Berlin Brands Group Secures $240M for Amazon Marketplace Brand Acquisitions

The Rise of E-commerce Roll-Ups: Berlin Brands Group Secures $240 Million

A competitive landscape is emerging as companies strive to build substantial e-commerce businesses. This is achieved by acquiring smaller, high-potential businesses that operate through platforms like Amazon and leveraging economies of scale to manage them collectively.

Funding and Expansion Plans

Berlin Brands Group (BBG) has recently secured $240 million in funding. The company intends to utilize these funds to acquire promising enterprises in both Europe and North America, with a particular focus on the United States.

Specifically, BBG is targeting businesses already generating between $1 million and $100 million in annual sales through online marketplaces, including Amazon.

Debt Financing and Profitability

The funding comes in the form of debt, provided by UniCredit, Deutsche Bank, and Commerzbank. BBG founder and CEO Peter Chaljawski highlighted the favorable terms of the debt financing.

BBG is currently profitable and had previously committed over $300 million from its own resources for acquisitions and operations. This new debt round brings the total available capital for these purposes to $540 million.

Strategic Decision for Debt Financing

Chaljawski explained the decision to pursue debt financing, stating it represents the most cost-effective capital available. This approach is often favored by startups in capital-intensive industries that are generating cash and wish to avoid diluting equity.

BBG, being profitable, did not have any existing debt as of 2020 and funded its initial 20 brand acquisitions with cash from its balance sheet. The company now aims to accelerate this acquisition strategy.

Potential Equity Round and Valuation

Chaljawski indicated that BBG may consider an equity round in the future. This would allow the company to onboard investors, facilitate growth, and establish a formal valuation.

Competitors, such as Thrasio, have already achieved valuations in the billions of dollars, providing a benchmark for potential investors.

BBG’s Evolution: From In-House Brands to Roll-Ups

Initially, BBG focused on developing and scaling its own in-house brands on Amazon and other platforms. The company’s origins lie in home audio equipment, stemming from Chaljawski’s personal interest in sound technology.

BBG’s portfolio includes brands like Klarstein (kitchen appliances), auna (home electronics and music equipment), Capital Sports (home fitness), and blumfeldt (garden).

Leveraging Buying Power and Analytics

Last year, BBG transitioned to the roll-up model, aiming to enhance purchasing power, negotiate better deals with manufacturers, and consolidate functions like marketing.

The company also provides comprehensive analytics to optimize product sales, identify customer demographics, and refine marketing strategies. BBG currently operates 1.3 million square feet of warehouse space across Europe, Asia, and the U.S., and is a major Amazon seller in Europe.

The Rise of FBA Roll-Ups

The concept of consolidating businesses selling on Amazon using Fulfillment by Amazon (FBA) has existed for years. However, it has recently gained prominence due to the application of big data analytics, advanced manufacturing techniques, and a founder-led e-commerce approach.

The Importance of Data and Expertise

“Without data, you would go nowhere in this business,” Chaljawski emphasized. He further noted that data analysis is complemented by a specialized toolbox of manufacturing and engineering expertise for product evaluation.

BBG’s data scientists employ algorithms to track millions of products and hundreds of thousands of sellers, generating data used for both acquisition sourcing and business operations.

Competition and Market Dynamics

U.S. companies like Thrasio have been at the forefront of this trend, securing significant funding for roll-up and scaling initiatives. Numerous other players have also entered the space, attracted by substantial investor interest and the potential of the e-commerce marketplace model.

Amazon primarily focuses on generating revenue from marketplace operations and direct consumer sales, creating an opportunity for others to address the needs of sellers on the platform.

Key Players in the Roll-Up Space

In addition to BBG and Thrasio, other companies in this sector include Branded, SellerX, Heyday, Heroes, and Perch. Collectively, these companies have raised or committed hundreds of millions of dollars to acquire promising third-party merchants.

Market Risks and Consolidation

The market is becoming increasingly crowded, and the success of these roll-up consolidators is not guaranteed. Managing multiple companies with diverse supply chains, customer bases, and marketing strategies presents significant challenges.

Significant Market Opportunity

Despite the risks, substantial opportunities exist. Estimates suggest there are approximately 5 million third-party sellers on Amazon, with over 1 million joining the platform in 2020 alone.

Of these, around 50,000 businesses utilizing FBA generate $1 million or more in annual revenue.

Identifying Promising Acquisition Targets

While many merchants on Amazon are clones or of questionable quality, a subset of original and innovative businesses stand out. These companies often demonstrate potential for growth but may lack the resources or desire for long-term scaling.

BBG’s Value Proposition

BBG offers a compelling value proposition to these smaller merchants, providing the resources, investment, and operational expertise needed for sustained growth. The company also facilitates access to the European market.

Amazon’s market share in Europe is approximately 10%, with regional players accounting for a larger portion of marketplace activity. BBG leverages its existing presence in Europe to enhance brand visibility and sales on Amazon and other platforms.

Future Outlook and Specialization

Chaljawski acknowledges the proliferation of companies like BBG and anticipates some consolidation in the future. He also believes that specialization, with roll-ups focusing on specific verticals, may emerge as a viable strategy.

“Yes, I’m sure consolidation will happen, but I also think that we’ll see some specialization, with roll-ups focusing on one vertical or another. I think it will be a mix,” he said.