In COVID-19, the Ecommerce business and Amazon have rapidly grown, and so have Amazon Aggregators. They have constructed a new emerging mergers and acquisition sector: Amazon Aggregation M&A.
Thrasio leading aggregator, born in the USA in 2018 (is valued at around 5 billion US dollars), Amazon aggregators are expanding rapidly worldwide. There are around 90 active Aggregators with a cumulative capital raising of 13 billion US dollars. Their mission is to consolidate and acquire third-party sellers on Amazon.
Some aggregators are expanding their services beyond Amazon to other E-commerce channels like Shopify. The marketplace of Amazon is fragmented, with thousands of Amazon FBA sellers run by different entrepreneurs to achieve their desired business aims and objectives.
Aggregators bring quick access to exit for Amazon sellers and, in turn, seek to maximize acquired brands’ profit by optimizing supply chains, marketing, increasing sales, and global expansion.
In 2022, these FBA acquirers’ funding series from their investors can increase due to their huge success in 2021. They will utilize these funds to acquire more FBA businesses and scale them to generate their investors’ revenues.
Here are the few points to be considered when embarking on selling or buying an Amazon business:
The deals with FBA aggregators run on a very speedy timeline of 45 days. The deal time is faster than the standard merger and acquisition process, but these aggregators are very efficient in dealing with procedures against increasing competition.
FBA businesses are valued on multiple of last 12 months SDE, EBITDA (revenues before interest, tax, depreciation- standard valuation for merger and acquisition), is mostly used in big deals. Seller discretionary earnings are the average profits of the business in the last 12 months and add-backs. Add backs vary in every agreement and negotiated, but in general, they are business expenses that benefit the seller personally, like salary of the seller, contributors of pension, benefits of health, travel, and other sellers discretionary expenses.
Multiples were as low as 2x, but the growing competition is pushing them upwards. The factors including business age, growth potential, brand strength, product range, brand risk will impact the multiple that aggregators are willing to pay. It depends on the seller to consider corporate finance advice for getting the best valuation.
In the USA, asset deals are norms of FBA aggregators. It means that only business assets are purchased by these aggregators, including stock, intellectual property rights, trademark, contracts, Amazon account, and website. They will not buy business shares.
Share deals are done in the UK as they are more tax efficient. UK seller is subjected to certain conditions in share, using Business Asset Disposal Relief thereby minimizing capital gains tax (CGT) rate to 10 percent on first one million pounds of sellers’ lifetime gains. CGT rates can change instantly in the UK and the US, impacting the deal structure. The budget of October 2021 in the UK shows no increase in CGT rates.
Sellers want cash with most of the deals after completing the process. The payment of inventory will be paid separately by the aggregator. There is often stability payment 12 months post completion of the brand performs according to the agreed expectations. Earnouts are common, particularly when uncertainties and risks are associated within business models (for instance, COVID-19 impact on supply and sales) or sellers’ involvement with brand post-completion.
An earnout is rewarded over 2 to 3 years of post-completion and depends on the brand’s performance in that period. Consideration shares have become more common nowadays.
Due diligence is the first major step in any merger and acquisition deal once basic terms and deals are agreed. In their due diligence procedure, Aggregators will cover standards areas like (tax, accounting and financing operation, etc.) through a series of calls, but they will also look at Amazon and brand-related queries.
Due diligence will also include the valuation of customer reviews, Amazon seller account, completion of terms and conditions, intellectual property rights, and many others.
The first step here is agreeing on a letter of intent. This letter will incorporate basic terms of deals and price, exclusivity clause (that will prevent the seller from negotiating deals with another purchaser), and confidentiality.
The documentation deal in the UK is a share purchase agreement. Lawyers for allocating risk between parties draft this documentation deal. This document will include the provision of price, seller warranties on business, limitations on claims that buyers can make against the seller (for instance, preventing sellers from setting a competing brand instantly after post-completion). Other documents include a disclosure letter and a consultancy agreement.
The end step comes with migration. In the process, all E-commerce accounts control is transferred to FBA aggregators. The completion payment will not be provided to the seller until the migration process reaches the completion stage.
On a share sale, all accounts come under the target company’s name. The process of an asset deal is complex and can take several days to complete.
In the last two years, the rise of FBA aggregators has brought a revolutionary change in the world of Amazon. With billions of dollars raised by these powerful acquirer firms, they are investing this money to purchase Amazon brands.
Leading Aggregators like Thrasio and Perch have acquired hundreds of Amazon brands and scaled them to the next levels. In 2022, these companies plan to acquire more brands to produce profit for their company and investors. Amazon Aggregators may further rise in growth in 2022.
In addition, the important points to be considered when selling or buying Amazon business are also mentioned in this article. It will give you an enhanced knowledge of dealing with Amazon Aggregators.