Maverix leads US$83.5-million deal in Shopify merchant consolidator Agora despite e-commerce rout

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As slowing growth, disappointing earnings and supply chain challenges sink e-commerce stocks, Toronto’s Maverix Private Equity is betting the challenged sector still has plenty of room to grow by investing in a company that buys up Shopify merchants.

Maverix is leading an US$83.5-million investment in Agora Brands, a new company based in Toronto and New York, whose mission is to buy small and medium-sized direct-to-consumer (DTC) e-commerce companies, primarily those that sell on Shopify’s e-commerce platform, and scale them into brands with at least $100-million in revenue. An undisclosed part of the financing 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 chief executive officer of OMERS Ventures when, nine years ago, it led the last private financing of Shopify before it went public.

Agora was co-founded last summer by three e-commerce veterans: Jesse Horwitz and Ben Cogan, co-founders of eyewear merchant Hubble Contacts in New York, and Toronto-based Ray Cao, who helped e-commerce financier Clear Finance Technology Corp. set up its mergers and acquisitions business unit. Agora’s official corporate name says it all: DTC Roll-up Co. The trio are targeting companies with between US$1-million and US$20-million in revenue – which are too small to matter to typical private equity firms and lack the resources to scale their businesses, Mr. Horwitz said in an interview. Agora typically seeks to keep the founders in place after buying their companies.

Another important criteria: The companies must generate operating profits. “Profitability is super important,” said Mr. Cao, who previously ran a company that helped e-commerce brands insert samples into their packages before sending them out for delivery. “The three of us are old-fashioned, we’ve always wanted to operate profitable businesses that generate real money rather than just chase after [revenues] and valuation.”

Mr. Horwitz added: “If we focus on a few core things – buying great businesses at disciplined multiples and those businesses continuing to grow [revenues] and profitability, it is hard to see how this is not a very valuable business in the long run.” Agora has purchased between five and 10 companies so far, and aggregate annual revenues of its business are between US$25-million and US$50-million.

The company is part of a recent trend of budding conglomerates that specialize in snapping up direct-to-consumer brands. The most acquisitive to date have been companies such as Thrasio Holdings Inc. and Whele LLC (better known as Perch) that focus on buying vendors that sell on Amazon.com. More recently, venture capitalist Keith Rabois has launched a consolidator of Shopify merchants known as OpenStore. It raised US$105-million last year from U.S. venture financiers including Atomic, Khosla Ventures, General Catalyst and Mr. Rabois’s Founders Fund.

At the same time, the e-commerce space has been on the down swing for the past six months, after strong revenue growth in the first year of the pandemic subsided. Shares of Shopify Inc. are down more than 75 per cent from their peak last fall, for example. U.S. media website Insider last week reported Thrasio would lay off up to 20 per cent 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 overall retail sales in the long term will drive good returns. “I think it’s inevitable e-commerce will take more and more of the brick-and-mortar pie,” Mr. Cao said.

“Despite the recent difficulties facing some of the e-commerce related players such as Amazon and Shopify that soared to massive heights during the pandemic and scaled their businesses accordingly, the tailwinds behind e-commerce continue to be strong,” Maverix partner Michael Wasserman said. “It will take discipline to identify those e-commerce businesses that will continue to experience impressive growth postpandemic, and to perhaps discount any steep rises during 2020-2021.”

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