f you’re in the e-commerce game, you’re hearing about aggregators constantly.

I talked to Golan Manor, who runs acquisitions for an aggregator based in Tel Aviv.

TCM Digital started off creating their own products from scratch.

Which was successful but too slow to satisfy the demand for growth coming from their investors.

“When you develop your own private label product, it takes roughly a year from ideation to having the product really become profitable,” Golan tells me.

So they pivoted to acquiring e-commerce products that already existed — and had customers & revenue.

“This is where we started looking for businesses to acquire, businesses that are already profitable, and therefore can generate returns day one.”

It worked.

They built tech to source and analyze e-commerce brands to buy, and quickly grew their pipeline of deals.

Since the pivot, they’ve acquired 28 e-commerce products.

Golan had tons of insights for entrepreneurs who want to acquire e-commerce companies themselves.

Influencer reviewing Lensball, a product TCM acquired

Acquiring vs. Building from Scratch — It Depends on You

“It very much depends on the type of entrepreneur that you are,” says Golan.

At TCM Digital, they see a lot of products that were started by entrepreneurs with an idea or passion.

This type of entrepreneur wants to start with a blank slate and pursues a vision.

Such a person usually builds from scratch.

“Even for the solo entrepreneur, it’s still very attractive. And it will remain so probably for quite some time.”

Meanwhile, other entrepreneurs care less about the product itself.

They simply enjoy building businesses.

“If you’re a serial entrepreneur that’s agnostic as to the actual type of business, but already you have the business acumen and experience of how to take businesses to the next level, then obviously I would suggest that you find the right business for you to acquire, and then take that business to the next level.”

Multiples are Going Up

E-commerce acquisition is hot right now.

Aggregators have attracted a lot of attention and capital, not to mention the giant COVID bump in 2020 that accelerated adoption of e-commerce around the world.

So buying an e-commerce company is getting more expensive.

“When we started our original acquisition, we were talking about multiples that were in the range of maybe 1.5, 1.8 of the yearly profit,” recounts Golan.

“Now the average multiples are more in the range of 3.”

And they’ll probably keep going up.

To understand why, you have to understand aggregators' playbook:

  • They raise a ton of money to acquire e-commerce companies.
  • Their eventual plan is to go public or be acquired themselves.
  • Either way, they will be valued at much larger multiples than the companies they acquire.
  • For example, an aggregator acquires 25 small e-commerce products for 3x profit, but the aggregator itself expects to be acquired (either via stock in the public markets or by another company) at a 10x, 20x, or even higher multiple.
  • Which means it’s immediately profitable to acquire a small e-commerce company as long as the multiple is lower than the multiple it will eventually sell for itself. This trick is known as multiple arbitrage.
  • Since the aggregators are planning to sell themselves at 20x (let’s say), it will still profitable to acquire smaller e-commerce companies at 3x, 4x, 5x…all the way up to 20x. So there’s plenty of room for multiples to rise further before it becomes unprofitable for aggregators to keep acquiring.

Still, Opportunities Remain for Smaller Buyers

With so much competition to buy e-commerce companies, you the acquisition entrepreneur looking to do a deal might assume it’s too late.

Not so, says Golan.

“Even for the solo entrepreneur, it’s still very attractive. And it will remain so probably for quite some time.”

Thing is, aggregators have lots of money to invest. To do so efficiently, they need to acquire e-commerce businesses of a certain size.

Smaller e-commerce businesses aren’t worth their time.

“This leaves a lot of room for the smaller, serial entrepreneurs to take a half a million dollar business or a one million dollar business, grow it for several years, take it to the next level, and then sell it to a larger group or an aggregator,” Golan explains.

Small E-Commerce Businesses Leave Money on the Table

The other good news for acquisition entrepreneurs is that smaller e-commerce businesses often haven’t pulled many of the levers that could reliably grow the business.

Golan tells the story of Hammock Sky.

This e-commerce business selling hammocks was launched by a solopreneur expat living in Thailand.

“It was a very strong business, but we understood that there was still a lot of room to grow.”

Still, it was already generating over 7 figures in revenue and outgrowing the founder.

“It became quite big for him to continue to operate, and he decided that he wanted to do something that more aligns with his original passion, so he decided to sell.”

In 2019, TCM Digital acquired Hammock Sky for 2.5x earnings.

In the 2 years since, TCM Digital has grown the business 50%.

Accessories TCM launched to complement the Hammock Sky core product

5 Tactics TCM Uses to Grow E-Commerce Businesses It Acquires

Having done so many acquisitions, TCM Digital has developed a playbook to improve the e-commerce businesses it buys.

Golan posted an article about it on TotalRetail: The 5 Growth Vectors That Optimize E-Commerce Acquisitions for Powerhouse Profitability.

Here are 5 of the tactics in that playbook:

  1. Diversify the channels.

    Many e-commerce businesses are just selling their products on one platform, typically Amazon. Expanding the distribution to their own websites or other platforms like Walmart.com can boost sales.

    Expanding geographies can too. Many products are targeting just a US audience. TCM started selling Hammock Sky to the Australian market, which not only increased sales, but smoothed out the product’s seasonality since Australians buy hammocks while Americans are shivering through winter.
  2. Expand the product variety and/or product line.

    TCM looks for ways to increase the variations of a product. In Hammock Sky’s case, they started offering different colors and patterns as well as larger sizes.

    They also look for opportunities to sell accessories or complementary products. Hammock Sky customers were challenged by attaching the hammock to trees, so TCM started selling attachment accessories to make that process easier.
  3. Improve the product page.

    “We spend a lot of effort on photography, on copywriting,” says Golan. Essentially, what online marketers call conversion rate optimization (CRO).

    “In many situations these [product founders] were solo entrepreneurs. Many of them, success really hit them by surprise. They were growing very fast, so they didn’t really have any incentive or time to invest in really perfecting or improving the product pages. We have of course a big team of copywriters, graphic designers, photographers, so this is part of the usual process that we do for every product that we have.”
  4. Optimize paid advertising.

    Many of the product founders manage their own PPC campaigns — a delicate skill better left to experts.

    “This is something that can either lose you a lot of money, or make you a lot of money.” TCM has a team of PPC specialists, so they’re often able to quickly improve performance here.

    (Side note: PPC performance has spillover into organic listings. Higher performing PPC ads can result in higher performing organic listings…and vice versa. Again, be careful.)
  5. Create a community around the product (outside of Amazon).

    TCM Digital reaches out to influencers to get them excited about the product. When influencers start talking about a product, a community of enthusiasts can grow.

    And TCM doesn’t even have to produce the content to serve that community — the influencers do that.

    They’ve also launched courses around a product.

    An example is Lensball, a transparent orb photographers use to get cool shots. TCM launched a course on how to use Lensball, which grew the fanbase of the product (and more than paid for itself).