Roll-Up : A good exit opportunity for D2C brands

Updated: Jun 1


What one D2C brand cannot achieve independently, a group of complementing brands can. Known as the Thrasio business model, a retail aggregator buys out several D2C players and consolidates them as a single operating unit, thereby ensuring continuous business for the group brand.


This model in itself is not new, while it was pioneered in the digital space by Thrasio the brand, which gained the unicorn tag by selectively funding online startups. Today, in India, private equity players and other high net worth entities are investing in creating their own iterations of this model. The idea is to consolidate brands with sustainable business models and a high potential for growth under one holding company, to improve efficiency in shipping, packaging, and inventory while keeping the brands themselves separate.


What is a roll-up?


A roll-up is a strategy, generally used by private equity firms, where smaller brands are acquired and merged with larger organizations. Typically, the brands that are acquired belong to the same or related industries and are consolidated into a single entity to improve revenues and reduce costs of operation.


When a D2C brand becomes noticeably large or shows promise, larger firms may come forward with an acquisition offer, wherein the founders may get a buyout deal, giving them an exit opportunity.


How does an exit benefit brands?


An exit strategy allows brand owners to sell their established enterprise to someone with more bandwidth, funds, or larger goals. Here are some reasons an exit strategy is a good thing for brand owners:

The sale of a brand generates significant returns for owners in a single transaction which would often take years or even decades for them to achieve. Therefore, when a business is being acquired by another, the owners stand to make massive profits solely based on the value and future prospects of the brand.

An exit from a brand and a reduction in stake allows the owners to invest their time working on other projects. Oftentimes owners find that their growth goals have been met and exceeded, and for the brand to grow further they need a larger team with more experience. This is where an exit, either a partial one or in full, is a lucrative option for them.


Key factors to consider while planning an exit strategy


While an exit strategy can be a great way for entrepreneurs to move on, it is not a cakewalk. The process of an exit can be arduous and complicated, therefore, it is imperative that you have a well-thought-out exit strategy to get the most out of your creation.


Here are some key factors to consider when preparing an exit strategy for your brand.


Finances


While preparing an exit strategy it is critical for brand owners to have an in-depth understanding of the finances of their business. This is key to estimating returns upon exit and presenting the best case in front of probable future owners of the brand. It is also necessary to wind up any unsettled transactions before sitting at the table with prospective buyers to get better value.


Value


Brands must understand what their creation is and what value it brings to the new owner. Before settling for an offer, assess the goodwill, presence, and customer retention, as well as the causes for the same, which must be considered. Only upon a critical analysis of the aforementioned can you extract the best value for your brand.


Taxes


The sale of a brand or the dilution of stake involves an exchange of large amounts of money. The liquidation of stakes of the owners gives them instantaneous access to years worth of revenue in a single transaction, creating massive tax liabilities, which must be considered.


Post-sales


When owners plan to sell and divest their brands they must strategize future goals after the process is completed. This includes any future jobs or ventures to get involved with, investments, estate planning, and more. It is important to handle the money received from the transaction for a financially sustainable future as well as to plan for activities to participate in during the free time.


Why is a good divestment strategy important?


A divestment strategy is important for a business for several reasons; one of the major ones being the ability to share time across other ventures and make substantial profits from the venture. Further, an exit strategy also allows founders to limit their losses, if they may face any.


Regardless of losses sustained by a brand, if the larger firm sees the potential and the value of the brand, they may provide an exit option to the founder, or a significant dilution in their stake, allowing them to make significant gains for their efforts in building the brand; making roll-up an attractive strategy.


The transition


Brands often look for an acquisition or an acqui-hire deal when they reach a certain threshold beyond which either the business becomes unsustainable or unmanageable. Such a strategy can be a silver bullet solution for such a situation since the owners get value for the brand, market share, and goodwill they have created while the investors get an established name that can be tweaked to perform better and scale.


An exit in particular helps those who either cannot or do not wish to manage the brand further transition out of the business without losing value or suffering financial losses, while new leadership gets an established business that is good to go with specific adjustments. A divestment, on the other hand, allows founders to focus on other business interests without having to fully let go of the brand they have built.


How Shoptimize can help your brand get the best value


For most entrepreneurs today, D2C brands included, an exit is always on the table. Therefore, it is important for owners to cultivate the best brands possible to get the most value out of an exit transaction.


This is where Shoptimize’s Growth Platform steps in and helps brands pivot. Through the help of advanced analytics, comprehensive reports, and a next-generation recommendation engine, the Growth Platform helps brands make the most out of their marketing strategy, establish a customer base, and get higher ROI.


The value of a D2C brand is closely tied to the kind of sales that it is making, and the ability to track these sales and their drivers over time. Using the platform, you can keep better track of your growth, and the reasons for this growth, giving you a more powerful seat at the table when discussing an exit.


Explore the Shoptimize Growth Platform today