(Bloomberg) — Apollo Global Management Inc. is trying to salvage an ill-timed bet it made two years ago on Amazon.com Inc. aggregators, companies that scooped up popular online brands and are now teetering after the pandemic-fueled sales boom evaporated.
Apollo in 2021 pledged as much as $500 million in debt to Victory Park Capital, a leading investor in multiple aggregators. Victory Park, a smaller firm, for months has been seeking a buyer for one of those investments, an aggregator named Perch, in a deal that would involve offloading about $400 million in debt, according to the people familiar with the matter, who requested anonymity to discuss private negotiations.
Perch, founded by former Wayfair Inc. operations executive Chris Bell, is the second-largest US aggregator and raised almost $1 billion from Victory Park, SoftBank Group Corp. and other investors. Apollo, keen to avoid its exposure to a writedown on Perch that potentially may be in the hundreds of millions of dollars, is getting more involved in trying to sell the company since Victory Park has been unsuccessful, the people said.
In recent days, Victory Park appointed new board members to other Amazon aggregators they’ve backed, which the aggregators say amounts to pressure to make them buy a struggling company they don’t want.
Representatives of Apollo and Victory Park declined to comment.
Read More: Amazon ‘Aggregators’ Who Raised $16 Billion Are Teetering
Bloomberg News reported in May that a reckoning had arrived for the nascent aggregator industry, thanks to rising interest rates, higher costs and cooling online demand. The shakeout has forced many of these firms to seek debt relief or merge with one another and now pits some of the biggest investors in the world against one another in high-stakes negotiations between those who made debt investments and those who hold equity positions. All told, dozens of aggregators raised $16 billion from Wall Street banks, private equity firms and venture capitalists.
Apollo and Victory Park tried to sell Perch to Berlin-based Razor Group, according to the people. Victory Park has a debt investment in Razor, which it tried to use as leverage to get it to buy Perch, but L Catterton, which has an equity stake in Razor, scuttled the deal, according to the people.
L Catterton is a private equity firm backed by Bernard Arnault, the world’s second -wealthiest man. A deal between Perch to Razor is still possible and negotiations continue, one of the people said, adding that the deal would likely be structured as a merger between the companies.
The disagreement between Apollo and L Catterton highlights the tension between debt holders and equity stakeholders in the Amazon aggregator industry as it melts down. Debt holders are generally first in line to get paid and want to recover as much principal as possible. Equity holders want the debt holders to accept a loss on principal to make the companies stronger financially and increase their value.
Victory Park and Apollo are trying to pressure other aggregators they’ve backed, including Moonshot Brands, DragonFly, Juvo Plus and Cap Hill Brands, to buy Perch and assume its debt, the people said. The companies are in default of their loans, which allows Victory Park to take more control over how they’re managed with Apollo involved as well.
The other aggregators don’t want to be forced to absorb Perch and are mulling their legal options. One strategy would be to file a lender liability lawsuit against Victory Park and Apollo, alleging they are forcing the companies into a bad deal by making them take on Perch’s debt, the people said.
–With assistance from Allison McNeely.
©2023 Bloomberg L.P.
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