Sep 27, 2022

E-Commerce Market Penetration Remains High, Top Brands Continue to See Acquirer Interest

The return of in-store shopping, persistent supply chain and fulfillment challenges, and rising customer acquisition costs have moderated the rapid growth that the E-Commerce market experienced in 2020 and in the first half of 2021. Digital sales recorded a 6.7% year-over-year (YOY) increase in Q1 2022, which marked the lowest increase for any quarter since Q3 2009, according to Digital Commerce 360.1 While projections for the complete replacement of brick-and-mortar retail by e-commerce have appeared to be overly optimistic, digital transformation has unquestionably remained a top priority for privately-held companies. Notably, over 80% of middle market business owners surveyed by Capstone Partners pointed to the expansion of their online presence as important to their growth, according to Capstone’s Middle Market Business Owners Survey. E-commerce sales penetration has remained historically high as online sales accounted for 21% of total retail sales in Q1 2022, a slight decline from 22.2% in Q4 2021, according to Digital Commerce 360. This compares to average pre-pandemic levels of 13.9% from Q1 2019 to Q1 2020.

Economic headwinds, including elevated inflation and the prospect of a recession, will likely linger through the second half of the year and into 2023. Brands focused on channel diversification, efficient marketing and advertising spend, and bolstering digital offerings are poised to capture strong growth. The Merger and Acquisition (M&A) markets also present significant opportunities for sector players to realize synergies or enhance product offerings. While M&A has slowed compared to the historic level of volume in 2021, strong appetite remains for quality brands with defensible revenues.

Within the E-commerce sector, the M&A market has slowed from the peak of last year and active buyers are being more selective right now. There is a flight to quality, with buyers keenly focused on A-level, growing, quality companies. Buyers are scrutinizing deals more closely with concerns around the economy and consumer spending. However, for many growing e-commerce companies, we are still getting strong market interest—particularly as the supply chain normalizes. The COVID impact is now more clear, and sustainability of margins can be supported going forward.

Lisa TolliverManaging Director, Capstone Partners

M&A Activity Slows, Quality E-Commerce Brands Remain in High Demand

Total middle market deal activity has slowed modestly through Q2 with transaction volume across all industries falling 3.4% YOY, according to Capstone Partners. The E-Commerce sector has experienced deeper declines in year-to-date (YTD) 2022 with 63 transactions announced or completed, marking a 33% YOY decrease in volume. However, the prior year’s M&A activity makes for a unique comparison as transaction volume surged to near-record heights. Through the midpoint of 2022, rising interest rates, moderate e-commerce growth, and recessionary headwinds have dissuaded many sellers from launching M&A sales processes—particularly those that have faced material impacts to revenue and earnings. While the market exuberance that drove transaction volume in 2021 has calmed, quality businesses with strong brand engagement, recurring revenue, and low customer acquisition costs continue to experience buyer and investor appetite.

Strategic acquirers comprised 58.7% of total YTD transaction volume, attracted to strong brands with a robust omnichannel presence that complement or diversify existing offerings. Notably, Unilever (LSE:ULVR) acquired Nutrafol, a leading online hair growth product provider, for an undisclosed sum (May 2022). Nutrafol offers clinically-tested and physician-formulated products to address thinning hair and compromised hair health. Nutrafol's expansive in-house digital capabilities provide a strong foundation for continued e-commerce growth and multichannel presence. The transaction highlights the significant appetite that online players in the Beauty & Wellness sector have garnered from market participants. Sectors including Home Goods and Outdoor Recreation have also drawn elevated buyer interest, particularly from the sponsor community.

Private Equity Firms Remain Active Buyers

Recent struggles among e-commerce aggregators have highlighted the importance of brand and operational strength. Private equity has become increasingly sophisticated in the space, with several high-profile firms building out e-commerce and direct-to-consumer (DTC) focused portfolios. Through YTD 2022, financial buyers have comprised 41.3% of total transaction volume, largely leveraging add-on acquisitions (33.3% of YTD transactions) to bolster portfolio companies. Notably, middle market private investment firm Comvest Partners has built a robust portfolio of DTC brands. Comvest announced a strategic investment in Renovation Brands in November 2021 (undisclosed), a leading e-commerce platform for home improvement products. The transaction marked the third DTC e-commerce company in Comvest's portfolio and its sixth platform in the Home-related category, according to a press release.2 Additional private equity-led transactions are outlined below.

  • Brooklyn Bedding and Helix Sleep Acquire Bear Mattress (July 2022, Undisclosed) - Brooklyn Bedding and Helix Sleep (Brooklyn-Helix), a DTC mattress platform backed by Cerberus Capital Management, has acquired Bear Mattress (July 2022). Terms of the transaction were not disclosed. Founded in 2015, Bear Mattress offers premium mattresses to active lifestyle consumers including athletes and fitness enthusiasts. It also provides accessories including bed bases, pillows, weighted blankets, sheets, protectors, and toppers.

The addition of Bear Mattress expands Brooklyn-Helix's DTC mattress solutions, adding high quality active lifestyle sleep offerings. Brooklyn-Helix's manufacturing, technology, and digital capabilities are expected to bring greater scale to Bear Mattress. "This acquisition solidifies our goal of building a house of exceptional brands backed by our world-class, vertically integrated manufacturing facility," commented John Merwin, CEO of Brooklyn Bedding in a press release.3

  • Beauty Industry Group Acquires Bellami Hair (May 2022, Undisclosed) - L Catterton-backed Beauty Industry Group (BIG) has acquired leading DTC hair extension provider Bellami Hair for an undisclosed sum (May 2022). Complementing its DTC approach, Bellami leverages a direct-to-stylist engagement strategy to bring products and insights to digital platforms used by stylists and customers.

The transaction allows Bellami to leverage BIG's product innovation, data insights and analytics, performance marketing expertise, and supply chain focus to accelerate the next chapter of growth. The acquisition also highlights the favorable view that reputable private equity firms, such as L Catterton, hold for the DTC Beauty space.

Fundraising and M&A Activity Stalls in the Fulfillment By Amazon Market

Inflation has continued to challenge companies across the Consumer industry, however, Fulfillment by Amazon (FBA) and e-commerce operators have also grappled with elevated costs from Amazon (Nasdaq:AMZN) and decreased data transparency through Facebook (Nasdaq:META) advertising. In late April, Amazon enacted a 5% fuel and inflation surcharge impacting third-party Amazon sellers. FBA players have sought to cut costs elsewhere or raise prices on products, testing the elasticity of demand and level of customer loyalty. Cost savings have often been realized through efficient and targeted advertising spend. Applications such as Facebook have provided valuable customer attribution data to allow brands to better understand their customers. However, Apple's iOS 14.5 update (announced April 2021) allowed iPhone users to opt-out of data tracking, which prohibited applications from collecting download, purchase, or click data. Many e-commerce players who were heavily reliant on Facebook advertising saw customer acquisition costs rise, impacting sales and profitability. The disruptions in data sharing practices have emphasized the need for diversification in advertising channels, which may encourage brands to increasingly experiment with campaigns through other Millennial-centric applications such as TikTok or Snapchat (NYSE:SNAP).

Through much of 2021 and the first half of 2022, the FBA market witnessed an unprecedented surge in consolidation as capital-rich aggregators aggressively added to their brand portfolios. However, rising interest rates and a challenging operating environment have stalled acquisitions and negatively impacted company performance. Leading e-commerce aggregator Thrasio announced substantial layoffs and has slowed its breakneck acquisition pace in recent months. Consolidators have struggled to raise cash to fuel growth as capital has grown more expensive. Notably, aggregators raised $2.2 billion in funding in the first half of 2022, a significant fall from the $5.1 billion raised in the first half of 2021, according to Marketplace Pulse.4 Despite significant headwinds, select buyers are actively pursuing acquisitions, albeit at a far slower pace than 2021. Recent notable transactions are outlined below.

  • Cincy Brands Acquires Vitabox (July 2022, Undisclosed) - Cincy Brands, a consumer-products company focusing on acquiring and growing better-for-you brands, has acquired Vitabox for an undisclosed sum (July 2022). The acquisition is the first for Cincy Brands since launching in February 2022 and it intends to add more brands in the remainder of the year.

Vitabox sources thousands of products from top brands to provide vitamins, personal care products, and pet supplies at low prices. It ships over one million orders annually through, Amazon, Walmart (NYSE:WMT), Wish (Nasdaq:WISH), eBay (Nasdaq:EBAY), and Kroger (NYSE:KR) marketplaces, according to a press release.5 Cincy Brands plans to continue to invest in Vitabox and leverage its technology, operational capabilities, and fulfillment infrastructure to accelerate the growth of its own brand platform. In addition, Cincy Brands’ sector expertise and capital resources will allow for greater scale and customer reach of Vitabox's offerings.

  • Profound Commerce Acquires E-commerce Portfolio of FBA Capital Management (July 2022, Undisclosed) - Acquirer and operator of e-commerce brands, Profound Commerce, has acquired FBA Capital Management's portfolio of e-commerce marketplace brands. While aggregator acquisition volume has declined in recent months, Profound’s addition FBA Capital's portfolio showcases the value it places on acquisitions and well-executed integration. The transaction also doubles Profound's topline revenue and contribution margin and adds significant operating leverage to its portfolio, according to a press release.6

"As we have grown through the recent turbulence in e-commerce, our track record has attracted notice from e-commerce entrepreneurs and fellow brand platform operators, like FBA Capital Management. Collectively, the two teams share the belief that the strongest operators and brand builders will win. We believe that there will be many more opportunities to acquire portfolios of brands and even entire aggregators in the future," commented Matt Howitt, CEO & Founder of Profound Commerce, in the press release.

The slowdown in overall E-Commerce M&A activity and decline in operating performance for select sector players is expected to improve in the near term. While still historically low, rising interest rates often serve as a drag on valuations which may cause private equity to delay exits for more favorable pricing and a less volatile economic environment. However, brands with sustained cash flow, healthy return on advertising spend, and a high level of repeat business are well-positioned to attract strategic and private equity buyers.


To discuss sector M&A activity, provide an update on your business, or learn about Capstone's wide range of advisory services and E-Commerce sector knowledge, please contact Managing Director Lisa Tolliver


  1. Digital Commerce 360, " Matt Howitt, CEO and founder of Profound Commerce,", accessed August 8, 2022.
  2. Comvest Partners, " Comvest Partners Announces Strategic Investment in Renovation Brands,", accessed August 8, 2022.
  3. Cision, " Brooklyn Bedding and Helix Sleep Acquire Bear Mattress,", accessed August 8, 2022.
  4. Marketplace Pulse, " Gold Rush To Fund Amazon Aggregators Dries Up,", accessed August 8, 2022.
  5. Cision, " Cincy Brands Acquires Vitabox to Scale Operations and Reach More Consumers,", accessed August 8, 2022.
  6. Cision, " Profound Commerce Acquires FBA Capital Management E-commerce Portfolio,", accessed August 8, 2022.

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