When 10Club, one of India’s rising roll-up stars, announced a pivot to single-brand play, the Bengaluru-based firm wasn’t just altering its own course but catching the pulse of global markets, offering a glimpse into what might be on the horizon for its Indian counterparts. 10Club was among a host of start-ups that emulated the model of Thrasio, a US-based e-commerce brand aggregator, in India and swept the market as investors eagerly poured funds into them. The frenzy was such that Mensa Brands, launched by former Myntra CEO Ananth Narayanan, became a unicorn in just six months, the fastest Indian start-up to enter the coveted club.
What explains the tremendous investor interest this space saw then? The answer may lie in the business model. Commonly known as roll-ups, these e-commerce brand aggregators specialise in acquiring sellers who primarily operate on online marketplaces. The idea is to bring together multiple brands under one umbrella and build efficiencies through better marketing spends, product development, inventory management and supply chain management for rapid growth.
Thrasio, founded in 2018, pioneered the art of acquiring and scaling e-commerce brands, with a particular emphasis on brands that operate on the Amazon marketplace. Following the early success of the model, several others quickly emerged, including Perch, Heyday, Boosted Commerce, and Branded. During the peak of the growth years, some of them were acquiring four to five companies a week for about six months straight.
A Sudden End to the Honeymoon
In 2021, the e-commerce surge, driven by the digital explosion during the pandemic, increased confidence in the roll-up model. Aggregators splurged to seal deals, buying brands at several multiples of adjusted Ebitda.
In India, the business model gained traction in 2021, a year marked by a significant influx of venture capital money into start-ups. As expected, a part of that sum was set aside for roll-ups, seen as the next big e-commerce opportunity. Thrasio made its way into the India market through the acquisition of a majority stake in the consumer durables brand Lifelong, along with a commitment of Rs 3,750 crore to acquire digital-first brands in the country. The momentum saw many roll-ups emerge and compete fervently to acquire brands across sectors, looking for those with strong marketplace traction and favourable margin profiles, driving up valuations.
But the euphoria was short-lived. Come 2022, private capital dried up due to a sudden shift in the global macro environment. Companies in the segment, still very early in their journey, have depended on a combination of debt and equity to acquire brands. With funding dwindling, they were not only forced to halt acquisitions but also found themselves grappling with the challenge of managing the acquired brands efficiently in their portfolio. “Acquiring prospering brands comes at a premium, and consolidating them under a common platform can be challenging. Multiple brands must synchronise with each other in terms of market, people, and technology, which sometimes can result in conflicts within the brands. Investors are constantly monitoring the growth of these high-priced brands to ensure the overall growth of the platforms and a return on investment,” says Naveen Malpani, Partner at Grant Thornton Bharat.
The founders realised they paid a premium for acquiring brands in a competitive market, and now they had to justify these high valuations. But with funding decreasing and uncertainty about securing more capital for future acquisitions, most decided to focus on growing into those valuations rather than pursuing additional acquisitions. This unexpected shift hit the growing industry hard, abruptly halting its rapid growth.
“In the pristine Thrasio model, they did not pay top dollar [for acquisitions]. They paid like 2x of Ebitda, or 4x, at best. Typically, Ebitda used to be around 15-20%, which translates to 0.7-0.8x the revenue multiple,” says Vinay Singh, Co-founder & Partner at Fireside Ventures. “Valuation arbitrage is achieved in the future when they acquire several such brands, allowing them to command close to public market multiples. And then that 3-4x Ebitda expands to about 8-10x Ebitda, which is what those markets operate at. India operates at 30x Ebitda.”
The Burden of Debt
The elephant in the room was an impending debt crisis. Many roll-ups leaned heavily on debt or acquisition financing, leveraging their ‘venture capital rounds’ to ramp up purchasing capabilities. With VC funding on the decline and interest rates rising, companies found themselves struggling to manage their debt, pushing many to the edge of collapse.
Companies failed to anticipate the sudden inflation of debt. The payout exceeded the initial plan, and “cash flow was not good enough” to cover the interest, says Singh. “They could pick up equity to pay interest earlier, but then the funding winter happened. They are then forced to dip into reserves on the balance sheet to pay interest. Suddenly, when principals get due, the piper comes calling, and that’s when things start to break down,” he explains. This convergence of factors began to exert extreme stress on the industry. Thrasio filed for bankruptcy on February 28, 2024. Its peer Benitago Group has already taken that path in September while Perch, which had been scouting for a potential suitor, has been acquired by Berlin-based Razor Group. In India, the top player Mensa and its smaller counterpart UpScalio have cut jobs, and pretty much every roll-up player has halted its brand acquisition activities. Consequently, despite being in its very infancy, questions are being raised about the viability of this business model.
An India Playbook
Mrigank Gutgutia, Partner at consultancy firm Redseer Strategy Consultants, says the Indian market offers great potential for brand building, but blindly imitating the Thrasio model won’t work.
In India’s $1-trillion retail market, where discretionary spending is about $300-400 billion, the emergence of brands with over $1 billion in revenue, according to him, is relatively limited compared to developed economies. As the country’s GDP per capita rises, more brands are expected to surface. Unlike in the US, where a significant portion of e-commerce comes from a single platform, India has diverse horizontal channels besides vertical players in quick commerce and fashion. The Thrasio model required adaptation to India’s unique landscape.
“Given India’s complexity and different maturity levels, that direct copy-paste model would not work here. The digital and channel complexities are much higher. We have a very large, heterogeneous customer base; each region has unique needs, and one cannot have the same playbook for each market,” says Gutgutia.
Irrespective of geographies, “the major challenge” of this model, according to Utsav Agarwal, Co-founder & CEO of Indian e-commerce brand aggregator Evenflow, is managing and scaling multiple diverse brands. “All major companies at their peak were aggressively acquiring brands, thinking they would be able to run them using a centralised team. I don’t think that structure works. You have to have dedicated teams or a brand manager to run each brand,” he adds. Many aggregators, according to Agarwal, were caught up in the euphoria of unproven opportunity projections, “spraying and praying” their investments across various categories and sectors, without a clear strategy or expertise in any specific category.
Abhishek Ganguly, the former MD of Puma India and Southeast Asia, considers ‘focus’ to be the guiding principle as he navigates his entrepreneurial journey at Agilitas Sports, a platform for sportswear and athleisure. Agilitas aims to acquire and license brands exclusively within the sports category. In a unique move, the company started its journey by acquiring Mochiko, a sports footwear manufacturer catering to brands like Adidas, New Balance, and Reebok. The company aims to create a portfolio of just three-four brands over the next five years through a mix of acquisitions and licensing. Ganguly has opted for a comprehensive approach in his niche play where the company will have full control over the design, manufacturing, and retailing of the brand. “We are not looking at building a portfolio of 10-20 unrelated brands. We will build our brands very deep. If you have a clear control over the value chain, you can build a strong gross margin business,” he says.
Roll-ups, having learnt some hard lessons, are now striving to find this elusive focus. Some are exploring potential suitors for a lifeline while merging adjacent brands and cutting down non-scaling brands; some are considering abandoning the roll-up structure to embrace a brand or D2C route like 10Club; while financially well-positioned companies are aggressively optimising operations, cutting costs, consolidating brands with clear synergies, and focussing on categories with high customer returns. Roll-ups, according to experts, will need to adopt a true multi-channel distribution strategy encompassing online, offline, single-brand, and multi-brand retail. “The Indian market is fierce, and customers are highly price sensitive. Major brands often dedicate approximately 30% of their revenue to marketing. Notably, these investments are crucial for acquired brands as well. Failure to provide proper marketing support to acquired brands can lead to a quick decline in brand recall, jeopardising growth and potential returns,” says Grant Thornton’s Malpani.
Category leaders Mensa and GlobalBees have shored up large amounts of VC capital, giving them a clear advantage. Considering the current scrutiny of the business model and the absence of significant outcomes in terms of ventures or exits, future investor interest in this segment remains uncertain, even as overall funding environment is expected to improve over time.
“In my view, the sector will go two ways. One, brands with synergistic categories will look at getting down the brand route so that they can not only realise synergies in the back end but also in the front end. Two, there will be companies that continue to go down the route of acquisitions, but not how they used to,” says Singh of Fireside Ventures. “Instead of doing acquisitions all the time, there will be time windows when they will acquire, windows where they will just hunker down and consolidate, and windows where they will jettison parts of their portfolio that are not making sense,” he adds.
Gutgutia sees a wide open field for building brands, so it’s not a winner-takes-all game. India sees annual sales ranging from `55,000-65,000 crore from new-age brands, spanning both online and offline. Nearly half of this revenue stems from emerging brands, operating below a certain scale and seeking assistance to scale up, which, Gutgutia says, indicates significant growth potential. However, as models evolve, he suggests that the term ‘roll-up’ may soon give way to a more meaningful descriptor in the Indian context. “Roll-up is a very Thrasio-centric term that may not be applicable in the Indian context. Given that the India model is so different or at least evolving towards something different, new jargon needs to be created, a more relevant one,” he says.
Navigating possibly its most tumultuous phase, this space finds itself back at day one, waiting to be shaped by the winning models. And, champions of this transformational phase will create the future nomenclature.
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