Here’s an interesting fact:
Of the 300+ post and pre-exit sellers we have spoken to, more than 40% were willing to accept the first offer on the table for their business without any form of negotiation.
But that’s not all.
Whilst the majority of successful FBA sellers are experts in the complexities of making money on Amazon, all but a few have ever sold a business.
They are, as one buyer put it, “extremely green” when it comes to negotiations.
Especially if you’re presiding over a multi-million dollar offer, or two.
So what can you do about it?
Well, first up (and perhaps unsurprisingly), we strongly recommend talking to other Amazon sellers who have already been through the process of exiting their FBA business.
We know a couple of regular dudes who are more than willing to assist.
But seriously, if you don’t fancy talking to either Richard or myself (Martin), try asking around in the Amazon seller forums or Facebook groups for advice.
But what types of things can you negotiate?
In our experience:
1. The offer, in (absolute) dollar terms
2. The type of deal (asset or share)
3. The upfront cash percentage
4. The LOI exclusivity period
Let’s look at each one in turn.
First up, the offer.
If you haven’t already heard, Amazon aggregators have purchased a lot of businesses.
It’s what they do.
With this in mind, most aggregators have a highly refined process for valuing FBA brands and can usually give you an opening offer within 48 hours of receiving your financials.
But here’s the kicker:
Whilst practically every Amazon seller will obsess over the ‘multiple’ (or multiplication of their annual profits) they’re being offered, this is ultimately irrelevant.
Because the only thing that really matters is how much money will you put in your pocket, in absolute dollar terms.
Makes sense, right?
In fact this leads me, conveniently, onto the type of deal you agree to.
The offer and the deal structure carry equal weight in terms of your net take-home payout and absolutely must not, therefore, be considered in isolation.
You could, on paper, be presented with a knock out deal, only to discover that the gross (pre-tax) valuation is infinitely higher than what you actually put in your back pocket (net, after all taxes have been paid).
This can be as much as 45% lower, in some cases.
We go into this in more detail on our Asset vs Share deal page, which is – in our opinion – a must-read before proceeding.
The up-front cash percentage.
Or to put that another way, the split between the cash you receive on closing versus the longer-term potential ‘earnout’.
This is where it gets interesting.
Some sellers are more than happy to accept (say) 70% up front with 30% paid over a one or two year period, subject to the business hitting specific profitability targets.
80% or even 85% cash on closing is the absolute minimum required to hand over their business.
All of this, of course, must be clearly stated in the LOI before commencing with due diligence.
The exclusively period within the LOI being the fourth and final item to negotiate.
‘Exclusivity’ meaning the length of time you are effectively unable to talk to other buyers, between signing the LOI and closing.
What’s the norm?
In our experience, 30-60 days is considered ‘doable’ for most aggregators.
That being said:
If you’re keen to push the sale through quickly, a 30-day exit is possible.
It also provides the required motivation (on both sides) to avoid delays during due diligence.
Interested in finding out more?
Click here to compare over 150 aggregators in 3 simple steps. We will then reveal the select few companies that are most likely to offer you the highest valuation.