Media and news reports in 2024 have reported a slowdown in funding and investment activity for e-commerce roll-up companies and aggregators. See, for example, this report from The Economic Times. However, despite the slow-down, funding for and acquisition of e-commerce brands continues. For example, aggregator Goat Brand Labs — focusing on the roll-up of India-based e-commerce brands — announced in July 2024 that it had raised $21 million to continue its aggregator investments. See here.

From historical trends and economic theory, the combination and aggregation of brands is a common feature of new/emerging market niches. For example, this played out in the automotive industry at the dawn of the automobile age, with home appliances later in the 20th Century and even with consumer food brands. Now, we see that the trend continues with e-commerce brands and businesses. Likewise, the ebb and flow of investment capital is common as some aggregators fail and others succeed. Retrenchment offers those in the industry and potential investors the opportunity to evaluate why some efforts succeeded and others failed.

Debt ratios are always a potential reason for failure. But there are others, too. For example, e-commerce roll-up companies and aggregators will likely have to pay much closer attention to compatibility and the reasons that a solo brand has had success. That is, it may be that brands that are being matched need to be compatible on levels beyond the mere fact that they are selling similar goods or services. For example, customers may be “in love” with a certain brand because of its exceptional customer service and return policies. Those are certainly important features of an e-commerce business but are the specifics of that customer service and those return policies going to survive the merger into the larger aggregator business? If not, then those customers may go elsewhere since they are no longer receiving the service that attracted them to the brand. In this respect, the target brand may be a “bad fit” even if the product or service “fits” with what the aggregator is offering.

In further explanation, the general e-commerce roll-up or aggregator business model involves acquiring multiple e-commerce companies/brands that have solid and loyal customer followings. Typically, the brands that are acquired and combined have similar or compatible offerings like medical services, furniture, clothes, etc. The roll-up or aggregator combines and continues to operate the brands under one web platform, which is intended to accelerate the growth of all brands, decrease costs, and, thereby, increase profits.

One mechanism for decreasing costs is to consolidate customer service and shipping services. But, as highlighted by our hypothetical, changing the customer service and return policies might “chase away” customers for a given brand. So, aggregating that brand will generate results that are contrary to what is desired.

There are, of course, many other lessons that will be learned. In any event, the aggregator trend among e-commerce businesses will continue. If you are thinking about buying an e-commerce business (or putting your business up for sale), you will need experienced legal help.

Legal Issues in E-Commerce Roll-Up Transactions

The e-commerce aggregator space has matured significantly since the Thrasio-era peak of 2021. What was once a race to acquire any Amazon FBA brand with solid reviews and consistent revenue has become a more disciplined investment landscape in which buyers, sellers, and their lawyers must attend to a broader set of legal and operational considerations. Whether the current moment represents a bottom or a recalibration, the legal issues in roll-up transactions remain constant.

Platform Terms of Service as a Due Diligence Priority

The most significant legal issue specific to e-commerce roll-ups — one that general M&A attorneys frequently overlook — is the relationship between the target brand and its primary sales platform. Amazon Seller Central accounts, Shopify stores, and other e-commerce platform accounts are governed by terms of service that frequently prohibit or restrict transfers. Amazon’s Business Solutions Agreement, for example, does not allow sellers to transfer their account to another party; the account must be operated by the original registrant or through an authorized corporate structure. An acquisition that fails to properly address platform account continuity can result in account suspension — eliminating the primary revenue source immediately after closing.

The legally sound approach to most e-commerce acquisitions involves an asset purchase (rather than a stock purchase) in which the seller’s entity retains the platform account and the buyer’s entity begins operating the brand, with the seller transitioning platform access in accordance with the platform’s applicable rules. Amazon has a documented process for adding authorized users and transitioning account access; buyers should require the target to follow that process and confirm completion before closing.

Intellectual Property Ownership: The Foundation of Value

The value of an e-commerce brand rests primarily on its intellectual property: the brand trademark, the product design (if distinctive enough to warrant trade dress or design patent protection), and the domain name. Before any roll-up acquisition closes, buyers must confirm:

• That all trademarks are federally registered in the seller’s name (not in the name of a founder individually, or a prior entity), that maintenance filings are current, and that no pending challenges exist at the USPTO or in federal court
• That the domain name registration is in the seller’s entity name and that the transfer to the buyer’s entity is achievable through the applicable registrar’s standard transfer process
• That all social media accounts associated with the brand can be transferred under the applicable platform’s terms of service, or that adequate workarounds exist
• That the seller has no pending or threatened IP infringement claims — either as plaintiff or defendant — that could impair the post-acquisition use of the brand

Inventory, Supply Chain, and Supplier Relationships

For product-based e-commerce brands, the supplier relationships are often as valuable as the brand itself. A brand that has spent years building a preferential pricing relationship with a manufacturer in Vietnam, a first-priority shipping relationship with a freight forwarder, or an exclusive supply agreement with a distributor has real competitive advantages that must survive the acquisition. Buyers should confirm that supply agreements are assignable (most commercial contracts are, unless they contain anti-assignment clauses) and that the seller can and will introduce the buyer to key supplier contacts during the transition period.

The representation and warranty provisions of the purchase agreement should address inventory condition (particularly relevant for perishable or fashion-sensitive goods), whether all outstanding purchase orders will be assumed by the buyer, and how inventory is valued for closing purposes. Disputes over inventory valuation and condition are among the most common post-closing disputes in e-commerce M&A transactions.

Earn-Out Provisions

Given the volatility of e-commerce revenue — which can be dramatically affected by Amazon algorithm changes, ad platform cost increases, supply chain disruptions, and competitor entry — earn-out provisions are common in e-commerce acquisitions. An earn-out ties a portion of the purchase price to the target brand’s post-closing financial performance. The seller receives additional payment if defined revenue or EBITDA targets are met over a specified period (typically 12 to 24 months after closing).

Earn-outs reduce the buyer’s risk but create fertile ground for disputes. The earn-out agreement must precisely define the financial metrics, the calculation methodology, the seller’s rights to information and audit, and any obligations of the buyer during the earn-out period that might affect the ability to meet targets (such as commitments to maintain advertising spend levels). Without careful drafting, earn-out disputes frequently end in litigation.

Whether you are an aggregator acquiring your twentieth brand or a founder evaluating your first exit, the legal structure of the deal is as important as the economics. Contact the E-Commerce and M&A attorneys at Revision Legal or visit our e-commerce practice page to discuss your transaction.

Contact the E-commerce Roll-Up and Aggregator Attorneys at Revision Legal

For more information, contact the experienced e-commerce roll-up and Aggregator Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.