Bishop & Sewell’s Corporate team has a strong track record of successfully helping clients navigate the legal aspects of Amazon FBA business sales and acquisitions in a timely and cost-effective manner. In this blog, we explain what Amazon FBA businesses are, briefly summarise the acquisition process and highlight the ways in which our Corporate team can assist and add value.
An overview of Amazon FBA businesses:
With approximately 25% of retail sales in the UK now taking place online, global sales platforms such as Amazon provide businesses with quick and easy access to billions of potential consumers. With 2.45 billion monthly visits to its app and website, Amazon in particular provides access to a unique global network and is the market-leading online retail platform, via which businesses can quickly and easily sell a huge range of goods to a large and targeted audience.
To meet demand and expand the range of products on offer to consumers, Amazon uses fulfilment partners. Via Fulfilment By Amazon (FBA), these third parties are businesses that source products directly and then store them in Amazon’s fulfilment centres, where Amazon then charges a fee for storage, provides access to the sales platform, arranges shipping and provides customer service.
The opportunity to quickly reach new audiences and scale businesses by taking advantage of Amazon’s huge market share and advanced fulfilment networks means businesses can quickly see an uplift in their turnover.
Indeed, Amazon’s research claims that “Selling Partners, on average, have seen a sales uplift of 35% when moving their products to FBA in the UK” with access to fast delivery being a key selling point. There are now more than 9.5 million Amazon sellers globally, 73% of which use FBA to sell to their customers.
Given the low entry costs, new sellers can quickly enter the marketplace, and larger companies are often on the lookout for opportunities to acquire up and coming competitors, established businesses, suppliers or other strategic companies to help propel them to the next level or into a new area of the market.
The process
For a prospective seller, the first step in the process is to find a potential buyer. There are a number of ways of going about this, such as engaging a broker or approaching an Aggregator directly (Aggregators are large institutional investors that purchase the accounts and intellectual property from successful Sellers on Amazon’s marketplaces).
Once a potential buyer is found, the potential buyer will carry out some initial commercial and financial due diligence on the target business, and the parties will seek to agree heads of terms (also known as a letter of intent). The heads of terms will summarise the key aspects of the deal, such as the valuation method, the purchase price, brief details of any price adjustment mechanism and the timescale to completion.
Following agreement of the heads of terms, the potential buyer will carry out a thorough financial and legal due diligence process on the target business, and use their findings to inform the drafting of the key transaction documents. Where the transaction is structured as a share sale (as opposed to an asset sale or ‘business transfer’) the transaction documents will invariably comprise a share purchase agreement, a disclosure letter, a deed of assignment in respect of intellectual property rights, a tax deed and possibly also a transitional services agreement.
Once the buyer has produced first drafts of the transaction documents, they will be reviewed by the seller and their legal team and a period of negotiation will ensue. The transaction documents will go through a number of iterations (commonly referred to as ‘turns’) until they are in agreed form and the disclosure letter will be populated with any specific disclosures which the seller intends to make. It is also common at this stage for the seller to produce drafts of the ancillary documents which they will deliver to the Buyer on completion.
If the parties are able to agree the wording of the transaction documents and any ancillaries, they will proceed to sign the transaction documents, exchange their respective parts and complete the transaction. Exchange and completion can either happen simultaneously, or there may be a period of time between the two during which certain steps, known as ‘conditions precedent’ need to be taken by either party or both. Often, this will include steps like paying off loans, bringing company car leases to an end, dismissing employees or putting in place financing arrangements.
How we can help
Bishop & Sewell’s Corporate team has helped to facilitate numerous successful transactions involving Amazon FBA businesses, the most recent of which was the sale of a successful Amazon FBA business to one of the leading Amazon aggregators for approximately USD 23,500,000. The client had the following to say about their experience of using Bishop & Sewell:
“The Corporate team at Bishop & Sewell were outstanding throughout the transaction. I was always kept in the loop and I never felt like there was an aspect of the deal which I wasn’t properly advised upon. Harrison in particular was superb. I intend to use Bishop & Sewell again in the future and would not hesitate to recommend them to others who are thinking of selling their Amazon FBA business(es).”
The key transaction documents, and the share purchase agreement in particular, are long and complex legal documents. They often include complicated price adjustment mechanisms, whereby an additional amount of money will become payable to the Seller in the event that the target business fulfils certain performance criteria following a set period after completion. Our expert team is well placed to draft and negotiate these documents on our clients’ behalf, ensuring that the wording accurately gives effect to what has been agreed and minimises our clients’ exposure to risk. When acting for a seller, we can also prepare a comprehensive set of legally compliant ancillary documents on their behalf, which will often include board minutes, directors’ resignation letters, settlement agreements, waivers and stock transfer forms etc.
Additionally, the SPA and the tax deed will always incorporate a long list of warranties to be given by the Seller to the Buyer on completion (possibly also at exchange, where exchange and completion will not be simultaneous). If the Seller is unable to provide these warranties, they must make specific disclosures against them in a disclosure letter, failing which the Buyer will be able to bring a claim for breach of warranty after completion. When acting for sellers, we work closely with them to assess whether any specific disclosures will be required, and will seek to amend the wording of a warranty where it’s scope is unreasonably wide, or it is not relevant to the target business.
David Little, Partner in Bishop & Sewell’s Corporate team, said: “We often find that issues arise which require input from other legal disciplines, such as employment law (for example, dealing with staff redundancies) or commercial litigation. Thankfully, I have a number of specialist colleagues within the firm who are able to advise upon such matters, and are used to doing so in the context of fast paced corporate transactions.”
David added “The big Amazon aggregators often insist that the Seller(s) have some ongoing involvement in the business for a set period post-completion, so the terms of the corresponding agreement between the aggregator and the Seller(s) will need to be carefully drawn up and negotiated. Also, Sellers will often hold some if not all of the business’ intellectual property rights in their personal name, these will need to be formally transferred to Buyer simultaneously with the shares or assets (as the case may be) of the target company.”
David concluded: “Due to the complexities of the legal process and the tight timeframes involved, our key priorities are to minimise our client’s exposure to risk, protect their interests and ensure that key details, such as the mechanics of any price adjustment mechanisms, are accurately recorded. We also strive to make sure that the financial and legal implications of all of the transaction documents are fully understood by the client.”
Contact our Corporate Team
For initial advice about selling or buying an Amazon FBA business, or to arrange a meeting with one of our team, you can fill in the form on this page and we’ll get back to you shortly. Alternatively, you can email dlittle@bishopandsewell.co.uk or contact 020 7631 4141 and ask to speak to the Corporate team.
