3 Megatrends Fuelling M&A Momentum in Digital Commerce

Digital Commerce is one of Hampleton Partners’ specialisms, and our latest M&A report into this space has revealed some interesting data points. The first and most obvious takeaway is that overall transaction numbers remain markedly lower than the protracted surge we saw over the pandemic period, when the societal impact of lockdowns drove unprecedented demand for online retailers and related software solutions vendors.

But the report also highlights signs of a ripening market environment, with the cracking open of the IPO window and an appetite among investors and strategic buyers to stake their claim on game-changing developments within e-commerce.

Our Sector Principal Ralph Hübner, recently an attendee at the K5 Future Retail Conference in Berlin, notes that companies in this sector “are benefitting from the desire by Digital Commerce acquirers to provide compelling, tailored, diverse customer experiences through innovative platforms.”

Let’s run through some of the megatrends fuelling momentum right now.

The advent of truly intuitive, AI-powered shopping assistants or agents is fundamentally overhauling how brands interact with their customers online. Such tools are lowering the burden on staff to field customer queries while also automatically upselling and cross-selling products and services.

The potential of this technology to boost e-commerce revenues is drawing investors, with one notable fundraise earlier this year involving Silicon Valley startup Big Sur AI. In March, it announced a $6.9 million seed round while also launching its flagship AI sales agent, which is now available to merchants on the Shopify platform.

Tailored to individual stores, the agent is designed to improve the customer journey at e-commerce websites, boost conversion rates, increase basket sizes, and – in the words of Lightspeed Venture Partners which led the round – “cut through the noise and build lasting relationships with their customers”.

Another notable transaction this year has been the April merger of Tampa-based Satisfi Labs and New York startup BROADWai – two companies specialising in AI agents for live events, tourism hotspots and cultural attractions. The move positions the business as one of the leading AI players in the tourism/entertainment space, and is sure to form part of a wave of consolidation as the subsector matures.

Ever-increasing concerns around the social and environmental impact of commercial organisations, and around the provenance and sustainability of items they sell, are casting ethically-focused companies in an attractive light for investors and acquirers.

One example noted in our new M&A report is Boston-based ethical marketplace DoneGood, which has been described as the “Amazon of social good” and aims to help customers more easily shop with brands which share their values. It does this by thoroughly vetting its partner brands beforehand, and only presenting those that meet DoneGood’s ethical criteria to customers.

In April, DoneGood was snapped up for an undisclosed sum by Raleigh-based fintech Karma Wallet, also a company in the ethical commerce space, which provides account holders with data on their carbon footprint and encourages sustainable consumer spending.

Another marketplace for sustainable products acquired this year is Hamburg-based Avocadostore. Germany’s leading digital hub for eco-friendly fashion and other “green lifestyle” products, it sold a majority stake to software company The Platform Group in January, with the aim of leveraging the TPG’s e-commerce expertise, especially when it comes to software engineering and marketing.

Sociocultural as well as environmental concerns are playing on the minds of investors in Digital Commerce. Back in November, Ariel Alternatives – an impact-focused affiliate of the asset management firm Ariel Investments – acquired a majority stake in My Code, the Santa Monica media company which specialises in connecting brands to Hispanic, Black, AANHPI, and LGBTQIA+ consumers.

The deal was struck through Ariel Alternatives’ Project Black, a mammoth $1.45 billion fund specifically for minority-owned businesses, whose existence highlights the interest investors are taking in opportunities to meet evolving consumer demands.

The practice of purchasing and consolidating disparate software tools within single platforms isn’t new, but it’s been gathering a head of steam within the Digital Commerce industry in recent times, with both strategic and private equity players reaching deep into their pockets to pursue “buy and build” strategies.

A case in point is Shop Circle, the London-based rollup company whose founders were spurred on by the insight that today’s e-commerce vendors often have to juggle dozens of SaaS tools to help with everything from marketing to supply chain management. Shop Circle makes life easier for vendors by curating a portfolio of apps it has acquired and collected in one place, and this approach earnt the firm a $120 million funding round last September.

Another prominent rollup company is New York-based Relay Commerce, which focuses on acquiring bootstrapped SaaS tools for e-commerce. The beneficiary of a $27 million funding round a few years ago, Relay has snapped up some key companies in Digital Commerce.

These include the social proof tool Fomo, which encourages sales by showing potential consumers how items are selling in real time, and – in March this year – Relo, the customer retention platform which analyses sales data and optimises how vendors can encourage repeat custom and cross sell products and services.

If you’re a Digital Commerce business owner or senior decision maker looking for M&A guidance, say hi to our Sector Principal, Ralph Hübner or our Managing Partner Dr. Jan Eiben. And, for more of our latest data on this and other sectors, read our M&A reports here.