There’s never been a better time to be an Amazon seller. With the pandemic forcing people indoors and away from brick-and-mortar stores, Amazon is booming. Third-party sellers with their own brands have shared handsomely in that success.
Many Amazon sellers have the drive and creativity to develop a new product, then get it launched and established on the marketplace. But as their business matures, they often discover that they need a whole other set of skills to take sales and profits to the next level. Restocking and logistics cause headaches, advertising costs refuse to come down, and attempts to outsource create more problems than they solve.
This is a common dilemma for entrepreneurs. They achieve success but then hit a plateau and find it hard to develop the business further. They find themselves sitting on something that represents much of their net worth, but is surrounded by uncertainty and risk. Should they stay small, scale up, or cash out? The latter option, getting a large lump sum of money and making a clean exit, is a dream for many Amazon sellers.
This is where Thrasio comes in. It is the world’s largest acquirer of Amazon third-party private label businesses, buying brands for a typical purchase price of one million dollars plus. Thrasio already has almost 100 brands in its portfolio, and has hundreds of millions of dollars ready to make more acquisitions in the US, UK and Europe.
What is Thrasio?
The brainchild of entrepreneurs Carlos Cashman and Joshua Silberstein, Thrasio is a fast-growing global enterprise. It employs nearly 600 professionals to operate its Amazon businesses, with four US offices (Boston, Houston, New York City and Salt Lake City) and teams in more than ten countries. Thrasio was founded in 2018 and was profitable right away.
What started as a simple idea, putting together a collection of good quality third-party products, has snowballed into a business with $500 million in pro forma sales. With revenue doubling around every 73 days, and ownership of nearly 100 brands, Thrasio has become the fastest profitable US company ever to hit a $1 billion valuation. On top of that, it has secured over $500 million in additional capital and just this week raised another $500 million to fund future acquisitions.
Clearly, Thrasio is a unicorn that’s doing something right. Let’s take a more in-depth look at how it shepherds brands and products to new levels. First, we need to understand the marketplace.
What options are there to sell your business?
An Amazon business can be sold directly to an individual, perhaps a retired executive looking for a steady income. They will usually fund the purchase with a loan or other financing. Rarely do they have liquid cash for the purchase. These deals are much like a real estate transaction, with similar risk of the buyer pulling out for various reasons – but most often because financing falls through.
Another popular option is a broker. As in real estate, brokers list businesses for sale, arrange the sale to a buyer, and take a percentage cut. Experiences vary a great deal with brokers, and commissions can be high, as there are good, bad, and ugly examples in the industry.
Thrasio is one of a new type of company, an “FBA acquirer”, that has bloomed in the last couple of years. There’s been a veritable gold rush, as these larger companies buy and consolidate successful smaller Amazon brands under their umbrellas. Many are flush with investor funds, allowing small business owners to cash out at a substantial profit. Then the acquirers plow their considerable resources into growing the brands.
Current purchase prices for Amazon FBA businesses are typically at 2x-4x of the last twelve month’s EBITDA (earnings before interest, taxes, depreciation, and amortization). Thrasio is currently behind nearly 40% of these transactions in the US. The ultimate selling price depends on business size, IP rights, market size, growth opportunity, and the 3 Rs (reviews, ratings, and rank).
What kind of brands is Thrasio looking for?
Thrasio is looking to acquire brands with between $1 million and $100 million in revenue.
The ideal products are private label, everyday hard goods with a steady demand for the product type, stable search volumes and consistent search phrases. Since Amazon is a search-driven ecosystem, what this means is that the product is known as the same thing over time. A spoon is still a spoon in 1901 as it is in 2020, for example.
The products need to have a great standing on Amazon. This means they need to have at least 500 mostly positive reviews; an average rating of 4 stars or more; and a competitive search rank in their niche (or the potential to get there with Thrasio’s help). These metrics need to be real and organic, not gamed or won with black-hat tactics.
Thrasio is not interested in tech goods that change quickly, fashion, fads, food or grocery items, or anything that carries founder risk, meaning failure of a product or brand due to the founder’s absence.
How does the acquisition process work?
The purchase process is relatively straightforward. Once a brand is a candidate for purchase, Thrasio makes an offer. Then a deal is drawn up, and a letter of intent (LOI) is signed. At this point, Thrasio begins its due diligence, digging into the financials and exploring the seller’s Amazon account. Thrasio closes its LOI’s in 30-32 days, and is always working to speed up the process.
If any financial or other discrepancies are discovered during the process, deal terms may be altered. This is done by placing a small holdback amount in escrow which is returned once that amount is recovered after the sale.
Once the due diligence is complete, payment is placed in an escrow account. Then the assets are transferred from the seller to Thrasio over a 7-14 day period. When that is completed, the payment is released to the seller.
Often, agreements are structured to include earnouts for the seller. This arrangement allows them to continue to profit as Thrasio grows the brand. Earnouts have increased the total payout to sellers by an average of 37%.
How does Thrasio grow the brands it buys?
Once a product or brand is acquired, it goes through a 503-step checklist known as the “conveyor belt” that analyzes, optimizes, and integrates it into Thrasio’s portfolio. Then Thrasio uses its 600+ member global team of Amazon experts to drive organic brand growth.
Their skillset for brands includes:
- Branding and listing optimization
- Operations and product development
- Project management
- Performance analysis
- Growth marketing
- Review management
- Supply chain
Thrasio has developed an Amazon brand growth machine. It can handle all the complexities of successfully selling on the marketplace, backed with data-driven decision making and analytics tools, vast capital, and extensive experience in the ecosystem. It’s no wonder that companies acquired by Thrasio typically see a 156% increase in profitability.
Thrasio is dedicated to consistently doing all of the things Amazon tells you to do very well, while being sure not to do the things that Amazon tells you not to do. That might sound simple, but staying on top of all of the best practices while navigating Amazon’s complex, ever-changing policies is a demanding job that is beyond the resources of many sellers.
Two other factors weigh strongly on Thrasio’s success. The first is that it has built an organization that learns and shares learning very quickly, and takes that very seriously. The second is that Thrasio keeps the founders of companies it acquires along for the ride during the migration process, which is invaluable in an Amazon business acquisition.
What can businesses expect when they sell to Thrasio?
Sellers can expect a transparent, upfront process. Expectations are set very clearly as far as what Thrasio needs, when it needs it, what it is going to do, and what sellers can expect from the Thrasio team. Thrasio has the interests of marketplace sellers at heart and is actively working to be a great actor within the Amazon ecosystem.
When Thrasio decides to pursue a purchase, it will not be scared away by the capriciousness of the market or when unexpected events occur (as long as they are not nefarious in nature). There have been multiple occasions when potential brand purchases were hit by unforeseen circumstances like review scraping, for example. In these cases, Thrasio deployed resources to solve the issues and moved forward with the acquisition.
The goal is for sellers to have a fair, fast, and reliable sale. Thrasio closes on 98% of their LOI’s, and it does it quickly. Even in the current economic climate, Thrasio pays well and shares the gains post-sale through earnout arrangements. It has paid more than 94% of their earnouts, for a total of $150 million so far.
Thrasio estimates that 25% of their deals come from client referrals, showing how hard it works to do right by the businesses it acquires.
Is the time right for you to cash out?
For Amazon 3P sellers with successful private label products, Thrasio presents an attractive option to walk away from their businesses with a cash lump sum, escaping from the daily grind and risk of running a small Amazon FBA business. The opportunity to continue profiting post-sale through earnouts makes this an even more enticing opportunity.
While currently focused on success in the Amazon space, Thrasio is looking to expand to other online marketplaces, as well as Shopify stores and retail distribution. But for now, their focus is on continuing to grow their company culture and show what you can do with a great group of people and a common sense of purpose.
By providing Amazon sellers with a fair, fast, and profitable exit strategy, Thrasio will continue to fulfill their main company goal – making consumers around the world happy with great products available in just a few clicks.
This article was sponsored by Thrasio.