Riding the eCommerce M&A Wave

The growth trajectory of the eCommerce industry has only gone up and to the right since the dawn of the 90s. Currently valued at about $800B, that trend is showing no signs of slowing down. According to eMarketer, eCommerce sales are expected to increase by 18% in 2021, achieving sales milestones that were only projected to come to fruition by 2025.

There are a number of factors driving this growth, which we’ll cover throughout the course of this article: 

• Millennials and baby boomers spending more, across longer periods of time
• Significant technological advances leading to an improved online user experience 
• Increased prevalence and ease of mobile-based purchasing
• New social media-based shopping platforms with highly sophisticated advertising capabilities
• Covid-19

Where there is growth, capital follows. Private equity investors have increasingly targeted the eCommerce space, driving industry consolidation in what remains a highly fragmented, target-rich market.

Riding the Consumption Wave

The Covid-19 pandemic forced consumers of all age groups to experiment with eCommerce-based shopping. While most things in life continue to trend towards normalcy, shopping habits developed during the pandemic are not likely to change. Millennials, with their increased disposable income and comfortability with technology, are entering their peak consumption years, driving a significant amount of growth. Baby Boomers are living longer and are therefore extending their shopping years. Add these trends to the large selection and quick product fulfillment of online ordering, and it becomes clear that the eCommerce wave will only continue to rise. Online shopping as preferred method of consumption is here to stay.

eCommerce Segmentation

eCommerce segmentation has grown well beyond the typical books and clothing that once defined the industry in its infancy. In 2020, the Books, Music & Video product category represented the highest percentage of sales in the US, while the fastest growing category of products was Food & Beverage, growing by almost 58%. Health, Personal Care & Beauty sales grew by over 30%.

Here are some additional highlights:

• Amazon, Walmart, and eBay represented over 48% of the total eCommerce retail market share in the US in 2020.

• Amazon’s sales grew by 40% in 2020 and remains the market share leader. However, other major online retailers grew at faster rates than Amazon last year, including Best Buy (106%), Walmart (79%), Target (104%), Etsy (128%), Wayfair (67%), and Shopify (96%).
• Since 2016, sales made via mobile devices have increased by 15%, while recent estimates project that 73% of eCommerce sales will likely take place on mobile devices in the coming years. 

Accelerating Investor Interest

Tremendous growth + massive market capitalization + industry fragmentation = ideal market conditions for investment activity. 

In addition to traditional buyouts, investors are also increasingly deploying buy and build strategies in the eCommerce space, to create platforms that leverage data-driven insights to achieve efficient customer acquisition and retention, while providing a best-in-class, seamless user experience. Consolidation in eCommerce is a major trend to keep an eye on, that will also produce scalable fulfillment and more adoption in new industry verticals.

eCommerce M&A Activity

eCommerce transactions continued to grow at an aggressive pace in 2020, despite the uncertainty and economic hardships resulting from the pandemic. That growth is expected to continue through 2021 and beyond. Online consumer retail deals jumped from 19% of the total in 2019 to 27% in 2020, indicative of the surging interest in online shopping. 

In 2020 alone there were over 1,500 transactions in the eCommerce space. 

At our firm alone, we recently closed an eCommerce transaction that increased over 30% in value from initial expectations. This was due in large part to a strategic plan created to help the company weather through the pandemic and maximize their eCommerce distribution channels. We are also actively helping to acquire two separate category leading retailers and expect to see activity and interest accelerate with sellers and a growing range of buyers, including larger private equity funds and family offices.

About Cascade Partners

Cascade Partners LLC is an investment banking and private investment firm serving entrepreneurs, businesses and investors active in the middle market. Everything Cascade does originates from an expressed desire to meet the unique objectives of each of their client partners. Cascade helps drive their success by bringing a range of solutions and approaches drawn from nearly 200 years of collective deal experience.

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