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E-tail therapy: There is plenty to play for in ecommerce M&A

Two assumptions have been over-egged in retail: The death of bricks-and-mortar shopping and that winners like Amazon and Alibaba take all. Since vaccines have been distributed and lockdowns eased, shoppers have returned to physical stores for a dose of in-person retail therapy. Nevertheless, the pandemic has accelerated the shift to internet shopping.

E-commerce sales in 2020 accounted for 14% of total sales, up three percentage points on 2019. That means online sales for last year reached US$791.7 billion, an increase of 32.4% by the US Department of Commerce's estimate.

Stamps of approval

For investors, there is still much to play for. When Thoma Bravo acquired mailing and shipping software company Stamps.com in July for US$6.6 billion, a 67% price premium, it added to an already impressive showing for the first half of 2021. In the first six months of the year there were US$23.3 billion worth of ecommerce software deals in North America, nearly double the same period last year.

Ecommerce encompasses much more than just clicking and buying goods, spanning a universe that includes supply chain software and logistics and inventory management, through to food delivery and online store APIs and plugins.

Private equity, which has accounted for around half the value of M&A in the sector this year, sees an opportunity to build out end-to-end ecommerce enablement offerings, investment bankers told Mergermarket. Currently Stamps.com focuses solely on postal labels. It is expected that Thoma Bravo will follow up with a succession of bolt-ons to build out a more comprehensive shipping offering.

Pocket watching

Growth pockets include premium customer loyalty programs (think Marlin Equity's Clarus Commerce), in a similar vein as Amazon Prime, as well as B2B software such as that used in drop shipping to connect retailers with inventory owners (see GTCR and Insight Partners' CommerceHub for an example of that). What's especially attractive about these kinds of assets is they typically involve sticky subscription models, which gives financial sponsors a clear view of incoming revenues, rather than relying on ad hoc sales volumes.

Private equity is expected to continue snaffling up category leaders like Stamps.com that solve various e-tail pain points in a growing market. As PE well knows, it's better to sell the picks and shovels than prospect for gold.

Top 10 ecommerce deals, North America (2011-2021)