CONSOLIDATION IN THE AMAZON AGGREGATOR SECTOR - RAZOR GROUP, FACTORY14, OLSAM, THRASIO, BBG AND MORE

Ever since the first dozen aggregators entered the market to acquire Amazon FBA brands, it was speculated that consolidation of these firms would be inevitable.

Now some aggregators are sensing “blood in the water” and are actively seeking to acquire other aggregators’ brands and entire portfolios.

Industry consolidation is natural in any fragmented sector. Larger players can accelerate their growth via acquisition while smaller players can achieve an early exit. For some aggregator firms, an eventual exit to a larger aggregator was on the radar since inception. While achieving an IPO or a high-profile exit to a strategic like Unilever was their north star, a successful exit to a publicly traded competitor aggregator would still be a successful outcome.

The market headwinds that the e-commerce industry started to face in mid-2021 decelerated the growth of the sector, delaying Thrasio’s planned public listing and extending the exit horizon for many of the aggregators.

While no high-profile exits were achieved yet, some early consolidation did commence. Excluding Goja’s acquisition of the assets of 101 Commerce, which occurred before the rise of the “aggregator” sector as it is known today, the first acquisition of this type was Thrasio’s acquisition of Thirstii in late 2020. Widely believed to be driven by Thrasio’s desire to have a European head office, Thrasio acquired the German firm and folded it into its business.

BBG’s acquisition of Orange Brands in September 2021 was another very early exit, Orange Brands having only been founded 17 months earlier. The acquisition could be likened to an “acquihire”, with BBG gaining two very experienced DTC operators in Charles von Abercron and Marvin Amberg.

Another early exit was Flywheel Commerce’s sale to Olsam in December 2021, only two years after being founded. The acquisition enabled Olsam to expand its footprint in the US, while adding some good brands. Tapuya’s exit to Pilot Wave Holdings in early 2022 was also very early in Tapuya’s existence, although Pilot Wave’s focus is broader than e-commerce so this deal did not truly contribute to consolidation in the Amazon aggregator sector.

BRAND HOUSES

Around the same time that Olsam announced its acquisition of small aggregator Flywheel, SellerX announced that it had acquired the large “house of brands” KW Commerce. While often included in discussions of aggregator consolidation, and certainly an impressive acquisition (KW Commerce had >€100m revenue at the time), the firm was considered to be more of an operator than an acquirer of brands.

Olsam’s acquisition of the smaller brand house Marketfleet in April 2022 was of a similar nature. While the press reported on the deal as another example of the “aggregation of aggregators”, Marketfleet was not known as an active acquirer of brands prior to the acquisition and was more of a builder and incubator of brands. While not described as a “brand house” at the time, Web Deals Direct fits into the same category, with 30 brands at the time of Perch’s acquisition in July 2021

DISTRESSED TARGETS

The changing capital markets and the ongoing headwinds faced by the e-commerce sector have led to more difficult trading conditions for the aggregator firms. With almost 100 active participants in the sector, there is notable variation in performance. Naturally some firms have started to struggle.

Moonshot Brands announced in March 2022 that it had acquired two brands from Product Labs, who it described as a “failing aggregator”, (a claim denied by the Product Labs team). Moonshot also announced that it had set aside further funds to purchase assets from aggregators, believing that more such opportunities would be on the horizon.

The highest-profile case to date is the acquisition by Razor Group of aggregator Factory14, news of which was leaked by Business Insider in April 2022, more than a month before the deal finally closed. Factory14 had raised $200 million in funding, making it the 18th largest aggregator globally at the time of acquisition. While none of the official statements about the acquisition referred to financial difficulties, industry insiders tell us that this was the driver of the sale.

Razor Group has subsequently raised another $400m in debt financing, and while the firm is coy about its intentions (stating that it will release more detail in August), industry insiders believe further aggregator acquisitions may be on its agenda.

HUNTING

Several other aggregators have approached Hahnbeck about acquiring assets or entire portfolios from failing competitors. The opportunity to potentially acquire brands at a discounted valuation from aggregators whose debt obligations become unserviceable is an attractive proposition. All of the aggregator firms would like to lower the average multiples they are paying, and acquiring assets from failing competitors is a logical way to achieve this.

However, exiting from these brands at a lower price than they were acquired for is a bitter pill to swallow and opportunities like this will only come up in the context of insolvency. Although trading conditions are difficult at the moment, insolvency is a long way away for most aggregators.



“We believe we will see more trading of assets between aggregators in future”

TRADING

On the other hand, trading brands that are no longer core to the firm’s strategy does make sense, even for aggregators who are performing well. Many of the aggregators have acquired brands that made sense at the time, only to evolve their strategy in a different direction. For a firm that is now heavily focused on beauty, trading its DIY & tools brands to a competitor who is building a platform in this category makes a lot of sense. Some firms have shifted gears to focus on operating fewer, larger brands – in this case trading some of their smaller brands to competitors will a logical move. We believe we will see more trading of assets between aggregators like this in future.

SUMMARY

There has already been some consolidation in the fragmented Amazon FBA Aggregator sector and it is expected to continue. This is normal and will not have any impact on the valuations of target businesses, other than by reducing competition for deals (slightly). Valuations have come down to a degree, but not because of Aggregator consolidation. We expect to see more trading of assets between Aggregator firms in future also.

For brand owners who are selling to these firms it is important to bear in mind the slightly increased likelihood that the Aggregator firm will sell the asset on to another firm, or merge with / be acquired by another business, before the end of the earnout period. Terms should be inserted into the purchase agreements to protect the seller. This is one of the many details Hahnbeck advises its clients on.


Updates

We will keep this post updated with news of further consolidation as it occurs.


Hahnbeck is a leading global M&A boutique focused on e-commerce and the consumer sector. Through its extensive connections with aggregators, strategics and consumer private equity firms, Hahnbeck has unique insight into this space.

If you would like to discuss the sale of your business please don’t hesitate to contact us at info@hahnbeck.com or on +44 203 669 1654.

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