UPDATED: Aggregator Shakeups and Shifts in Strategy
Update 09/05/2024: The Amazon aggregator market has experienced a dramatic shift over the past two years. Following a period of explosive growth, many aggregators hit the brakes on acquisitions, laid off staff, and even consolidated through mergers and acquisitions (M&As).
These changes were driven by a decline in consumer purchasing power and a slowdown in ecommerce growth—key dynamics that left once-vibrant aggregators struggling to maintain profitability.
In 2022 and 2023, the “gold rush” of Amazon aggregators, which saw companies racing to buy up profitable Amazon brands, cooled off considerably. The frenzy had resulted in inflated acquisition prices, often at unsustainable multiples, making it difficult for aggregators to profit from their investments.
Additionally, many sellers who founded these brands left the business post-acquisition, creating operational challenges for aggregators trying to replicate the founders’ success.
By early 2023, leading aggregators like Thrasio and SellerX started laying off employees, pausing further acquisitions, and turning to restructuring efforts (see report below). However, 2024 has brought signs of stabilization and renewed activity, with three (3) key updates shaping the landscape.
SellerX Auction: A $1 Billion Unicorn on the Block
One of the most prominent aggregators in the space, SellerX, will go up for auction on September 17, 2024, in Berlin. The company’s valuation of $1 billion, once a symbol of the aggregator boom, has fallen into dangerous territory as debt investors BlackRock and Victory Park Capital push for a sale.
According to BlackRock, SellerX’s financial troubles stemmed from a “stressed balance sheet and a slowdown in online consumer spending.”
Founded in 2020, SellerX quickly raised more than $750 million in funding, making high-profile acquisitions to expand its portfolio. However, by 2022, the company began to feel the sting of the cooling ecommerce market.
Layoffs in both 2022 and 2023 followed, and by mid-2023, BlackRock downgraded its loan to SellerX to non-accrual status, indicating missed payments and a troubled future. The company’s co-founders, Philipp Triebel and Malte Horeyseck, stepped down as co-CEOs, replaced by retail industry veteran, Olivier Van Calster, as new CEO.
The auction is a stark reminder that even well-funded aggregators can struggle if they overpay for acquisitions or fail to navigate shifting market dynamics.
SellerX’s troubles are also reflective of larger trends: over-aggressive expansion during the ecommerce boom has left many companies scrambling to manage their balance sheets in a less favorable environment.
Heyday and Branded Merger: Formation of Essor
Heyday and Branded are merging to form a new entity called Essor, which translates to “take flight” in French.
This merger reflects a broader consolidation trend in the aggregator market. The combined entity is projected to generate annual revenue of $400 million. The merger aims to strengthen the companies’ balance sheets and accelerate growth through new acquisitions.
The merger is not just about scale but also about strategy. Apollo Global Management and BlackRock are reportedly negotiating new debt financing to support Essor’s growth and future acquisitions. This indicates a strategic move to enhance financial stability and leverage the combined company’s resources for further expansion.
However, as part of the merger, Heyday is expected to conduct significant layoffs, potentially reducing its workforce by up to 70%. This restructuring is a clear effort to streamline operations and integrate Heyday’s technology team and brands such as ZitSticka and Boka with Branded. Such layoffs, while necessary for financial restructuring, underline the turbulent nature of the aggregator market.
Seller Exit Multiples: Stabilization in a More Selective Market
While aggregators like SellerX are restructuring and Heyday and Branded are expected to merge, there’s positive news for Amazon sellers considering selling their businesses: multiples have stabilized in 2024, according to a Sellside Partners report.
The frenzied bidding wars of 2021 and early 2022 that drove multiples to unsustainable highs have calmed. However, buyers and investors are being far more selective, prioritizing well-managed brands with strong financials, competitive advantages, and resilience. This more cautious approach comes in the wake of an industry-wide recalibration, where inflated acquisition prices and overleveraging left many aggregators facing financial strain.
Today’s market is far more measured, and multiples for Amazon-native brands are now generally ranging from 2x to 3x Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), with a range of 1x to 4.5x depending on brand quality, financials, and growth potential.
Meanwhile, direct-to-consumer (D2C) brands fare better, commanding 2.50x to 7.50x EBITDA, thanks to their direct customer engagement and greater control over brand experience.
For sellers, this is good news. While the astronomical multiples of the past are unlikely to return, the current environment offers more predictability and stability. Aggregators and buyers are increasingly focused on brands with strong fundamentals: stable cash flows, competitive advantages, and resilient product niches.
Marketplaces and SaaS Companies
The report also highlights the M&A multiples for marketplaces and Software as a Service (SaaS) companies:
- Marketplaces are valued based on revenue multiples, ranging from 0.70x to 3.40x, with higher multiples given to marketplaces showing strong growth or having dominant market positions.
- SaaS companies continue to attract high valuations due to their scalability and recurring revenue models, with revenue multiples between 2.00x to 6.00x. SaaS companies are especially appealing to investors because of their predictable revenue streams and high margins, making them a prime target for M&A activity.
The “Rule of 40” (a key metric where the sum of sales growth and profit margin should exceed 40) is frequently used to assess the attractiveness of these companies in the M&A market.
What Exiting Today Means for Ecommerce Businesses
For ecomm businesses contemplating an exit, these shifts present both challenges and opportunities.
On one hand, the days of aggregators paying sky-high multiples are gone. On the other hand, there is renewed interest from aggregators looking for quality businesses, as the market regains its footing.
Here’s how you can position yourself for success in the current aggregator market:
- Build Financial Resilience: Aggregators are focused on brands with solid financials. To maximize your exit multiple, prioritize steady cash flow, clean profit margins, and efficient cost structures. Eliminating unnecessary overhead and improving operational efficiency will make your business more attractive to potential buyers.
- Differentiate Your Brand: As competition intensifies among Amazon brands, having a clear competitive edge—whether through unique products, strong brand recognition, or diversified sales channels—can significantly enhance your valuation.
- Engage with Buyers Early: You can benefit from establishing relationships with potential buyers before you’re ready to sell. This gives you time to understand buyer expectations and adjust your operations to meet those criteria.
- Optimize Your Amazon Presence: Since multiples are lower for Amazon-native brands compared to D2C businesses, consider optimizing your Amazon listings and expanding into D2C channels to increase your value. Leveraging SellerTools for listing optimization and PixelMe for external traffic generation can also help your business generate more traffic and sales, thereby appealing to aggregators.
- Prepare for Scrutiny: Investors are more cautious, conducting rigorous due diligence to ensure brands they acquire have long-term growth potential. Sellers must be ready to provide transparent and detailed financial reports, alongside a clear strategy for maintaining or increasing market share.
A Stabilized but Selective Market
The Amazon aggregator space has undergone a significant correction, but as 2024 unfolds, the market is stabilizing.
Aggregators like SellerX, Heyday, and Branded, who struggled with overexpansion, are reorganizing or being auctioned off, while smaller players are adopting a more cautious and selective approach. For sellers, this means the opportunity to sell at a fair multiple is still alive—if you can demonstrate financial strength and clear differentiation.
As the space continues to evolve, savvy sellers who prioritize operational excellence and strategic positioning will be well-poised to capitalize on the next wave of aggregator acquisitions.
Online sales growth is slowing after a huge spike during the pandemic, driving Amazon aggregators, or aggs, to implement various strategies to combat funding slowdown and declining revenue.
Strategy Shifts
In 2021, investors injected more than $12 billion into a new generation of startups that set their sights on acquiring Amazon marketplace sellers. However, beginning the first half of 2022, the flow of funding has considerably diminished, and the once-vibrant landscape of dealmaking has come to a near standstill.
“The private market almost shut down,” said Riccardo Bruni, Co-Founder of UK-based aggregator Heroes, in a statement to the Financial Times.
“For a certain period of time access to capital became impossible.”
The slowdown can be attributed to cooling demand amid inflationary pressures and recession fears – a confluence of events that has overall sparked caution among investors, leading to a more reserved approach.
Compounding the issue are the escalating FBA fee hikes implemented by Amazon, surging over 30% since 2020. This has significantly impacted the profitability of both sellers and aggregators.
As a result, several aggregators find themselves compelled to make the following measures to foster margin improvements.
Layoffs
Boosted Commerce, a California-based company, made the decision to downsize its workforce by 20% earlier this year. Similarly, Thrasio, a leading aggregator, had to lay off an undisclosed number of employees in 2022.
Thrasio’s new CEO, Greg Greeley, revealed in an interview with Forbes magazine that the company had mistakenly assumed that the demand for eCommerce would remain at pandemic-era levels. As a result, Greeley emphasized the need for Thrasio to readjust its expectations, ensuring that excessive inventory is not held and that acquisition prices are not set too high.
Other aggs with layoffs last year include the Benitago Group and SellerX.
Putting Acquisitions on Pause
As brick-and-mortar stores reopened, eCommerce demand slowed, making small sellers less appealing to potential buyers. Consequently, the estimated valuations of these smaller sellers plummeted, leading some aggregators to halt their acquisition efforts.
According to industry insiders who spoke to the Financial Times, the number of major aggregators actively pursuing new sellers has dwindled to less than ten. In the past, these aggregators were even willing to incur significant debts, often accompanied by steep interest rates of around 18%, all for the sake of finalizing acquisitions.
These acquisitions, in some cases, were completed at multiples as high as 7x the sellers’ adjusted valuation or earnings before interest, taxation, depreciation, and amortization (EBITDA). However, by Q1 of 2022, these brands were not performing as well as aggs had expected, primarily because for the first time in history, in-store shopping grew faster than eCommerce. That means aggregators have paid inflated prices for a large portion of those brands.
With sales and funding shrinking dramatically in 2022, aggs have come to realize that relying solely on acquisitions for growth is not always a sustainable approach. As a result, some companies are opting to launch their own brands instead of acquiring existing ones.
For instance, Amazon aggregator Upexi is cautious on acquisitions spending 90% of its time building the business organically and 10% of its time on Mergers & Acquisitions (M&A).
Strategically Buy Up Quality Brands at Lower Prices
The long-term value of established aggregators may decline if the products they offer are considered common commodities. In a highly competitive market, only those who offer unique products are likely to survive.
So, while some aggs had to stop dealmaking completely, others have shifted their focus from doing rapid acquisitions to selectively “buying great assets at 20%-30% lower prices.”
Thrasio, for example, has expressed its growing involvement in emerging sectors that pose greater challenges for market entry.
In an interview with Modern Retail, Thrasio President Danny Boockvar said that the company is actively expanding its portfolio by acquiring brands that they identify as a growth category, such as cleaning. These particular categories present higher barriers to entry (gated or regulated) due to the complexities associated with manufacturing products involving various chemical components.
Olsam, a European aggregator, disclosed to Modern Retail its strategic expansion into uncharted territories of patents and intellectual property, moving beyond conventional performance indicators such as seller ratings and product reviews.
Smaller aggs such as Heroes, Cap Hill Brands, and Gravitiq have also taken steps to streamline their operations and concentrate on a narrower range of categories.
Foundry Brands, in particular, exemplifies this trend by prioritizing quality over quantity as part of its aggregation strategy. Since its establishment in 2021, the company has strategically acquired fewer than 10 brands in total, emphasizing a selective approach.
Simultaneously, the prevailing economic conditions have presented an opportunity for aggregators to acquire high-quality brands at more affordable prices compared to the previous years.
Consolidate through M&A with other Aggregators
Facilitating strategic alliances and synergies is one way to create growth in times of austerity. From buying up online sellers, aggregators pivot to purchasing each other.
- Acquisitions. To navigate the challenges, aggs have started acquiring one another, often expanding their reach globally. In a recent acquisition, Berlin-based SellerX purchased Elevate Brands, headquartered in Austin. By taking over Elevate Brands, SellerX will now oversee 80 Amazon marketplace brands, generating an impressive annual sales figure of $426 million. This also gives the heavily Euro-focused agg a better foothold into the US Amazon marketplace.
Other noteworthy acquisitions took place in 2022 when Olsam acquired Flywheel Commerce and Marketfleet, and in April 2023 when Razor Group snapped up Stryze.
- Mergers. Two smaller US aggregators, Suma and D1 Brands, recently merged to form a consolidated entity known as The Ambr Group. This unified business now manages a portfolio of over 30 enterprises, amassing a substantial annual revenue exceeding $100 million.
Less accomplished aggregators looking for cash in these tough economic times, however, could face the pressure of liquidation.
According to Marketplace Pulse, there are 93 active aggregators across the world, 5 of which – namely Thrasio, Berlin Brands Group, Perch, Heyday, and SellerX – raised over $7 billion in 2021.
What’s Next for Amazon Aggregators?
Aggregators interviewed by Modern Retail believe that it’s not all bad news. There’s still a lot of growth opportunities in 2023, whether that means finding growth through M&A with other aggs, exploring beyond Amazon, or applying a more selective aggregation approach.
As Forum Brands CEO Brenton Howland puts it, “For sellers who are out there and want to know what the future state of the Amazon ecosystem is, as it relates to acquisitions, its continued health and activity. It may not be quite at the rate at the level that we saw in 2021. In 2023, we’ll see a healthy return to normalcy for business models that from a fundamentals perspective are outstanding and will continue to be that way.”
Related: Amazon Aggregators: Comments and Concerns, Amazon Braces for Slowing eComm Growth in 2023
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