In January and April 2023 we hosted roundtables for acquirors in New York and Amsterdam respectively. Given their success we decided to enhance the roundtables to a larger format. On June 8th 2023 we hosted the world’s first ever conference for acquirors of eCommerce brands. 75 c-suites attended from both FBA and DTC aggregators. The purpose of this article is to showcase the 10 key takeaways from the conference:

1. Merger Of Aggregators (“MoA”)

• The CEO’s of SellerX (Philipp) and The Ambr Group (Yazan) discussed the fundamentals and dynamics of their recent mergers/acquisitions. Key factors included being up-front and honest about approaches to relative valuation.
• We polled the audience about consolidation. The results show that 68% of respondents are having informal discussions, with the remaining 32% are not currently in any discussion.
• The audience were polled again about what the key drivers of mergers/acquisition in were in their view. Below are the results:

– 36% stated cost synergies.
– 24% stated scaling revenue growth.
– 12% stated debt consolidation.
– 12% said strategic (e.g. need of a tech platform).
– 8% said geographic.
– 8% said other.

• The Fortia Group is sellside advisor to a German aggregator with a strong technology platform. Please contact us if that is of potential interest: inquiries@thefortiagroup.com.

2. M&A Is Rebounding, Slowly

• H2 2022 was one of the worst periods for global M&A in several years. However, the first half of 2023 is seeing relatively more activity.
• To gauge the true nature of this rebound we asked the audience how many brands their firm acquired in the last twelve months.

– 48% acquired 5 to 13 brands.
– 26% acquired 5 to 10 brands.
– 15% acquired 0 to 4 brands.
– 11% acquired >10 brands.

• The aggregators that are acquiring typically fall into three buckets: (i) firms that are profitable at the corporate EBITDA level; (ii) firms that have just completed mergers / acquisitions; and (iii) new firms that recently raised capital.

3. Non-core

• As more aggregators narrow or refine their focus there will be an increase in divestitures.
• The Fortia Group has been appointed by three aggregators to sell their non-core brands.
• If you would like to discuss selling your non-core brand(s) contact us: inquiries@thefortiagroup.com.

4. Valuations

• In our “Q1 2023 eCommerce Brands Valuation Report” we published a valuation range for FBA brands (2x-4.5x SDE) and DTC brands (2x-10x). Note: this includes up-front and deferred consideration.
• The above range for FBA brands was supported by 42% of the audience stating they paid between 3x-4x SDE and 21% paying 2x-3x SDE.
• In our opinion more stable and realistic valuations will benefit the industry enabling a return to the valuation arbitrage seen in early 2021 and before.

5. Capital Markets & Finance

• It is clearly very difficult to raise equity or credit given the current market conditions. Funding opportunities are likely to be very limited in the next 12 months.
• An attendee commented “many aggregators have serious capital structure and liquidity issues due to debt service”. The current interest rate (pa) of those attending was distributed as follows:

– 56% between 10% to 15%.
– 24% < 10%.
– 20% >15%.

• An overriding theme from this topic was that the lenders will soon be “calling the shots” if the management teams and equity holders don’t quickly resolve how to get to cashflow positive.
• The Aggregator business model is predicated upon the ability to supercharge the revenue growth of the brands acquired. As these brand are folded into a wider portfolio, we wanted to gauge if revenue growth was at the level that exceeded the market. We asked the firms attending to indicate their Gross Revenue (GAAP) growth:

– 68% had growth (defined as > 5%).
– 21% were in decline in decline (defined as above -5%).
– 11% were flat (defined as +/- 5%).

• To gain a further understanding of Aggregator corporate performance we asked for firms corporate level EBITDA margins:

– 40% responded <5%.
– 32% responded 5%-10%.
– 24% responded 10%-15%.
– 4% responded  >15%.

• It is clear that the Aggregator model is subject to the same market forces and challenges that the brands they acquire face. Those who can manage their cost of capital and implement controls to their variable cost base will inevitably thrive in the ultra-competitive world of online marketplace retail.

6. Aggregator Valuation

• We asked what the biggest valuation (profit multiple on exit/listing) gains of aggregators was. Note: respondents could select up to 3 items.

– 62% said brands (revenue quantum, growth, net margin).
– 57% said financial profile (e.g. corporate EBITDA margin).
– 29% said technology and data competence.
– 24% said being truly omni-channel.
– 10% said scaling efficiencies.

7. Sustainable model

• In a recent blog GoNorth, Accel Club, Joseph Falcao and The Fortia Group articulated why we believe the business model of aggregating eCommerce brands is sustainable.
• Despite the positive vision, some did not agree. One attendee commented “I think the key issue here for the room and for Fortia is that the existing Amazon aggregator model doesn’t work. We can discuss at length but that’s the punchline. So that means capital will be scarce. All these aggregators merging is a sideshow that doesn’t address the underlying issue with the model”.

8. Aggregator

• As the space evolves, many firms are increasingly no longer calling themselves an “aggregator”.

9. Collaborative Space

• In the past firms were very secretive, whereas we currently observe a much more of a collaborative and collegiate approach. This is evidenced through the quantum of attendees at the conference. As one attendee commented the conference was a great “temperature check within our industry”.

10. Maturing space

• The overarching view of the audience and a key takeaway is that 2021 was the year of M&A, 2022 was the year of operations, and 2023 is the year of survival and maturing of the industry.
• An attendee commented: “the industry is in about the same situation and it is not as dire as it is made out to be”.

The next conference will take place in London on September 14th 2023. The morning agenda will include 20 brands pitching to acquirors and the afternoon agenda will be an ‘Acquiror Mastermind’. Please contact us to learn more at inquiries@thefortiagroup.com.