E-Commerce Sector Update – October 2025

High-Quality, Defensible Businesses Continue to Transact in the E-Commerce Sector as Operators Navigate New Tariff Landscape

E-Commerce sector merger and acquisition (M&A) activity has increased to date despite significant tariff-induced market volatility, underpinned by supply chain diversification, revenue and cost synergies, and select buyers with deployable capital or strong banking relationships. Discretionary spending through e-commerce channels has continued to see outsized growth compared to traditional retail, although the gap has tightened in recent periods as consumers have prematurely purchased goods ahead of tariff-related price hikes across all channels, particularly for big-ticket items like furniture. While these new duties have impacted E-Commerce sector participants significantly, Capstone expects business owners to emerge in 2026 with less assailable operations, leading to stronger M&A activity and valuations. Included in this article is a recent interview Capstone conducted with Topspin Consumer Partners to discuss scaling e-commerce businesses, key characteristics of attractive e-commerce brands, and e-commerce segments expected to draw elevated acquisition appetite moving forward.

Even in a tough market, deals are still happening. Buyers are just choosier, focusing in on brands with proven retention, healthy unit economics, defensible supply chains, and strong margins. These businesses are commanding premium valuations in today’s market. However, those impacted by the tariff uncertainty or supply chain pressure are hitting pause on exits, waiting for conditions to stabilize.

Lisa TolliverManaging Director, Capstone Partners

E-Commerce Sector Sales Growth Underscores Channel Longevity, Tariffs Threaten Profitability for Direct-To-Consumer Brands

Consumer spending through online channels has continued to rise and outpace total retail sales growth due to its convenience, competitive pricing, and variety, highlighting e-commerce’s longevity as a preferred shopping method. E-commerce sales increased 5.3% year-over-year (YOY) in Q2 2025 while total retail sales grew 3.9% YOY in the same period, according to the U.S. Census Bureau.¹ However, the gap between e-commerce and total retail sales growth continued to tighten in Q2 2025. This gap erosion has indicated a heightened emphasis on an omnichannel approach, with traditional retail coupled with a robust e-commerce presence providing valued channel diversity for brands. Moreover, these sales figures have demonstrated some front-running consumption behavior—particularly for big-ticket items—ahead of new tariff policies that are expected to increase the price of goods in both traditional retail and e-commerce. Competition for wallet share has intensified due to online retail market saturation, stricter budgets amid macroeconomic headwinds, and more nuanced channel strategies focused on both brick-and-mortar and digital marketplaces.

Tariffs have presented a significant challenge for direct-to-consumer (DTC) brands, with the E-Commerce sector possessing material exposure to the new trade landscape. The Discretionary E-Commerce space is expected to see an average blended tariff rate of 25.6% as a result of U.S. trade policies introduced on April 2 and the subsequent modifications, according to Bloomberg Intelligence.² The average price hike needed to offset these tariff impacts for goods sold into the U.S. is estimated to be 9%, or 11.9% when layering the August 2025 inflation rate on top of the tariff-driven price increase, according to the Bureau of Labor Statistics.³ These figures land materially above the Consumer industry’s average blended tariff rate of 18% and estimated U.S. price hike of 5.3%, or 8.2% when accounting for inflation. DTC e-commerce brands will likely remain focused on supply chain diversification to keep unit economics strong, and price increases minimal, while driving market share gains. Profitability has been increasingly rewarded in the DTC E-Commerce vertical as growth-at-all-cost mindsets have subsided with elevated tariffs. This transition has frozen out many operators from achieving liquidity events at favorable valuations and, as a result, has pushed the implementation of artificial intelligence (AI) and omnichannel strategies to unlock operational efficiency.

E-Commerce Sector M&A Increases as Business Owners Seek Exits in Challenging Operating Environment

E-Commerce sector M&A has increased 16.7% YOY to 77 transactions announced or completed year to date (YTD). Resilient consumer spending, emerging opportunities in AI adoption, and the prevalence of value-accretive acquisitions, though they remain less pervasive than in the pandemic-induced boom during 2021, have buoyed sector deal activity to date. Strategic buyers have led this increase, with M&A volume rising 26.8% YOY to 52 deals. Targets with material levels of supply chain insulation have drawn heightened levels of acquisition attention, experienced a more stable M&A market, and seen higher probabilities of transaction closing in the current environment marred by turbulent tariff policies. Diversifying supply chains has underlined some deal rationale, while strategic acquisitions have continued to be executed on revenue synergies, such as product portfolio and sales channel expansion. AI integrations have been sought after cost synergies in the M&A market as large language model (LLM)-generated marketing campaigns have lowered customer acquisition costs (CAC) and boosted conversion rates for business owners. Cash-flush strategic buyers have carried the uptick in dealmaking as credit has remained tight for businesses in the DTC E-Commerce space given its general supply chain reliance on tariff-targeted countries. Although lenders have shown hesitancy underwriting debt for these companies, businesses with defensible profitability profiles have been able to tap into Credit markets, term-out 2026 maturities at single-digit coupons, and access capital for acquisitions. Capital structure optimization will likely continue ahead of a broader M&A rebound, with business owners who refinance early gaining optionality for bolt-on transactions without equity dilution as higher-quality deals begin to enter the market.

There have been 25 private equity (PE)-led E-Commerce sector transactions YTD, matching the prior year period. Add-on and platform engagements have accounted for 18.2% and 14.3% of YTD sector deals, respectively. Fund managers have generally paused new platform pursuits in the space as underlying tariff volatility and market uncertainty have thwarted appetite for larger investments in DTC e-commerce brands. However, add-ons have remained a viable option for PE capital deployment as firms look to build on existing exposure in the sector and already possess a banking relationship to access additional capital. Add-on targets with tenable operating metrics have enabled the asset class to track its activity from the prior year period. Sponsors are anticipated to remain selective moving into 2026 as fund managers have increasingly lengthened due diligence processes to focus on unit economics, supply chain exposure, first-party customer data, and AI integrations.

Buyers Target Brands with Above-Market Growth, Complementary Product Offerings

Large public acquirers and PE firms have continued to target best-in-class DTC brands possessing robust growth and customer loyalty amid the uncertain market backdrop. Targets with differentiated product offerings, marketing strategies, and technology stacks have remained attractive to prospective acquirers. Transaction closings in the current environment have involved companies with clear growth plans and defensible economics, helping buyers gain conviction in exit visibility or integration feasibility. Healthy valuations have also been awarded to sellers with these characteristics. Notably, sector M&A EBITDA multiples have ticked higher, averaging 10.4x between 2024 and YTD compared to 10.1x in the 2022-2023 period. Select E-Commerce sector transactions are outlined below.

• CSC Generation-Backed Backcountry.com Acquires Velotech (September 2025, Undisclosed) – CSC Generation-backed Backcountry.com acquired Velotech, the parent company of e-commerce retailers BikeTiresDirect, Western Bikeworks, and TriSports, in September 2025. Terms of the transaction were not disclosed. Velotech offers cycling components, apparel, protection, and nutrition products serving commuters, triathletes, road cyclists, cyclocross racers, and mountain bikers. The complementary product suite and end market are expected to strengthen Backcountry’s position in the U.S. Cycling market. Backcountry will aim to collaborate with Velotech on product assortment, rider education, content, and fulfillment to drive growth and enhance customer experience. This marks Backcountry’s second add-on deal YTD, acquiring outdoor, ski, and bike products retailer Level Nine Sports in July 2025 (undisclosed).
• TSG Consumer Partners to Acquire Phlur (July 2025, Undisclosed) – PE firm TSG Consumer Partners announced its acquisition of Phlur from Prelude Growth Partners for an undisclosed amount in July 2025. Phlur operates as a fragrance brand with a product portfolio including Vanilla Skin, Heavy Cream, and Missing Person. The company launched in 2015 as a digitally-native brand selling exclusively online through PHLUR.com and has since scaled the business through its website and retail partners such as Sephora, Amazon, and Space NK. Phlur is expected to record more than $150 million in retail sales in 2025, according to a Business of Fashion article.⁴ “Phlur’s commitment to authenticity, emotion storytelling, and modern scent creation makes it a standout in today’s fast-growing Fragrance market. We’re excited to support Phlur’s continued growth by expanding its presence across geographies and product categories while preserving the creative vision and emotional resonance that define the brand,” noted Hadley Mullin, Senior Managing Director at TSG Consumer, in a press release.⁶
• Unilever to Acquire Dr. Squatch (June 2025, $1.5 Billion) – Unilever (LSE:ULVR) announced its acquisition of DTC male grooming and personal care brand Dr. Squatch from growth equity firm Summit Partners for an enterprise value of $1.5 billion (June 2025). Dr. Squatch has leveraged a unique branding, marketing, and digital engagement engine to capture an 8% share of the U.S. Bath Bar Soap and Skin/Body Care categories after launching in 2016, with its sales almost doubling in 2024, according to Mintel.⁶ The company’s product suite spans natural ingredient soaps, lotions, and shampoos, and other grooming products, primarily targeting Gen Z men. “We look at digitally native brands, authentic brands with superior functionality, with the strong clinicals, with a strong presence in digital commerce. And Dr. Squatch fits all these kind of criteria. It’s a brand that is growing fast. It will fill a gap that we had in our portfolio in the premium segment in Deos [Deodorant] in the U.S. and in Skin Cleansing in the U.S.,” noted Fernando Fernandez, CEO of Unilever, in its Q2 2025 earnings call.⁷
• E.l.f. Beauty Acquires rhode (May 2025, $1 Billion, 4.7x EV/Revenue) – e.l.f. Beauty (NYSE:ELF) acquired rhode, a multi-category beauty brand founded by celebrity Hailey Bieber, for an enterprise value of $1 billion, equivalent to 4.7x EV/Revenue in May 2025. Launched in 2022, skincare-focused rhode recorded $212 million in net sales for the trailing twelve-months (TTM) ending March 31, 2025, according to a press release.⁸ Notably, the company has only sold its products DTC through its website rhodeskin.com. However, e.l.f. plans on launching rhode’s products in-store with Sephora in North America and the U.K. before year-end, highlighting the importance of omnichannel sales as the DTC e-commerce landscape matures post-pandemic. “e.l.f. Beauty found a like-minded disrupter in rhode. Rhode further diversifies our portfolio with a fast-growing brand that makes the best of prestige accessible. We are excited by rhode’s ability to break beauty barriers, fully aligning with e.l.f. Beauty’s vision to create a different kind of company. Rhode is a beautiful brand that we believe is ready for rocketship growth,” said e.l.f. CEO Rarang Amin, in the press release.

Capstone Speaks with Topspin Consumer Partners on the E-Commerce Investment Landscape and Hotspots for PE Activity Moving Into 2026

Topspin Consumer Partners

In September, Capstone spoke with Topspin Consumer Partners to discuss the investment landscape in the Consumer industry and E-Commerce sector, what makes an attractive e-commerce business, key levers for scaling DTC brands, and tariff impacts. Topspin is a Mamaroneck, NY-based PE firm that makes investments in established, profitable, and fast-growing middle market consumer businesses. The firm invests in various sectors within the Consumer industry, including Health & Wellness, Beauty & Personal Care, Food & Beverage, Household Goods, Pet, and Children’s Products. The Topspin team has considerable operational expertise in the consumer sector and collaborates with founder-owners and management teams to build businesses of varying stages and sizes. To learn more about Topspin, their investment approach, and current and prior portfolio companies, visit topspincp.com.

What differentiates Topspin Consumer Partners from other PE firms targeting the Consumer industry?

Topspin exclusively invests in digitally enabled consumer essentials and “consumer value chain” businesses that provide services to consumer-facing businesses. We are hands-on investors with deep consumer expertise, scaling brands into omni-channel platforms with national reach where appropriate. In the E-Commerce space, Topspin has a proven track record in DTC performance marketing and the Amazon ecosystem. We back “3-D” businesses: defensible, differentiated, and driven by clear growth vectors.

At Capstone, we have observed PE starting to mobilize across industries. Does this align with your observations in the broader market?

Yes—deal activity is building, with early signs of momentum in select consumer verticals. Strategics are well-capitalized and leaning on M&A for growth, while PE funds face record dry powder, aging portfolios, and LP [Limited Partner] pressure for liquidity. Credit markets remain supportive, aided by private credit fundraising and the prospect of lower interest rates. In consumer, activity has softened after a late-2024 rebound due to tariff uncertainty, but clearer policy and easing interest rates should reignite dealmaking.

What makes an e-commerce company attractive to Topspin? What are some of the key levers or strategies you employ when scaling your portfolio companies?

Topspin takes a data-driven approach to e-commerce investing, focusing on KPIs like LTV [lifetime value], customer acquisition efficiency, retention, and conversion trends. We back teams that are agile performance marketing experts, constantly testing, iterating, and refining strategies. Our e-commerce value creation playbook, shaped by our investments such as Bentgo, Carpe, Coop Sleep Goods, Japonesque, Pure Enrichment and Recom, provides us cross-pollinate learnings across the portfolio. To scale brands, we build in-house performance marketing teams, diversify marketing channels beyond Google and Meta to new platforms, strengthen content development, optimize pricing, and often expand distribution into retail to create omni-channel platforms.

What are your key investment criteria for add-ons or platform investments in the DTC E-Commerce space and how has it evolved in the post-covid era?

Topspin’s DTC investing criteria focus on five factors: (a) data-driven leadership teams, (b) compelling financials with strong growth and margins, (c) efficient and scalable customer acquisition engines, (d) high retention or subscription dynamics with attractive LTV, and (e) authentic brands with differentiated products, which stand apart from “me-too” copycats.

We also pursue strategic add-ons that open adjacent categories, expand channels and customer bases, and deliver cost savings through scale. Post-COVID, rising customer acquisition costs, driven by privacy changes like iOS updates and restrictions on third-party cookies, make it even more important to back high-performance teams and brands with proven ability to win in a challenging environment.

How have tariff policy developments impacted the Consumer industry and e-commerce companies? How are your portfolio companies responding?

The Consumer industry has faced a volatile tariff environment marked by uncertainty and constant change. Many companies, heavily reliant on offshore production, encountered significant tariff exposure which forced them to make rapid decisions with limited visibility. Topspin proactively prepared for this environment beginning in 2024, launching geo-diversification initiatives, which gave many of our portfolio companies competitive advantages. More broadly, key levers we pulled included diversifying into low-tariff or exempt markets, negotiating improved terms, passing through price increases, and re-engineering products and packaging to remove non-essential costs. These actions not only protected margins but also created opportunities to capture share through advantaged supply chains.

What E-Commerce segments (Apparel, Health & Wellness, etc.) do you see elevated PE interest and activity?

Health & wellness is a core investment theme for Topspin. Over the past six months, U.S. consumers have exhibited “choiceful” spending – indulging in categories like Health & Wellness, while trading down elsewhere. Post-COVID, these consumers are more conscious of what they put in, on, and around their bodies, driving sustained growth in the category. We expect continued PE interest, with Topspin and other PE funds focused on brands offering true product differentiation amid a wave of “me-too” entrants. Differentiated DTC brands with limited tariff exposure, in categories such as VMS [Vitamins, Minerals, & Supplements], Skincare, and Personal Care, will continue to draw elevated interest from PE.

Although DTC e-commerce brands have experienced an outsized impact to margins due to new tariff rates on goods imported to the U.S., businesses have continued to transact. Resilient discretionary spending passing through e-commerce channels has enabled select sector participants to weather near-term headwinds and a noisy macroeconomic backdrop and see strong acquisition appetite. Total sector deal volume will likely improve as struggling operators navigate the new trade landscape, evolve operations to return to profitable growth, and enter the market for a sale in 2026 and 2027.

To discuss the widespread impacts of new tariff policies, key characteristics buyers are looking for in DTC e-commerce businesses, provide an update on your business, or learn about Capstone’s wide range of advisory services and E-Commerce sector knowledge, please contact us.

Andrew Woolston, Associate, was the lead Market Intelligence contributor to this article.

Endnotes

1. U.S. Census Bureau, “Quarterly Retail E-Commerce Sales – Q2 2025 Publication Table 1,” https://www.census.gov/retail/ecommerce.html, accessed September 23, 2025.

2. Bloomberg Intelligence, “BI U.S. Tariff Impact Matrix,” https://www.bloomberg.com/professional/products/bloomberg-terminal/research/bloomberg-intelligence/, accessed September 23, 2025.

3. U.S. Bureau of Labor Statistics, “Consumer Price Index,” https://www.bls.gov/cpi/#:~:text=to%20August%202025-,The%20Consumer%20Price%20Index%20for%20All%20Urban%20Consumers%20(CPI%2DU,read%20more%20%C2%BB, accessed September 23, 2025.

4. Business of Fashion, “TSG Consumer Partners Acquires Phlur,” https://www.businessoffashion.com/articles/beauty/phlur-acquisition-tsg-consumer-partners/, accessed September 23, 2025.

5. TSG Consumer Partners, “TSG Consumer to Acquire PHLUR,” https://www.tsgconsumer.com/news/tsg-consumer-to-acquire-phlur, accessed September 23, 2025.

6. Mintel, “Uniever Acquires Dr. Squatch: What This $1.5B Deal Reveals About Modern CPG Brand Strategy,” https://www.mintel.com/insights/consumer-research/unilever-acquires-dr-squatch-cpg-brand-strategy-analysis//, accessed September 23, 2025.

7. Unilever, “Unilever Q2 & H1 2025 Results,” https://www.unilever.com/files/unilever-q2-h1-2025-results-webcast-transcript.pdf, accessed September 23, 2025.

8. e.l.f. Beauty, “e.l.f. Beauty Announces Definitive Agreement to Acquire rhode in $1 Billion Deal,” https://investor.elfbeauty.com/stock-and-financial/press-releases/landing-news/2025/05-28-2025-210536607, accessed September 23, 2025.