Businesses Buying From Amazon Marketplace Sellers Are Suffering As Transactions Dwindle

In 2021, investors poured more than $12 billion into a new breed of start-ups focused on buying sellers on the Amazon marketplace. This year, funding has mostly dried up, with transactions nearly halted as e-commerce growth stalls and investors grow wary.

This means acquisition start-ups, known as aggregators, who previously grimaced on each other to pay oversized sellers, must now bemoan their excessive exuberance. Many have laid off or have been forced to restrict their scope of action.

“Last year was crazy,” said Shrestha Chowdhury, chief technology officer at Razor Group, a Berlin-based aggregator, which at its peak was buying a dozen companies a month. “I wouldn’t do that again.”

Amazon aggregators, or roll-ups, are groups that buy from sellers who typically do most of their business through Amazon’s third-party marketplace. The thesis is that by bringing together many brands under one roof, efficiencies can be achieved through, among other things, marketing spend and inventory management.

In 2021, as the e-commerce sector surged following the big shift in behavior during the Covid lockdowns from buying services to buying goods, confidence in the deployment model was extremely high. According to data from Marketplace Pulse, investors invested more than $12 billion in startup companies last year.

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But so far in 2022, funding has fallen to just over $2 billion, the lion’s share of which came before the stock market plunge in March, sparked by rising inflation, war in Ukraine and a large sale of technology stocks. This confluence of factors has particularly affected the e-commerce sector.

“The private market has almost closed,” said Riccardo Bruni, co-founder of London-based aggregator Heroes. “For a while, access to capital became impossible.”

It’s a stark contrast to 2021, when aggregators were desperate to win deals by spending big. Groups like Acquco, for example, have gone so far as to offer a free Tesla in exchange for successful referrals. Such was the competition, promising merchants were bought for around 6-7 times adjusted earnings before interest, taxes, depreciation and amortization.

Roll-ups are now much more cautious, with some pausing trading altogether. Chowdhury said Razor Group closes one or two deals every month, which always makes it one of the busiest aggregators. Industry insiders estimated that of several dozen aggregators that had raised capital in the past two years, less than 10 were still making acquisitions.

“If 2021 was the year to launch an aggregator and attract what looked like unlimited capital, 2022 is the year to survive,” said Juozas Kaziukenas, analyst at e-commerce research firm Marketplace Pulse. “The market is still active, but I think it will be a long quiet period before some of them find the winning formula.”

Massachusetts-based Thrasio, the largest aggregator to raise at least $3.5 billion and complete more than 200 acquisitions, laid off about 20% of its staff in May, shortly after announcing the veteran’s hiring of Amazon Greg Greeley as Chief Executive Officer.

As part of the elimination, Thrasio’s acquisition team was almost entirely eliminated, two people familiar with the company said. The company told the Financial Times it was still reviewing the brands, but would not say whether any deals had been reached since the May cuts.

Perch, another top aggregator that has raised more than $930 million, has also suspended acquiring companies, according to two people familiar with its operations. Instead, one of the people said she would focus on growing “organically” the brands she has already introduced.

Several other aggregators, including Heroes and Berlin-based SellerX, also laid off dozens of employees this summer.

There’s been a “palpable change in mood,” said Taliesen Hollywood, director of mergers and acquisitions agency Hahnbeck, which brokered major sales deals with aggregators.

“Brick and mortar grew faster than e-commerce for the first time in history,” Hollywood said. “At the start of 2022, it was clear that the acquisitions weren’t performing as well as they had hoped. Ultimately, that meant they had overpaid for some of these businesses.

Much of 2021’s frenzied dealmaking was debt-financed, with aggregators often paying interest rates as high as 18% upfront, Hollywood said. With growth slowing and with no clear path to profitability, several operators could soon break their covenants, he said.

The aggregators’ fortunes weren’t helped by conditions on Amazon itself. Selling fees have risen more than 30% in the past two years, according to Marketplace Pulse, with Amazon citing logistical pressures. Other additional costs include a 5% fuel surcharge imposed in April and levied on each delivery made through Amazon’s own logistics network.

Additionally, some aggregators have found that categories that performed extremely well during the booming pandemic months saw sharp declines. “Everyone bought their bread machines,” Bruni of Heroes said.

Despite all the pressure, proponents of the aggregate model are seeing positive signs for the rest of 2022 and beyond, keen to steer their business models away from other instant investment frenzies of recent years, such as fast delivery apps. groceries or The electric scooter boom in 2018.

“Generally speaking, as we enter 2023, I think all of the actions that are being taken by people now are going to build a much more resilient business model,” said James Serena, co-founder and CEO of Telos. Brands, a smaller-scale aggregator based in San Francisco.

Sebastian Rymarz, chief executive of aggregator Heyday, said his group had managed to avoid “mass” layoffs and was considering deals that could generate an additional $450 million in annual revenue, with the aim of “taking advantage of the dislocation” in space.

Shipping costs, while still high, are now about two-thirds below their pandemic highs.

“The pressure on the supply chain has eased considerably, mainly due to lower global demand,” said Philipp Triebel, co-founder of SellerX. “We see incredible opportunity to acquire high-caliber assets at lower prices over the next 12-24 months.”

Yet a bruised 2022 has meant that talk in the sector has now turned to consolidation – roll-ups being rolled up – said two people familiar with aggregator businesses. It was “on a lot of people’s minds,” one person said.