If you’re anything like me, you purchase goods through the Amazon website without giving too much thought about who sends the products. Do they come direct from Amazon? Are they supplied by the upwards of one million businesses that sell via the company’s marketplace? Usually, I don’t care as long as the shipments arrive promptly and in good condition courtesy of Amazon’s fulfillment operation.
But what we’re really talking about here is an ecosystem of individual ventures – many of them very successful – that benefit from a symbiotic relationship with the Bezos behemoth. They register, upload their listings and, in return,Amazon handles everything from VAT to customer payment. The advantage is that it’s a simple way to get products into the hands of consumers. The possible disadvantage – at least in terms of companies that don’t sell in parallel from their own websites – is that each business sits under the umbrella of a much bigger and powerful brand. The success of Amazon sellers – and by extension their value – is arguably under-publicized.
But the marketplace is being watched carefully by a growing list of acquirers seeking to buy out high-performing businesses. Here in the UK, Heroes, Scythia, Mothership, Excite Foundry, and Diverge Group, are among those active in the market.
So what’s the appeal of the Amazon market to investors and why might a successful founder be interested in a buyout offer? One relatively new acquirer is Olsam. Founded by brothers, Sam and Ollie and Horbye, the company applies a private equity investment model to investment in successful Amazon Marketplace businesses. Now a year old, Olsam has to date completed six deals and aims to do a lot more in the months and years ahead.
In many respects, it’s a typical private equity play. You take a company with a proven track record, buy out the owner – who may but usually doesn’t remain closely involved – and use your in-house expertise to step things up a gear. But why focus on Amazon Marketplace businesses?
As it turns out, the answer to that question lies partly in the career histories of the two brothers. Ollie Horbye comes from a private equity background, having worked with Alvarez & Marsal prior to setting up Olsam. Meanwhile, Sam pursued an e-commerce career that included working with a number of marketplace businesses and scaling his own venture, Beechmore Books. From this dual perspective, Olsam was born. “We had complementary skill sets,” explains Ollie.
Based in the U.K. Olsam starts by identifying buyout candidates. “We start by putting ourselves in the consumer’s shoes,” says Ollie. “We ask which companies are the best. What are their ratings? What is the quality of the brand? Then we look at the financials. We have the Amazon metrics.”
Using all this external information, Olsam applies its own in-house tool to pinpoint category leaders within the marketplace ecosystem. After that, it’s a case of contacting founders or owners and opening a dialogue.
Heading for The Exit
That begs the question of why a business owner who has – in the view of Olsam – secured a category leadership position entertain an approach and possible offer from a relatively new private equity business?
“There are various reasons for an exit,” says Sam Horbye. “In some cases, a founder might want to start another venture. In others, owners see an opportunity – through us – to take the brand to the next level. The brand is their baby. The important thing for them is selling to someone who will continue the growth story.”
So why would Olsam be better positioned to grow an Amazon business? The Horbye brothers see the answer to that question in terms of skills. “Owners are great at different things,” says Sam. “For instance, one owner might be great at marketing and pay per click advertising while struggling to manage the supply chain.” Olsam’s selling point is that it has an operational team that covers all the bases.
The deal structure on offer is fairly standard – an upfront payment followed by an earn-out period. Founders usually leave the business after an agreed time. “Generally, they prefer to be bought out completely. They don’t want to hang around as employees,” says Sam. However, Olsam will consider partnership arrangements.
Across the six buyouts thus far, deal sizes have ranged from between £1 million and £3 million. The company says it is prepared to consider larger and smaller deals but at the moment that’s the ballpark. As acquirers, they are reluctant to name the individual businesses, but categories include travel, kitchenware, and sport. As this goes to press, the company is seeking further finance to expand its acquisition program.
For founders, the presence of specialist acquirers – also known as aggregators -represents an exit opportunity. As always, these things have to be handled with care. With a number of players operating in the market, it’s a case of finding the buyer that offers the best deal for the seller and also a promising future for the brand itself.