Successful sellers on online marketplaces become acquisition targets

The success of big international e-commerce platforms has created a new type of buyer. Specialised companies are hunting for interesting webshops to take over based on their success on those platforms. After a few years, the webshops often reach a plateau, a moment when they have to decide on major investments for further growth.

Thrasio and Perch in the US as examples

As is often the case with these kinds of things, the phenomenon arose a few years ago in the United States. Specialised buyers, such as Thrasio and Perch, made a name for themselves in the US. Their model has now crossed the ocean: Dutch Newspaper Het Financieele Dagblad took a closer look at the Dutch company Dwarfs.

Co-founder Demian Beenakker does not hide the fact that he got his inspiration from his American colleagues. “Thrasio has developed a fantastic business model, and that has opened our eyes,” he says. The model is fairly simple: Dwarfs searches large online retail platforms, like bol.com or Amazon, for independent webshops that are performing well, and then tries to take them over. Dwarfs has already succeeded in doing so for the first time with Amco, a seller of kitchen articles with a turnover of six million euros.

To invest or to sell

Sooner or later, these kinds of successful webshops reach the limits of their start-up model. And, after a few years of rapid growth, the question will arise whether the founder has the means (and the inclination) to invest heavily in the next growth phase of their company. Some take the plunge; others are potential prey for Beenakker and his colleagues. They take over and provide the manpower and know-how to accelerate the scale-up, aiming to increase turnover by five to ten times.

The online marketplaces of the big e-commerce players are growing fast, often at the expense of independent webshops. A logical evolution, according to Amco head Marco Coninx. He lists the advantages of those marketplaces: they respond to the customers’ wishes as they look for a one-stop-shop, clients buy on those large platforms more often, and logistics costs are lower. Of course, this comes at a price: the marketplaces charge commissions of around 15 per cent. Still, according to Coninx, this is compensated by the savings made on online advertisements for their own webshop.

A wave of takeovers on the horizon?

Should we expect a wave of takeovers among the European success players in the online marketplaces? If we extend the idea from the American market to Europe, something is certainly on the way. In the US, the purchasers have already raised about 1.5 billion dollars in capital. The potential is enormous: sellers on Amazon’s marketplace now account for around 60 per cent of the e-commerce giant’s 475 billion dollar turnover, the Dutch newspaper calculated.

In Europe, the amounts are a bit more humble for the time being: Dwarfs began with a capital of 7.5 million euros, but that is only the start. This will soon be supplemented by around 30 million euros in debt financing via a British venture capitalist. Beenakker & co can use it to get started. They have specific targets in mind: no resellers of Asian goods, the so-called “drop shippers”, but webshops that have developed their own products or a brand of their own.

For these, Dwarfs will pay two to four times the gross profit. That way, Beenakker hopes to build a company with a turnover of 200 to 250 million euros. At the moment, Dwarfs is the only player of its kind in the Netherlands, according to Beenakker. Elsewhere in Europe, the competitors are in the United Kingdom and Germany. But the way the market is evolving now, it looks like it won’t stay this way for much longer.