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Evolution of eCommerce M&A Multiples Q1/2022

Updated: Jul 21, 2022

Everybody is talking about multiples nowadays. However, it is often unclear exactly how and to what they are applied and what purchase price one can expect for one's business.

We regularly talk to buyers of eCommerce companies. In this context, we work on behalf of our clients to explore the limits of what buyers are willing to pay for different businesses. We have gained an in-depth understanding of the market as a result.

We hope this guide will clarify some unanswered questions and help you better understand the current market dynamics, especially with regard to business valuations.

What exactly is meant by a multiple?

When we talk about multiples in this article, we mean the factor by which Seller Discretionary Earnings (SDE) are multiplied to arrive at the selling price. In this article, we include all guaranteed payments (fixed sum at signing and guaranteed stability payments) under sales price; inventories and earn-outs are not included.

Therefore, when multiples are mentioned in conversations or on the internet, it is important to understand how they are calculated and what exactly they include. The SDE as the basis of the valuation can be calculated in many different ways and with many different assumptions. Accordingly, multiples can quickly lead to misunderstandings if they are not placed in the correct context.

Development of eCommerce/FBA multiples over time

In the past year, the topic of FBA businesses and their aggregators has become much better known. Of course, this also had an impact on the multiples achieved in the market. In the following, we divide the development into three time horizons. We base our analysis on Hahnbeck who have published their view on the development of multiples in one of their blog articles.

  1. Initial Phase (2020 and earlier)

  2. Peak Phase (2021)

  3. Stabilisation Phase (2022 until today)

Initial Phase (2020 and earlier)

The initial phase of eCommerce/FBA aggregators was characterised by a few specialised acquirers, usually acquiring brands in the $500k net profit (SDE) range.

Such companies typically paid a multiple of between 2.5 - 4.0x on the last 12 months' SDE. Smaller brands usually achieved lower multiples - if they could be sold at all. For larger brands, on the other hand, it was often difficult to find a buyer for due to their size.

Peak Phase (2021)

From the end of 2020 or the beginning of 2021 at the latest, the topic of FBA buyers and the market for eCommerce brands in general picked up considerably. This development was fuelled by enormous financing rounds from companies such as Thrasio (Jan 2021), BBG (Apr 2021), Perch (Oct 2020), Heyday (Nov 2020), SellerX (Nov 2020), Heroes (Nov 2020) and many more.

In early 2021, mutliples paid for FBA brands with an SDE of around $500k increased to around 3.0 - 6.0x due to increased demand from aggregators.

Stabilisation Phase (2022 until today)

While the majority of deals were in the 4.0 - 4.5x range in late 2021 and early 2022, the range of multiples paid continued to increase. For example, there were also 7.0x multiples for exceptionally attractive brands, but at the same time there were also acquisitions with multiples below 3.0x at the other end.

Due to the significantly increased number of aggregators in the market (now >100) coupled with significantly more available capital, even very large FBA businesses with SDEs far above $1m have fewer problems finding a buyer. It is clear that larger brands are getting a premium on their multiple, as expected.

It should also be noted that private equity firms are now investing in eCommerce/FBA aggregators just like venture capital firms. At the same time, we see that traditional umbrella companies such as Sylphar has acquired the FBA brands Nutravita and AlphaFoods. This shows that an entirely new group of buyers is entering the playing field.

Average Purchase Price Multiples for FBA brands

Brands with c. $500k SDE (illustration based on Hahnbeck research)

Why has the range of multiples paid increased so much?

It is now clearly visible that the range of multiples paid is steadily drifting further apart. In the following, we look at some of the drivers of this development:

First, most aggregators are now in less of a hurry to make acquisitions. The pipeline of potential targets is filling up and the investment teams to execute the deals are growing rapidly.

At the same time, aggregators are under more pressure to buy at lower multiples in order to be able to show better internal figures to their investors.

Another apparent trend is that buyers are becoming more strategic in their acquisitions. They are searching for synergies with their existing portfolio brands, certain platform capabilities to build on to or operational expertise which they want to build in-house to better justify the purchase prices and recoup it sooner.

While aggressively bidding on brands that are a good strategic fit, aggregators are now more likely to let opportunities pass if the price - strategic fit is not favourable. As a consequence, it is becoming increasingly important to identify the right buyers for the respective business and to clearly demonstrate the "strategic fit" to them. This is a change in aggregators behaviour which Hahnbeck has seen in the market as well and published in their blog article in February this year.

Future development of purchase price multiples

We assume that the multiples paid for FBA businesses with c. €500k turnover per year will stabilise at 2.5 - 7.0x with the bulk between 4.0 - 5.0x on the SDE. In our estimation, these will only move with the increased entry of further buyer groups. So far, strategists and private equity companies have held back with direct investments. The exception to this is the already mentioned example of Sylphar. Sylphar is an omni-channel player that bundles brands in the health and cosmetics sector. With the acquisitions of Nutravita and AlphaFoods, the company has acquired pure-play Amazon brands for the first time and integrated them into its portfolio.

Should strategic players increasingly come into question as prospective buyers, it is very likely that we will see much higher multiples in selected transactions, as strategic investors can incorporate further synergies and growth options into the purchase price valuation. At the same time, consolidation and increasing professionalisation of acquirers harbours the risk that weaker brands may have increasing difficulty finding an acquirer in the future.

How do I find the right buyer?

The right buyer is determined by a combination of factors such as product category, geography, sales channel, assortment complexity, product size, operational competencies and other decision criteria. In some cases, a potential buyer may even be closed to you if their pipeline is already full, their annual targets have been met or their investment team is simply overloaded.

With Sellside Partners, you benefit from finding and approaching the right prospective buyers through:

1. Personal buyer network

We have a large network of buyers in the area of Amazon aggregators as well as private equity investors and strategic buyers from the industry. We know the buying criteria of these companies, which makes it easier for us to select the right prospects. Through our personal contact, we can ensure quick access and direct feedback loops.

2. Transaction experts

We have already accompanied numerous transactions, both of eCommerce brands and in the context of larger private equity deals.

On the one hand, we therefore know what prospective buyers exactly need in order to carry out the necessary analyses prior to a company acquisition. This enables us to optimally prepare our clients for the upcoming sales process and to keep the process lean.

On the other hand, we have gained experience in how companies should be presented and their strengths brought to the fore in order to excite buyers for a brand. It happens again and again that buyers do not directly recognise the value of a company and the synergies associated with an acquisition, therefore resulting in a lower valuation. A sales prospectus (investment memo/sales memo) that is optimally tailored to the buyer is therefore of key importance.

3. On your side

Brokers specialising in eCommerce or FBA are mushrooming at the moment. While they are indisputably excellent at networking with buyers, there is also a risk of conflict of interest. A broker's interest often lies in closing a deal as quickly as possible and without incident - sometimes at the expense of the purchase price. Hidden fees from aggregators to brokers for each brokered deal sometimes reinforce the conflict of interest between broker and seller.

That's why we guarantee no fees from buyers to us - not even a free lunch. Your interest is our interest!


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