Of Rollups And Revenues: The Amazon Seller Acquisition Market In 2021

That Amazon has been a disruptive force in retail commerce over the past 25 years should come as no surprise. What might be surprising is the implications and reach of that disruption.


In 2020, Amazon reported that over 15,000 third party sellers in the US were annually grossing more than $1 Million in revenue, while an estimated 225,000 sellers were currently seeing sales well in excess of $100,000 per year. While those sales figures alone may be impressive enough, they pale in comparison to the sheer market size of third party sellers on Amazon—now estimated to account for approximately 60 percent of gross merchandise value.


The success of third party sales has given rise to an entirely new market: Amazon seller acquisition. Also known as Amazon seller aggregators, the Amazon seller acquisition marketplace reportedly saw over $7 Billion in capital injected from both private equity and venture capital firms in 2020 alone. It’s a high potential market. But it’s not without its risks.


Rollup Platforms and Amazon Sellers


A rollup occurs in private equity when a company platform acquires smaller businesses in the same market and are consolidated and merged into a single entity, increasing both scalability and profit. It’s hardly a new phenomenon. It’s been occurring among corporate entities for well over 100 years, with Kraft Foods being just one of the most prominent examples. But the acquisition of sellers on Amazon is an entirely new development in rollups—one which has been accelerated by both the success of the third party marketplace as well as the growth of eCommerce.


Amazon’s market share of eCommerce has been estimated to be over 40 percent by the end of 2021, representing the lion’s share of the top five retailers dominating over 58 percent of the market. And sellers are primed for increased attention from private equity. Some estimates have indicated that an annual revenue increase of up to 156 percent can be expected as a result of a private equity platform rollup, with payouts to sellers increasing up to six times the amount of EBITDA (earnings before interest, taxes, depreciation and amortization.) And that’s largely because the eCommerce marketplace is a data-driven one, with accuracy in returns being relatively predictable as a result.


Not only is the marketplace data-driven, it’s a high potential one. Online retail may have accounted for only 13.4 percent of total retail sales during the first quarter of 2021, with Amazon reporting earnings of over $108 Billion during the same period solely from digital offerings. But while their chief competitor Walmart reported earnings exceeding that figure by $30 Billion, their revenue was fueled in no small part by physical retail in addition to eCommerce.


Sellers acquired through rollups are in a unique position. A rollup doesn’t just result in profit for sellers, but elevates brands on Amazon by increasing both product availability and marketing capital. And it’s ultimately to the benefit of consumers, who can expect to see both an improvement in the quality of merchandise as well as the overall customer experience as a result. But seller acquisition isn’t for every Amazon business. And many sellers may find attracting venture capital through acquisition to be largely a question of a realistic valuation.


The Valuation of Your Amazon Business


A large number of sellers acquired through seller aggregators aren’t what many consumers normally consider to be traditional third party sellers. Instead, they tend to be private label brands who have successfully parlayed their niche into a profitable business. And by and large, their top line revenue is going to fall under $10 Million.


Seller Discretionary Evaluation (SDE) is the most common method when estimating the value of a small business. It’s a relatively simple equation in which valuation is determined by the ultimate gross value after the cost of goods, operational expenses and owner/operator salary and compensation is subtracted. Yet the fact that its valuation is frequently subject to the discretion of an owner can sometimes make an SDE less attractive to many private equity firms, who will insist on using EBITDA as a methodology when estimating the earnings of a business.


The goal in any valuation is to determine both current earnings and the maximum amount at which an acquisition can be successfully sold in the future, while key factors determining the latter may include:


  • Financial history of a business.

  • Market segment competitiveness.

  • Industry trends.

  • Earning diversity.

  • Physical assets.

  • Trademark and intellectual property assignments.

  • Market segment growth.

  • Manufacturing cost and sustainability.

  • Market expansion potential.


And that’s simply to name a few fundamental drivers, all of which can be as variable and driven by unpredictable trends as retail commerce itself.


The Risks of Seller Acquisition


Exit strategies for any business are rarely fail proof. Growth in business segments can be effectively hindered by oversaturation, and businesses on Amazon can be particularly vulnerable. With close to 400,000 new sellers joining Amazon Marketplace during the first two quarters of 2021, it may not be a question of the fierceness of competition so much as the dilution of product segments. Established sellers may have an advantage based on reputation alone, but they can be just as subject to product glut as newcomers.


Yet dependency on one retail platform comes with a particular price: the loss of control. Amazon-native brands and sellers share a common flaw of being defined by Amazon—and when the growth of a channel is hindered, a brand’s potential for development is hindered as well. Amazon may have historically outperformed itself consistently even prior to the pandemic, but there’s only so much room for growth. And increasing public scrutiny as well as pressure from government agencies has resulted in an unnecessary targeting of seller practices, resulting in a lower valuation of businesses seeking acquisition.


“Just because a venture capital firm specializes in tech acquisition doesn’t mean they’re necessarily familiar with the dynamics of Amazon and Walmart,” explains Josh Levine, Managing Partner of eCommerce account management firm Color More Lines. “We try to emphasize that brands should be less concerned with a quick exit and focus more on the background and expertise of the firms we refer them to.”


All businesses are driven by top line revenue. It’s the chief decisive factor when estimating the value of a company. And it can make all the difference between a highly profitable exit strategy and none whatsoever. For sellers looking to take advantage of acquisition, driving revenue while channel growth is at its peak is critical. Outside agencies specializing in eCommerce management can not only help save you time, but can help you optimize campaigns based on in-depth knowledge of current trends and changes in the digital market.


The landscape of Amazon in 2021 is unlike any other year in its history. And 2022 is likely going to be drastically different from this year. Adaptability is the key to the survival of your business. And it’s the key to its exit strategy, as well.


Color More Lines provides white glove, global account management of your eCommerce platforms so mission-driven companies can focus on new product development, branding and growth strategies. Find out more at Color More Lines.


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