E-Commerce M&A Update – December 2024

Strong Consumer Demand for Digital Channels Bolsters E-Commerce M&A Market

Capstone’s latest E-Commerce M&A Update reports that healthy e-commerce demand coupled with an increased focus on advertising spend, marketing efficiency, and customer acquisition costs have fueled a fervent E-Commerce M&A market.

The E-Commerce sector has continued to show resilience despite recent periods of inflation and high interest rates pressuring consumer spending. Although spending on goods saw modest 1.1% and 1.9% year-over-year (YOY) increases in Q1 and Q2 2024, respectively, consumers have continued to elect to shop through e-commerce platforms, according to the Bureau of Economic Analysis.¹ E-commerce penetration in the Retail market grew 6% and 4.6% YOY in the first two quarters of 2024, respectively, with e-commerce sales as a percent of total retail sales reaching 16% in Q2 2024, according to the St. Louis Federal Reserve.² Notably, the Q2 reading has inched closer to the e-commerce penetration peak of 16.4% at the height of the pandemic in Q2 2020.

The rise of e-commerce as a preferred shopping method has helped middle market direct-to-consumer (DTC) brands achieve healthy growth despite a challenging macroeconomic environment. However, DTC brands have grappled with less efficient and more costly advertising. Low barriers to entry in the DTC E-Commerce market have made it difficult for business owners to differentiate themselves via marketing, further compounding challenges for sector participants. As a result, companies with low CAC and scalable, comprehensive first-party data that enhance return on ad spend (ROAS) have piqued buyer interest and maintained market leading profitability. Additionally, the Business-to-Business (B2B) E-Commerce segment has drawn strong M&A interest. B2B e-commerce sellers often provide a stickier consumer base and strong revenue visibility via repeat purchases. The strong level of e-commerce demand, coupled with heightened competition in the digital marketplace, has translated to healthy E-Commerce M&A activity through year to date (YTD) 2024.

E-Commerce M&A has shown considerable strength, outpacing the broader Consumer industry’s 0.6% YOY growth, with deal volume climbing 41% YOY. This has indicated a release of pent-up demand following subdued activity in 2022 and 2023. Strategic buyers have continued to drive dealmaking in the sector, contributing 88 transactions to total deal volume YTD. Private businesses in the Beauty and Food segments have expressed fervent acquisition appetite, backed by non-discretionary-leaning consumer bases. Private equity buyers have contributed 20 platform investments and 33 add-on acquisitions to total sector deal volume to date. Fund managers have shown interest in the B2B E-Commerce market and have focused on value accretive M&A for existing portfolio companies. This has upheld sponsor dealmaking in the sector despite a pivot toward consumer services businesses from many private equity firms. Capstone expects the ever-evolving landscape of the E-Commerce sector to support the positive momentum seen in the M&A market through YTD 2024 moving into 2025.

Also included in this report:

• A review of the challenges facing DTC brands in the digital marketplace and how business owners have addressed these pressures.
• A breakdown of what type of buyers are targeting E-Commerce sector participants and the rationale behind dealmaking that has contributed to a resurgence of M&A activity in 2024.
• Notable transactions based on target end market.

Capstone Partners’ Consumer Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the consumer and retail industries. Our team partners with leading mid-to-large sized consumer businesses that serve growing end-markets. For more information on the E-Commerce M&A trends featured in this report or to speak with one of our Consumer Investment Banking Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.