Read Time: 3 minutes
The Fortia Group had a busy month attending conferences in:
- London: White Label
- New Jersey: The Aggregator Show
- Las Vegas: Prosper Show
Beyond the industry commentary and influencer dailies we follow online, connecting with aggregators, service providers, thought-leaders, and leading entrepreneurs face-to-face provides industry insight that is not obtainable otherwise.
Here are some of key takeaways from recent eCommerce events:
#1 Rumors that many of the aggregators will be distressed in 2022.
We hosted a recent webinar with directors of three of the biggest aggregators (Berlin Brands Group, Branded, and unybrands). Each presented on different aspects of the industry and forecast a stabilization of deal valuations and potential consolidation among buyers in 2022 – or to use a phrase from our CEO, Emmett Kilduff “Mergers of Aggregators (MoA).”
While rumors of distressed aggregators are unfortunate (and we have heard of the sale of a distressed aggregator this week), it should come as no surprise in a market that has seen this steep a trajectory of growth. As the market progresses winners and losers are inevitable.
That said, since the beginning of the year aggregators are still raising capital:
- Dragonfly $500 million
- Elevate Brands $400 million
- Society Brands $204 million
- YABA $85 million
- Moonshot Brand $30 million
- The Mothership $22 million
#2 A number of the large aggregators have paused acquisitions so they can digest their deals and focus on operations.
This shows the industry is beginning to mature for some of the more experienced aggregators. In the history of M&A, acquiring 50-75 businesses in a twelve month period is unprecedented. The obvious next step is to draw breath, pause and focus on execution of operations.
Brand operations will be a key differentiator in the market going forward (see point #4)
#3 Valuations are likely to stabilize or decline.
In a recent event we hosted, leading aggregators presented on the current market and why 2022 is a good year to sell your eCommerce business.
Their presentations looked at:
- The blistering growth in the market and the burden of debt on aggregators
- Growing inflation and the likely increase of interest rates (which will affect multiples approved by lenders)
- Market consolidation, one aggregator buying another
- Distressed aggregators (see #1)
- Increased headwinds like new regulations by Amazon, and rising PPC and shipping costs
In summary, increased burden (e.g. increased interest rates) on the aggregators will affect the multiples they can afford. Increased headwinds for sellers will affect net margins and be reflected in SDE calculations, which will also result in lower multiples.
That said, strong brands with consistent high growth, stable margins (>20%), and the right team to run the exit process will rise to the top and command the better deals.
To understand the value an advisory team brings to selling your eCommerce business, check out section 9 of Exit Guide for Amazon FBAs
#4 Sellers will increasingly do more due diligence on which aggregator they sell to
(or at least they should)
If approximately 25% of the compensation for the sale of your eCommerce business is deferred, in the exit process brand owners are interviewing the buyers as much as the buyers are interviewing the sellers. No Amazon FBA seller wants to lose their earnout.
In the coming months, aggregators that can’t demonstrate successful execution and performance, and have the case studies to back it up, will be at a disadvantage in bidding for high performing assets.
#5 Higher Attendance of Aggregators, Brokers, and Advisors at Prosper Show 2022
The most common analogy for the enormous debt raise and roll-up strategy employed by aggregators over the last 18 months is the “gold rush.” Naturally, with the number of prospective eCommerce exits set for 2022 (see this webinar), new aggregators, brokers and advisors are entering the market each month. This is a significant increase from last year.
#6 eCommerce Broker Vs. Advisor
With an increase in brokerage firms, eCommerce entrepreneurs looking to exit are struggling to know the difference between a broker and an advisor.
We explain it like this: A broker connects the brand owner with the buyer and takes their fee. Aggregators are responsible to close the deal.
In contrast, The Fortia Group is an M&A advisory firm that takes an investment banking approach to selling your eCommerce brand. Our exit-team has decades of investment banking, corporate finance, and eCommerce experience. We prepare brands for sale by performing our own due diligence, working with the owner to get legal, financial, product roadmap, and acquisition opportunities all clearly presented. When the timing is right, we run a professional auction for the brand that achieves the best valuation.
As eCommerce advisors, The Fortia Group favors preparation and timing over expediency.
Conclusion: Launch of Niche Aggregators
The meteoric rise of the aggregator over the last three years has yielded learnings around what is involved in growing a brand year-on-year.
Aggregators that have rapidly expanded their portfolios of brands across the full spectrum of categories can struggle to optimize these brands, as each category requires unique expertise.
One marketplace solution we have seen is the launch of new niche aggregators, and by “niche” we mean by geography (e.g. India), category (e.g. beauty) or theme (Eastern European marketplaces – it’s not all about Amazon).
Currently, our new investment syndicate is investing in a new niche beauty aggregator, with a specialist team to grow beauty brands.
If you are interested in joining Fortia’s Investment Syndicate, contact CEO & Co-Founder Emmett Kilduff directly here.