3January 2019www.capstoneheadwaters.com

Capstone Headwaters

The E-commerce & Internet Retailing market has experienced heightened

traffic, increasing 14.5% year-over-year (YOY) through Q3 2018, according to

the US Census Bureau.1 The positive correlation between rising real disposable

income and e-commerce sales has fostered significant growth and expansionary

opportunities in the industry. Healthy consumer confidence and wage growth

throughout the year, most recently indicating a 3.2% wage increase in the

December US jobs report,2 have resulted in personal consumption expenditure

growth of 2.8% YOY in November (US Census Bureau).3 Heading into 2019, an

unabated US economy is poised to bolster consumer spending growth and

subsequently present acquisition opportunities for leading retailers to acquire

e-commerce businesses in an effort to capture market share.

With 103 transactions in 2018, the E-commerce & Internet Retailing merger &

acquisition (M&A) market is expected to remain active in 2019. The Home

Furniture and Decor segment showed value-add M&A opportunities, as

consumers shift preferences to purchase furniture and home related goods

online. Notably, Walker Edison Furniture, a manufacturer of read-to-assemble

furniture, was acquired by JW Childs Associates in September (terms

undisclosed). In addition, Stitch Industries (doing business as Joybird), an e-

commerce retailer and manufacturer of upholstered furniture, was acquired by

La-Z-Boy (NYSE:LZB) in July for a transaction value of $67.5 million.

TABLE OF CONTENTS

Year-in-Review

Key Trends & Drivers

Notable Transactions

Case Study

Select Transactions

Firm Track Record

E-Commerce & Internet Retailing

Q1 2019

YEAR-IN-REVIEW

CONTRIBUTORS

Lisa Tolliver

Director

312-674-4532

ltolliver@capstoneheadwaters.com

$133.1

$449.3

$380.7

$75

$150

$225

$300

$375

$450

$525

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q3

2018

$ in

Billio

ns

YTD Q3 Q4

US E-Commerce Sales

Source: US Census Bureau

Key Trends & Drivers:

Walmart Grows E-commerce Sales by 43.0%:

Initiatives promoting e-commerce expansion

through organic and inorganic growth strategies

have resulted in a seven consecutive quarters of

double digit YOY e-commerce growth. Organic

strategies such as redesigning its website to

develop a personalized shopping experience and

inorganic opportunities targeting established e-

commerce businesses have produced substantial

revenue growth over the period. This year,

Walmart has expanded its product offerings and e-

commerce capabilities through the acquisition of

five e-commerce businesses.5

E-Commerce & Internet Retailing | Q1 2019

2

63%60%

50%

23%

33%40%

43%

0%

10%

20%

30%

40%

50%

60%

70%

$105

$110

$115

$120

$125

$130

$135

$140

Q1

'17

Q2

'17

Q3

'17

Q4

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Q1

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Q2

'18

Q3

'18

E-c

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ale

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th

$ in

Billio

ns

Sales E-Commerce YOY Growth

Walmart Performance

15%17%

29%

35%33%

29% 17%

0%

5%

10%

15%

20%

25%

30%

35%

40%

$0

$10

$20

$30

$40

$50

$60

$70

Q1

'17

Q2

'17

Q3

'17

Q4

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Q1

'18

Q2

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Q3

'18

Pro

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ale

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$ in

Billio

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Sales Product Sales YOY Growth

21%32% 24%

29%

28%

41%49%

0%

10%

20%

30%

40%

50%

60%

$0

$5

$10

$15

$20

$25

Q1

'17

Q2

'17

Q3

'17

Q4

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Q1

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Q2

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Sales E-Commerce YOY Growth

Target Performance

Amazon Performance

Source: FactSet and Earnings Releases

E-commerce retail sales experienced robust growth during the 2018 November/December holiday season, increasing 19.1%

YOY, according to Mastercard SpendingPulse.4 Walmart (NYSE:WMT), Target (NYSE:TGT), and Amazon (NYSE:AMZN) have

posted YOY sales growth through Q3 and have sustained YOY double digit e-commerce growth since Q1 2017. Sustained

consumer sentiment is expected to foster further e-commerce sales growth as consumers seek convenient and personalized

shopping experiences.

Target Grows E-commerce Sales by 49.0%:

Target has leveraged its extensive brick-and-mortar

presence to efficiently fulfill digital sales orders and

promote e-commerce initiatives. Consistent with

YOY holiday sales, Target posted a 5.7% sales

increase and 29.0% digital sales growth during the

November/December holiday season.6 Target

expects that rate of growth to support their fifth

consecutive year of over 25.0% digital sale growth,

according to their press release. As the E-

commerce market expands and customer

preferences trend towards heightened experience,

personalization, and convenience, Target is

expected to continue its pursuit of e-commerce

expansion though organic and inorganic strategies.

Amazon Grows Product Sales by 17.0%:

Amazon’s total net sales grew 29.0% YOY in Q3

2018 which corresponds to a 36.7% increase YOY

through Q3.7 Amazon’s disruption in the Retail

market has forced brick-and-mortar leading

retailers to adapt in order to capture the shifting e-

commerce retail landscape. The latest forecasts by

eMarketer projected that approximately 49.1% of

E-commerce market will be controlled by Amazon

in 2018.8 To expand product offerings outside the

realm of consumer products Amazon has acquired

PillPack (June, terms undisclosed) an online

pharmaceuticals provider that delivers medication

to a customer’s door. Amazon’s disruption and

business decisions will continue to exert significant

influence over major retailers.

Procter & Gamble Company acquires Walker & Company

(December 2018, undisclosed)

Procter & Gamble (NYSE:PG) has acquired Walker & Company, a Palo Alto-based provider of health and

beauty products for people of color. Following the transaction, Walker & Co., will move its headquarters

to Atlanta. Terms of the deal were not disclosed.

Founded in 2013, Walker & Co. sells grooming products for men under the Bevel brand and hair-care

products for women under the Form Beauty brand. The acquisition follows P&G’s strategic initiative to

better serve its multicultural consumer base with curly or natural hair. P&G’s leading resources,

expertise, and availability of capital will help accelerate Walker & Co.’s brands, developing new products

and expanding scale.

“The combination of Walker & Company’s deep consumer understanding, authentic connection to its

community and unique, highly customized products and P&G’s highly-skilled and experienced people,

resources, technical capabilities and global scale will allow us to further improve the lives of the world’s

multicultural consumers,” commented Alex Keith, CEO of P&G Beauty, in a press release.9

Walmart Inc. to acquire Art.com Inc.

(December 2018, undisclosed)

Walmart (NYSE:WMT) has agreed to acquire Art.com, the largest online retailer in the Art & Wall Decor

segment. Upon acquisition, Walmart intends to operate Art.com as a standalone and complementary

site in its e-commerce portfolio. Terms of the transaction were not disclosed.

Art.com, founded in 1998, offers over two million curated images, including a growing exclusive

assortment. The online retailer offers on-demand and customizable delivery services with the majority

of their inventory being printed and custom framed at the time of ordering. Art.com’s site includes

personalized visual search technology that allows you to view the art on your walls before purchase,

catering to customer experience. Art.com contributes to Walmart’s inorganic e-commerce growth

strategy, expanding Walmart’s e-commerce capabilities into the specialty home retail space. The

transaction represents Walmart’s fifth e-commerce acquisition in 2018.10

Sleep Country Canada acquires Endy Sleep

(November 2018, $66.8 million)

Sleep Country (TSX:ZZZ), Canada’s leading sleep retailer, has acquired Endy Sleep for a transaction value

of $66.8 million, with $18.8 million of proceeds subject to certain growth and profitability targets by

2020. The ~$48.0 million paid at closing represents a transaction multiple of 12.0x trailing 12-month

EBITDA. The businesses will operate as separate entities with no change in Endy’s management.

Founded in 2015, Endy is one of Canada’s fastest growing e-commerce retailers, providing its customers

with mattresses, pillows, and other bed products. Designed to relieve pressure points, eliminate motion

transfer, and release body heat, Endy is one of the leading online mattress brands in Canada with a

150.0% year-over-year growth rate in 2018. The acquisition expands Sleep Country’s digital offerings

and complements their existing brick-and-mortar national footprint in Canada.

“We launched Endy as a disruptor in the Canadian e-commerce space three years ago, and this

announcement today is a testament to the incredible dedication of the entire Endy team,” said Rajen

Ruparell, Co-founder and Chairman of Endy.11

Several notable transactions were announced or completed in the industry in 2018. Select transactions are outlined below,

followed by a more comprehensive list on the following pages.

Acquires

Acquires

Acquires

3

NOTABLE TRANSACTIONS

E-Commerce & Internet Retailing | Q1 2019

Enterprise EV / LTM

Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA

12/17/18Tepui

OutdoorsThule Group Manufactures roof top tents for cars and trucks. $9.5 - -

12/14/18 SupplementHunt Innovus Sells supplements via its e-commerce portal. - - -

12/12/18Walker &

CompanyProcter & Gamble

Provides health and beauty products via its online

portal. - - -

12/06/18 Art.com WalmartOperates as an online specialty retailer of wall art and complementary decor products.

- - -

11/30/18 Letgo USA AmbatanaOperates an online platform for buying and selling used goods.

$189.0 - -

11/29/18 Endy SleepSleep Country

Canada

Provides mattresses, pillows, and sheets through its website.

$66.8 - 12.0x

11/28/18 Tikes Bikes WeeBikeShop Sells bikes and related accessories. - - -

10/25/18 Jello Labs ShopRunnerOffers clothing, shoes, accessories, beauty, and jewelry products, doing business as Spring.

- - -

10/24/18 TP Apparel Redbubble Manufactures apparel and providers a marketplace that

enables artists to sell their designs/products online. $41.0 - -

10/12/18 BareWeb WalmartOperates as an online specialty retailer of branded and designer intimate apparel for men and women.

- - -

10/04/18 Birchbox WalgreensOffers a personal care products subscription service.

- - -

10/02/18 ELOQUII Design Walmart Designs and sells fashion apparel for women. - - -

09/28/18 CafePress SnapfishOperates as a retailer of personalized products

including apparel and home goods.$5.5 - -

09/27/18Walker Edison

Furniture

JW Childs

AssociatesManufactures ready-to-assemble furniture. - - -

09/24/18 Plasso GoDaddyOperates an e-commerce marketplace which allows

users to sell products, services, and digital goods. - - -

08/28/18 FragranceNet.com JTG B.V.Sells branded fragrances and related products through its online portal.

- - -

08/09/18 Vida CimpressOperates an e-commerce site that bridges the gap between designers, producers, and consumers.

$29.0 - -

07/19/18 Level Sleep DreamCloudManufactures mattresses and mattress converters online.

- - -

07/16/18Stitch

IndustriesLa-Z-Boy

Provides custom furniture, doing business as Joybird.

$67.5 1.2x -

06/28/18 PillPack AmazonOperates as a pharmacy that delivers packaged medication to consumers.

- - -

06/13/18 Sam Tucker CulpManufactures and distributes bed, bath, home, and garden products, doing business as eLuxurySupply.

- - -

06/01/18 Gracedbygrit HYLETEProvides workout gear for women primarily for use in running and watersports.

- - -

05/23/18 Relish Labs KrogerProvides fresh ingredient and recipe delivery, doing business as Home Chef.

$700.0 2.8x -

Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Research

SELECT TRANSACTIONS

4

E-Commerce & Internet Retailing | Q1 2019

Enterprise EV / LTM

Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA

05/08/18 Flipkart Walmart Operates an online shopping Website in India. - - -

04/25/18 InstaCandy Alpine SubscriptionsProvides subscription based retailing services for

toffees and candies.- - -

04/17/18 Nakidparts.com RPI Designs Retails automobile parts online. - - -

04/05/18 Polyvore SSENSE A community-powered shopping website. - - -

03/29/18 BaeteaNew World

Natural Brands

Manufactures and sells health and beauty products

online. - - -

03/22/18Athlete & Artist

Originals

Printfly

Corporation

Online retailer of certified original products by athletes

and sports apparel.- - -

03/20/18 Green Chef HelloFreshProvider of an online platform designed to deliver

organic meals and vegetables to a user's doorstep.- - -

03/01/18 SitStay Buddy Brands Online retailer of pet products. - - -

02/28/18Quest

Products

Promus

Equity

Consumer goods and e-commerce services company

with several leading personal care brands.- - -

02/28/18 Stylefile OUTFITTER E-commerce streetwear company. - - -

02/27/18 Business of Giosis eBayRuns a number of localized marketplaces in Asia

including e-commerce platform Qoo10.jp.- - -

02/27/18 AutoAnything Kingswood CapitalOperates as an online retailer of specialized

automotive products. - - -

02/20/18 iB2BGlobal.comAmerican Video

TeleconferencingOffers branded merchandise online, including home

decor, kitchenware, and sporting goods. - - -

02/13/18 Viyet Sotheby'sProvider of an online marketplace for high-end design

and furnishings. - - -

02/07/18Fast Growing

TreesSpp Management

E-commerce provider of hybrid plants and trees direct

to the consumer.- - -

02/02/18 PurpleGlobal Partner

Acquisition

Designs and manufactures mattresses, pillows, and

cushions sold online direct to the consumer.- - -

01/22/18 Carbon 38 Foot Locker E-commerce retailer of women’s luxury active apparel. - - -

01/18/18 Jack BlackEdgewell Personal

CareOnline marketplace created to offer grooming

products for men. - - -

01/16/18 Unata Instacart Provider of an all-in-one grocery e-commerce platform

designed to simplify and personalize shopping. $65.0 - -

01/16/18 YogaHome MarpacDesigns, manufactures, and supplies luxury foam

mattresses. - - -

01/10/18 Caskers Flaviar Limited Sells spirits through its online store. - - -

01/04/18 BH Cosmetics MidOcean PartnersE-commerce provider of color cosmetics products for

the face, lips, eyes, brows, brushes, and accessories.- - -

01/03/18 BloomThat FTD Companies Provider of an on-demand flower delivery platform. - - -

Note: CF = confidential; highlighted deals are Capstone Headwaters’ transactions

Source: Capital IQ, Pitchbook, FactSet and Capstone Headwaters Research

SELECT TRANSACTIONS

5

E-Commerce & Internet Retailing | Q1 2019

FIRM TRACK RECORD

has been acquired by has been acquired by

has been acquired byhas been acquired by

6

E-Commerce & Internet Retailing | Q1 2019

has been acquired by

has been acquired byhas merged with

a portfolio company of

has been acquired by

has been acquired by

has been acquired by

a portfolio company of

has recapitalized with

has been acquired by

has been acquired by

has acquiredhas partnered with

CONFIDENTIAL

corporate sale

(IN PROCESS)

CONSUMER RETAIL &

E-COMMERCE PET

PRODUCTS MANUFACTURER

Areas of Focus

• Branded Consumer Products

• e-Commerce

• Food & Beverage

• Juvenile Products

• OTC Pharma

• Personal Care

• Recreational Products

• Restaurants

• Retail

• Health, Wellness & Nutritional Products

EXTENDED CONSUMER & RETAIL TEAM

E-COMMERCE & INTERNET RETAILING REPORT CONTRIBUTOR

7

Lisa Tolliver

Director

ltolliver@capstoneheadwaters.com | 312-674-4532

Lisa has over 18 years of experience in the investment banking industry, primarily focused on advisingmiddle market private business owners in liquidity related transactions. As a Director based in CapstoneHeadwater’s Chicago office, she works closely with clients to advise and execute domestic and cross-border M&A transactions, recapitalizations and capital raises.

Prior to Capstone Headwaters, Lisa worked in the Capital Strategies Group at Morgan Stanley SmithBarney and also spent 10 years working for the middle market investment banking arm of Citigroup,where she was involved in the evaluation, marketing and closing of numerous transactions involvingprivate businesses and corporate divestitures. Over her career, Lisa has developed M&A expertise inseveral industry sectors including consumer products, e-commerce, technology-enabled businessservices, government & defense and industrials. Lisa received her BA on academic scholarship fromIllinois State University and is a Series 7 and 63 Registered Securities Representative.

E-Commerce & Internet Retailing | Q1 2019

Capstone Headwaters has a fully dedicated Consumer & Retail Team that has earned the reputation as a trusted advisor for

some of the most recognized companies across the consumer and retail landscape. What sets us apart is our experience.

Each of our Managing Directors has been focused on Consumer & Retail for over 20 years. Our collective tenure and

experience brings deep sector knowledge and insights to identify valuation drivers and company positioning. We have

established relationships with thought leaders, private equity, consumer and retail focused family offices and other key

industry participants. For more than 15 years, we have delivered award-winning results.

To learn more about the Consumer & Retail Team and our most recent M&A Transactions visit www.capstoneheadwaters.com

MIDDLE MARKET INVESTMENT BANK OF THE YEAR

2017

US - DEBT FINANCING ADVISORY OF THE YEAR

2018

US MIDDLE MARKETS INVESTMENT BANK OF THE YEAR

2018

INVESTMENT BANKING FIRM OF THE YEAR

2019

TURNAROUND AWARDS

1. US Census Bureau, “Quarterly Retail E-Commerce Sales 3rd Quarter 2018,” https://www.census.gov/retail/mrts/www

/data/pdf/ec_current.pdfhttps://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf, accessed January 10, 2019.

2. Bureau of Labor Statistics, “Employment Situation Summary,” https://www.bls.gov/news.release/empsit.nr0.htm, accessed

January 10, 2019.

3. Bureau of Economic Analysis, “Monthly Personal Income, DPI, PCE and Personal Saving: Levels and Percent Changes,”

https://www.bea.gov/system/files/2018-12/pi1118_hist.pdf, accessed January 10, 2019.

4. Mastercard, “Mastercard SpendingPulse: U.S. Retail Sales Grew 5.1 Percent This Holiday Season,” https://newsroom.

mastercard.com/press-releases/mastercard-spendingpulse-u-s-retail-sales-grew-5-1-percent-this-holiday-season/,

accessed January 11, 2019.

5. Walmart, “Walmart Q3 2018 Earnings Press Release,” https://s2.q4cdn.com/056532643/files/doc_financials/2019/Q3

/Q3FY19-Earnings-Release-Final.pdf, accessed January 10, 2019.

6. Target, “Target Reports November/December Sales, Maintains Full-Year Sales and EPS Guidance,”

http://investors.target.com/phoenix.zhtml?c=65828&p=irol-newsArticle&ID=2382923, accessed January 10, 2019.

7. Amazon, “Amazon.com Announced Third Quarter Sales up 29% to $56.6 Billion,” https://ir.aboutamazon.com/news-

releases/news-release-details/amazoncom-announces-third-quarter-sales-29-566-billion, accessed January 10, 2019.

8. eMarketer, “Amazon Now Has Nearly 50% of US Ecommerce Market,” https://retail.emarketer.com/article/amazon-now-

has-nearly-50-of-us-ecommerce-market/5b48c542ebd4000b24140992, accessed January 10, 2019.

9. Procter & Gamble, “Walker & Company Brands Joins the Procter & Gamble Family of Brands,” https://news.pg.com

/press-release/pg-corporate-announcements/walker-company-brands-joins-procter-gamble-family-brands, accessed

January 7, 2019.

10. Walmart, “Adding Art.com to our Palette,” https://news.walmart.com/2018/12/06/adding-artcom-to-our-palette,

accessed January 8, 2019.

11. Sleep Country, “Sleep Country Canada Announces Acquisition of Endy,” https://www.sleepcountryir.ca/English/press-

releases/press-release-details/2018/Sleep-Country-Canada-Announces-Acquisition-of-Endy/default.aspx, accessed

January 8, 2019.

8

CITATIONS

Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisi-

tion activity. Information contained in this report should not be construed as a recommendation to sell or buy any security. Any reference to or omission of

any reference to any company in this report should not be construed as a recommendation to buy, sell or take any other action with respect to any security of

any such company. We are not soliciting any action with respect to any security or company based on this report. The report is published solely for the

general information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation or

needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all

investors. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied

upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary

mate- rially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and are

subject to change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of Capstone

Headwaters. The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to such

company. This report may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The

information contained herein should not be construed as legal advice.

E-Commerce & Internet Retailing | Q1 2019

12

www.capstoneheadwaters.com

Capstone Headwaters is an elite investment banking firm dedicated to serving the corporate finance needs of middle market

business owners, investors and creditors. Capstone Headwaters provides merger & acquisition, private placement, corporate

restructuring and financial advisory services across 16 industry verticals to meet the life cycle needs of emerging enterprises.

Headquartered in Boston, MA and Denver, CO, Capstone Headwaters has 19 offices in the US, UK and Brazil with a globalreach that includes over 300 professionals in 33 countries.

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