In recent times, many venture capitalists have been investing a large pool of money into the world of FBA sellers. There have been plenty of acquisition companies that have begun to buy Amazon third-party storefronts. This is primarily based on their hopes of building portfolio businesses that are lucrative. Usually, the upfront payment is in hundreds or thousands of millions. In return, these FBA acquirers sell the services and products of these companies for higher prices by turning them into a larger conglomerate.
This model is not new to the field. There have been many such acquisitions by acquirers in the past. However, many new FBA acquirers have entered the space of late. Amazon has been the primary platform where many brands have been setting their space. With increased e-commerce dominance, some of the sellers on the platform have observed record sales over the years. This has encouraged more and more FBA acquirers to pay for an umbrella company that ultimately acquires the operations of these businesses and scales them.
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Why Are FBA Acquirers Flocking the Space?
Let us first understand the fundamentals of an FBA business to further understand the recent trends. In essence, an FBA business is an e-commerce company that utilized the fulfillment of companies such as Amazon and their warehousing services in order to sell their products to their customers. As there is plenty of money in this field and there is immense potential for growth, many acquirers have been flocking this space. With this type of investment, it can be easy for acquirers to establish predictability and get higher returns compared to traditional investments.
Another interesting thing to note is that this micro-acquisition space is unique in comparison to other businesses as the business owners have full control over the growth and impact of the company from the very beginning. Typically, most businesses are handled by a single person ranging up to 5 people. While many believe that this field does not have potential, it is crucial to remember that most of Amazon’s revenue stems from third-party sellers.
Why is the Market Booming for FBA Compared to Other Businesses?
There have been plenty of FBA acquirers entering the space and buying several businesses. There are plenty of reasons as to why this is happening. One of the primary reasons has been the stability of the marketplace that hosts these different companies. Stability is one of the most important factors that FBA acquirers consider before making an investment in any company, let alone acquiring them. Another factor that has led to a boom in this place is the projection of future growth. Both these factors deliver the message of reduced risk that the acquirers have to take when it comes to acquiring a business in the FBA space.
Another factor leading to this trend has been the challenges and difficulties faced by many to start a business from scratch. There are many aspects to be taken care of such as getting the company registered, hiring the right talent, figuring out the operations, and many others. Moreover, it is highly likely for an online marketplace to increase their sales in the future considering how more and more customers are willing to purchase online rather than offline. Ultimately, the convenience and ease of online platforms are another reason for many FBA acquirers entering this space.
How Does the Business Model Work?
In most cases, acquisition companies operate through the process of buyouts. To start with, the company will begin by buying the marketplace account and IP from the third-party seller. In some cases, the FBA acquirer may also offer a revenue-share model in case the seller would like to have a share of the company. However, in other cases, the seller is completely out of the picture. From there on, the acquirer takes complete control of the company and business and handles the operations, manufacturing, service, product distribution, packaging, and all other activities.
While the means of operations might be different from the end of the seller due to the acquisition, everything remains the same from the buyer’s or customer’s end. The customer still purchases the same products or services. However, this may change in case the acquirer decides to rebrand the product or service. Additionally, these FBA acquirers usually use the previously existing resources and pathways to reach out to their customers. Thereby, the business model may not change much post the acquisition.
How to Acquire an FBA Business?
With many different acquirers getting into this FBA space, many others might wonder how to acquire FBA businesses. Before trying to understand the different processes and paperwork that is involved, there is an important initial check to be made. New FBA acquirers need to check if they have the required investment or capital to make this acquisition. The next step is to identify the different businesses that are available for acquisition. In many cases, FBA acquirers check for the sector, field, and background of the company and pick ones that align with their field of expertise.
Then, it is key to identify which Amazon FBA would align well with their investment portfolio so that their returns and theme are not affected. It is also important to have a plan of action that can be useful to grow the business. Finally, it is crucial to make a financial decision regarding where to invest and how much to invest. So, considering the type of return on investment, growth trends, current customer base, and the profit levels, customer acquisition cost, and others is important. Valuation of the business should be done accurately so that the other considerations can be made accordingly.
In a Nutshell
The FBA space has been becoming increasingly popular among both investors as well as customers. When it comes to investors, there is immense potential for both stability as well as growth in this space. As a result, it accommodates well in their investment portfolio. For customers, these online platforms have increased the convenience and ease of purchasing products and therefore trump physical stores. FBA acquirers – unybrands is the best place to know more about FBA acquisition.
