Have you recently received unsolicited emails from one or more “aggregators” offering to acquire your business? How seriously should you consider these unsolicited offers? Are they serious, and are they competitive? Below we’ve outlined answers to some questions entrepreneurs often ask us regarding selling a business to an aggregator.
What is an “aggregator”?
An aggregator is a platform acquirer of direct-to-consumer and Amazon brands. An aggregator's goal is to acquire multiple businesses and to create growth by consolidating operations and marketing functions to generate scale, synergies and purchasing power. The aggregator model began around four years ago, with the emergence of well-funded acquirers including Thrasio, Boosted and Perch, and the number of aggregators and their funding has grown significantly over the past few years. Aggregators can provide DTC and Amazon consumer products brands with an easy and convenient route to exit, but entrepreneurs should be aware of several nuances and potential pitfalls.
What types of businesses do “aggregators” buy?
Aggregators have historically targeted Amazon FBA businesses in a broad array of consumer products categories, including pet products, beauty products, fitness products, supplements, home care products, electronics, and much more. Some of the aggregators are category agnostic, while others have developed a strategic focus targeting a more limited number of product categories. Most aggregators want profitable and growing businesses and have published acquisition criteria, including a minimum EBITDA threshold.
Is their process different from other strategic buyers?
Overall, the process to be acquired by an aggregator is similar to that of other strategic buyers. However, many aggregators claim they are able to close deals much more quickly than traditional buyers. They will still perform due diligence and conduct a detailed review of the records of each business. End-to-end, the acquisition process can work quickly: some aggregators advertise that they can sign letters of intent in two or three days and then close deals within 60 days. In our experience, a well-funded and organized aggregator can work quickly due to their deal-making experience and expertise, but you’ll still need to be prepared for a thorough due diligence process, and while an aggregator can quickly propose terms in their favor, negotiating a fair and complex transaction will still take time.
How do aggregators approach valuation?
The aggregator model has provided some consumer products entrepreneurs with an attractive option for a relatively fast exit with a reasonable amount of cash at closing. Other deal terms can get tricky. Most transactions include some form of an earnout or multiple types of earnouts on one transaction. A typical earnout period is two years.
Do aggregators pay more or less than the other buyers?
The official answer is “it depends”. Initially, aggregators tended to offer low EBITDA multiples. However, the recent strength of the M&A market and the emergence of many companies with the same model has forced many aggregators to be more generous or aggressive with valuations. Growing and profitable businesses, especially Amazon businesses with a high number of positive reviews, should receive solid valuations from aggregators. But a business that receives a strong offer from an aggregator is likely of interest to a range of other types of buyers too.
What happens after the sale?
Most aggregators are structured and staffed to onboard and help newly acquired brands grow. An immediate focus is to build seller excellence on the Amazon platform, leveraging the expertise and tools of the aggregator organization. While most founders turn over the keys to the business and exit after a brief transition period, others have accepted a new role with the aggregator organization.
Recent trends with the aggregator model.
With the growing number of aggregators comes competition. Therefore, larger aggregators have begun to swim upstream and look to acquire even larger businesses. We have also seen aggregators add more rigor to their acquisition criteria. Many aggregators are also now looking for new channels of growth to reduce their dependence on Amazon and are looking at DTC businesses, wholesale businesses, and for incremental sources of revenue.
How should I respond to an unsolicited offer?
First, know that aggregators are blanketing consumer products entrepreneurs with unsolicited emails to buy businesses. If an aggregator has emailed you offering to speak about your business or indicating an interest in the business, chances are you happen to be involved in a category of interest. It doesn’t mean they have any insight into your business, or that they have spent any time evaluating your business. If you are interested in a sale, it can certainly be worthwhile to have a conversation, but the aggregator may do a quick evaluation and then pass. If they are still interested, it generally means that your business would also be of interest to other buyers as well.
Do I need an investment banker to sell to an aggregator?
Some aggregators may try to convince you their process is easy and that you don’t need an investment banker or broker. However, if you are considering an exit and the sale of your business to any type of buyer, we strongly advise you consider using an experienced investment banker or broker rather than representing yourself. A banker or broker can represent you in the transaction, bring multiple qualified buyers to the table (including strategic buyers, private equity firms and aggregators), negotiate from experience, and get your deal across the finish line. We believe working with an experienced investment banker to sell your business provides the confidence of knowing that you approached the transaction in a professional and organized manner, with the best chances fora successful outcome.
At Hughes Klaiber, we are experienced investment bankers and can guide you through the process to professionally sell your business. If you are curious about the M&A marketplace and would like to learn more, please contact us.