Middle Market Online Marketplaces Poised to Attract Buyers E-Commerce M&A Executive Summary | November 2020

INDUSTRY OVERVIEW E-COMMERCE M&A ACTIVITY 2019 2020 E-Commerce demand has reached unprecedented levels amid COVID-19 with online sales rising 44.5% in Q2 year-over-year 80 (YOY), accounting for over 16% of total sales, according to 60 52 the U.S. Census Bureau.1 As consumer preferences for digital 49 capabilities have accelerated, online marketplaces have captured 40 33 32 heightened sales growth. Notably, top marketplace provider, Etsy 23 22 16 17 (Nasdaq:ETSY) experienced a 128% YOY revenue increase in Q3, 20

supported by a 70% growth among repeat buyers, according to Transactions of # its earnings release.2 While large public marketplace companies 0 have witnessed elevated demand, this has equally impacted Q1 Q2 Q3 YTD Q4 smaller, more specialized marketplaces, evidenced by sustained Year-to-date ended November 2 merger and acquisition (M&A) activity among privately-held Source: Capital IQ, PitchBook, FactSet, and Capstone Research online platforms.

Online marketplaces often possess significant pricing transparency, leveraging instantaneous customer feedback to Lisa Tolliver, Senior Director, E-Commerce gauge demand and implement the most effective price points. In “Specialized online marketplaces are posting impressive addition, industry participants offering premium, differentiated, numbers as increasingly educated digital consumers branded products have attracted substantial private equity seek them out for more involved purchases. We believe this trend will only increase with time and have seen interest, evidenced by Brand Velocity Partners’ acquisition of successful models across several segments including BBQGuys (September, ~$140 million). However, efficient direct to Large Discretionary Consumer Goods, Personal Care, consumer (DTC) platforms providing third party consumer and Health & Wellness. However, they are increasingly products at attractive prices have also demonstrated robust buyer popping up across all consumer categories. As a result, attention, noted by PlanetArt’s purchase of CafePress (see below). strategic buyers are showing interest in acquiring Capstone has seen a rise in M&A activity and valuations for specialized marketplaces and several PE investors are growing, specialized marketplaces. Private equity has taking notice of the area as well.” demonstrated a strong appetite for these firms, lending to robust demand in the near term as financing conditions improve.

NOTABLE SPECIALIZED MARKETPLACE TRANSACTIONS

Newegg to Merge with Lianluo Smart Limited (October, PlanetArt Ltd. Acquires CafePress, Inc. (September, ~$147.5 Million) – Medical products and components provider Undisclosed) – PlanetArt, a subsidiary of Claranova (ENXTPA:CLA) Lianluo Smart Limited (Nasdaq:LLIT) and Newegg, a leading has acquired CafePress, a premier online platform for online marketplace for consumer electronics, entertainment, personalized consumer products developed primarily by third smart home, and gaming products, have announced a merger parties. Terms of the transaction were not disclosed. PlanetArt agreement under which Newegg will become a wholly-owned will leverage CafePress to bolster its product diversification and subsidiary of Lianluo. Upon closing, the combined entity, enhance its geographic presence, adding Canadian and Australian Newegg Commerce, will conduct a public offering of its common markets. “CafePress gives PlanetArt a battle-tested marketplace shares with gross proceeds expected to amount to approximately orientation and all of the exciting benefits that such a system $30 million.3 “Combining our deep market expertise in e- provides, including hundreds of thousands of content commerce and leadership in technology, we are structured and contributors worldwide,” said Roger Bloxberg, CEO of PlanetArt.4 prepared to capitalize on new strategic initiatives and partnerships,” said Newegg Global CEO Anthony Chow. Clarke Capital Partners and Ikonifi Acquire Brandless, Inc. (June, Undisclosed) – Clarke Capital and Ikonifi have partnered Next Glass Acquires Oznr (October, Undisclosed) – Next Glass, to acquire DTC consumer products provider, Brandless, for an a leading software provider to the Alcohol Beverage industry has undisclosed sum. Brandless is an online provider of high-quality acquired Oznr for an undisclosed sum. Oznr is a premier online branded home goods, travel, personal care, health & wellness, and mobile marketplace for the Craft Beverage industry, and baby products. Clarke Capital and Ikonifi plan to relaunch partnering with craft beverage producers and retailers to manage Brandless under an improved capital structure following the their day-to-day operations for to-go sales, memberships, and company’s shutdown in February. The acquisition displays private pre-sales. Next Glass plans to expand Oznr’s product capabilities equity’s appetite to capitalize on distressed assets during the and leverage its DTC technology to bolster its offerings and height of the pandemic and highlights the robust interest for integrate into its existing platforms, Untappd and BeerAdvocate. branded, premium consumer products platforms. CAPSTONE E-COMMERCE INDEX TOTAL RETURN

E-Commerce Index S&P 500

220 March 11: WHO declares 200 COVID-19 a pandemic 180 +72.6% 160 140 120 +10.0% 100 80

Index = 100 = Index 60 40 20 0 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20

Index includes: FLWS, AMZN, ASC, BOO, EBAY, OSTK, VIPS, W, ZAL, ETSY, SHOP

CAPSTONE’S RECENT E-COMMERCE TRANSACTIONS

has recapitalized with has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by

For further information or insight, please call one of the following:

Kenneth Wasik, Managing Director, Head of Consumer & Retail Lisa Tolliver, Senior Director, E-Commerce [email protected] • 917-434-6124 [email protected] • 773-791-9493

Connor McLeod, Research Associate [email protected] • 617-619-3319

CITATIONS

1. U.S. Census Bureau, “Quarterly Retail E-Commerce Sales 2nd Quarter 2020,” , https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf, accessed November 2, 2020. 2. Etsy, “Etsy, Inc. Reports Third Quarter 2020 Financial Results,” https://s22.q4cdn.com/941741262/files/doc_financials/2020/q3/Exhibit-99.1-Q3-2020.pdf, accessed November 3, 2020. 3. Cision, “Lianluo Smart Limited and Newegg Inc. Announce Entering into Merger Agreement,” https://www.prnewswire.com/news-releases/lianluo-smart- limited-and-newegg-inc-announce-entering-into-merger-agreement-301159161.html, accessed November 3, 2020. 4. Business Wire, “PlanetArt Acquires CafePress from ,” https://www.businesswire.com/news/home/20200901005940/en/PlanetArt-Acquires- CafePress-from-Shutterfly, accessed November 3, 2020.

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