Paul from Amazing Exits recently sat down with Joe Hogg and Robert Salmon of Global Wired Advisors to discuss their report: Amazon Aggregators: A Profile of Risk and Return from the Digital Frontier. This is a dense, 20+ page report filled with technical language. Paul and the Global Wired Advisors team took time during this podcast episode to break things down and answer the question: Is the business model that Amazon aggregators are using a sustainable one?

This article provides the extended version of this answer: yes, it very likely is sustainable.

Below you will find the reasoning behind that statement.

Why is so much investor money going to aggregators?

Investors are essentially making a bet that an aggregator can put together many high-value brands and expand the value of those brands with: 

  1. Additional capital.
  2. Access to a more extensive knowledge base.
  3. The ability to bring the brand to more spaces – for example taking national brands international.
  4. Knowledgeable teams working bring brands to more people.

Traditional consumer goods companies often trade at a high value. The assumption is that aggregating several consumer goods companies under one roof will only add value as the aggregator grows. According to the Global Wired Advisors report, investors are essentially arguing that aggregators will buy successful brands at a competitive price, expand those brands to increase their value, thereby increasing the overall value of the aggregator. This sky-high valuation will additionally benefit investors if the aggregator eventually goes public.

Historically, consumer goods companies trade at a 15-20 multiple, which is why so many investors are willing to spend capital on Amazon aggregators right now. They are essentially investing in a digital consumer packaged goods (CPG) company that may one day trade at a much higher multiple than what the aggregators offer brand owners when purchasing a brand.

Why are aggregators valued at so much more than my Amazon brand?

Robert Salmon shared that, in every company he has seen, the critical drivers of value are: 

  1. Growth 
  2. Return 
  3. Risk

As a company becomes larger, risk perception goes down, and the multiple goes up. So, a small brand owner on Amazon may only be able to sell at a multiple of 5-7 times, but private equity will invest at a multiple of 8-10 times. However, private equity investors want to invest in larger companies than a brand seller would have. 

Ultimately, the growth trajectory in the Amazon aggregator space is increasing the sustainability of the aggregator business model.

How can I benefit from the large amount of investment in the Amazon aggregator space?

That last section may have taken the wind out of your sails a little bit, so let’s bring it back to how this all helps you, the brand owner who is planning to make an eventual exit.

Here are three ways all of this investment money in Amazon aggregators helps you:

  1. Ultimately, all of the investment in Amazon aggregators makes it easier for a brand owner to sell their business. When you are ready to exit, you can research and reach out to several well-funded companies and find the best fit for your brand.
  2. As the aggregator space becomes more valuable, your growing brand will become more valuable to aggregators. 
  3. Aggregators may begin to go public, which would help you get an even more precise idea of how the industry is doing – and how aggregators are performing. This will help as you do due diligence when exiting.

More investment in the aggregator space means that you can build a brand that companies like Thras.io, Olsam, Perch, or Heyday want to acquire. If you want to have an amazing exit one of these days, more investment in those who will compete for your company at the negotiating table will only benefit you.

Are you considering an exit in the next year or so? We’d love to talk with you! Get in touch here.