Thursday, 22 February 2018


#Ecommerce, #Business, #M&A, #CorporateFinance, #InvestmentBanking

M&A in the e-commerce industry has generated substantial buzz lately, with 2017 again seeing the record broken for the largest e-commerce acquisition of all time. Most notably,, who was acquired by PetSmart for a whopping $3.35 billion, besting the prior record held by when it was acquired by Walmart for $3.30 billion.
However, not all e-commerce companies have seen the same level of success, making it crucial to understand industry trends. This article covers both general mergers and acquisition deal activity and VC investment trends occurring in the e-commerce sector.


To fully understand the e-commerce space, it is important to be aware of some of the major transactions, which have had significant impact on the overall e-commerce environment:
·         Petsmart/Chewy (April 2017) – As mentioned, this has been the largest ever e-commerce transaction to date ($3.35 billion). It signifies traditional retailers’ growing interest in the e-commerce model.
·         Walmart/Bonobos, Modcloth, Moosejaw & ShoeBuy (2017) – Walmart acquired each of these in 2017 for over $50 million apiece as it looks to build its online brand presence. Walmart is hoping the strength of each of these brands will attract buyers to its online store.

·         Walmart/ (August 2016) – Walmart acquired for $3.30 billion in order to have an online portal where it could sell its major brands.2 This was notable because it showed the pressure Amazon has put on Walmart to embrace the e-commerce model.
·         Unilever/Dollar Shave Club (July 2016) – Unilever acquired Dollar Shave Club for $1 billion dollars in order to capture its loyal customers and its high-growth model. This transaction has been one of the first major subscription box models to see success.


Many buyers of e-commerce companies are large, established companies that are seeking to buy out competitors and growth opportunities in their space. These e-commerce buyers vary greatly in the types of products they sell and most have only made a limited number of acquisitions within their individual retail niches.
The one exception to this rule are Walmart, Amazon, and Alibaba. These companies have dominated the e-commerce space in terms of total acquisitions made because their strategy depends on being a place where consumers can buy nearly anything. Walmart alone has made four acquisitions greater than $50 million this year.


It can be helpful to break down the e-commerce deal market into different types of buyers and investors to gain a clearer picture of the market.
Angels and Seeds
Early-stage investment from angels and VCs have been shrinking in the e-commerce sector for the past several years. In 2013, seed and angel deals made up 54% of total deal share in the space. That amount has fallen to 38% in 2017. This decline suggests that the industry is coming to maturity.

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Venture Capital
Total VC investment has been strong in 2017. These have markedly been coming at later points in company’s lifecycle. In 2013, Series C investment and beyond comprised 23% of total deal share. In 2017, that amount has risen to 34%. In terms of the number of startup investment deals, 2017 is projected to see 941, which beats last year’s 796, and puts it close to 2015’s 976. The following graph illustrates this point.

PE Funds
Private equity investment has been strong in terms of deal volume. As brick-and-mortar retailers continue to struggle, private equity funds have been attracted to the growth and streamlined approach of e-commerce companies. Pitch book data as of a month ago shows that while total PE e-commerce deal count this year is slightly below 2015 and 2016, it is already more than 40% higher than in 2013.

Strategic Buyers
Despite several recent high-profile exits, acquisitions by strategic buyers seem to be slowing down. The industry is also seeing more consolidation occurring prior to exiting.5 While 2016 saw 150 M&A exits, 2017 may end up with less than 90. Difficulty exiting has led some well-funded e-commerce companies to experience down valuations (such as and Flipkart).


Some of the most important metrics to know when finding the value of an e-commerce business are as follows:
·         Price/Sales – This metric is important for valuing e-commerce companies because many of them reinvest most of their earnings. This means that an EBITDA or net income multiple would not be very useful.
·         Revenue Growth Rate – Faster-growing companies tend to be worth more. Looking at the growth rate over time can be helpful to see how quickly a company is maturing.
·         Number of Customers – This is the biggest driver of sales and is key to understanding the scope of a company’s business.
·         Customer Retention Rate – Look for this rate to either be flat or decreasing in the best e-commerce companies.


Deal sizes tend to be trending larger as the industry matures. From 2013 to 2015, there were only two e-commerce deals per year that surpassed billion-dollar mark. That number jumped to 6 in 2016, and 2017 is close to repeating that.


China and India are the leaders in terms of the number of e-commerce companies that have raised over $100 million in funding. The United States comes in third, with other countries spaced much farther behind.

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