Amazon’s “aggregate” business raises billions of dollars to gain an advantage


As the Covid-19 lockdown promoted record e-commerce growth in the last few months of 2020, a new type of online retailer began to attract investors.

A few, not many; just a handful E-commerce “aggregator”Led by Thrasio, headquartered in Massachusetts, a total of $1 billion was raised by the end of the year to acquire the most successful independent merchants on the Amazon market.

At that time, billions of dollars seemed to be a lot of money. But just nine months later, dozens of similar Amazon “aggregate” companies have now raised more than $8 billion in funding, according to reports. Market pulse, Tracking sector.

Just this week, three companies focused on Amazon in Europe announced that they have raised a total of $1 billion in one day. These include the provision of US$700 million in debt and equity for the Berlin Brand Group in a transaction led by Bain Capital, which valued the German company at more than US$1 billion.

“Everyone is asking if they have enough space to hold that much money. The short answer is yes,” said Peter Chaljawski, founder and CEO of BBG. “We see our inbound and funnel [of potential merchant acquisitions] Very full. “

Out of Millions of sellers Who has opened a virtual store on the Amazon market, acquirers see tens of thousands of potential acquisitions: produce lucrative products, have a large number of five-star reviews, and have annual sales of more than $1.

Marketplace Pulse estimates that even inconspicuous niche markets, from sex toys to doorstops, can become large companies on the platform, with sales reaching $300 billion last year.

For anyone selling anything online, 2020 is an unusual year. Some of Amazon’s largest markets, such as the United States, the United Kingdom, and Germany, have reopened the streets after the blockade, sending shoppers back to physical stores. According to Fable Data, which tracks credit card transactions, online retail spending in the UK has fallen by about 40% since non-essential stores were allowed to reopen on April 12. In contrast, physical store spending increased by 45 percentage points. The same period.

“At the beginning of this year, everyone had the best year ever,” said Taliesen Hollywood, director of Hahnbeck, a boutique M&A consulting firm specializing in e-commerce transactions. “Now, people don’t shop as many online, and the growth is far from that strong.”

Despite the influx of cash into the industry, it helps stabilize the price paid by the buyer to the seller. Hollywood stated that after “hungry for transaction flow” in early 2021, aggregators “become more selective and say no to more transactions”.

The chart shows that third-party retailers have driven Amazon’s growth, but as stores reopened, online spending in the UK has slowed

The valuation of Amazon’s marketplace business is usually a multiple of the “disposable income of the seller”, which will adjust more standardized profitability measures—interest, taxes, depreciation, and Profit before amortization. Internal operation. In the past few months, the selling price of merchants is usually about four to five times that of SDE.

“The multiple has risen, but it is still at a reasonable level,” said Philipp Triebel, co-founder of SellerX, another Berlin-based Amazon aggregator, which raised 100 million euros in new equity last month. “You will not see the same growth as last year, but no one will bet on e-commerce as an industry.”

Some product categories, such as home fitness or gardening equipment, have suffered more losses this year than others, but aggregators with a range of businesses in their portfolio believe they can survive the ups and downs.

“We buy companies at a certain multiple, and our corporate valuation is significantly higher due to synergy and diversification,” said Riccardo Bruni, co-founder of Heroes, a British aggregator that raised US$200 million this week.

The chart shows the cumulative financing of Amazon's top acquirers

The hope is that after they acquire several such companies, apply efficiency to their supply chain or marketing and expand into new markets, the value of these businesses will exceed the sum of their parts.

For example, Bruni said that due to its supply chain connections in China, Heroes was able to reduce the unit price of one of the merchants it acquired from US$7 to US$5.50 within a few days after the transaction was completed.

Nonetheless, many companies operating in this field have only been established for a year, which means that few have established a record to prove that they can reliably execute the blueprint to increase efficiency and synergy.

In the short term, this makes it more expensive for them to fund the acquisition spree. These aggregation start-ups have turned to debt to quickly raise such large sums of money by using lenders instead of venture capitalists who usually provide equity financing for young technology companies.

“The reason we were able to obtain debt capital and you see all these large capital raisings is that we ended up buying a profitable business,” said Giancarlo Bruni, who co-founded Heroes with his brothers Riccardo and Alessio. He added that Heroes must pay “significantly higher interest” compared to his previous role in the corporate financing of telecommunications aggregator Liberty Global.

Nonetheless, the rate of industrialization of the Amazon market is almost as fast as that of fund-raising companies. In the past year, dozens of professional brokers have appeared to help businesses find buyers, as well as a small group of trademark lawyers, accountants and other consultants.

“In the past few months, [M&A] The process has matured,” said Ollie Horbye, co-founder of Olsam, another UK-based aggregator that raised $165 million this week.

“Disclosing our funds gives sellers who we have never seen before have more confidence in Olsam and our ability to close [a deal],” Hobby said. “There are many acquirers in this area. The transaction flow is indeed concentrated on the more well-known and larger participants. “


Source link