UK lawyer Nathan Lapsley, in collaboration with M&A advisory firm Hahnbeck, shares valuable insights for Software-as-a-Service (SaaS) aggregators to learn from the experience of Amazon aggregators.
Background and Similarities:
- Both Amazon FBA and SaaS aggregators roll up small targets, acquiring smaller brands or bootstrapped software companies.
- Both focus on acquiring profitable companies to drive value creation through arbitrage.
- Transparent exit processes with quick timelines are offered to target founders.
- Both models promise strong returns for investors.
Challenges Faced by Amazon FBA Aggregators:
- The e-commerce aggregator industry attracted significant talent and investments.
- Debt restructurings, mass layoffs, and mergers are signs of rationalization in the Amazon aggregator space.
- The COVID-19 pandemic’s impact and an acute supply chain crisis affected the performance of aggregators.
- Overleveraging and high overhead costs increased risks for the aggregators.
- Losing founder talent post-acquisition contributed to underperformance of targets.
- Aggressive acquisition strategies and lack of focus on quality negatively affected results.
- Platform risk, relying heavily on Amazon FBA, posed potential threats to their businesses.
- Many aggregators struggled to maximise synergies and efficiencies among their brands.
Key Takeaways for SaaS Rollups:
- Consider externalities that may impact the profitability of acquisition targets.
- Leverage and overhead can increase risk; focus on staying lean and avoiding unnecessary costs.
- Keep founder talent on board for longer to benefit from their experience.
- Prioritise quality over quantity when making acquisitions.
- Be mindful of concentration risks if a significant portion of the portfolio relies on a single platform.
- Exploit revenue and cost synergies to improve post-acquisition performance.
- Despite challenges, the Amazon FBA rollup model has shown potential for success, which bodes well for the SaaS space.
While the Amazon aggregator sector faced challenges and is currently undergoing rationalisation, SaaS aggregators can learn from these experiences to optimise their strategies and achieve sustainable growth. The SaaS industry, with its inherent advantages and diversification, holds promise for successful rollups, provided key lessons are heeded and implemented.
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