The boom

2020 and 2021 were the years of the Amazon aggregation gold rush. More than 100 Amazon aggregators publicly raised over USD 16 billion (and there was even more raised privately).

Their purpose: to acquire and consolidate small third party brands selling on Amazon. Some said they were the Proctor and Gamble or Unilever of the ecommerce world. They raced against each other to do multiple deals at pace (many claiming 45 days as the maximum deal length – in contrast to the more standard 3+ months of an M&A process) and there were with heady valuations (often in excess of 6x SDE or EBITDA). During this time, the US aggregator Thrasio became one of the fastest growing unicorns on record.

The bust

However, 2022 was the year of the Amazon aggregation downfall. Funding dried up and inflation and rising interest rates hit the highly leveraged aggregators’ debt hard. Amazon and shipping costs increased dramatically and compressed their margins. Operating multiple and diverse brands on Amazon proved more challenging for many aggregators than initially expected and the Covid boom of online shopping was over. Many people lost their jobs. The acquisition spree was over and some Amazon aggregators were over too.

What happens next?

Amazon aggregation is, however, far from being over. Ecommerce is not going away, nor are the small brands and market fragmentation in the ecommerce space. Small brands like to start life on Amazon (as it is a cheaper way to access a high volume of customers) and consumers increasingly like to buy small, niche brands. Many founders of these small brands still want to sell their brands rather than scale them. Suggestions are that the aggregators are moving from the “trough of disillusionment” of the Gartner curve to the “slope of enlightenment”.

The aggregators may have slowed down their acquisitions, but they didn’t all disappear – instead they have taken time to become “enlightened”. They paused acquisitions to focus on operations, but there are glimmers of a comeback.

There has been consolidation between the aggregators, with larger aggregators buying up smaller ones or portfolios of brands. Razor Group has bought Factory 14, Valoreo and Stryze, Suma Brands and D1 Brands have merged, and SellerX bought Elevate Brands. There continues to be a lot of discussion about mergers of aggregators and we expect more consolidation to follow. Stronger, larger aggregators will emerge.

Some aggregators are also raising funding again. Razor Group closed a Series C at USD 88 million in April (at a USD 1.2 billion valuation) and others are raising without the public announcements that accompanied their earlier fundraisings. They are making acquisitions but the atmosphere is different and the valuations are no longer the same. There is more selectivity and less speed and due diligence takes longer and is more detailed. Consideration packages are more carefully structured and thought-out – we are seeing more earn-outs, deferred consideration, offers of equity and founders being retained for longer periods post-completion. The aggregators that have survived have learnt many lessons from the challenges of 2022.

New aggregators are popping up, they are venturing beyond traditional pure Amazon FBA businesses to DTC channels (UK aggregator Heroes bought Trunki in February), and other players (like private equity funds) are now also showing an interest in the space. The term “Amazon aggregator” is losing popularity – they are ecommerce businesses, or platforms, now.

There are also signs of a new aggregation model on the ecommerce street. There are thousands of small SaaS (software as a service) companies that have developed software to help businesses to sell online and through Amazon and Shopify. These businesses are essentially apps offering services from invoicing to inventory management, advertising to accounting, product research to reviews, and many more. There are an estimated 10,000 independent Shopify apps and the average Shopify seller uses six apps to manage their Shopify business. Like the Amazon third party sellers, it is another fragmented marketplace with founders keen to sell and the potential for synergies and efficiencies via M&A. Ecommerce SaaS businesses (with EBITDA margins of 60-70%) are even more profitable than Amazon businesses and are based on more reliable subscription models with no/limited working capital issues (unlike Amazon businesses). Tens of ecommerce SaaS aggregators or roll-ups have sprung up in the last year or so – this may be the next ecommerce M&A trend.