By
Bloomberg
Published
Mar 4, 2024
Berlin-based Razor Group is buying Boston-based Perch in an all-stock deal, accelerating the consolidation of “aggregators” that snapped up popular online brands only to watch a pandemic-fueled sales boom evaporate.
The transaction values the combined company at $1.7 billion, according to a person familiar with the situation, who requested anonymity to discuss a private matter. The deal follows months of tense negotiations between global financial firms that poured billions into aggregators betting they could make a killing rolling up brands that were popular on Amazon.com Inc.
Razor is backed by L Catterton, the private equity arm of Bernard Arnault, the world’s third wealthiest person. Perch investors include SoftBank Group Corp. and Victory Park Capital, a Chicago private equity firm that went on an aggregator lending spree with money from Apollo Global Management Inc.
Bloomberg in September reported that Apollo and Victory Park wanted to sell Perch to reduce their exposure to some $400 million in debt the company was struggling to pay. Razor, among several potential buyers, demanded the debt be converted into equity to put the combined company in a stronger financial position. Razor’s post-deal value is less than the $2 billion the two firms collectively raised.
The transaction gives Razor Group 40,000 products in kitchen, fitness, beauty, apparel and other categories sold on online marketplaces and in stores around the world. They include Baby Merlin’s Magic Sleepsuits, one of Perch’s leading brands, acquired in the deal.
“This seems to be the year where the few aggregators that are doing well are raising more capital and swallowing the rest,” said Juozas Kaziukenas, the chief executive officer of Marketplace Pulse, which has tracked the industry. “We’re going to go from about 100 aggregators at the peak to a dozen or so that survive.”
During the aggregator boom, about 100 companies raised a total of $16 billion from Wall Street banks, private equity firms and venture capitalists. The goal was to buy hot-selling brands on Amazon and become digital age versions of Procter & Gamble Co. Aggregators were encouraged by the success of Anker Innovations Technology Co., which launched a line of phone chargers on Amazon more than a decade ago and is now an electronics manufacturer worth $34 billion that sells products in big-box stores including Walmart Inc.
But when the pandemic ended, rising interest rates, higher costs and cooling online demand caught the aggregators by surprise. The bloodletting reached a critical moment last month when Thrasio Holdings Inc., which raised the most money, filed for Chapter 11 bankruptcy protection seeking to unload about $495 million in debt.
Razor has emerged as perhaps the strongest of its ilk and capable of absorbing others struggling with debt. The Perch acquisition is its fourth and largest to date.
Razor Group CEO Tushar Ahluwalia says comparisons to P&G are outdated. Online brand aggregators will survive by learning from China-linked startups like Shein and Temu, which use technology and factory relationships to respond quickly to consumer demand, he said in a statement.
Razor is in a stronger position than Thrasio in part because it’s less reliant on Amazon for sales. The aggregator gets less than 80% of its sales on Amazon and has a long-term goal of cutting that to less than 60% by expanding to on online marketplaces in Asia where Amazon isn’t dominant, he said.
“Our secret sauce has been to invest in sophisticated technology automation to ensure deep supply-chain integration and hyper-fast product innovation cycles right from the start,” Ahluwalia said.
Razor Group also announced a new investment of approximately $100 million led by Presight Capital, a venture capital firm based in Los Angeles, to further its consolidation strategy.