What’s Behind the Great eCommerce Rollup?

eCommerce continues to be one of the few beneficiaries of an otherwise challenged 12 months. After years of hovering around 10 percent of U.S. retail spending, it shot up to about 15 percent in the first half of 2020. In this process, consumers have gotten hooked, and it’s likely never going back down to 10 percent.

This has meant several things, including growth in localized e-commerce like curbside pickup and order-ahead QSR. Questions remain over physical retail’s role in a post-Covid hybrid world. With more eCommerce activity, per the above, retail outlets could adapt to the role of brand experience hubs, as we’ve examined.

Back to pure eCommerce, another recent trend we’ve detected is the consolidation of smaller entities such as Amazon marketplace sellers. The thought is that there’s ample long-tail value in these smaller operations. So larger companies can roll them up and apply common standards, marketing, and economies of scale.

We first started seeing this trend with recent funding rounds for two such players that specialize in eCommerce rollup strategies. Specifically, Thrasio raised $750 million from existing backers Oaktree and Advent; and Branded Group has raised $150 million from Target Global. Let’s tackle these one at a time…

How Much Will eCommerce Grow in FY 2020?

Thrasio 

Thrasio has been an early mover in the Amazon seller roll-up game, or what it calls the Amazon FBA ecosystem (“Fulfilled By Amazon”). Its 2018 launch pre-dates the pandemic, but it’s more attractive to investors now that eCommerce has been elevated in the above ways. And it could certainly use the cash infusion.

In other words, one of the things compelling such high venture sums — beyond the favorable macro-environment outlined above — is the capital intensiveness of the business. There’s a clear path to revenue growth, but it requires buying up smaller marketplaces en-masse. That’s what it will be using the funds for.

“Thrasio continues its exceptional growth,” Thrasio co-founder Joshua Silberstein told TechCrunch after the recent funding round. “Over the past two months, we’ve been acquiring $1.5 million in revenue per day […] Thrasio is now closing two or three deals every week.”

In total, Thrasio has acquired about 100 of these “FBA” businesses across CPG product categories. This acquisition process involves a vetting formula that evaluates thousands of companies. And the universe of targets is sizable considering Amazon’s 5 million SMB sellers, one million of which joined in the past year.

Amazon Extends Its Long-Tail Reach

Branded Group

Branded group is driven and defined by similar market dynamics as Thrasio, but it’s a bit younger. It quietly launched in mid-2020 during eCommerce’s Covid-fueled ascent. It has already acquired 20 startups (20 percent of Thrasio’s FBA portfolio) across product categories like home goods, leisure, and lifestyle.

Like Thrasio, Branded (ironically named) maintains the branding of the individual sellers and sits behind the scenes with centralized marketing, logistics, and other economies-of-scale-boosting standardization measures. These support functions also include technology platforms, analytics, and ongoing store optimization.

Also similar to Thrasio, Branded’s funding will largely be used for the capital-intensive process of acquiring new companies. With 20 companies, as noted, it hasn’t fully realized the economies of scale that come with… more scale. So we can expect a buying spree to come in the coming months for both companies.

And they’re not alone. These two funding rounds follow others in the FBA-rollup space such as Berlin Brands Group, SellerX, Heyday, Heroes, Perch, and several others. Based on the momentum in this space, and the broader eCommerce environment, we expect to see more such deals. We’ll be watching closely.

Localogy M&A Roundtable: iHeart, Endurance & eCommerce

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