THRASIO, PERCH, BOOSTED AND MORE: THE BATTLEGROUND TO ACQUIRE AMAZON FBA BUSINESSES
If there was any doubt that remaining that small e-commerce businesses are good targets for private equity roll-ups, Perch’s latest fundraising announcement might have put an end to it. Last week the company raised an additional $123.5m to acquire Amazon FBA businesses. This makes a total of more than $580m raised in 2020, by the top three acquirers alone, to acquire small Amazon FBA businesses. Boosted Commerce announced an $87m round in September while Thrasio raised $110m in April and a further $260m in July at a $1Bn valuation.
These companies – and many others – are building e-commerce conglomerates, one acquisition at a time. Unlike most private equity groups, who only invest in companies above $10m in enterprise value (and preferably above $50m), these firms have broken the “rules” and are acquiring companies as small as $1m.
This normally wouldn’t work: businesses of this size in other industries are not stable enough to provide predictable revenue into the future; they typically rely too much on their owners; their systems are too different from each other to work as a group, or the costs of integrating them are too high relative to their size. But e-commerce businesses, and Amazon FBA businesses in particular, can be stable, reliable, scalable businesses even at this level. With much of their logistics infrastructure outsourced (mostly to the same party: Amazon), there are fewer variables for the acquirer to consider, streamlining both the acquisition process and integration.
As more people have begun to recognise this opportunity, a battleground has emerged amongst professional acquirers of small e-commerce businesses. And it is not only American funds pursuing this space – four UK-based funds targeting Amazon FBA businesses have formed recently, along with others based in Canada and the EU.
At Hahnbeck we’ve also noticed an increased appetite for these acquisitions from private equity sources that were previously focused on other things: especially family offices. The economic shift accelerated by the coronavirus pandemic has highlighted the value of e-commerce to many people, and family offices are paying much greater attention to this space.
We have hundreds of buyers interested in acquisitions in this space between the £1m and £30m level. The largest of these are funds like Thrasio, but there are more than a dozen other funds pursuing similar roll-up models, as well as hundreds of smaller family offices, search funds and individuals. E-commerce has quickly become one of the most acquisitive sectors in the economy.
While all e-commerce businesses are benefiting from this trend, there are some key characteristics amongst the most sought-after businesses. They are:
Large (as small as $1m but the bigger the better)
Selling their own branded, private label goods, with trademark protection
In leadership positions on Amazon in terms of review count and best-seller ranking
Generating strong net profit margins
Strong sales through their own websites, and market leading positions in the market generally (not specifically Amazon) are also very attractive features to these acquirers.
With all of this money chasing the same targets, valuations of the most sought after companies are rising, deal terms are improving and astute sellers are making the most of the opportunity to sell in this market. Rather than holding onto their cash cow, more e-commerce business owners are looking to benefit from the seller’s market that is available right now: taking cash off the table at the height of the market makes a lot of sense, after all.
“For sellers this can be an attractive proposition, but it does come at a price: by selling directly they typically leave a huge amount of money on the table”
Thrasio is betting on bringing more of them to the table, marketing directly to business owners and sponsoring e-commerce conferences all over the world. Perch and others are also expanding their marketing efforts, making themselves known to business owners in the hope that they will sell directly to them.
For sellers this can be an attractive proposition, but it does come at a price: by selling directly they typically leave a huge amount of money on the table, compared to using an experienced broker and executing a competitive sale process with interest from all of the key buyers. We have seen buyers increase their offers by more than 25% during a competitive process, and we’ve seen prices in some cases rise by more than 50% as more buyers – with deeper pockets – are willing to bid.
In the longer term the market will remain healthy, but perhaps not with the same degree of buying frenzy that exists at the moment. Owners of good e-commerce businesses will always be able to sell them, but for those who are ready to sell right now, the timing could not be better.
Post script: in the two weeks since this post even more huge funding rounds have been announced from Amazon FBA acquirers. UK-based Heroes announced a $65m raise, reportedly one of the “largest seed rounds in European history”.
And we have it from a reliable source that another US-based acquirer (not mentioned above) has raised $90m to acquire Amazon FBA businesses. This firm has not publicly announced it yet so we won’t disclose their name here.
Hahnbeck is a specialist e-commerce M&A advisory based in the UK. We are in regular contact with a long list of serious buyers of e-commerce businesses, including all of the major funds and many smaller groups, individuals and family offices. If you are interested in discussing the sale of your business or if you would like a free business valuation, please don’t hesitate to get in touch at info@hahnbeck.com.