Managing Partner of Global Wired Advisors - A Lower Middle Market Investment Bank focused on Ecommerce Heavy Consumer Products
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Upon its inception, I don’t believe anyone could have prophesized the profound and disruptive impact Amazon’s business model would have. The e-commerce giant has continually evolved, implementing aggressive expansion strategies while developing robust yet incredibly efficient logistics infrastructure.
The company has also wielded its influence to establish industry-leading best practices by offering complimentary two-day shipping and utilizing customers’ data to improve its offerings. For instance, the company anticipated the increase in digital shopping trends and patented its one-click checkout system, a feature that remains exclusive to Amazon.
Moreover, Amazon's e-commerce marketplace has consumer products ranging across an impressive set of verticals. Third-party sellers are able to leverage the company’s resources to scale middling businesses into incredibly profitable digital assets. At present, there are more than 1.9 million of these Amazon storefronts operating globally, and they represent a combined nearly $58 billion in sales through the platform.
Implications For The M&A Market
Clearly, Amazon-based businesses can pose immense value, and in fact, as the managing partner at a mergers-and-acquisitions advisory firm, I've observed that traditional blue-chip investors and new entrants in the e-commerce space are already vying for ownership of as many premium brands as they can acquire. Fulfilled by Amazon (FBA) assets are in high demand, and we’ve seen valuations and multiples increasing rapidly in the market.
I attribute this increase to improved focus on developing digital portfolios and, specifically, acquirers recognizing the tremendous potential Amazon has to offer. Whether new funds and aggregators or private equity and corporate strategic buyers, they're able to quickly deploy capital and leverage data science to scale and expand each business in a fraction of the time it takes to fully realize a more conventional brand strategy.
The Death Knell For Traditional Branding Strategies
The relative ease with which operators can launch an Amazon storefront is eclipsed by the much more considerable effort required of brick-and-mortar enterprises. But the benefits of Amazon’s platform extend beyond launch, revolutionizing other facets of the consumer experience.
Whereas traditional branding once determined the success or failure of a business, recently I’ve noticed many owners focus on data and analytics or digital marketing instead. Proximity, convenience and compelling pricing models can help sellers attract and retain customers without investing heavily in cultivating brand recognition.
I believe that campaigns prioritizing keyword rankings, earning reviews and driving conversions will all but replace traditional branding strategy within the next three to five years. And as many of these practices are already ubiquitous in the marketplace, the definition of what comprises a premium brand will evolve to reflect best practices for e-commerce.
Future Outlook For Amazon-Based Digital Assets
In the Amazon space, the market rewards SOPs that are engineered for optimal performance. My company's experience has been that sellers with efficient, easily replicable strategies that can quickly be scaled are especially attractive to prospective acquirers.
Sellers can continually refine their best practices to improve topline revenue in the short term while increasing the value of their business in anticipation of a future M&A transaction. By documenting SOPs and detailing the company’s branding philosophy, operators can prove that their success on the platform is sustainable and that the business will continue to endure.
As the market continues to mature, I believe developing brands in this manner will become exceedingly important. Understanding the algorithm is critical, as is launching aggressive data-driven strategies to establish and maintain a dominant position on the platform. Such initiatives help sellers differentiate themselves from other brands and attract investors that are willing to pay a premium for top-tier digital assets.
The Proof In The Pudding
Amazon possesses many unique competitive advantages over other e-commerce platforms, perhaps the most significant of which is that the platform itself facilitates the meteoric growth of brands without substantial frontend investment in branding strategy. Practically any seller can achieve success by deploying a sophisticated and analytical approach to developing their business on Amazon.
This is due in large part to shifting consumer behavior such as the increased adoption of online shopping channels over the past year. E-commerce companies gain tremendous exposure by virtue of operating on Amazon’s platform, empowering entrepreneurs to utilize data science to inform the product development and launch process so that each offering ranks well instead of focusing on cultivating a brand from scratch.
These online companies endured and often thrived throughout the Covid-19 pandemic. Moreover, we’ve witnessed firsthand the successful evolution of Amazon brands that have pivoted away from the platform to develop their own D2C channels, capitalizing on the brand recognition cultivated through Amazon to emerge as a household name worldwide.
This poses an attractive opportunity for M&A investors, who can acquire successful brands and invest the resources to grow the business both on and off Amazon, maximizing their ROI. For entrepreneurs looking to execute a high-value M&A transaction, now is the time to leverage your position in the marketplace to secure the highest dollar amount for your successful Amazon-based businesses.
Gone are the days when legacy brands exclusively commanded premium valuations. Today, inspired by the phenomenal success of early entrants in the space, aggregators and strategic acquirers are pursuing their piece of the Amazon pie. Demonstrable proof that these digital companies are as stable as they're profitable has irrevocably transformed the landscape of M&A, introducing a new high-demand asset class that's generating historic deal flow and redefining what it is to be a brand.
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