Amazon's top third-party seller in U.S. plans to go public via SPAC

Key Points
  • E-retailer Packable will go public through a merger with Highland Transcend Partners I Corp., a special purpose acquisition company.
  • Packable is the parent of Pharmapacks, the top seller on Amazon's third-party marketplace, based on customer reviews.
  • Carlyle Group invested more than $250 million in Pharmapacks in November.
An delivery driver carries boxes into a van outside of a distribution facility on February 2, 2021 in Hawthorne, California.
Patrick T. Fallon | AFP | Getty Images

The top U.S. seller on Amazon's sprawling marketplace is getting in on the SPAC boom.

Packable, the parent company of Pharmapacks, said Thursday it plans to public through a merger with Highland Transcend Partners I Corp., a special purpose acquisition company. The deal will value the combined company at $1.55 billion.

Pharmapacks began as a brick-and-mortar pharmacy business in 2010, and has since grown to become the No. 1 Amazon seller in the U.S., based on the number of consumer reviews, according to research firm Marketplace Pulse. The company offers a range of health, personal-care and beauty products across several online marketplaces.

The SPAC is the latest sign that Amazon's booming third-party marketplace is luring investors, who see another opportunity to make money on the shoulders of the largest e-commerce site. The marketplace offers products from millions of sellers and now accounts for more than half Amazon's overall retail sales.

Over the past year, investors have been pouring money into aggregators like Thrasio and Perch, which are snapping up promising products and storefronts with the goal of using their data and operational expertise to turbocharge sales.

Thrasio is in talks to go public through a merger with a SPAC led by former Citigroup executive Michael Klein at a valuation that could top as much as $10 billion, Bloomberg reported in June.

Thrasio, an early leader in the big business of Amazon aggregators, had a booth at the popular Prosper Show for Amazon sellers in Las Vegas, Nevada, on July 14, 2021.
Katie Schoolov

In November, Pharmapacks raised more than $250 million from private equity firm Carlyle Group in a deal valuing the company at about $1.1 billion.

As part of the SPAC, Packable is raising $180 million from investors including Fidelity and Lugard Road Capital. Proceeds will be used to help Packable expand internationally and across multiple online marketplaces, the company said in a statement. 

A SPAC is a blank-check company that raises money to buy a private entity through a reverse merger and take it public with the help of financing from additional investors. SPAC deals have become an increasingly popular route to go public over the past year. 

Trying to expand beyond Amazon

In addition to Amazon, Pharmapacks said it also offers its products on the websites of Walmart, eBay, Kroger, Target and Facebook, along with several direct-to-consumer sites.

Packable said in an investor presentation that revenue this year will increase 22% to $456 million and it's forecasting average annual growth of 38% through 2024, when sales should top $1.3 billion. One advantage of going public through a SPAC instead of a traditional IPO is that companies can issue forward-looking projections.

Still, Pharmapacks isn't expecting to generate an operating profit until 2024. That's because it spends roughly half its revenue on selling and distribution and another 20% on warehousing and administrative costs, based on 2021 estimates.

Like many e-commerce companies, Packable got a lift from the pandemic-fueled surge in online purchasing. But its revenue growth began to slow dramatically in the first half of this year, partly as a result of global supply chain constraints, which "resulted in significant inventory out of stocks, purchase order delays, and delays in onboarding new customers," the company said in the filing.

Packable listed continued supply chain issues due to the Covid-19 pandemic as a potential risk to its business. It also warned that a significant share of its revenue is tied up in a small number of marketplaces and that "loss of access to or a significant decline in activity levels" in those marketplaces could harm the company.

Packable said it could be "impacted by fraudulent and unlawful activities of other third-party sellers and possibly marketplace programs designed to prevent such activities." Amazon's marketplace has been plagued for years by persistent issues around counterfeits, unsafe products and fake reviews.

CNBC's Ari Levy contributed to this report.

WATCH: What's behind the hype in the Amazon aggregator space

What's behind the big hype and billion-dollar aggregator start-ups buying Amazon seller brands
What's behind the big hype and billion-dollar aggregators buying Amazon sellers