In this fascinating article, Riccardo Bruni, Cofounder of Heroes, says “Amazon is no longer a marketplace, Amazon has become the market.” This is a fascinating way to look at aggregation and FBA businesses.

  • Amazon’s size has spawned a sub-economy of aggregators that buy its biggest sellers.
  • These Amazon rollups have raised $5.7 billion in the US and Europe in the first 11 months of 2021.
  • Investors wanting to get into the sector are paying up to 30x earnings, sources say.

    Next time you make a purchase from Amazon from a seemingly independent seller, you may not be buying products from a man with a shed, but a new type of 21st-century conglomerate.

    Buy a weighted blanket from Slaapkalm or a Moroccan lantern from Gadgy, and you’ve really bought from well-funded Dutch company Dwarfs without knowing it.

    Dwarfs, Heroes, Accel Club, Olsam, and Factory14 in Europe, and category-leader Thrasio and Perch in the US are “Amazon aggregators”, a new type of business attracting billions in investment.

    Their game plan is to acquire the most successful third-party brands that rely on Amazon infrastructure to store, process, and ship out their products, a service known as Fulfilled by Amazon (FBA).

    These independent brands are then managed under a single parent company — not unlike Unilever or P&G — which helps them scale up and yield bigger profits over time.

    The mushroom-like growth of aggregators is indicative of how Amazon has been able to spawn entirely new industries. The retail giant recorded $332 billion in net revenue for the first nine months of 2021, up 28% year on year. Revenue from third-party sellers listing and using its warehouses, which is where aggregators sit, was up 38% to $73 billion.

    “Amazon is no longer a marketplace, Amazon has become the market,” Heroes cofounder Riccardo Bruni previously told Insider.

    Aggregators are being valued at up to 30x earnings

    Aggregators, also known as “rollups”, are often run by former Amazon sellers or Amazon executives.

    They have lured $5.7 billion in the US and Europe from VC and private equity firms in 2021, according to Crunchbase data shared with Insider and visualized below. This represents a massive increase on the $931 million pumped into the sector last year.

    If debt funding is included, the figure is as high as $13 billion across a pool of 89 global active Amazon aggregators, according to industry tracker Marketplace Pulse.

    Part of the pull is Amazon’s standardization and localized supply chains, which allows sellers and aggregators to scale at pace.

    “It’s incredible how quickly individuals can bring their firm to market,” said Rob Salmon, head of research at US-based Global Wired Advisors, consultants who specialize in digital-first businesses. “A lot of these sellers are actually bringing their business to market in under three months.” Aggregators can give sellers an exit at a time they might be looking to scale or to sell up, filling the role of a private equity firm.

    Debt has emerged as the standard funding route for aggregators.

    “We’re buying profitable businesses, so we can just leverage that,” said Max Firsov, cofounder of Amsterdam-based rollup Accel Club, which raised $170 million in equity and debt last month. Buying profitable businesses can mean they don’t need to raise as often, so equity is less diluted.

    Valuations are bullish, with German firms Razor Group and SellerX both hitting unicorn valuations only a year after being founded. Even so, the European market is not as competitive as the US, investors say.

    “This means that European purchase multiples tend to be lower, decreasing the risk profile of acquisitions,” said Fabian Chrobog, founder and chief investment officer at North Wall Capital, which has provided debt to Accel Club, Dwarfs, and London’s Olsam.

    “The fragmented nature of European economies also allows specialized local players to excel in their own markets and establish a more defensible consumer proposition.”

    The “higher valuations are justified compared to traditional tech investments, by less risk in the investment equation, with the same potential reward,” added Michael Bassler, founder of German aggregator Amazing Brands Group.

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