It was Q2 of 2021 when the deal came through that proved everything in the FBA market was changing.
A prime FBA business had just gone live on our marketplace for $3.5M. It had all the right criteria of a cornerstone asset for PE buyers and FBA aggregators.
20 capital-backed buyers set up calls and showed immediate interest in the business. With initial calls complete and a week of overview performed in a fluid process, 15 high-quality offers were presented to the seller.
At this point, the seller was in a position they could only dream of. They had a line of buyers with compelling and competitive deals to choose from, and they had the say on who gets to go further into the offer process for a chance to acquire their golden asset. However, not all FBA sellers are able to get to this fortunate position.
Nowadays, top-tier FBA assets simply do not transact the same as other assets; due to a huge wave of demand, they have a rapid current entirely of their own.
For a lot of FBA owners looking to sell their business, the selling process is chaotic with an overload of offers and no way to filter them down to the best offer and buyer.
As a leading brokerage in the online business M&A space, we decided something had to be done to manage this demand. FBA sellers on our marketplace had to be sure they could get their very best deal, and all interested buyers with capital needed a fair chance to win a prime FBA asset for their portfolio.
In order to keep our promise to deliver an unbeatable buying and selling experience for these upper-echelon assets, we developed a system to calm the storm and create order: the select listing process.
What are Select Listings and the Select Listing Process?
The select listing process quells the chaos of buyer calls and offers on high-caliber listings.
It was designed for the benefit of both buyers and sellers. Sellers can expect to see all competing offers side by side in an expected time frame. Buyers get a fair chance at placing their offers alongside the competition and have a chance of being considered for prime assets.
The process creates milestones for the seller to choose the initial best offers and gives an opportunity for buyers to amend final offers to remain competitive.
However, it was important for us to set strict criteria for select listings. Even if an FBA business is listed for seven figures, that does not mean they will qualify for the select listing process.
The select listing criteria narrow in on what would be a cornerstone asset for an FBA acquirer. The select listing process is reserved for the kind of business that would define a portfolio and the future expansion of an aggregator or PE group, because it will be most in need of a system to organize intense buyer demand.
The full criteria list is complex and can, in some cases, be dependent on the business itself. At a minimum, we look for businesses that have the following to become a select listing:
- Two years’ worth of net profits
- Stable or accelerating year-over-year and quarterly profit growth
- More than 25% profit margin with fewer than 100 SKUs
- Advertising costs that make up less than 10% of revenue
- A clean record without account suspensions
- A trustworthy history (e.g., white hat reviews)
All of these qualities build a strong base, but we are looking for additional attributes to tip the scale and for a business to qualify as a select listing. To ensure the listing is of the desired quality, we look for the Three “Rs”: Reviews, Ratings, and Rankings.
Reviews – The business must feature 3,000 reviews or more for its top-selling product and have a collective total of over 1,000 reviews for its top three products.
Ratings – The top three products (if applicable) must feature a 4.5-star rating or higher on Amazon.
Rankings – At least three products should be featured in the top 25 list on Amazon of their subcategory, with at least one ranking in the top 10.
We know each seven-figure FBA business is unique, which is why it is ultimately up to our sales advisors to make the final decision on whether or not a business qualifies as a select listing. With only 1% meeting the select listing process, the only way to see if you qualify is to first fill out our Valuation Tool.
The select listing process unfolds over 21 days, not including the exclusive due diligence period. This time period consists of a first-round interview (10 days), a second-round interview (10 days), and the final offer day.
Let’s explore what happens at each stage.
First Round Interviews
Once a select listing goes live on our marketplace, buyers will begin scheduling calls with the seller to get more insight into the performance of the business.
Buyers have eight business days to schedule a call with the seller and perform their due diligence checks prior to making an initial offer.
On the tenth day after the business has gone live on our marketplace, buyers will present their offers.
From here, the seller has the chance to review all of the offers and select their top choices to move on to the second round.
Second Round Interviews
The second round is where the buyer will be given one chance to revise their offer based on remarks from the seller. During the second round (now two weeks since the business went live), the buyer will dig further into the business to determine whether improving their offer is fitting.
The second-round interview stage is also the seller’s opportunity to get to know the buyer on a more personal level and talk further about their plans to scale the business.
At this stage, the seller is focused on interviewing the buyers beyond the numbers of the final deal. They are looking to find out who would be the best steward of their asset in moving forward with the acquisition.
Final Offer Day
On the final day, the seller will review all of the revised offers on the table and make a decision.
After the seller has decided, the buyer can start carrying out exclusive due diligence. Once the buyer is happy to move forward, the Asset Purchase Agreement (APA) will be negotiated and finalized. The timeline for the completion of these two processes varies, but we aim to get it all done within 45 days.
Once the APA is complete, the payment for the business will be dispersed and the migration process can begin.
And, with that, the deal is closed! The select listing process speeds up and optimizes the selling process, with both buyer and seller walking away with some unique benefits.
Why the Select Listing Process Benefits Buyers
The select listing process gives buyers a chance to perform due diligence and still get their offer seen by the seller. This allows them to make a thoughtful offer without the worry of another buyer closing the deal before they’ve had their fair chance.
The most powerful benefit of the select listing process is that it creates a level playing field for buyers, even if they are fairly new or emerging within the space.
The greatest struggle for all buyers vying for top FBA assets is competition and actually winning the deal. Even the most well-known names in the FBA aggregator space know what it’s like to lose out on a prime business. New aggregators in particular have it the hardest: they have the most to gain by acquiring a fast-growing business for their young portfolio, yet they lose out time and time again because they don’t yet have the track record and reputation to impress sellers.
However, multiple rounds in the select listing process give buyers a rare chance to be heard.
All offers are laid out on the table for sellers, meaning there is no difference between the biggest and smallest players. It’s the interviews and the offers that will capture the attention of the seller, so it’s an incredible opportunity for newer buyers to pitch to sellers and offer creative deal structures to win them over.
It’s unusual for a group of buyers to get another chance to make their offers more competitive. In doing so, buyers learn how to create stronger offers, which, in turn, becomes a powerful tool for future deals. For new buyers in particular, this knowledge can be the game changer that allows them to evolve into fiercer FBA acquirers.
Why the Select Listing Process Benefits Sellers
Thanks to the select listing process, sellers have multiple ways to emerge as winners.
They benefit from an expected, finite 10-day window to receive and review offers, and all offers are presented side-by-side so that the seller can really dig deep into the ones that work for them. Sellers have the chance to choose the best offers and suggest how even the best offers in the group can improve.
Sellers have the upper hand and make the decisions on who will move forward to the next round of interviews. Imagine what’s achievable when you’re a seller in that position!
The power of this seller positioning has led to compelling, competitive deal structures that favor the seller since buyers are wanting to get the upper hand on other buyers at the table.
Due to the high stakes of the offer process, buyers are willing to offer high amounts of upfront cash. Some of these deals can include performance-based payouts based on the future growth of the business, which can be the icing on the cake for an offer that’s already at full list price.
We’ve seen this happen consistently over the course of select listing deals. The process has proven not to just file the best buyers into one clean line, but also to challenge buyers to put their highest offers out there.
Buyers who have experience working with us are already aware that when a select listing goes live, it’s going to merit their attention and competitive force, and they have adapted to acting quickly and making larger offers.
This all comes down to sellers walking away with more cash for their business than they likely could have ever anticipated. They get a deal they love and pass on their FBA business to a buyer they trust.
This is exactly why brokers exist.
A broker brings both buyers and sellers together and makes sure both sides of the acquisition are happy with the deal. The select listing process allows us to take things up a notch: to organize the chaos and make the entire online business M&A process much more beneficial for everyone involved.
Our select listing process has created a new paradigm of choice for sellers: the power to choose from the very best possibilities, which lead to life-changing opportunities.
Choosing your Seven Figure FBA Exit
If you’re an FBA seller with a business that meets the select listing criteria, you’re in a fortunate position. Choosing to exit now gives you more bargaining power than ever before.
To sell now, you can set up an exit strategy call with one of our Business Advisors or submit your business for sale on our marketplace. If you are unsure whether you meet the select listing criteria and want to know if your business qualifies, fill out our Valuation Tool.