This article explains what has been happening with Amazon FBA valuation multiples and specifically addresses the wide range that a brand owner may find when seeking a buyer for their business. Read on to find out more.
We’re seeing a lot of misinformation about Amazon FBA valuation multiples and we thought it would be helpful to correct some misconceptions. At Hahnbeck we speak to the buyers of these businesses day in and day out. We test the limits of what they will pay for different assets and we have a thorough understanding of the market. We hope this guide will help sellers to have a clearer understanding of the current market dynamics, especially with regard to valuations.
Multiples Have Not Doubled In The Past Year
Multiples were already very high at the end of 2020 and start of 2021. Most of the increase had occurred during 2020 but even then the multiples didn’t actually double.
Hahnbeck was among the first to report a 6.0x multiple of SDE for an FBA business at the start of 2021, but our results are above market.
Average multiples have stayed strong since then, but the range has widened (see below). Over the course of 2021, aggregators have become much more selective, saying “no” to the vast majority their deal flow but bidding more fiercely on the businesses they really want.
This Is Not A Buying Frenzy
The situation in early 2021 when so many of the aggregators attained their first large funding rounds and were eager to scale up their acquisitions, has not continued throughout the year. The first few months of 2021 could be described as frenzied, but by the middle of 2021 the situation had become much more stable.
This has continued to date. As the media spotlight on Amazon FBA deals has made all sellers aware of the potential of selling their businesses, the deal flow to aggregators has increased enormously. While this sounds like a good thing, it is also a headache for them, as they have to sift through a huge number of deals to find the ones that they are interested in. They allocate their M&A team’s limited resources (i.e. their time) carefully, weighing the opportunity cost of time spent analysing one deal vs the other deals they could have analysed.
All of this can be frustrating for sellers, who expect instant feedback and very quick progress, since this is what is promised on so many of the aggregators’ websites.
There is variance here too. Currently a number of aggregators are aggressively acquiring as they try to hit acquisition targets before the end of Q1. At the same time, several prominent aggregators are on “pause” right now – effectively not acquiring at all for the time being, for various reasons. It’s almost impossible for a seller to know which is which on their own.
Multiples Remain High But The Range Has Widened
Note: before we go further it is important to ask the question “A multiple of what?” We explain on this page the different ways multiples can be described – it can be very misleading. It is rare for someone talking about multiples to state whether they mean the total deal value or only the up-front amount, and whether or not inventory is included in the calculation. In this article we will refer to multiples of SDE, based on the guaranteed consideration (up-front and guaranteed deferred), excluding inventory. Please bear in mind that other sources on the internet will be referring to multiples that they have not defined, or that may include inventory or non-guaranteed deferred payments and therefore are not comparable.
Before the bulk of the Amazon Aggregators entered the market, small Amazon FBA brands with net profits (SDE) in the region of $500k were selling for 2.5-4x multiples, generally speaking. Smaller ones were selling for lower multiples, if they sold at all. There were relatively few buyers for much larger ones.
By early 2021 good $500k SDE Amazon FBA businesses were selling for 3-6x multiples.
Over the course of 2021 and into 2022 where we are now, this range has broadened further: while most are in the region of 4-4.5x, in exceptional cases multiples of 7x are achieved, while at the other end of the scale, some businesses of this size are selling for less than 3x multiples.
For larger businesses, the increasing scale and capacity of the larger Amazon aggregators has had a positive impact on demand, so those with SDE above $1m (assuming strong metrics in other aspects of the business) are more reliably selling for higher multiples, although the range is still wide. We have heard of businesses of this size selling for less than 3x multiples (not Hahnbeck clients) while we have direct experience of our own clients’ businesses selling above 6x.
Why has the range of multiples widened so much? There is less urgency amongst most of the aggregators to make acquisitions, and more pressure on them to buy at lower multiples in order to keep their debt to earnings ratios down. At the same time, they are increasingly becoming more strategic with their acquisitions – looking for specific platform capabilities, operational expertise or synergies with their existing businesses. They will bid fiercely for those businesses that represent a strong strategic fit for them, while being happy to let other opportunities go. For those businesses that they are happy to “let go”, this means bidding low.