If Marc Andreessen is famous for saying “Software is eating the world,” then now, Aggregators are “eating” the E-commerce world. Indeed, the hotness of this model is undeniable as the total capital of businesses in the past 12 months has increased more than 20 times thanks to e-com aggregators. From 460 million USD in September 2020 to more than 9.8 billion USD in September 2021. What an impressive figure!
In the previous article, GCT Solution briefly introduced the eCommerce aggregator and its use cases. To help you better understand this term, in this blog, we will provide an in-depth analysis of eCommerce aggregator under Thrasio’s case study.
Carlos Cashman founded Thrasio after running OrionCKB, a Facebook marketing agency. Orion, founded in 2013, has many consumers due to their Facebook and Instagram customer acquisition campaign. Ecommerce is a minority in his campaign.
Carlos watches Orion's marketing results of these brands. He said:
"Our customers expanded at $50-100 million while we received monthly payments. Whatever they're paying us is fine, but it's still just a monthly fix. This prompted me to investigate Ecommerce prospects."
Every day, Orion receives a lead from a Shopify or WooCommerce DTC brand with a 20-25% margin. Carlos and the team must reject these customers because Orion only accepts customers that spend $50,000/month.
Orion rejects these customers but keeps getting leads. This is when Carlos confides in Josh Silberstein, his Thrasio cofounder.
Carlos: I've looked at these kinds of businesses, and I believe I could take it from $2 million to $10 million or $20 million if I controlled it.
Josh: Let's say we buy a business. To scale it, we can spend $50-100k on advertisements they don't dare to spend on. It's a test, so if it works, terrific, but if it fails, the firm is still producing money to cover the ads budget. Sell it if we're bored, we're still even.
Carlos and Josh said: What if we raised finance, bought all these businesses, and scaled them using the Orion team's Marketing Performance strengths?
This is the first concept that shaped Thrasio's future.
First, Carlos and Josh searched for e-commerce brands to buy. However, Asynchrony between brands is a concern. These websites use diverse platforms like Shopify, WooCommerce, BigCommerce, and Magento. Regarding operation, they use different 3rd Party Logistics, and ship different products. Acquisitions and scaling them need a massive effort to operate properly.
Then, team Thrasio met Casey Gauss, founder of Viral Launch, a platform where new Amazon FBA sellers could learn everything. After months of mentoring by Casey, one day, Josh went back to team Thrasio and said: "Forget all the brands e-commerce in the same sector, why don't we simply start with the business with the same operating synchronization as Amazon FBA"
So said so done, Thrasio starts looking for the first brand. They googled and found multiple brokers selling various businesses, including Amazon FBA businesses. Carlos and Josh acquire a business determinately. It's a brand of battery-powered handheld mixers that can make tea, coffee, or egg whisks. After the acquisition and rebranding to Frothy, Thrasio's sales increased to several hundred thousand USD each year.
Before buying businesses, Thrasio needs money. Thrasio uses debt to buy Amazon brands like a private equity company employing LBO.
Regarding LBO (leveraged buyout), it is a business that PE firms often use to buy a business. Since M&A transactions are expensive, they often borrow from the bank.
For example - Blackstone wants to spend $1 billion on business A. They'll spend 200 million in cash and borrow 800 million from the bank.
When the bank approves, Blackstone will take that business A and its assets after the purchase as collateral for this loan.
After four years, Blackstone sells business A at $2 billion. Blackstone received $1.2 billion—6x the initial 200 million capital—after paying the bank 800 million. This is a better use of cash than without an LBO, but you have to pay a billion to buy the business and only get 2x your investment.
Likewise, Thrasio