Why Inventory Is the Highest-Risk Asset in an Amazon FBA Acquisition

Unlike a traditional business acquisition where inventory is a physical asset that can be inspected and valued with relative certainty, Amazon FBA inventory presents valuation and condition risks that are uniquely difficult to manage. Inventory may be spread across dozens of Amazon fulfillment centers with no ability to physically inspect individual units before closing. FBA inventory can include stranded inventory (not listed or suppressed), unfulfillable inventory (returned goods that Amazon has deemed unsellable), and aged inventory subject to long-term storage fees that will become a post-closing liability.

Defining ‘Eligible Inventory’ in the Asset Purchase Agreement

The APA should contain a precise definition of ‘Eligible Inventory’ — the inventory the buyer is agreeing to purchase and the seller is warranting is in good condition. A well-drafted definition should exclude:

• Unfulfillable inventory (returned goods deemed unsellable by Amazon)
• Stranded inventory (inventory not associated with an active listing)
• Inventory with more than 365 days in the fulfillment center (long-term storage fee liability)
• Inventory subject to a pending customer return window
• Inventory that has been recalled or is subject to any safety or compliance hold
• Inventory for which the seller has already received a reimbursement from Amazon for loss or damage

The Inventory Count: Timing, Methodology, and Disputes

Amazon does not allow buyers to conduct a physical inventory count at fulfillment centers. The inventory count relied upon in an FBA acquisition is therefore derived entirely from Amazon Seller Central reports — specifically, the FBA Inventory Age report, the Inventory Health report, and the Reimbursements report. Buyers should run these reports themselves rather than relying solely on seller-provided data.

The APA should specify: (1) the exact date and time of the inventory count (the ‘Measurement Date’), (2) the specific Amazon reports that will be used, (3) the methodology for excluding non-eligible inventory, and (4) the process for reconciling discrepancies between the buyer’s and seller’s report outputs.

Reimbursement Claims: A Hidden Asset (and Liability)

Amazon owes FBA sellers reimbursements for inventory that Amazon loses or damages at its fulfillment centers. These reimbursement claims can represent significant value — commonly $10,000 to $100,000 or more for established FBA businesses — and the APA must clearly address who owns pre-closing reimbursement claims and how post-closing discoveries of pre-closing claims will be handled. Similarly, Amazon regularly charges sellers incorrect FBA fees and the APA should specify who is entitled to recover amounts attributable to pre-closing periods.

Post-Closing Inventory Adjustments: Structuring the Earnback Mechanism

Because the inventory count cannot be verified pre-closing, sophisticated FBA acquisitions use an earnback mechanism — a portion of the purchase price is paid at closing based on the estimated inventory value, and a post-closing adjustment is made once actual inventory conditions can be verified through the first 30–90 days of operation. The APA should specify:

• The holdback amount (typically 10–20% of the estimated inventory purchase price)
• The post-closing period during which inventory discrepancies can be identified (typically 30–60 days)
• The deadline for the buyer to deliver a written inventory reconciliation report
• The process for the seller to accept or dispute the report
• A dispute resolution mechanism (typically, the parties attempt to resolve disputes within 15 days; failing that, the dispute is submitted to an agreed-upon accountant acting as an expert, not an arbitrator)
• The release schedule for the holdback once disputes are resolved

Slow-Moving and Obsolete Inventory: Valuation Methodology

The most contentious inventory valuation disputes in FBA acquisitions involve slow-moving and obsolete inventory. Buyers typically want to value it at a steep discount to cost (or exclude it entirely), while sellers want credit for the full cost of acquiring the inventory. Common approaches include:

• Age-based haircut schedule: Inventory aged 181–270 days is valued at 50% of cost; 271–365 days at 25% of cost; over 365 days at zero.
• Sell-through rate adjustment: Inventory with a trailing 90-day sell-through rate below a specified threshold (e.g., 5 units/month) is valued at a negotiated discount.
• Category exclusion: Certain product categories known for high return rates or seasonal demand (e.g., apparel, electronics) may be excluded from the inventory purchase or valued under a separate methodology.

Revision Legal represents buyers and sellers in Amazon FBA acquisitions, including negotiation of inventory provisions, post-closing adjustment disputes, and related litigation. Contact us at revisionlegal.com/contact or visit our E-Commerce practice page.

With an Asset Purchase Agreement (“APA”) that involves substantial inventory being sold, provisions in the APA related to that inventory are crucial. The sale of an Amazon FBA business is generally an asset purchase type of agreement since a larger percentage of the value of Amazon FBA businesses is tied into their inventory and IP assets.

For this and other reasons, inventory provisions in the APA must be negotiated carefully. There is usually a large gap in time between the signing of the APA and the closing/consummation of the purchase sale. This time is used to conduct due diligence, confirm information provided by the seller, satisfy contingencies (like obtaining financing), and more. During this time gap, the business is ongoing, and, as such, there are customer purchases and new inventory that arrives. Put another way, inventory is fluid in the ordinary course of business operations.

There are a couple of ways of handling the fluidity of inventory issues. One option is to set a purchase price that is based on providing an inventory between a designated value range. In that case, the parties would negotiate a provision something like this:

“Seller shall use commercially reasonable efforts to manage its purchases and sale of inventory in the Business such that the value of the Transferred Inventory at the Closing shall not be more than $NUMBER less or more than the Base Inventory Value unless the Seller has received the written consent of the Buyer …”

A more common method is to negotiate a price adjustment based on an actual inventory count done on — or shortly before — the date of Closing. Based on the inventory count, the purchase price is adjusted based on the result. Finality and certainty are a couple of advantages to “day-of” inventory counts, along with the fact that the SELLER conducts the inventory count.

Another option is to negotiate an inventory count for sometime AFTER after the Closing — even a month or two after the Closing. In those circumstances, a portion of the purchase price will be held back to be reconciled once the inventory count is taken. This can be a better solution, depending on the inventory. Some incoming inventory might be in transit from a supplier, might not arrive, might be defective or non-saleable when it arrives, might be under consignment, etc. Where the inventory count is done after the Closing, the BUYER conducts the count. Typically, the process involves:

• Buyer provides a report or list to the seller within the specified number of days
• Seller can accept or object
• If there is a dispute, a mechanism has been negotiated to resolve the dispute
• Eventually, any dispute is resolved, and the inventory is reconciled
• Seller receives the adjusted portion of the holdback money

Price adjustment provisions can be difficult to negotiate depending on how many total different items of inventory are being purchased. Further, disagreements often involve the basis for the value/price inventory items being adjusted. Usually, the basis is cost-price to the seller. But, some buyers want a discount, and sometimes, sellers want the basis to be price-as-sold-to-customer. Other issues that can become difficult to resolve include price-to-be-paid for “slow-moving” and obsolete inventory. Those can have value, but some buyers want to exclude them entirely or want a severe price discount

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