Berlin Manufacturers Group is elevating $ 240 million to purchase and develop third-party Amazon market manufacturers – TechCrunch
The race is on for companies building e-commerce empires by building smaller, more promising businesses that sell through Amazon and other marketplaces, and by leveraging some economies of scale to run them as a unit. In the most recent development, the Berlin Brands Group raised $ 240 million to acquire smaller but promising companies in Europe and North America – especially in the US – that are already generating sales through marketplaces such as $ 1 million to $ 100 million in Amazon .
Funding comes in the form of debt, not equity, and it comes specifically from UniCredit, Deutsche Bank and Commerzbank, BBG founder and CEO Peter Chaljawski said in an interview. BBG is profitable, tying up more than $ 300 million on its balance sheet earlier this year to buy and operate businesses. With that round of debt (which we reported was in the works earlier this year) there is now $ 540 million available for purpose.
“We are in a wonderful position with a proven business model and this is the cheapest money you can get,” he said of the decision to go into debt, a decision often made by startups that are into capital intensive Modi are, but also not hesitant, or have to forego equity to raise capital on a large scale when generating cash. At BBG it is the latter as the company is profitable. “That’s better than equity. BBG will be out of debt as of 2020 and we had cash for our first acquisitions, 20 brands we bought with cash from our balance sheet. Now we want to accelerate this even further. “
Chaljawski said BBG may close a stock round in the near future to encourage investors to shape their own growth and set a valuation for the company. (For comparison: competitors like Thrasio are now valued in the billions.)
So far, BBG has mainly focused its business on creating and scaling its own private label brands that are sold on Amazon and elsewhere – from home audio equipment to Chaljawski’s own interests in sound technology from a past life as a budding dance music DJ. The brands include Klarstein (kitchen appliances), Auna (home electronics and music equipment), Capital Sports (home fitness) and BLumfeldt (garden).
In a big move towards scaling and building what has established itself, BBG switched to the roll-up model last year: harnessing greater purchasing power to do better deals with manufacturers and other suppliers and some of the other functions like marketing consolidate; and provide a broader set of analysis of what sells best, who is buying, how an item is best marketed, and more. It says it has 1.3 million square feet of warehouse space in Europe, Asia, and the US and is now one of the largest Amazon sellers in Europe.
The basic idea of grouping companies that sell on the Amazon platform with FBA (Processing by Amazon) has been around for years, but the notable and recent shift is that it has taken on a startup profile, in part due to the fact that some of the newest entrants in the market are big data analytics, the latest innovations in manufacturing and Logistics technology and leverage a founder-led e-commerce ethos to expand the model.
“Without data, you wouldn’t go anywhere in this business,” said Chaljawski. “In addition, there is something that cannot be drawn from market data – a toolbox with manufacturing and engineering know-how that we use to evaluate products.” He says BBG’s data scientists are developing algorithms that millions of products and hundreds of thousands of salespeople will use to produce the data they’ll use to both source potential acquisitions and run the business.
U.S. gamers like Thrasio, who themselves closed a $ 1.2 billion Series C for the same purposes: rolling up and scaling – have led the indictment. However, in the past few months, several others have moved into the room, borne by hundreds of millions of dollars in funding from investors keen to take advantage of the e-commerce wave and the vision of capitalizing on some economies of scale and the marketplace model that was such a juggernaut for Amazon.
It’s a two-way marketplace, and Amazon has primarily focused on making money running the marketplace itself and selling it to consumers, leaving someone else (or many others happen to happen) with a big chance on the table, that chance to use to address the needs and services of the other side of this market: the seller.
In addition to BBG and Thrasio, other companies in the same area include Branded, which launched its own roll-up business with funding of $ 150 million earlier this year. SellerX, Heyday, Heroes, Perch et al. Even if Thrasio and BBG with very high capital are removed from the equation, these companies have collectively raised hundreds of millions of dollars or tied up on their own balance sheets to buy out small but promising third-party companies.
If that sounds like a crowded market, it probably is. These are startups too, after all, and so the chances that some of these roll-up consolidators will not be able to run multiple companies with their different supply chains, customer bases, exchange cycles and marketing strategies are as high as any other area of E -Commerce startup interest.
On the flip side, however, there are plenty of ways to play here.
By one estimate, there are around 5 million third-party sellers on Amazon today, a number that seems to be growing exponentially. In 2020 alone, more than 1 million sellers will join the platform. Thrasio estimates that 50,000 companies selling FBA (Fulfillment by Amazon) on the Amazon platform with a turnover of at least $ 1 million per year are likely to be sold on the Amazon platform.
We previously pointed out that within this larger number of vendors there are a large number of clones and businesses of questionable quality. It is interesting that there are various companies that are geared towards more originality and flair and are floating in this sea: some of them broke through and floated, others not.
So for a company like BBG, the opportunity lies in the fact that many of these smaller but promising dealerships weren’t built with longer-term growth visions. Traders may not be prepared for the kind of scale, investment, or operational commitment required to keep their businesses going, or they may simply not have an appetite for it. BBG’s selling point, like others in this space, is that they do.
And BBG’s additional argument is that they can help open another door to Europe. In the region, according to BBG estimates, Amazon has an average market share of around 10% in the marketplaces, with regional players accounting for more market activity than in the USA. Not only does BBG have the connections to sell on these other marketplaces, but the promise is that it can help improve a brand’s sales on Amazon itself in the area as it is already gaining a foothold in the market. Conversely, she hopes to do the same for European brands by giving them a better window of sale in the US
However, Chaljawski is realistic about the plethora of businesses like his and is “certain” that there will be some sacrifices in the future. He also believes that we may see some alternatives to certain industries as an alternative.
“Yes, I am sure that there will be consolidation, but I also think that we will see specialization where the roll-ups will focus on one industry or another. I think it will be a mix, ”he said.