The whole idea of aggregation was essentially born five years ago when the ecommerce industry recognized that digitizing the private equity playbook made a lot of sense. A focus on how to maximize digital real estate within Amazon was created — targeting digitally native brands and Amazon listings to build arguably one of the fastest growing companies in tech history.
This demonstrated to the market that there was real money to be made using this model. And logically, it makes sense. Digital assets don’t require as many resources or as much headcount. They don’t have as many moving parts. You can have one backend system, one accounting system and use one marketing agency to manage multiple brands. There are many operational efficiencies and synergies. So fast forward to today and we have approximately 96 active aggregators operating globally.
Out of these aggregators, perhaps 25 or so dominate a large (70%) portion of the capital available — big players that have secured institutionally backed capital or have significant revolving facilities in place in order to fund numerous acquisitions. We, Accel Club, raised $170 million funding in November 2021.
So how do you go about choosing an aggregator that would reward you fairly for your successful Amazon brand and take it to the next level? Here’s what you need to know before making a decision.
The Multiples Effect
Typically, the multiples that aggregators work with are, on average, three times EBITDA, gross profit or SDE (seller discretionary earnings). So you are currently looking at a range of three to six times with respect to multiples. There was an upswell during COVID where perhaps five to seven, or even eight, times was normal, but that was simply a gold rush effect on the back of very healthy online sales activity. It is important to understand that valuations have come down a lot since those heady days, so expect an aggregator to be offering between three and six as a multiple currently.
A ‘good’ aggregator will offer you the multiple that is right for the business. Shortchanging people or over-promising does no good in the long run as there is a lot of transparency in this community — shoddy practices get aggregators found out, quickly.
Earnout payments are important pieces of the acquisition price jigsaw. Aggregators will keep a certain amount of cash in their workshops to maximize operations, scale the brands acquired and fund the acquisition of more brands. One of the ways that they do this is by offering an earnout structure. So once you’ve settled on what the business is worth and after diligence etc., you could get 80% on that agreed value at deal closing. The other 20% ‘payment’ gets spaced-out by the aggregator, for two reasons mainly — to incentivize sellers and mitigate risks. This supports a hand-off period to keep everybody, buyer and seller included, accountable during the transition. An earnout could also be structured as deferred payments, stability payments or performance payments.
It is understandable that sellers are seeking out offers with the best possible price tags. If an aggregator engineers a package that is significantly higher than the market benchmark, it is advisable for the seller to scrutinize the offer and approach with caution, to ensure the buyer indeed has the capability to fulfill the payouts.
Speed is of the Essence
Price isn’t the primary factor — it’s certainly a primary driver though. When you are factoring in price, multiple or value, you have to also include time. Some aggregators will ask you to sign a letter of intent (LOI) expressing interest in buying your business for a certain price. You then enter into a diligence phase.
As a seller, you want this diligence phase to be carried out quickly. This is because as the seller, you are under exclusivity — you can now no longer engage with other buyers. Don’t work with an aggregator who will waste your time here. Ask for full disclosure. When this market was still very immature, there were many buyers who acted like cowboys by committing sellers to LOIs simply to take them off the market (with no real intention of actually ever transacting the deal). Fortunately, such organizations were found out quickly — everyone shares information (good and bad) expeditiously.
A key point to investigate with any potential aggregator is their experience in running brands. Sure, all the big dogs will boast M&A lawyers and investment bankers, but how about key operations people? Where are the Amazon and marketing experts? Aggregators might be worth billions in valuation revenue, but what about overall performance? How compressed has their net margin been over the last few years? Many have actually underperformed massively. Ask about operational expertise — would you trust them to run your business? Where is the earnout stability? Often the game plan with this type of aggregator is to win the deal, then desperately try to backfill with the people required to make it all work — not a great business model for the long term.
A Data-Led approach
Like any ecommerce business, data is what really matters. Understanding trends and doubling down to deliver increased sales is at the core of any seller’s business approach. This is exactly the same for aggregators. The aggregator you decided to partner with should have a grasp on the data around your business — and they should be an expert in your field. They need to understand the growth opportunities and how to deliver the numbers to help your business grow. The use of technology is incredibly important here, especially when analyzing data and turning this into actionable insights.
Take a look at aggregators that concentrate on operations. How many of their staff are in operations versus M&A or legal or business development? Look for a team that boasts marketing DNA and that has supply chain analysis experience and data science skills.
You need an aggregator that actually knows how to operate a brand — otherwise the long picture will start to look very bleak. Be wise to these types of aggregators and their slick marketing. When you are deep-diving at the diligence phase, ask them to walk you through step by step how they will grow your brand. Look beyond the fun buzzwords and operational synergies. Ask for case studies. Be confident in the aggregator you choose and its ability to scale your business.
As you can appreciate, there are a number of areas to consider before you consider ways to build a successful Amazon brand. The aggregator market is always developing and looking for new ways to make things work, but keep an open mind. As with most things, short-termism delivers little value eventually.
Sebastien Stanley-Jones is the Director of Global Business Development at Accel Club. He was previously Director of Business development at Moonshot Brands (YC W21) and prior to that a founding member at Clearco, leading the in-market and product development function (Clearco is the only Canadian investment by Softbank). He holds a Masters in Innovation from Smith School of Business. As an avid traveler who enjoys immersing himself in different cultures around the world, he has visited 56 countries and worked in four different countries and counting.