M&A Due Diligence for Amazon FBA Businesses: Comprehensive Guide

M&A Due Diligence for Amazon FBA Businesses: A Comprehensive Guide

Acquiring an Amazon FBA business can be a rewarding way to scale your e‑commerce portfolio, but success hinges on thorough due diligence. Beyond glossy revenue figures, you need to understand the target’s financial health, operational resilience, market position and legal compliance. This guide combines insights from M&A attorneys and FBA specialists to help buyers evaluate Amazon businesses like a pro.

What is M&A due diligence?

Due diligence is the process of evaluating a target company’s assets, liabilities and overall health to mitigate risk and make informed decisions. For Amazon acquisitions, that means verifying everything from profit‑and‑loss statements and supply‑chain contracts to account health and review structures. The goal is to uncover hidden problems before they become your headache.

What makes a good Amazon FBA business?

A high‑quality FBA business typically has a strong position in a growing niche, steadily increasing revenue and profit, high unit margins, low operational complexity (often fewer than 10 SKUs) and a strong moat against competitors. These attributes translate into lower risk and greater growth potential. However, such businesses rarely come cheap, which is why due diligence is essential.

Start with data prerequisites

Before diving into the numbers, make sure you have the right documentation. At a minimum, you should obtain view‑only access to the Amazon Seller Central account, full profit‑and‑loss statements for the past three years, and detailed documentation on the supply chain and standard operating procedures. Without these, you can’t verify financial claims or operational stability.

Evaluate the niche (commercial due diligence)

Commercial due diligence assesses a target’s market position, competitive landscape and growth opportunities. For Amazon FBA:

* Market size and trends: Use tools like Helium10, Jungle Scout and Google Trends to estimate market size and identify whether the niche is growing, stable or declining. A declining market signals limited upside.

* Competitor analysis: Examine the top competitors’ product range, pricing strategies and listing quality. If you’re competing against Amazon’s own brands, be cautious.

Analyse the numbers (financial due diligence)

Financial due diligence verifies the target’s income statement, cash flow and balance sheet. For FBA businesses, focus on:

* Revenue sources: Determine how much revenue comes from Amazon versus other channels. Most FBA businesses derive 80–90 % of sales from Amazon.

* Trends: Look at revenue and net profit over the last 3, 6 and 12 months. Ask why any declines occurred (increased advertising spend, lowered prices, supply issues). Consistent growth signals a healthy business.

* Margins: Net margins in FBA typically range from 16 % to 20 %. Analyse gross and net margins over time to detect compression due to rising costs or increased competition.

* Add‑backs and adjustments: When sellers present discretionary earnings, scrutinise each add‑back to ensure it’s legitimate and won’t recur after the sale.

Check account health and listing performance (operational due diligence)

Operational due diligence examines how well the business is run – from management structure to day‑to‑day operations. For an Amazon FBA business, this includes:

* Account health metrics: Verify that the order defect rate is below 1 %, the late shipment rate is under 4 % and the pre‑fulfilment cancel rate is under 2.5 %. Any policy violations or suspensions are red flags.

* Listing metrics: Look at sessions (traffic) and unit session percentage (conversion rate). Ensure they are stable or increasing. Low or declining conversion rates may indicate product issues or poor optimization.

* Review structure: Evaluate the quantity and star rating of reviews. A higher star rating correlates with better conversion; moving from 3.5 to 5 stars can boost conversions by 12 %. A weak review base or ratings below 4 stars should be investigated.

* Advertising performance: Examine total advertising cost of sales (TACoS), which should typically fall between 5 % and 10 %. Review the campaign structure; ideally, 80 % of spend should go to manual campaigns for better control.

Assess the supply chain (operational and legal due diligence)

Understanding the flow of products from supplier to customer is vital. Key questions include:

* How many suppliers does the business have? Where are they located? What are their lead times and payment terms? Long lead times and unfavorable payment terms tie up cash and limit flexibility.

* Does inventory ship directly to Amazon’s warehouses or through a third‑party logistics (3PL) provider? Check how much inventory is stored off‑Amazon and monitor restock limits.

* What is the Inventory Performance Index (IPI) score? A score below 400 may mean restock limits and hamper scalability.

* Have there been out‑of‑stock periods in the last twelve months? Frequent stockouts suppress revenue and signal poor inventory management.

Don’t overlook legal risks

Legal due diligence uncovers potential liabilities like unregistered trademarks, outdated contracts or pending litigation. For FBA, confirm that:

* The seller holds valid trademarks or patents for branded products, and that Amazon Brand Registry is under the correct entity.

* There are no undisclosed IP disputes or trademark oppositions.

* Supplier agreements, distribution contracts and any exclusivity arrangements are transferable and compliant with local laws.

* Taxes are filed correctly in each jurisdiction where the business operates, including VAT or GST obligations.

Best practices for FBA due diligence

M&A professionals emphasise the importance of clear objectives, multidisciplinary expertise and thorough documentation. Some practical tips:

* Develop a checklist: Tailor it to Amazon specifics – account health, supply chain resilience, advertising metrics, trademark status.

* Use data analytics: Export Seller Central reports and advertising dashboards to identify trends quickly.

* Communicate frequently: Maintain open lines with the seller to clarify questions and request additional documents. Delays often stem from miscommunication.

* Plan for growth: Evaluate not just the current state but the potential to expand through new marketplaces, product lines or private labelling. A business with many paths to expansion offers more upside.

Conclusion

Buying an Amazon FBA business isn’t just about looking at revenue numbers – it’s about understanding the story behind them. By systematically examining the market, financials, operations, supply chain and legal environment, you can uncover both opportunities and hidden risks. A well‑executed due‑diligence process protects your investment and positions you to scale confidently after the acquisition.