Brokers, Aggregators, & Private Equity Firms: Make the Right Choice
January 21, 2021 Jenna Craig
When thinking about selling your FBA business, there are many different aspects to consider before reaching out to a potential buyer. If you’re unsure whether you want to work with us, another direct buyer, a broker, or a private equity firm, a little bit of prep work can help you feel confident you’re getting the best deal possible. At Thrasio, we have a “come as you are” policy for prospective sellers meaning you can reach out to us at any time with no prep needed.
Deciding on your ideal exit requires some forethought. Ask yourself these questions:
• Do you know the space well enough to feel comfortable negotiating on your own?
• What’s the minimum sales price you are willing to accept?
• What’s your ideal timeline for selling your business?
Do you want to move on from the business operations, or are you hoping for a cash influx to drive growth while remaining involved?
We go into this process in depth in How to Prep Your FBA Business for Acquisition, but the fundamental questions above will help you determine how to approach the first few steps.
A broker is an individual or a company that assists you throughout the selling process from start to finish. They’ll walk you through every step of the way until the transaction is closed and you have cash in hand.
Like a real estate agent, they’re going to help you prep your business, put together a P&L, and shop the deal around to multiple buyers. They’ll also help you weigh the pros and cons of working with each buyer and provide expert guidance during negotiations, making sure you don’t leave money on the table. Brokers are experts in ecommerce and can be especially helpful to entrepreneurs who have never sold a business before.
Just like individual people, no two businesses are alike. A broker will help you navigate the market by identifying your businesses’ strengths and weaknesses and how to negotiate for the best deal structure possible for your unique situation.
The downside is that brokers take anywhere from 10-12% of the total transaction value. However, especially if this is your first time selling a business or selling in the FBA space, brokers can be well worth their fee.
Aggregators & Rollups
When looking for a timely and streamlined sale for your business, a direct sale to an aggregator or FBA rollup (like Thrasio) is the fastest and most efficient option.
If you have to shop your business around to several buyers—as you would be doing with a broker—a lot of these prospective buyers are just looking to kick the tires and will end up burning a lot of your time. We cheekily refer to this exhausting process as the “speed dating” part of working with a broker.
Skip the prep work
We do many tasks for prospects that a broker typically does for their clients, like constructing P&L statements and providing you with an accurate valuation of your company.
We understand the Amazon space better than anyone. We structure deals so that you benefit from the long-term success of selling your business.
We pay well
When selling to Thrasio, you’ll have the opportunity to receive three separate payments:
1. Upfront cash
2. Stabilization payment
Upfront cash is pretty much what it sounds like—the cash payout you receive upon the official deal’s closing (after the assets are migrated). In most deals, a stabilization payment is received 12 months post transaction close date. Stability payments ultimately act as a stamp of confidence from the seller. They signify that under the care of a buyer with access to virtually unlimited resources—the seller is confident that the business will remain at least flat 12 months post-acquisition.
For example, $5MM in sales 12 months post-acquisition compared with $5MM TTM sales at the time of acquisition).
Historically, we’ve been able to grow topline revenue over 200%+ across our portfolio of brands 12 months post-acquisition. We typically view this portion of the deal structure mainly as an insurance policy.
The most exciting and differentiating piece of our deal structure involves an earnout component. For example, we typically offer sellers 50% of all net profit over the acquired profit for the two-year post-acquisition period. If your business made $1M in net profit the previous year, you would receive 50% of the net profit over the $1M threshold twelve months post-acquisition. At the end of year two (24 months post-acquisition), you would be due an additional earnout payment that’s also 50% of the net profit over the $1M threshold. The threshold does not go up in year two.
What your deal could look like*
• 2017: $5M in sales and $1M in net profit
• January 2018: Closes deal with Thrasio & receives a cash payout
• January 2019: Over the last year, the company made $8M in sales & $4M in net profit.
• You receive a stability payment (whatever was negotiated) + (in this example) $1.5M earnout.
• January 2020: Over the last year, the company made $10M in sales & $6M in net profit, and you receive an additional earnout payment of $2.5M.
Our performance history shows that we grow net profit over 150%+ 12 months post-acquisition.
Note: many aggregators utilize this earnout structure but do not have the stats to back it up, effectively making their earnouts worth significantly less.
Having the most robust track record in the marketplace (100+ acquisitions at the time of this writing) makes our earnout the most valuable in the market by far.
When sellers are confident in the buyer’s operational capabilities (in the case of FBA sellers—someone who knows the Amazon space), they can make even more money than the asking price when listing with a broker or quicker than if they scaled on their own.
Private equity firms
If brokers can be compared to real estate agents, private equity firms (P.E.s) can be compared to house flippers. If you’re looking for an investment into your business or don’t mind staying involved in operating the company after you’ve sold it, going with a P.E. might be the best option for you.
P.E.s can give you significant capital growth opportunities, and they usually allow you to get a second helping through rollover equity. So you can have relative liquidity in the payment you receive but still participate in the upside of the business’s growth after the deal has closed.
What is initially attractive about P.E.s is that they tend to offer four to six times the company’s net profit upfront. And sellers can keep that rollover equity in the company. Meaning you’ll retain a portion of the ownership of the company. So in the future, when the P.E. sells (flips) the company for a profit, you’ll take a chunk of that future value.
Rollover equity typically takes the place of stabilization and earnout payments. It guarantees you have skin in the game to ensure the company continues to grow as operating a business sold to a P.E. often falls to the original leadership.
The negative aspects of working with a P.E. depend on what you want as a seller. If you want to part ways with the business altogether and move on to your next venture, most P.E. deals will not be for you. In that case, you’d need to sell to an experienced FBA operator. Additionally, if you’re looking for an expeditious exit, you’d be better off working with a direct buyer like Thrasio.
In reality, the money you make selling to an aggregator with a tiered payment system (cash upfront + stabilization payment + earnout) typically is competitive to a P.E. offer. Additionally, P.E.s rarely look at FBA businesses with less than $5MM in EBITDA.
We love brokers, and we work with all of them. But if you want to save time, we can provide a lot of the expertise they do. If you sell to us, you’ll likely make the same amount of money you would have made selling to a P.E., but you won’t have to stay on operating in the day to day weeds while owning significantly less than when you sold the business.
*Numbers in the example are completely fabricated and don’t represent any deals made by Thrasio and its acquisitions.