Roll Up Businesses Built on Thrasio Model Will They Thrive or Survive?

Acquisitions are one of the most powerful tools available to companies for achieving growth and building long-term value. Acquisitions also have the elements of a zero-sum game.

The bullish sentiments of venture funds in the space roll up business model feels very much like a bubble in the market. These emerging startups themselves have yet to prove that the strategy to acquire, integrate and consolidate these equally young D2C brands works. The numbers and assets that look good on paper may not be the real winning factors once the deal is through and execution begins.

Thrasio's business model is fairly straightforward.?They find and buy category-leading consumer product small businesses that operate on Amazon's platform.?After acquiring the firms, they integrate them into their systems and marketing programs.?This makes the individual firms more efficient and provides Thrasio with economies of scale.?The process is fast, and it gives within a few weeks the option for Amazon sellers to exit their?business. Currently, Thrasio operates on Amazon’s platform in the U.S. as well as Japan and Europe. It plans to expand to India. It certainly makes sense that the business is named after the ancient Greek word thrasos, the concept of audacity and boldness. We have seen multiple clones of Thrasio getting funded for the Indian market.

Building the D2C brand conglomerate destiny is dependent on the aggregator being able to integrate the companies culturally, the products & the brand as one.

Thrasio Culture as mentioned on their website

According to most?studies, between 70 and 90 per cent of acquisitions fail.?So many acquisitions fall short of expectations. 5 reasons why typically acquisitions have failed for corporations and the same applies to these companies trying to acquire and merge online brand businesses.

1. Overestimation of potential synergies, underestimation of synergy complexities or execution timelines to delivery especially in HR & Technology.
2. The acquisition transaction is done at a blazing speed hence insufficient investigation (especially little or no strategic and operational due diligence), failure to translate findings into actions.
3. Instead of the passionate founders, the brand manager takes over the brand. In many cases brand dilution starts as it becomes one of the brands for the company, the brand starts losing its identity and authenticity
4. Buying at an inflated price point, overpaying a heavy premium to the brand to acquire results in the company later moving to equity + debt structure from only equity to finance the purchase.
5. Fundamental cultural incompatibilities emerge when in the name of shared services uniformity, the downsizing & the cutting cost process is started to bring efficiency.

Thinking about integration at every step in the deal process will help companies beat the historically ugly odds of deal failure.

The success of these roll-up ventures will depend on factors

• Creation of an internal innovation team
• Ability to do brand pricing for profits at scale
• Senior leadership (founders) responsibilities & roles
• Rapid new product development and rollout.
• Ability to deliver on the promise of performance marketing

The success or failure of an acquisition lies in the nuts and bolts of integration.?Thinking should be beyond 1000 days and how the brand will play out once rolled up. There would be deals that might improve current operations and those that could dramatically transform the roll-up business exponential growth prospects.

Time will tell us if the roll-up model is here to survive and thrive or a debacle in making.

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