E-Commerce Market Update: FBA Brands See Robust M&A Activity as Buyers Increasingly Pursue Amazon Channel

Healthy Margins Seen in Third-Party Online Retailers Fuels Flood of M&A Consolidation

Capstone Partners released its May 2022 E-Commerce Sector Update, reporting that the rapid expansion of Amazon Marketplace, the proliferation of third-party sellers, and the rise of well-funded aggregators have fueled a surging market for consumer-focused fulfillment by Amazon (FBA) brands. While many of these brands have yet to reach significant scale, the presence of so many sellers generating sales at healthy margins has led to a flood of consolidation. FBA players with brand ownership, Amazon Standard Identification Number (ASIN)  or stock keeping unit (SKU) concentration, and high Amazon channel exposure have drawn heightened interest from the aggregator universe. Aggregators, which operate as firms that acquire successful Amazon third-party sellers, often facilitate acquisitions at a rapid pace and in short succession. Category leadership has emerged as a key attribute among FBA companies, with buyers seeking flagship products over an array of offerings.

Merger and acquisition (M&A) activity in the broader E-Commerce sector has remained at healthy levels through early 2022, with 30 transactions announced or completed year-to-date (YTD). Deal volume surged across the middle market in 2021—owing to heightened valuations, an active pool of strategic and financial buyers, and the prospect of capital gains tax increases. Within the FBA space, in particular, transaction activity has proliferated over the past twelve months with leading aggregators demonstrating significant acquisition appetite. Many aggregator transactions are undisclosed, however, the recent activity of buyers such as Foundry, which purchased Craft & Kin and Benevolence in February 2022 (transaction terms not disclosed), points to a healthy M&A market.

While 2021 saw an explosion of acquisition activity, the pace of consolidation has slowed as valuations have risen and top aggregators have become more selective in their target pursuits. Heightened focus has been placed on brand and product alignment along with increased due diligence of financial performance to ensure an optimal return on investment. Brand appeal and channel expansion have been key focus points among buyers to scale the reach of portfolio holdings.

Also included in this report:

• Commentary on the surge in funding for aggregators
• Key drivers of M&A purchase multiples for FBA brands
• Exclusive interview with leading aggregator, Berlin Brands Group