Deal focus: The e-commerce agglomeration effect

“We want to build a Unilever or Proctor & Gamble of online brands,’ explains Kiren Tanna, co-founder and CEO of Una Brands. “We are acquiring profitable brands, and hopefully they thrive under us and increase profitability over time, so we see it as a very traditional company model. We pay off the debt and then the brands start to throw out cash. It’s a profitable business once it works.”

In Thrasio, there is evidence that it does work – and quickly. The US-based start-up has risen to prominence on the back of a strategy that involves buying up small but profitable e-commerce businesses that sell through Amazon’s B2B service, Fulfilled By Amazon (FBA). This is chiefly financed through debt rather than equity. Venture debt providers are willing lenders because they get exposure to a diversified portfolio of assets and the profit is used to pay down the debt.

Founded in 2018, Thrasio achieved a $1 billion pre-money valuation on closing a $260 million Series C round last July, becoming the fastest US start-up to reach unicorn status. In the first two months of 2021, Thrasio secured $500 million in debt financing and an equity round of $750 million. At the time, it claimed to close 2-3 deals every week and acquiring an average $1.5 million in revenue per day.

Una wants to replicate this success in Asia, with Tanna noting that building up a portfolio of 100 brands in two years – roughly where Thrasio is now – is a feasible objective. To this end, the company recently secured $40 million in seed funding – comprising equity and debt – from the likes of 500 Startups, Kingsway Capital, 468 Capital, Presight Capital, and Global Founders Capital. Maximilian Bittner, former CEO of Southeast Asia-focused e-commerce platform Lazada, also contributed capital.

Una’s founding team comes equipped with extensive e-commerce experience. Tanna was previously Asia CEO of Rocket Internet and co-founder of Foodpanda and Zen Rooms. Rocket Internet incubated Lazada and exited to Alibaba Group. The other co-founders – Adrian Johnston, Kushal Patel, Tobias Heusch, and Srinivasan Shridharan – have worked for Lazada, Ninja Van, and Boston Consulting Group.

They will target e-commerce players across the region from bases in Singapore, Malaysia, and Australia. Japan, South Korea, and Taiwan are the next expansion markets. Una differs from Thrasio, and from the cluster of other aggregators in Asia, in that it is not wedded to FBA. Vendors using Amazon, Lazada, Shopee, Shopify, eBay, and Rakuten will be considered.

“We are the only player that is not only doing Amazon but also other platforms,” says Tanna. “We are not limiting ourselves to Amazon because in this region Amazon is a small part of the overall ecosystem.” He estimates there are over 10 million third-party sellers on regional platforms in Asia.

Una will not have the standardized Amazon analytics engine cutting across the entire portfolio, but the company claims to be building a system that can absorb data from all platforms and turn it into executable information that can be used in inventory management and fulfilment decisions. A range of third parties will handle warehousing and logistics.

The Una operation comprises about 20 people – though it is growing by the day – across three teams. The acquisitions group analyzes the seller universe and identifies and cultivates targets. The most promising opportunities are handed over to the deal execution team, which conducts its own analysis and makes offers, a process that can take as little as two days. If accepted, deeper financial, commercial, and legal due diligence takes place over several weeks.

On closing, the e-commerce group assumes responsibility for portfolio businesses. It is split into two units: operations, which oversees day-to-day business; and growth, which explores ways to increase revenue, such as plugging gaps in a brand’s geographical reach or ensuring direct-to-consumer marketing campaigns are hitting the mark. The seller typically works closely with Una during a transition period of up to six months and then switches to a more limited consulting role.

There are areas that Una will not touch, such as commodity electronics, fresh goods, and fast fashion – “We don’t want brands where the product changes a lot and frequently and that happens in fast fashion by definition,” Tanna says. Nearly every other standard e-commerce category is fair game.

Target companies should have at least $300,000 in annual revenue, although typically $1-3 million, and meet certain minimum requirements in terms of EBITDA margins and cash flow. Una also pays close attention to the nature of the revenue, establishing to what extent it is seasonable or vulnerable to macro shocks, customer feedback, and the personalities and motivations of the founders.

There are a variety of seller types. Oftentimes, it is an individual who went into e-commerce as a side venture and the business has outgrown their bandwidth. It is not unusual for brands to experience a rapid ascent and then plateau because the founder lacks the ability to manage costs at scale or the experience to pursue cross-border expansion. Una can leverage is geographic footprint and more extensive resources to revive growth.

“We do the hard running and we do it more efficiently because of our technology. And then any growth we can achieve beyond the baseline, we share the upside with the seller,” Tanna explains. “Sometimes they are making money, but it is going back into the business. We can give them a lump sum upfront through a buyout and then a piece of the upside.”

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• Topics
• Southeast Asia
• Technology
• Consumer
• Early-stage
• Singapore
• 500 Startups
• e-commerce