Selling Amazon Companies
You need something and you need it fast, so what do you do? Where do you start?
For some of us our first instinct, besides going in-store, is to check online. Fast online shopping is a lot more dependable than it used to be. There are a lot more services available that get products to customers as soon as possible but Amazon takes it to the next level. The platform provides businesses a place to sell products online. It’s simple, customer-friendly, and useful.
So what’s the deal behind businesses on the Amazon platform?
On today’s episode of Deal Closers - A Tech & Internet M&A Discussion, I had a chance to talk again to Jason and Ron from websiteclosers.com about Amazon and its business model for other businesses.
[02:02] It turns out that several eCommerce companies turn to the platform to drive sales. Why is it profitable to become an FBA (Fulfillment By Amazon)?
- The algorithms on Amazon are going to promote a particular product that’s shipped in two-day shipping or prime shipping over one that isn’t;
- If you’re an FBA, it means that they are controlling shipping and they know it’s going to get there in one or two days;
- FBAs are easy to operate.
[06:18] What are the two different kinds of FBA sellers?
- Those who have their own brand and their own products;
- Those who sell other people’s products.
[06:55] Why people choose Amazon as a platform to sell their products?
- They can get rich fast;
- It’s a lifestyle choice;
- The platform has so much growth left, and people notice that.
[07:45] In terms of your end of working within FBA business, how might that be different than other businesses you work with?
- It depends on where the FBA business is located – if it’s international, the banks are not going to be involved in those deals, so it takes a little longer to sell the business;
- How big the company is, impacts the valuation of a deal, the buyer pool and the time to get the deal closed;
- From a diligence perspective, FBA companies are super easy to sell because you’re not faking any of the numbers, it’s all coming straight through the Amazon Platform.
[11:04] How might the valuation process of an FBA company be unique?
- We don’t look at them as “FBA Companies”. Rather, we look at them as any eCommerce company, as a brand – we’re selling the brand;
- Their only uniqueness is that if they are concentrated on one particular product, it can be a problem and a risk profile because there are buyers out there that get concerned if something happens to the product;
- When you have a company that’s highly diversified from a concentration standpoint, that really helps and can impact the valuation;
- Also, something that impacts valuation for FBA companies is growth. You want a company to be growing nicely, year over year. You want to go to the market when you are growing, not when you are on a downtrend;
- If you have a highly competitive product – how are you competing on the Amazon platform, what makes you different from others?
[17:05] When people are looking to sell their Amazon business for profit, what’s the biggest mistake you see people make?
- Not paying attention to their financials;
- Not building a foundation and a team;
- Thinking that just because they have this great selling product, they’re set.
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