THRASIO LEADS THE WAY IN ECOMMERCE ROLL-UPS
Ecommerce consolidator Thras.io has published data showing that its roll-up strategy appears to be working very well indeed. The company, which acquires small ecommerce businesses in the Amazon FBA (“fulfilled by Amazon”) ecosystem has had its share of doubters over the course of its short history.
A roll-up strategy is one where several businesses in the same sector are acquired and combined into one entity. There is some variation in the model, with some acquirers operating the target companies relatively separately and others merging the acquired companies to more fully realise cost synergies and economies of scale. All roll-up models feature PE multiple arbitrage as a major driver of investment returns: this is the principle that larger companies command higher PE multiples. Buying many companies at lower multiples and combining them into one larger entity allows the total to be valued at a higher multiple.
But there was significant doubt surrounding whether or not small ecommerce retailers, in different locations, of different sizes and selling different products, could be successfully merged. Would there be any significant cost synergies across such diverse small businesses? Could the overall entity be successfully managed once each company’s individual owners had departed? What about platform risk, since the business is entirely dependent on Amazon? Most importantly, would there be an eventual acquirer for the business – would there be a buyer that would see the combined entity as a single large business rather than a collection of small businesses, and therefore pay the higher multiple in the end?
These questions are not asked in industries that have been successfully rolled up in the past. But small, diverse ecommerce businesses – in this case specifically Amazon FBA businesses, have not been rolled up in this way, at this scale, before.
But Thrasio has started to answer them. Announcing that it had raised a new, $260m round of funding at a $1Bn pre-money valuation, the company released further data to demonstrate the success of its business model. Thrasio states that it has:
Been profitable since its founding in July 2018
Doubled its revenue every 73 days on average over the last two years
Acquired over 50 Amazon FBA businesses, including 17 in the last quarter
Over $300m in pro-forma revenue and more than 6,000 products, making it one of the top 25 sellers on Amazon
The firm’s own research suggests that its rise to unicorn status is the fastest ever for a profitable company.
The company has not been sold yet of course. Until there is an exit some doubt will persist. But these results show strong signs that the model is working, and the $260m vote of confidence from investors (on top of the $136.5m previously raised) shows a lot of smart money is betting on the model working too. The size of the raise, and the valuation, hint at one possible eventual exit strategy: IPO.
For acquirers who are thinking about rolling up small ecommerce businesses, Thrasio’s success provides some confidence that the model will work, or at least that plenty of others agree with the thesis that it will eventually work. In such a fragmented space there is plenty of room for other consolidators to follow suit.
For ecommerce entrepreneurs looking to sell, the new wave of ecommerce consolidators will provide another route to exit.
We will have more news on this exciting space over the coming months. Thrasio is not the only acquirer pursuing a roll-up strategy in ecommerce and we’ll be profiling others in future.
ABOUT HAHNBECK
Hahnbeck is a UK-based M&A consultancy with a focus on tech and online businesses in the £2m to £200m range. If you have a business in this space that you are interested in exiting from, now or in the future, reach out to us at info@hahnbeck.com for a free confidential discussion and business valuation.
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