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The market for acquiring Amazon FBA companies is booming: FBA aggregators have collectively raised more than $ 14 billion since January 2020.
Several reasons, according to a Fortunet survey, have combined to create this promising atmosphere: the pandemic that ushered in a new boom in e-commerce, the success of flagship aggregators (such as Berlin Brands Group, SellerX and Elevate) and more money flowing from investors to FBA aggregators and acquirers.
On the other hand, Amazon still occupies a dominant position in the online retail space, accounting for 41.4% of all U.S. e-commerce sales in 2021. These factors favor a lucrative outlet for growing FBA companies. After helping many brands position themselves for an incredibly profitable exit, I identified the following reasons why M&A focuses on FBA business:
Investor interest stimulates the transfer of wealth
The resounding success of aggregators such as SellerX and Berlin Brands Group has resulted in many more players, with more than 90 aggregators currently operating in the industry.
In addition, the market is experiencing a flood of investment capital and as a result, aggregators are increasing. A recent survey showed that 47% of aggregators paid an average of $ 2 to $ 5 million for each brand they acquired. And in 2022, aggregators predict they won’t pay less than $ 1 million for any brand.
Aggregators quickly realize that FBA companies can become highly profitable digital assets and great additions to diversify their digital portfolio.
Related: 3 Things to Consider Before Having an Amazon FBA Business
The evolving definition of premium brands
Contrary to traditional strategies to grow premium brands from scratch, today’s entrepreneurs have Amazon to accelerate the growth of both the business and the brand.
FBA business owners are rapidly incorporating data-driven and analytical branding strategies. Along with compelling products and pricing and investing in convenience rather than heavy marketing, FBA brands have revealed the secret to growing a premium brand quickly.
Aggregators are aware of this changing dynamic of branding and are approaching to acquire promising companies that have a solid foundation in automated operations, documented SOPs, and unique, future-proof products.
Consumption trends after the pandemic have come to a standstill
The Covid-19 pandemic was the catalyst for much of the growth in e-commerce and FBA aggregation since 2020. Consumers do not return to pre-pandemic levels even after the pandemic has subsided. This inevitably attracted and will continue to attract entrepreneurs who want to earn income online, either full time or as a side concert.
Consumers will continue to value the convenience and unique shopping experiences, paving the way for out-of-the-box thinkers. This will further strengthen the steady supply of FBA brands available for acquisition and also increase the supply equation.
With external factors geared towards making this market extremely favorable for FBA’s promising brands, what can you do to make sure you’re one of those companies?
You can focus on growth drivers from the earliest stages of your business, even if selling isn’t planned yet. Here are some specific things to focus on:
FBA aggregators want to acquire a business that has already discovered its product fit in the market. The very reason they are in the market is to have a proven and well-performing asset instead of growing a business from scratch.
If your business has shown steady revenue over the past 12 months with no erratic sales during the year, you should be a strong candidate for acquisition. Also, FBA aggregators don’t want to immerse their toes in something that is nearing the end of their life. They are looking for a business that is still growing and that can climb to greater heights. Therefore, you should be able to show future growth potential to buyers during discussions.
Related: How to use Amazon FBA to maximize sales
Minimum sources of risk
Then potential homeowners will want to look at all possible sources of risk for your business. Aggregators quickly identify red flags and can damage your valuation, or even blow up the sale altogether.
Having a concentrated product portfolio shows a strong reliance on just a few products for most of your sales. Any external factors that cause a decrease in sales of these products may harm overall sales. Also, the very nature of your products should not be seasonal. It must be evergreen to attract the attention of aggregators.
In addition, your relationships with suppliers and supply chain logistics should be strong enough for a smooth transfer of ownership.
Marketing and social testing
When it comes to Amazon, mastering the e-commerce giant’s algorithm is hard to break. But over time, if you get it right, your valuation gets a definite boost.
A strong keyword ranking or best-selling (BSR) ranking for your products is a sure indicator of your successful marketing. In addition, positive reviews with a community of voice tags on social platforms give you a ring of authenticity that is not easily replicated.
Your product may have great sales potential, but without proper marketing, your revenue will be reduced. It is better to have the help of an experienced full-service marketing agency than to do it yourself and cause your brand to suffer.
Keep looking for operations that can be automated with defined SOPs and excellent team members. FBA aggregators want to acquire automated companies that can operate with minimal involvement, one that does not consume hours of its daily bandwidth just to keep it operational.
You can invest in AI-based inventory tools to automate your inventory management and other operations. These analysis-based tools can help you avoid inventory depletion and inadvertently have higher prices than your competitors.
Lastly, when you think you are ready to sell your business, always consider the experience of an FBA brand accelerator to ensure the highest valuation of your business.
Related: The Pros and Cons of Buying an “Amazon Compliance” Business
With the market poised to acquire leading brands in its niches and with no lack of investor funding, it looks like 2022 will break existing FBA aggregation records. The proven success of large aggregators and e-commerce sales that create enough opportunities for new businesses will continue to drive the market.
Make sure you’re working on your value drivers from the start to make your business a lucrative goal for FBA aggregators.