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The B2B marketplace M&A landscape: a hidden opportunity for investors

Platforms are becoming the new normal

With the skyrocketing growth of Alibaba, Uber, AirBnB and hundreds of other marketplaces, the power of platforms can’t be underestimated. Think of Facebook. It’s the world’s largest global media owner, but it creates no content. It’s a platform, just like Amazon or many of the other most valuable companies in the world.

Given inherently strong network effects, platforms have a clear potential to become multi-billion dollar companies, if they’re successful.

Right across business-to-consumer (B2C) segments, we can see marketplaces have already become the “new normal”, including platforms such as Booking.com and TakeAway.com (which trades under different brands such as Just Eat or Menulog in different countries). Even Spotify fits under this umbrella, much as that might surprise some readers. It’s not a marketplace, but it’s still a good example of a platform that doesn’t produce music.

While these platforms are making all our lives easier on a day-to-day basis, they’re also a huge favorite in the venture capital world, with the category having the second largest number of unicorns after software.

B2B marketplaces: strong potential, active growth

But when it comes to business-to-business (B2B), platforms in that space are just beginning to emerge in the same way. Quite a few B2B marketplaces were funded between 2015 and 2018 resulting in over 300 active companies in that space in Europe now.

Of these marketplaces, more than 10 have raised over €50m and five over €100m (Funding Circle, ManoMano, Meero, Raisin and TravelPerk). In total, we’ve seen over €3bn of total funding raised in this space, with many segments within it showing strong potential but no clear frontrunner as yet.

Even before the pandemic, B2B marketplaces were expected to generate $3.6trln in sales by 2024, while the shift in purchasing behaviours that has emerged during the time of COVID-19 has additionally boosted online purchases (including those in B2B) by an estimated 20–30%.

It’s really worth reading Julia Morrongiello (@JuliaMorrongiel) on this topic. She is doing sterling work mapping the B2B marketplaces landscape in the EU, making great use of statistics in her analysis.

Significant “hidden” exit potential

There is no doubt that the B2B marketplaces space is actively emerging, with investments in it showing strong growth almost every year. Potential is also in place, as markets being disrupted by such platforms are being valued at hundreds of billions of dollars. But what about exits?

Strategic investors rarely acquire B2C marketplaces. Instead, for various reasons, we see far more IPOs or acquisitions by competitors in that space. Will the same hold true when it comes to B2B marketplaces? Why? And what should investors and entrepreneurs consider when they want to get involved and go on this journey?

The first wave of B2B marketplaces (like Funding Circle or onTruck) have already started to go public and raise large funding rounds, though these cases remain quite rare. Due to the relatively early stage of the niche, there have been very few mega-rounds and few notable exits so far, with only six mergers and acquisitions (M&As) valued at more than £50m in 2020 and four in the first half of 201.

£50m+ b2b marketplaces M&As

That said, seeing as the segment is nascent and we have seen even fewer IPOs from it, perhaps the level is not so low, relatively speaking. In fact, the M&A-to-IPOs ratio in the B2B marketplaces space is much higher than we see across B2C platforms. To understand the clear reasons underpinning this trend, it’s worth analysing some recent M&As by the type of buyers involved.

B2B marketplace buyer profiles

Buyer type: Service provider in the same market

Recent deal examples

  • E-commerce ($425m) Jun 7, 2021
    NuOrder (B2B e-commerce marketplace in US) acquired by Lightspeed POS (TSE: LSPD, software-as-a-service (SaaS) for commerce and point-of-sale solutions)
  • Mortgage ($1.8bn) Sep 15, 2020
    Optimal Blue (mortgage marketplace) acquired by Compass Analytics (provider of SaaS for mortgage lenders)

Reasons for acquisition

This type of acquisition is not common in the B2C space, due to the different structure of the markets. The largest third-party B2B service providers often have a developed client base and are seeking a way to expand their product offering, improve customer service and ensure they have sufficient competitive advantage.

Acquiring a marketplace can enable them to reach these goals and also get direct access to the marketplace’s customers, thereby expanding their client base, so the synergy is clear.

There is another strong incentive for these buyers — the creation of a one-stop-shop procurement solution offering. Pure SaaS products aimed at optimising workflows or procurement flows can be very beneficial for a client, while pure marketplaces can sometimes help them find better suppliers or service providers. But the real value is in combining both!

SaaS-enabled marketplaces or software providers with marketplace capacities can solve not only a single pain point for customers (such as being able to pay an international supplier more quickly and more safely), but also resolve the whole problem by enabling clients to find the right suppliers or service providers, manage communications and track workflows, carry out payments and much more. The way this can also positively affect pricing, margins, unit economics, retention and other metrics of an acquirer really doesn’t need any more explanation.

And it’s good to know for B2B marketplaces investors, as they can bet on an exit path that’s not typically available for B2C marketplaces.

Buyer type: End client

Recent deal examples

  • Advertising ($1.14bn) Apr 30, 2021
    SpotX (SaaS-enabled marketplace for video ads) acquired by Magnite (NAS: MGNI, sell-side ad platform)
  • Media ($230m) Mar 31, 2021
    Triton Digital (marketplace connecting broadcasters with radio stations) acquired by iHeartMedia (NAS: IHRT, media firm holding radio stations)
  • Media ($94.3m) June 24, 2013
    Society6 (digital marketplace for artists) acquired by Demand Media (content company)

Reasons for acquisition

This type of acquisition is common in software markets, where large firms may be interested in acquiring one of their suppliers or service providers to increase their level of vertical integration (and hold more parts of the value chain) and to optimise processes. This type of acquisition can also be a good option to support buyer’s geographical expansion.

This rationale also applies when it comes to those buying B2B marketplaces, but other reasons apply too. These include:

  • Software component
    SaaS-enabled marketplaces may be a one-stop-shop procurement solution for clients. Their acquisition may add more value for a buyer, making them even more attractive target for such deals.
  • Markets with distributed supply
    Acquisitions by end clients are also often seen in segments with distributed supply. B2B marketplaces where small and distributed service providers (such as freelancers) make up the supply side may be a good addition to any of their largest demand-side clients’ infrastructure. This is because they can streamline the time-consuming and ineffective process of choosing and managing multiple small suppliers.
  • Value for acquirer’s clients or suppliers
    Unlike SaaS companies, marketplaces can become a new line of business for the buyer when they’re acquired, and bring additional value to the acquirer’s clients or suppliers. It’s a win-win situation where the enterprise offers marketplace capacities to its suppliers, thereby benefitting from their higher satisfaction and creating an additional revenue stream. If a potential buyer has a wide network of suppliers (or buyers), the possibility of additional monetisation on that front could be a good incentive to make an acquisition.

Hey Boris Maleev, thank you for your insight, expertise and contribution to the above!

Buyer type: Competitor (direct or indirect)

Recent deal example

  • Investments ($160m) Nov 9, 2020
    SharesPost (Financial data provider and late-stage share trading marketplace) acquired by Forge Global (pre-IPO broker)
  • Real Estate ($188m) Jun 24, 2020
    Ten-X (B2B real estate marketplace) acquired by CoStar Group (NAS: CSGP, leading real estate agency)
  • Hospitality (£200m) Jul 1, 2017
    JacTravel (B2B marketplaces for hotel rooms) acquired by Webjet (ASX: WEB, digital B2B travel agency) for
  • Equipment ($776.5m) May 31, 2017
    IronPlanet (used heavy equipment MP) acquired by Ritchie Bros Auctioneers (NYSE & TSX: RBA, equipment seller)

Reasons for acquisition

This type of deal is happening in many different markets. The detailed reasons for these deals may vary, but typically they are motivated by a drive for market consolidation (market share increase) and product improvement. Market segments with active B2B marketplaces are not an exception. We’re already seeing M&A deals among competitors taking place and those will increase as markets become more mature.

Buyer type: Private equity/Financial investor

Recent deal examples

  • Education ($3.5bn) Apr 6, 2021
    Pluralsight (SaaS-enabled B2B education marketplace) acquired by Vista Equity Partners through a public-to-private leveraged buyout
  • Travel ($109m) May 19, 2020
    CarTrawler (Provider of B2B car rental & mobility solutions for the travel industry) acquired by TowerBrook (private equity firm)
  • Travel ($4.4bn) Dec 10, 2018
    TravelPort (SaaS-enabled travel management marketplace) acquired by Siris Capital Group and Elliott Management (private equity and hedge funds)

Reasons for acquisition

Again, the primary reason behind this type of M&A is pretty standard — it’s the acquisition of a growing and cash-generating company. Marketplaces in general typically have quite a long way to go to profitability and therefore are rarely acquired by private equity firms.

Given that the average B2B order value is typically larger and B2B marketplaces may have a SaaS component, their unit economics are often stronger and the way to profitability is shorter, which slightly increase their attractiveness for this type of acquisition.

GavinPitcher, thanks for your insight and contribution to the above!

Markets heatmap

One last important piece of analysis that’s useful here is to aggregate data relating to recent M&A data, taking into account the specifics and maturity (in term of B2B marketplace development) of different segments, so we can evaluate which types of M&As are more likely in certain B2B markets.

The heatmap below shows the results of our analysis of over 30 largest M&A deals in B2B marketplaces space closed since 2015. To develop it, we looked at the number of deals and volume of deals in each segment.

Darker colours represent more deals & larger deals volumes

As we can see, Service Providers and End Clients are the most active types of buyers in the B2B marketplace space.

To forecast expected M&A activity, it’s also crucial for us to consider some market characteristics that could amplify the likelihood of certain types of M&As:

  • Buyer type: third-party service providers
    The market should be dominated by service providers, with either many of them or a few top-tier full-stack providers. If the market is distributed, it will make this type of deal more probable.
  • Buyer type: End client
    Such acquisitions are more likely to happen in a market with a highly distributed supply side.
  • Buyer type: Competitor
    Competitor acquisitions are more probable in markets with a few well-funded and well-developed players in the B2B marketplaces space.
  • Buyer type: Private equity
    Acquisitions by Private equity firms and other financial investors can be expected in any markets with high average order value and high margins.

As a result, the types of deals we expect to see in the B2B marketplaces space reflect the historical structure and trends, but with few notable bets that could be made due to market dynamics:

  • More End-Client acquisitions are expected in the Retail & Commodities and Machinery & Heavy Industry segments, due to (i) highly distributed demand in some of these markets and (ii) the large value that SaaS-enabled marketplaces could bring to the procurement optimization in this market;
  • We also expect to see active consolidation and thus active Competitors M&As in the Transport & Logistics segment, as it includes a large number of very-well developed & well-funded players interested in growing market share.

Projected heatmap of M&A activity in B2B marketplaces space below:

Darker colours represent more expected deals & larger expected deals volumes

Key takeaways

  • Due to the relatively early stage of the market niche, M&As in the B2B marketplace space remain quite rare and typically happen earlier (and thus, at a lower valuation) than in SaaS and other verticals.
  • Due to their specific characteristics, B2B platforms have larger M&A potential comparing to B2C marketplaces. They may be acquired by third-party service providers, end clients or private equity funds, giving investors multiple potential paths towards a non-IPO exit.
  • Following B2C markets consolidation (for example. Just Eat and DeliveryHero were acquired by TakeAway.com), we expect to see a growing number of competitor acquisitions in some B2B segments — please refer to a heatmap;
  • A B2B marketplace is more likely to be acquired if it has a strong SaaS component (offer one-shop procurement solution) and operates on a highly a distributed market.

Get in touch

We hope you enjoyed reading and found the above interesting and insightful!

If so, I am happy say, that this is our first instalment in a bi-annual series of articles about M&A activity in the B2B marketplaces space. I’ll do my best to keep you updated on recent deals, news and changes in our perspective on the space!

If you’re interested in discussing B2B marketplace investment, disagree with any points stated above or would like to make an input for our next articles — don’t hesitate to get in touch. I’d love to hear either positive feedback or constructive criticism from you.

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Alexey Bulygin

Principal at Sova VC. I work alongside a passionate team to empower early stage tech disruptors in their journey