Last Updated on February 20, 2023 by lukesguide
If you have been in the online business space for a while, you have probably heard about Amazon aggregators. You may have even been approached by one of them asking whether you would be keen to sell your business!
The number of Amazon aggregators scouring the globe for high-quality, Amazon brands has exploded over the last few years. Amazon aggregators typically run an efficient sale process and can be a great alternative to listing your business for sale via an online business broker.
There are approximately 100 Amazon aggregators actively acquiring top Amazon FBA brands around the globe. With $15 billion raised and counting, there is no shortage of cash for these aggregators to splash on the top e-commerce brands out there.
With all this cash and generous multiples being offered by Amazon aggregators for high-quality FBA businesses, it’s no wonder that one in four entrepreneurs are planning to sell their FBA businesses to an Amazon aggregator in 2023!
This guide will explain what an Amazon aggregator is, what a typical e-commerce business sale process looks like, and how to make sure you get top dollar for your business!
What is an Amazon Aggregator?
Put simply, an Amazon ‘aggregator’ or Amazon ‘brand aggregator’ as they are sometimes known, is typically a private equity-backed company that will buy up multiple e-commerce businesses and roll them up into a single entity so that they can be operated under one banner.
There are a number of unique business models adopted by these aggregators in order to scale the businesses they acquire into super-profitable FBA brands.
For example, some business models involve the aggregator buying 100% of an e-commerce brand whereas others will only take a minority interest. Some Amazon aggregators will only focus on a particular product category or niche whereas others will buy just about any high-quality private label brands they can get their hands on!
While some of the larger aggregators in the market today focus primarily on Amazon FBA businesses, aggregator demand is not limited to Amazon businesses. Whether it be a Shopify store, Substack newsletter, or a SaaS company – if there is an opportunity to purchase a high-quality online brand in a profitable niche, you can be sure that an aggregator will be exploring the opportunity.
Here is a snapshot of the Amazon FBA aggregator sector based on recent research conducted by Marketplace Pulse:
- There are around 100 active Amazon aggregators operating in over 21 countries across the globe, with most aggregators based in the United States (including Thrasio, who in October 2021 raised $1 billion in fresh funding).
- In total, aggregators have attracted more than $15 billion in capital raised.
- 58 aggregators have announced funding rounds, of which 33 have raised at least $100 million.
What do Amazon Aggregators look for in an FBA business?
The answer to this question will depend on the business model and strategy adopted by the aggregator. However, a few key characteristics will pique an aggregator’s interest when looking for online brand acquisition opportunities.
While there may be some exceptions, as a rule of thumb, aggregators will typically look for online businesses that are more than 18 months old and have already hit over $1 million in revenue with strong profit margins.
If your online business satisfies these criteria – congratulations! Your brand would likely be of great interest to an aggregator.
Some of the key factors that make your FBA business more attractive to an aggregator include:
Private label FBA brands and evergreen products
Aggregators will not typically buy into fads or e-commerce businesses that are seasonal.
Amazon aggregators typically prefer to buy great Amazon FBA brands that sell amazing private label quality products that people will still be buying in 5 to 10 years’ time. Registered brands/private label brands are of particular interest to Amazon FBA aggregators.
A huge number of SKUs is not necessarily a positive. Aggregators would usually prefer to see Amazon brands that have consistent revenue (circa $1 million in revenue or more) and strong profit margins with only a handful of SKUs.
The most popular product categories to Amazon FBA aggregators are private label FBA home and garden brands, pet care brands, baby products, health and wellness brands, outdoor and recreation brands, and personal care brands.
Some of the least popular categories include apparel, electronics, supplements, food, and fashion products.
Consistent profits and healthy margins
Although the range of annual profits sought by aggregators will vary, any investor will usually want to buy into an e-commerce business that produces reliable profits with solid margins (around 15% annual net profit) on 7-figure annual revenue.
Strong customer advocacy / positive reviews
A sustainable e-commerce business needs loyal customers but in order to keep growing, they need customers who are going to tell others about their products.
Typically, aggregators would expect to see evidence of consistently positive customer feedback and high customer review ratings of 4 stars or more.
Organic search rankings
High organic search rankings for keywords relevant to your Amazon FBA business’s niche are a major drawcard for Amazon aggregators. That is, search rankings that have been achieved organically and not obtained through artificial methods such as black hat tactics.
Low return rates
High return rates can signal poor quality products and dissatisfied customers. This is usually a red flag for Amazon aggregators.
Now that you know what aggregators are looking for, you are probably wondering what the sale process looks like.
If so, read on.
How does the sale process work?
For most Amazon business sales, the process that is followed is broadly the same.
The key stages of an Amazon business sale include:
- Initial discussions / pre-contract
- Due diligence
- Transaction documentation and negotiation
- Signing and exchange
There is a great episode on Flippa’s podcast ‘The Exit’, during which Chris Bell (CEO and founder of Perch) gives some great insights into how the team at Perch (a Boston-based company) runs their Amazon FBA sale and purchase process.
Generally speaking, the process is probably similar for the other Amazon aggregators as well.
Here’s a breakdown of a typical sale process run by Perch as described by Chris Bell.
Stage 1 – Initial discussions and pre-contract
At this stage, an e-commerce business owner will either reach out to an Amazon aggregator looking to sell or the aggregator will reach out to Amazon sellers inquiring about their business.
Organizations like Thrasio and Perch, are constantly scraping best seller lists and organic rankings to find great e-commerce businesses.
This is where the initial conversation with an Amazon seller starts.
To begin with, the seller will be asked to see their storefront or seller page. Based on this initial review, the aggregator can usually make a preliminary decision of whether they are interested or not interested at all. Third-party tools to check certain metrics such as seller ratings, rankings on the most important organic keywords and product categories, and customer reviews.
If the aggregator likes what they see, a Non-Disclosure Agreement will be executed with the seller. The aggregator will request secondary access to the seller’s account(s) and some detailed financial information about the business they are looking to acquire. This allows the aggregator to see things like return rates, case history, and anything else not visible from the outside.
After this, a preliminary, non-binding offer (including an upfront amount and possible earn-out) may be provided. The key commercial terms of this offer will be set out in a letter of intent (also known as a terms sheet or heads of agreement).
Stage 2 – Due Diligence
This is where aggregators will get into the nitty-gritty of your business and you must have all of your business records in order.
Typically, aggregators will request a minimum 30-day exclusivity period to complete their due diligence.
The purpose of the due diligence phase is for the aggregator to take a deep dive into your business to identify any ‘red flags’ or ‘deal breakers’ that would force them to pull the pin on the proposed acquisition.
This exercise will typically be broken down into separate categories, including:
Generally, this process will be completed within the 30-day exclusivity period but can be drawn out due to factors such as the complexity of the business or delays in the seller responding to information requests.
The specific information requested from sellers will differ depending on several factors, including whether the aggregator will be buying the assets of the business directly or buying an entity (i.e. company).
Stage 3 – Transaction documentation
Once Stage 2 is complete, the aggregator will provide draft legal documentation which will include an Asset Sale and Purchase Agreement or share sale and purchase agreement and a standard form trademark assignment agreement.
Depending on the structure of the transaction, there may be other legal documentation that is required to effect the sale such as a terms sheet and transition services agreement.
For example, if the aggregator is buying an interest in a company that is less than 100%, a shareholders’ agreement will need to be entered into between the parties to govern the ongoing relationship between the aggregator and any remaining shareholders.
In addition, an aggregator may also require that you execute a Non-Compete Agreement. In most cases, you will be prevented from operating a similar business or joining a competitor for a period of 6 months or more.
The seller and/or their lawyers will review the draft documents and provide any comments before they are finalized and ready for signing.
Given the complexity of the legal aspects of a business sale, you should ensure you obtain the advice of an experienced lawyer.
Stage 4 – Signing and exchange
At this stage, the parties will sign the finalized transaction documentation and exchange signed counterparts.
In some cases, this is when a deposit may be paid to the seller.
Stage 5 – Completion
Sometimes there is a period of time between the signing of the transaction documentation and the completion of the sale but signing and completion can also occur simultaneously.
The amount of time between signing and completion usually depends on whether there is any conditions precedent to completion of the sale and/or any other obligations that a party must satisfy before completion.
For example, aggregators will usually want some assurances that the terms of any supply arrangements the outgoing seller has with suppliers will be offered to the aggregator as the new owner of the business. It can take quite a bit of time to hold these discussions with these suppliers and/or negotiate new supply agreements.
If an escrow arrangement is being used for payment of the purchase price, this will usually be organized a short time before closing, and proof of the funds being held would be provided by the escrow agent to the seller at closing.
Stage 6 – Post-closing
Typically, the parties will agree on a transition period, during which the seller will continue to work in the business. This transition period usually lasts around 2 weeks but can go for longer, especially if the business is complex.
During this time, the aggregator will work with the seller to effect migration of the account, arrange introductions to suppliers, and get to know the day-to-day operations of the business.
Once the aggregator has control of the seller’s account/website, the purchase price can usually be released from escrow – typically within a week of closing.
How long does the whole sale process take?
On average, the end-to-end process will be between 30 and 45 days.
Sometimes the process can be quicker than this, but it can also drag on for a lot longer.
It all depends on the complexity of the business and the timely manner in which the parties can agree on the terms of the sale and provide the requested information to each other.
Who are the top Amazon aggregators?
Here’s a list of some of the most well-known aggregators plus information about their funding and brands they acquire:
- Berlin Brands Group
- Razor Group
- Elevate Brands
Thrasio is headquartered in Walpole, Massachusetts, and has raised a total of $3.4 billion to date.
Thrasio has more than 200 brands under its belt in the home, cleaning, kids activities, culinary, outdoor, and fitness niches.
Berlin Brands Group
Berlin Brands Group is headquartered in (yep you guessed it) Berlin, Germany, and has raised a total of $1 billion to date.
This Berlin-based company has acquired more than 45 brands in the home, cooking, gardening, audio, and fitness niches.
Razor Group is a Berlin-based company that has raised a total of $960 million to date.
Razor Group has acquired more than 150 brands and has 450 employees with offices in Europe, the US, China, and India.
Perch is headquartered in Boston, and has raised a total of $908 million to date.
Boston-based Perch has acquired more than 100 brands in the home and garden, health and wellness, and children’s apparel niches.
HeyDay is headquartered in San Francisco and has raised a total of $800 million to date to fund its acquisition of brands with big growth potential.
SellerX is a Berlin-based company and has raised a total of $766 million to date.
It has acquired more than 40 brands in the ‘essentials’ product categories, such as music, office, pets, beauty, baby, sports, art supplies, and garden.
Elevate Brands is a New York-based company and has raised a total of $372 million to date. Elevate Brands has acquired more than 25 brands with huge growth potential.
What is the future for Amazon aggregators?
With the rapid growth in deal activity over the past few years, you’re probably wondering whether this level of brand acquisition is sustainable for the top Amazon aggregators over the long term.
There are a number of headwinds facing aggregators and the private equity space in general. The era of cheap money is likely to become a distant memory with a new era of higher interest rates and inflationary pressures taking its place.
Will aggregators be able to keep paying third-party sellers the high multiples they have been paying over the last few years?
Will the aggregator business model be tested over the next few years with the possibility of less stable roll-up businesses failing?
The short answer is that no one really knows but the recent data of deal activity in 2022 paints an interesting picture.
What is the data telling us about the state of the e commerce market in 2022?
Capstone Partners recently released their e-commerce sector update for May 2022 and reported some interesting stats on the state of the M&A market for Amazon brands and the level of interests being shown by aggregators:
- Brands on Amazon achieved $390 billion in revenue in 2021, which marked a $90 billion annual increase and represented 65% of Amazon’s total gross merchandise volume
- 60,000 Amazon sellers eclipsed $1 million in annual revenue on Amazon Marketplace in 2021, with approximately 3,000 surpassing $10 million in annual revenue
- M&A activity in the broader E-Commerce sector has remained at healthy levels through early 2022, with 30 transactions announced or completed year-to-date.
- Relative to the white-hot 2021 market, the pace of consolidation has slowed as valuations have risen and top aggregators have become more selective in their target pursuits. This has led to a heightened focus on brand and product alignment along with increased due diligence on financial performance to ensure an optimal return on investment.
While deal activity is still strong in 2022, it seems that it has come off the boil somewhat since 2021. Aggregators look for quality and appear to be very keen on pursuing the right acquisition opportunities when it comes to commerce brands that can demonstrate a long track record of success.
What are some of the challenges facing aggregators in 2022 and beyond?
There is no shortage of critics out there when it comes to the aggregator model. In Episode 214 of the E-Commerce Brain Trust Podcast, some of the potential challenges that Amazon business aggregators may face down the track were discussed, including:
- Supply chain pressures being faced by traditional retailers will also affect the brands of aggregators. These supply chain pressures coupled with external factors such as the increased cost of living could result in a shrinking customer base and ultimately pressure on net margins
- If the brands that these aggregators are purchasing turn out to be low-quality or at least undifferentiated, aggregators may find that their return on investment is compromised over the long term as their customer base becomes more discerning.
- Integrating brands is a task that may be more challenging than aggregators realize from the get-go, and this aspect of the model could be what separates the winners from losers in this space.
Many of the challenges facing aggregators are likely to affect retailers across the board. Aggregators with strong brands in the ‘essentials’ product categories, low debt, and a sound strategy are likely to continue to prosper. More importantly, the aggregators that do prosper will continue to be on the hunt for high-quality commerce brands.
How much do Amazon aggregators pay?
The answer to this question will depend on a number of factors, many of which we have spoken about in this article.
Typically speaking, the purchase price paid by a buyer can be made up of a number of different components, including cash amounts, deferred consideration such as earn-outs, and in some cases, scrip or shares.
Amazon FBA businesses are usually valued by applying a multiple to the last 12 months of the ‘sellers discretionary earnings (SDE) or earnings before interest, tax, depreciation and amortization (EBITDA).
SDE will comprise the average net profit of the business over the last 12 months plus any ‘add-backs’ (i.e. unusual expenses that provide a seller an individual benefit, such as an above-market salary).
The starting point for multiples is usually 2 x the last 12 months’ SDE or EBITDA (sometimes expressed as a multiple of 24 when calculating based on monthly profit rather than annual) and can go up from there.
How can you make sure you get top dollar when selling your business?
If you are in a position to sell your brand, you may have questions about whether now is the right time to sell?
Unfortunately, no one has a crystal ball and it is virtually impossible for Amazon sellers to pick the perfect time for selling their brand.
The best time for selling your Amazon brand is when it makes the most sense for you. For example, some of the reasons you may want to sell is to free up some cash to pursue other opportunities or maybe you would like to free up some time to spend with family or to enjoy other hobbies or interests.
Whether you are thinking of selling your brand or not, it always pays to be prepared just in case a great opportunity presents itself.
Tips to make your business attractive to aggregators and fetch top dollar for your brand
Maintain accurate financial records
Like any business, one of the first things that a buyer will look at is the financial records and aggregators are no exception.
If third-party sellers can provide well-maintained financial records demonstrating strong financial performance to a potential buyer, that is half the battle right there!
Aggregators do not want to sift through poorly maintained financials as this will always raise questions about the business, its performance and chew up the buyer’s valuable time. It is important that aggregators can quickly get a snapshot of the Amazon business financial performance from its financial records (i.e. revenue, net profit, etc).
One of the best ways you can easily maintain your financial records is to use accounting or bookkeeping software that will sync up to your Amazon seller account (e.g. Quickbooks or Xero).
Demonstrate strong Amazon business metrics
As we discussed earlier in this article, there are other key seller metrics (outside of financial metrics) that aggregators love to see.
These include positive customer reviews, low return rates, and high search rankings for organic keywords.
When aggregators approach brands, they expect the seller to be able to demonstrate how their brand is tracking against these metrics. So unless you are constantly tracking your business’s performance, it will be difficult for you to show aggregators that your business is the real deal.
Tracking key metrics and automating parts of your business doesn’t need to be difficult. There are several fantastic Amazon seller tools available that will help you keep track of how your business is performing.
Although the sale process outlined above appears to be complicated, with a little preparation and planning, you can get yourself and your business in a great position so that the whole process can go very smoothly.
If you are an e-commerce business owner that is considering selling your business at some stage in the future, it pays to think ahead a little bit and put in some work to understand the basics of the sale process.
The payoff for educating yourself is a quicker sale which may result in significant savings when it comes to lawyer’s / advisor fees.
We hope you have found this guide helpful.
Have you been approached by an aggregator before? Let us know about your experience in the comments.
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