With slowing growth, disappointing earnings and supply chain challenges plunging e-commerce stocks, Toronto-based Maverix Private Equity is betting the challenging sector still has plenty of room for growth by investing in a company that buys Shopify merchants.
Maverix is leading an $83.5 million investment in Agora Brands, a new company based in Toronto and New York whose mission is to purchase small and medium-sized direct-to-consumer (DTC) e-commerce businesses, especially those that sell on the e-commerce platform Shopify, And expanding its reach to brands with at least $100 million in revenue. An undisclosed portion of the funding is debt provided by Chicago-based Victory Park Capital. Silicon Valley venture capital firm Foundation Capital also backed the round. Maverix managing partner John Ruffolo was CEO of OMERS Ventures when, nine years ago, he led the last private financing of Shopify before it went public.
Agora was founded last summer by three e-commerce veterans: Jesse Horowitz and Ben Cogan, co-founders of New York-based eyeglass merchant Hubble Contacts, and Toronto-based Ray Kao, who helped e-commerce financier Clear Finance Technology Corp. Establishment of a business unit for mergers and acquisitions. Agora’s official name says it all: The DTC roll-up trio targets companies with $1 million to $20 million in revenue — too small to matter for typical private equity firms and lacking the resources to expand, Mr. Horowitz said in an interview. Agora typically seeks to keep the founders in place after their companies have been purchased.
Other important criteria: companies must generate operating profit. “Profitability is very important,” said Mr. Kao, who previously ran a company that helped e-commerce brands get samples into their packages before they were sent for delivery. “The three of us are old fashioned, and we’ve always wanted to run a profitable business that generates real money rather than just chasing after it. [revenues] and evaluation. “
Mr Horowitz added: “If we focus on a few key things – buying big businesses with disciplined multipliers and those businesses continuing to grow. [revenues] And profitability, it’s hard to see how this is not a very valuable business in the long run.” Agora has purchased five to 10 companies so far, and the total annual revenue of its business is between $25 million and $50 million.
The company is part of a recent trend of emerging conglomerates that specialize in grabbing direct-to-consumer brands. The companies that have gained the most to date have been companies such as Thrasio Holdings Inc. and Whele LLC (commonly known as Perch) that focuses on buying sellers who sell on Amazon.com. Most recently, venture capitalist Keith Rabois launched a company that consolidates Shopify merchants known as OpenStore. It raised $105 million last year from US venture funders including Atomic, Khosla Ventures, General Catalyst and Mr. Rabois’ Founders Fund.
Meanwhile, the e-commerce space has been on a downward swing for the past six months, after strong revenue growth in the first year of the pandemic cooled off. Shopify Inc shares fell. By more than 75 percent from its peak last fall, for example. US media website Insider reported last week that Thracio would lay off up to 20 percent of its employees and that founder and CEO Carlos Cashman was stepping down.
Despite the recent turmoil, Agora and its backers are optimistic that continued growth of e-commerce as a share of total retail sales in the long run will lead to healthy returns. “I think it is inevitable that e-commerce will take more and more of the brick-and-mortar pie,” Mr. Kao said.
“Despite the recent difficulties with some e-commerce-related players like Amazon and Shopify that have risen to gigantic heights during the pandemic and have expanded their business accordingly, the tailwind behind e-commerce remains strong,” said Michael Wasserman, partner at Maverix. . “It will take some discipline to determine which e-commerce companies will continue to experience impressive growth after the pandemic, and possibly rule out any sharp spikes over the 2020-2021 period.”
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