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Amazon Brand Aggregators Face Merger Wave Amid Financial Strains
E-commerce giants face a wave of mergers as Amazon brand aggregators struggle with financial strain and market changes.
In a significant shift within the e-commerce sector, Amazon brand aggregators, which collectively secured billions during the pandemic to acquire independent Amazon merchants, are now entering a phase termed a "cycle of survival". Discussions of mergers and acquisitions are emerging as these companies seek to strengthen their financial standings.
These aggregators, which saw more than $16 billion in fundraising amidst a consumer spending surge, are now facing concerns over their financial health. Debt burdens and breached lending covenants are among the challenges they confront, alongside pressures to enhance revenues and profitability through economies of scale and strategic acquisitions.
Sector Consolidation: The New Reality
Industry insiders are witnessing a trend of consolidation. Some, like Razor Group and SellerX, have already made moves, acquiring The Stryze and Elevate Brands, respectively. This trend is driven by last year's consumer spending downturn, excessive inventory, and rising Amazon advertising costs, leading to higher storage expenses for these groups.
Juozas Kaziukenas, founder of Marketplace Pulse, describes the situation as a "cycle of survival", with firms grappling to adapt or exit the industry. This sentiment is echoed by others in the sector, noting an over-saturation of players and a competitive environment where many smaller entities seek acquisition.
Complexities And Challenges In Merging Aggregators
The process of merging these aggregators, which often each own numerous brands, is fraught with complexity. It involves diverse equity and debt stakeholders, with negotiations being slowed down by differing expectations and terms.
These groups, backed by common investors like CoVenture and Victory Park, had anticipated sustained online sales growth post-lockdown. Some expanded into Shopify stores and, like Shop Circle, even began aggregating e-commerce software companies. However, this expansion has heightened concerns about potential bankruptcies, as evidenced by aggregator Benitago in August.
Forced Deals And Distressed Assets
Fortia Group's poll of aggregators highlights "cost synergies" and creditor pressures as key drivers for merger talks. Some negotiations are being compelled by lenders, with a focus on distressed assets. Taliesen Hollywood of M&A advisory group Hahnbeck notes a surge in buyers seeking bargains in this troubled market. Similarly, Sam Baldwin of eVenturing predicts a competitive landscape as buyers aim to acquire these distressed assets at lower prices.
Analysts also point out the growing interest of family offices and other groups in acquiring low-priced brands from aggregators. Inversal, specializing in e-commerce turnarounds, is one such group eyeing opportunities within small, distressed aggregators.
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