We’ve addressed the rise of aggregating companies assembled solely to obtain funding and scoop up ecommerce merchants. The Berlin Brand Group also acquires ecommerce businesses. But its roots are different from most aggregators: It started as a seller of products.
Christian Salza is Berlin Brands’ managing director. He told me, “Our origins are on the product side, not mergers and acquisitions, or finance, or consulting. We are product people. I’ve been selling products since I was 19 years old.”
From selling electronic equipment on eBay 15 years ago, Berlin Brands Group (based, yes, in Berlin, Germany) now owns and operates more than a dozen ecommerce businesses, with 2020 net revenue of roughly $360 million. The company is profitable and self-funded.
In our recent conversation, Salza and I discussed the challenges of global scale, the importance of infrastructure, and the company’s approach to acquisitions, among other topics.
Our entire audio conversation is embedded below. The transcript that follows is edited for clarity and length.
Eric Bandholz: Berlin Brands Group manages about 14 brands now. Is that it?
Peter Chaljawski started the company 15 years ago. He was 19. He was looking for disc-jockey equipment, and everything was very expensive. So he ended up importing products from China. Then started selling them. It evolved from there. Fifteen years later, we’re a big conglomerate with many brands and many countries, but it started with small DJ equipment.
We soon added audio, microphones, light machines, and stereo equipment. Then we tried kitchen products and kitchen electronics. Now Klarstein, which sells kitchen appliances, is our biggest brand with $100 million in annual turnover. Klarstein started small.
We’re self-funded, always profitable. About 10 years into it we brought in an additional investor. We’re one of the biggest Amazon sellers in Europe and definitely one of the biggest digital brand builders in Europe.
Bandholz: Was it always an ecommerce play?
Salza: It was always ecommerce. Peter started by selling products on eBay.
Bandholz: What percentage of your business is based in Europe?
Salza: About 40% of our business is on Amazon, and 14% of that is Amazon Germany. Total German revenue is bigger than the Amazon portion. The entire European turnover is roughly 80% of the worldwide total.
Bandholz: What are some of the hurdles in serving the European market?
Salza: It’s complicated to sell in Europe. There are many languages and sales channels. And each country has different payment methods. Plus you have different logistic providers. You have to master it all to be successful.
We’ve started selling more internationally, but at the beginning we were building the platform that allows us to launch these brands and distribute them across channels throughout Europe. Luckily we are in Berlin, which is very international with residents from all over Europe who speak the languages and can help us with translation and content creation.
We have built the technology and the logistic infrastructure to serve most of Europe within one day. We have multiple warehouses, and we have an ecommerce platform with access to more than 100 sales channels where we can push our products. And we will be a drop-ship supplier to all these markets, too. So we have access to all these channels and countries and mastered the logistics and technology behind it all.
That’s how we are successful.
Bandholz: Let’s talk about that technology. Did you build it from the ground up or start with an open-source platform?
Salza: It’s a combination of both. We use different tools for different specialties, but overall the entire mix is something that we have developed. We have a large IT team. We didn’t build our own web-shop system. We use existing ecommerce providers that can scale and connect to our middleware and backend. We also have SAP for our ERP and finances.
Then we have tools that connect to various marketplaces. We have tools to operate the Amazon accounts and advertising portals. We pull it all together in a platform we call Launchpad.
Bandholz: Any regrets going this direction versus an out-of-the-box option?
Salza: No regrets. We did not build a lot internally. What we do well is connect the best tools. We’re constantly looking for tools that help us improve. We are good at connecting these tools into our infrastructure. That’s our strength.
We switched about a year ago to SAP. And we have kind of a middleware that sits between SAP and the other software apps. The middleware connects different applications so they can communicate. Again, that’s the skillset we have.
Is it perfect? Not always. But the speed at how we can adapt is quite amazing.
Bandholz: Hearing the words ERP brings shivers down my spine. I don’t want to think about it or implement it. Is SAP working for you?
Salza: It is working for us. If you don’t have a proper ERP, you pay for it later, and you pay for it big time. If you don’t have proper IT management, warehouse management, reordering, invoicing, bill payment system in place, it bites you down the road.
But I recommend to anybody starting a business: Focus on technology early. To build a sustainable business, invest in infrastructure.
Bandholz: How do you find brands to acquire?
Salza: We’re looking for brands that are successful in their marketplace or country. They should have a significant turnover already. So the sweet spot for us is an annual turnover between $3 million and $100 million. We can do $3 million to $25 million easily and fast. We’ll also consider smaller ones with a strong growth trajectory. We’re looking for strong reviews, rankings, and sales history — being a top seller in that specific category, the Amazon end game.
For direct-to-consumer brands, there needs to be a high-performing shop with relatively low advertising spend that allows for profitability.
But overall, we’re looking for top sellers and a very productive product assortment. A shop with $5 million in sales and 150 SKUs is more attractive to us than one with 10,000 SKUs.
We want to buy top sellers, items that sell well, continue to scale, where we can build something around. Our origins are on the product side, not mergers and acquisitions, or finance, or consulting. We are product people. Like Peter, I’ve been selling products since I was 19 years old.
Bandholz: How do you integrate the acquired company?
Salza: It depends on the size of the business and also what the seller wants to do. Normally sellers say something like, “I’ve grown it. I’m quite successful. I’m happy where I’ve got it. But to bring it to the next level, that’s a different skill set. I love what I’m doing, but I’m ready to start my next brand.”
Succeeding in Europe requires investing heavily in infrastructure, content production, and translations. Just the VAT filing is complicated; it’s different in every country. That’s often when founders say, “I’m out of here. I don’t want to do this anymore.”
We prefer buying the assets from these owners — not the entire company, just the assets that are relevant for us. We want the Amazon account and rankings, the patents, the inventory. We’ll onboard all of that into our platform.
There’s typically a short transition period, less than six months, where we work closely with the founder. That’s the normal acquisition process. Bigger companies can be different. On occasion, we buy the entire company.
On average, on an asset deal, our integration is complete after three months. Larger deals, such as acquiring shares, could take up to 24 months to integrate.
Occasionally we’ll invite founders to come on board, use our platform and our funding, and expand his or her category.
Bandholz: What kind of valuations are founders getting for their brands? I’m hearing three to five times EBITA for smaller brands. Is that your range?
Salza: That’s correct.
Bandholz: What about larger companies, say $50 million in annual revenue. Are those deals still based on EBITDA multiples?
Salza: Yes, definitely EBITDA. In smaller cases, sometimes we consider the seller’s discretionary earnings, or SDE. But it’s EBITDA for larger companies. The fundamental acquisition metric is always some measure of profitability.
Bandholz: How do you develop product expertise when you acquire a brand in a category you’re not familiar with?
Salza: We first look at the supply chain. Do we understand it? Can we get the product? Do we understand the product? And can we play this product on Amazon? Our Hong Kong office includes a big quality team. We know we can evaluate pretty much anything — electronics, non-electronics, furniture, big, small, mechanical. So understanding the supply chain is the first big check box.
Next is Amazon — how to scale the product on Amazon?
Then it comes to the brand. The brand is perception. Brand is how you present yourself, how consistent it is, the tone of voice. We have strong experts there that can train others and also can switch roles. They know how to set up a sports brand versus, say, a home or garden brand.
We have a bench of strong brand managers that we have grown in-house. We are hiring a lot of people, especially for brand management. We’re hiring from top-notch players — big electronic companies, sport equipment companies.
If we go into a new category, such as pets, we’ll find somebody who has the passion, understanding, and knowledge for it. Then we make that person the captain.
Bandholz: What’s the overall vision of Berlin Brands?
Salza: Our purpose is to democratize products around the world. We want to become a global player in building digital brands, a digital brand house.
Bandholz: Where can listeners connect with you and learn more about the company?
Salza: I’m on LinkedIn, @christian-salza. Our website BerlinBrandsGroup.com. Listeners can learn about our offices and job openings. We have more than 150 job openings right now. There’s also a section on the site about our unique approach to acquiring brands.