One of the most notable trends that has emerged in this new frontier of marketplaces is the explosion of marketplace aggregators entering the market. These “roll-up” firms are raising billions of euros in capital to acquire marketplace businesses at a record rate.
Once a brand is established and unsure of what to do next or wants to exit, that’s where aggregators step in. Understanding aggregators, what they’re looking for and what you can expect from them, that's what we're going to cover in this article.
The Berkshire Hathaway of marketplaces
Around 2020, a new trend began: buying out marketplace brands and creating a portfolio of very profitable brands and products in the hands of companies dedicated to scaling these brands to a whole new level. These companies are known as marketplace aggregators. “Aggregate” by definitions is a whole formed by combining several elements.
Investing in marketplace businesses is becoming an increasingly popular trend. Traditional investors realize that a lot of money is to be made by investing in e-commerce brands built on platforms like Amazon and Bol.com.
Another reason why these small brands became hot commodities for investors, is that it has become a lot harder to start from scratch on Amazon when competing with a five-year-old established brand; thus acquiring a business can have a much wider moat comparatively.
The playbook of acquiring
In general, marketplace brand aggregators look for established brands with in-demand products that generate steady income. These assets must also still have growth levers to pull after the sale.
Let’s dig deeper into some of the analyses we’ve done on other typical brand aggregator. Of course, there are many more data points to explore, we have picked out the most logical ones
- €1 million in Revenue or €20,000 in Annual Net Profit
Marketplace aggregators look for businesses that make either of the above figures. Furthermore, most aggregators will require your brand to have at least 15% profit margins. Margins lower than that will be seen as not having enough growth potential to move forward.
Your brand doesn’t even need to earn that much. If your monthly net profit is $25,000 and your business is valued at a 40× multiple, you could sell for at least €1 million.
- Strategic SKU Range
It’s normal for third-party sellers to offer a wide range of color and size variations of their hero SKUs.
To keep operations simple, a lower number of SKUs makes it more manageable to update and maintain a brand, especially since a lean team of operators will need to keep an eye on dozens of FBA assets, each with potentially dozens of SKUs to maintain.
To keep this range as manageable as possible, brand aggregators will delist some SKUs, especially if they don’t contribute much in terms of revenue. Additionally, optimizing and maintaining product listings is easier if the product SKU range is smaller.
- Evergreen Niches
There are few undesirable niches. Your primary focus should be on building a solid brand that has steady income and clearly differentiated products.
We found in data study that niche doesn’t affect your ability to sell your business as much as people might think.
As long as you’re not selling products in a fad trend, such as fidget spinners, your brand is worth a look.
The numbers don’t lie
Marketplace rollup firms don’t reveal all of their statistics when it comes to deal sizes. According to Fortia Group, these figures are a good estimate of deal activity so far:
- 47% of deals sell between $2 and $5 million.
- 24% of deals close for under six figures.
- 12% of deals sell for over $5 million.
The wide range of deal sizes shown above indicates that businesses of all sizes have a chance of being acquired.
So, what’s the verdict?
Despite the current hiccups, the aggregator space continues to develop, showing no signs of giving up and still raising plenty of funds.
For marketplace sellers, that’s good news. If you’ve built a thriving marketplace business or you’re on the road to success, you’ll still attract aggregators seeking to acquire your brand.
As you can see, there is tremendous potential in building a strong marketplace business. Are you not selling on marketplaces yet or have you started it but the sales are not as expected?
Feel free to book a video call with us where we will show you how we grow your ecommerce business in Europe through multiple marketplaces. ⬇️