Zoe Chew

March 30, 2022

E-commerce roll-ups and the rise of Thrasio biz model

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Issue #05

The rise of e-commerce roll-ups

In the past, roll-ups were mainly proceeded by private equity firms, large conglomerates, and institutional buyers whereby companies acquire businesses in the same market and merging them under a single entity to scale.

Today, there are new companies that consolidate independent private label brands with decent revenue. They are the aggregators of e-commerce brands. Unlike marketplaces that connect buyers and sellers to acquire or sell off their brands (e.g. Flippa ,Exchange Marketplace by Shopify), roll-up platforms are operational and resourceful. They:

  • have a thesis around e-commerce product categories they want to acquire
  • search across marketplaces like Amazon and Shopify
  • find winners and merge these companies
  • operate like a private equity firm, may fund and invest in buyout businesses
  • platform-agnostic or vertical-focused
  • grow them collectively using built-in technology, infrastructure, data analytics, operational expertise, capital, and economies of scale
  • provide in-house M&A (mergers and acquisitions) expertise
  • leverage AI, data science & market intelligence to select acquisition targets
  • they are typically consumer brand or D2C experts in a particular niche

Key players around the world

What problems do they solve?

  • Not being able to find ideal buyers ➝ help sellers get acquired. Roll-up platforms help successful e-commerce merchants or direct-to-consumer (D2C) brands to exit their businesses lucratively.
  • Buyer-oriented ➝ operator-oriented. Unlike selling to individual buyers which often don’t have the “full-stack” solutions to support the business for its continuous growth, selling to consolidators extends the lifetime values of the business by providing in-house teams, resources, and technology.
  • Slow process ➝ fast acquisition process. According to MicroAcquire, it takes about 5 to 12 months to find buyers, conduct due diligence, financial construction, prepare legal documents, negotiate, and close deals. Roll-up companies cut the timeline into days/weeks (not months), from providing valuations for your business and offering term sheets in 35 days (Thrasio) or 4 weeks (Mensa Brands).
  • Complicated legal process → all-in-one process. Skip the complexity of selling off your business. Roll-up companies take care of valuation, financial, commercial construct, due diligence, and Letter of Intent (LOI).

Business models

Roll-up companies are running the business using a private-equity model. They act like collaborators, operators, and venture capitalists (VC) at the same time. For example:

  • Thrasio acquires third-party sellers on Amazon focusing on everyday consumer brands, scale the business, and offer exit options for the sellers. In 2020, Thrasio profits $100 million on $500 million in revenues.
  • Heyday provides tech stack, capital, advice, and insights to help consumer product brands accelerate the next level of growth.
  • Berlin Brands Group has built a portfolio of 3,700 consumer products in 28 countries worldwide and provides resources that span across the entire value chain: product conception, development, design, brand development, multi-channel distribution, marketing, and customer service.
  • Mensa Brands partner with business owners, invest working capital, pick up equity in other D2C startups and scale their brands’ presence online. The company targets fast-growing e-commerce sellers doing $10 million in revenue, focusing on lifestyle, home, and beauty verticals.

Why now?

As e-commerce entrepreneurship is exploding, there will be more successful independent merchants who will need to find a way to exit their brands. Here is the market potential snapshot:

  • Growing numbers of independent sellers. In 2020, more than 50% of Amazon's gross merchandise volume (GMV) was coming from third-party, independent sellers.
  • Third-party sellers made more profits than first-party retailers on Amazon. According to Amazon financial statements in 2019, third-party sales have grown from 30% to 58% between 2008 and 2018.
  • Rise of new e-commerce platforms. There are 9.7 million sellers on Amazon and 1.75 million merchants on Shopify. Newer e-commerce tools such as Wix eCommerce, BigCommerce, Squarespace will empower entrepreneurs to start their own platforms, create D2C brands instead of selling on marketplaces.
  • Emerging Southeast Asia e-commerce market. Indonesia, Singapore, Malaysia, Thailand, Vietnam, and the Philippines have a growing penetration of social media users, online shopping, and mobile devices. Platforms like Shopee, Lazada, Tokopedia, Bukalapak are the emerging e-commerce platforms that will create more third-party sellers and winners to exit their businesses.

Business opportunities

  • Roll-ups Operating System (OS). Like FileVine but for roll-up companies. There could be a SaaS to scale the roll-ups operations such as managing deal flow, financial modeling, tracking portfolio companies, monitor portfolio performances, reporting, etc.
  • Media brands roll-ups. Content is distribution. Acquire and consolidate successful media brands such as newsletters, blog sites, podcasts, directories, and communities that have a large number of email lists, users, site traffic, SEO rankings, paying customers— and then upgrade the product development, marketing, distribution through in-house technology, analytics, and operations.
  • Market insights for e-commerce brands. How do you find winners to acquire? Create a database software like Crunchbase or Pitchbook that keep track of growing e-commerce brands, filter by key metrics such as industries, competitors, similar brands, monthly traffic, sales, revenues, social media signals, brand popularity, customer reviews/ratings, ads spend, and SEO keywords ranking.
  • Investor clubs for roll-ups. Like Voleo but for D2C acquisitions. What if smaller acquirers can form a roll-up by “crowd-acquiring” together D2C brands, build a portfolio of buyout businesses, fund the operations, and share revenues?