Taliesen Hollywood of Hahnbeck sat down with Paul Miller of Amazing Exits to go over a recent article Taliesen wrote called “The Truth About Amazon FBA Valuations.” This article goes into the nitty-gritty of the current eCommerce M&A market. While this market is often represented by media outlets looking for clickbait as a “buying frenzy,” the situation is more complicated and nuanced than this.
Here are some key takeaways that every potential seller needs to understand:
There is no buying frenzy.
Some aggregators are putting a pause on buying new brands.
You may read that and think, “but I get emails, snail-mail, and more from aggregators trying to connect with me about my brand.” You may get inquiries every single day. Marketing from aggregators makes it feel like a buying frenzy – and Taliesen acknowledges that, in Q1 of 2021, we may have witnessed a true buying frenzy.
But for many aggregators, all of that outreach has worked too well. They have more inquiries than they can comfortably handle, and they must spend time seriously analyzing those opportunities.
While the trends are positive and many aggregators are looking for businesses that fit in with their overall strategy, they are not offering 6x multiples to every brand that comes their way.
Aggregators say “no” far more than they say “yes.”
There are hundreds of private-label brands on Amazon alone, not to mention Walmart, Etsy, and Shopify. This means that aggregators still have plenty of brands from which to choose. Additionally, aggregators follow a particular strategy and want to buy brands that fully align with their strategy and expertise.
If a particular aggregator is looking for a home goods brand that makes over $2 million a year and hasn’t yet expanded out of America, then they will say “no” to most brands. They may compromise and purchase a brand that fits part or most of their criteria, but they may not offer the highest multiple possible. They will likely continue to seek the ideal brand to purchase.
The multiple range has widened.
It is always fun to hear a success story about a brand owner who got a 6x multiple – or higher – when selling their business. These stories are exciting, encouraging, and are fun to retell to anyone who’d like to hear. However, for every story of a 6x multiple, there are 4 or more stories of a seller who sold at a 3x multiple or lower.
Taliesen’s article shares a graph demonstrating the disparity between these stories and reality. The multiple range for Q1 of 2022 shows that the high end of multiples offered is 7x, while the low end is 3x and lower.
That means that brands are getting LOIs that offer multiples at 2x or 2.5x.
The lower multiple may be all a particular brand will be offered – and interest may wane if the brand owner says “no.” It’s also possible for a brand owner to run a competitive process with such an offer and increase to a more average 3x or 4x multiple as they negotiate with various aggregators.
You can make changes to your business to make your brand more attractive to buyers.
There are a few ways to improve your chances of selling her brand to an aggregator.
One is to work with a firm that knows the aggregator and understands its strategy. This in-depth understanding can help the firm share how your brand fits a particular aggregator’s strategy and ultimately sell your business to them for the greatest possible profit.
Another is to rework your brand to make it more attractive to buyers. This may include:
- Simplifying supply chain.
- Increasing profits.
- Bringing new products to market.
- Getting financials in order.
- Keeping products in stock.
- Improving marketing to attract more sales.
- Raising prices.
There are many ways to improve your brand to make it more attractive to aggregators. While this is a seller’s market, the buyers are becoming pickier, prioritizing brands that fit their strategy.
If you want to sell your brand within the year, get in touch with the Amazing Exits team to discuss your business and talk about what you can do to achieve your ideal exit. Schedule your free exit strategy consultation today.