reason your deal came apart, though — they'll blame it on their investors or nitpick some minor operational issue, but it's almost always a lack of capital.)
Not only is this frustrating, but you may have to return to alternative buyers you evaluated and turned down. When you do, it’s unlikely that they’ll be willing to offer the same deal twice.
Fortunately, there is a great way you can assess a potential buyer’s financial situation: Just ask for proof. Any trustworthy buyer will be happy to comply.
However, asking to see a bank statement isn’t a great approach, as this can paint a misleading picture of an organization’s financials. Instead, ask for validation from their investors — an email confirmation will do. You’ll want to receive confirmation that they do in fact back the organization offering to buy your brand and that they’re not involved in decision-making.
Finding out how to sell your Amazon business can feel like a complicated process, but we hope that the guidance in this article has helped clarify what you should expect and how you can prepare.
Like anything worthwhile, however, sometimes the best way to learn is by doing. If you’re interested in selling your Amazon business, why not get in touch with the team at D1 Brands to see how we approach the selling process firsthand?