Reasons Why Amazon Marketplace Sellers are Attractive Acquisition Targets
Aggregators targeting third-party sellers on Amazon Marketplace consolidate their resources and offer expert services that help scale these businesses. This business model is successful only when the sellers acquired meet certain expectations - fulfilment by Amazon, type of desired product, and robust financials.
As ecommerce scales new heights, the industry has arrived at a vital pitstop. A trend of acquiring third-party sellers operating on ecommerce marketplaces like Amazon is picking up. Firms are working to identify and acquire sellers based on various parameters. This strategy, also called a roll up, brings several businesses within the ambit of one organisation with the objective of sharing resources and achieving economies of scale.
Before we can get into the factors that make a third-party seller on Amazon Marketplace a desired acquisition target, let’s look at some of the common reasons why these small entrepreneurs wish to sell their businesses:
- Most sellers on Amazon Marketplace tend to run small-scale, part-time businesses. Such businesses only have limited resources that can hinder the expansion of their operations, hiring new employees and acquiring new technology. As a result, the supply chain and inventory can be disrupted.
- These small sellers face difficulties as competition stiffens. The operations become more complex, making it difficult to coordinate logistics, advertising and marketing. The lack of professional expertise to handle this makes it more difficult to continue running the business.
- As compared to those selling on their own website, businesses selling on Amazon Marketplace tend to lack customer-centric data. With their own website, sellers can use this data to nurture their existing customer base and acquire more buyers.
- The competition on Amazon Marketplace is very stiff, which is why making their product discoverable can be extremely difficult. In order to successfully sell their merchandise on Amazon Marketplace, sellers have to employ a marketing and advertising strategy that is more comprehensive and expensive so that their product ranks on the first page on Amazon.
There are several reasons that make third-party Amazon Marketplace sellers attractive targets of acquisition for aggregators. Aggregators look for the type and popularity of the product being sold, whether or not the seller is serviced by Fulfilment by Amazon, and other factors such as the financial health of the company.
Fulfilment by Amazon
Businesses on Fulfillment by Amazon are extremely sought after by marketplace aggregators. This is because even after the ownership is shifted upon the sale of the business, the shipping and logistics remain in Amazon's hands. This ensures a seamless transfer of operations that remain in the hands of a reliable service provider like Amazon. With FBA, the aggregator need not worry about dealing with third parties to carry out logistics.
Amazon's large marketplace and customer base make third-party sellers an attractive acquisition for aggregators. In a sense, through Amazon Marketplace, sellers bring their product to where the customers are. Equipped with a loyal customer base who keep returning to buy the product, successful third-party sellers become desirable targets for aggregators.
Sellers with a few excellent, well-developed products are often a good acquisition in the eyes of aggregators. The sale of these products can be cultivated by focused marketing and advertising. Moreover, these products should not fall out of favour with buyers and lose their popularity easily.
Third-party sellers on Amazon with evergreen products are more favourable for aggregators. Some aggregators that focus on a particular niche of products will be more interested in acquiring sellers of the pertinent products.
Marketplace aggregators acquire small sellers and utilise their collective resources to carry out all their operations- from manufacturing, advertising and marketing to sales and distribution. This helps the acquirer achieve economies of scale and achieve higher revenues and low costs of operating.
Small third-party sellers offer fertile ground for the expertise of aggregators in running their operations. Small sellers, who can become easily overwhelmed when it comes to scaling and expanding operations, are offered expert, professional services by aggregators. The operations of market aggregators are like those of a roll-up company that acquire smaller sellers and consolidate operations.
Many marketplace aggregators, especially those targeting third-party sellers on Amazon, are taking off in the present milieu. These companies are receiving immense funding and providing professional help to accelerate the growth of small sellers acquired by them.
If such a seller has desired credentials, they can sell their business to an aggregator and watch it grow and reach its full potential without giving up on it. Aggregators are usually on the lookout for sellers with strong financials, a good product and qualification for Fulfilled by Amazon.
Other times, they may be seeking something specific such as a certain type of product. In fact, businesses looking for a clean exit can groom their operations to catch the eye of an aggregator and often earn good money for it.