E-COMMERCE/INTERNET RETAILING Q3 2017

CONTACTS MERGER & ACQUISITION OVERVIEW

Lisa Tolliver Due to the advantages e-commerce platforms are able to offer over traditional brick-and- Director mortar stores on price, convenience and product availability, websites are rapidly stealing (312) 674-4532 consumers from traditional retailers and leaving big box stores scrambling to keep up. [email protected] While some stores have had success building out their own e-commerce platform, many others are turning to acquisitions as a way to drive growth and compete with online Ted Polk behemoths like Amazon. Managing Director (312) 674-4531 , for example, spent $3.3 billion in August to acquire Jet.com, an online retailer [email protected] founded by former Amazon employees. Since then, the company has made at least four e-commerce acquisitions, including its June purchase of internet clothing brand Parker Dwyer for $310 million. However, major superstores are not the only companies purchasing Associate online sellers in order to boost sales; M&A has been pervasive across the entire retail (312) 674-4533 industry. One notable example, PetSmart’s April acquisition of Chewy.com, a fast-growing [email protected] pet food and product site, represents the largest e-commerce acquisition to date at $3.35 billion.

While many brick-and-mortar stores are expanding into e-commerce to complement their physical locations, some e-commerce sites are making moves to acquire physical stores in an effort to achieve the same sort of hybrid business model. In an attempt to reap some of the unique benefits of physical stores, Amazon recently spent $13.7 billion to acquire Whole Foods, representing its largest acquisition by a factor of more than ten. Amazon hopes to combine the grocery store’s 450+ locations with its existing delivery infrastructure to be able to deliver perishable food items, such as fresh produce, to most homes in the within an hour or two. As online grocery sales continue to grow, expected to comprise 20% of the market by 2025, we could see more acquisitions along the lines of the Amazon/Whole Foods transaction, where internet companies merge with physical stores to offer a full range of products and services.

M&A Activity: : E-Commerce/Internet Retailing

400 375 BOSTON 310 297 300 234 224 223 LONDON 200 176 154 168 LOS ANGELES NEW YORK 100 ORANGE COUNTY

Number of Transactions 0 PHILADELPHIA 2010 2011 2012 2013 2014 2015 2016 YTD YTD SAN DIEGO 2016 2017 YTD ended June 30 TAMPA Source: Mergermarket E-Commerce/Internet Retailing Q3 2017

INDUSTRY TRENDS & DRIVERS

There are a number of trends and drivers that have significantly helped to shape and grow the E-Commerce/Internet Retailing Industry. Capstone has identified a few of these factors and has outlined them below.

 Number of mobile connections – The proliferation of mobile devices, including smartphones and tablets, has provided a significant opportunity for growth in the e-commerce industry, as consumers are able to quickly and conveniently shop on the go. Many of the major retailers, including Amazon, Walmart and Target, have introduced mobile platforms on which consumers can easily purchase items. During the five-year period to 2017, the number of mobile internet connections grew at an annualized rate of 14.0%, and growth is expected to remain high in the near future.

 Rising competition – Technical barriers to entry and initial capital costs for the e-commerce space are relatively low, and in recent years they have been further reduced. The emergence of companies like Squarespace and Shopify, third-party software tools that provide templates and themes to build a website, has eliminated the requirement for web development skills and allowed new retailers to build their own e- commerce platform with ease. These services are reflected in the industry’s recent growth, as the number of players in the e-commerce market is expected to increase at an annualized rate of 12.3% over the five years to 2017, reaching 155,463 companies.

 Specialty and new online retailers – While few companies are able to offer a full, comprehensive marketplace that can rival the likes of Amazon or Walmart, many have found success selling niche products for specific consumer segments. Etsy, for example, serves as an expansive marketplace for handmade, vintage and unique items. The rise in consumer demand for e-commerce has also allowed for new forms of online retailing, such as social commerce. Examples of social commerce companies include Groupon and LivingSocial, which sell discounted products through group participation, encouraging word-of-mouth promotion and achieving high levels of customer engagement. Subscription box services are another example of a sector that has emerged within the e-commerce space as a number of websites, including Birchbox and BarkBox, send consumers weekly or monthly products to sample

 Advances in technology – Technological advancements in recent years have allowed e-commerce companies to produce a better product at a lower cost. New technology has significantly improved worker productivity, as wages as a percentage of total revenue have declined from 5.7% in 2012 to an estimated 4.9% in 2017. Warehouse Management Systems (WMS), for example, improve efficiency by determining the best routes for workers to take in picking products for warehouse operations. Technological innovation is also becoming available to consumers, as major companies are investing heavily in artificial intelligence in order to enhance the shopping experience. Many online retailers are using the technology to forecast consumer behavior and sometimes act as a personal shopping assistant. In the future, large companies with greater investment in this technology may squeeze out smaller competitors who fail to keep up.

Capstone Partners LLC 2 E-Commerce/Internet Retailing Q3 2017

Buyer Profile: Wal-Mart Stores, Inc.

Buyer Type: Strategic FY2016 Revenue: $482.1 billion Ownership: Publicly Traded (NYSE: WMT) Transactions in past year: 5 Headquarters: Bentonville, AR Acquisition Strategy: Expand online presence and customer base

Acquisitions:

 Bonobos, Inc., June 2017, $310 million  Bonobos is a high-end online men’s clothing brand. Walmart will use its subsidiary, Jet.com, to allow Bonobos to sell to a wider audience online. The acquisition is the latest in a string of moves Walmart has made in order to compete in the online apparel market, where it has been dominated by Amazon in recent years. Marc Lore, President & CEO of Walmart US E-Commerce, commented, “Adding innovators like Andy [Dunn, Founder & CEO of Bonobos] will continuetohelpusshapethe future of Walmart, and the future of retail. I’m thrilled to welcome Andy andtheentireBonobos team. They’ve created an amazing product and customer experience, and that will not change. In fact, Andy will be a great influence on the company, especially in leading our collection of exclusive brands offered online.”

 ModCloth, Inc., March 2017, $50-75 million  ModCloth is an online specialty retailer of unique women’s fashion and accessories. It has used a fun and expressive style and a tight customer community to build a strong millennial customer base. Walmart is hoping ModCloth, which will continue to operate as a standalone and complementary brand to Walmart’s other e-commerce sites, will expand Jet.com’s, and subsequently Walmart’s, customer base.

, February 2017, $51 million  Moosejaw is a retailer of apparel, footwear, and accessories for sports and outdoor recreation. The company operates ten physical stores but is heavily focused on e-commerce,whichworkswellwith Walmart’s acquisition strategy. Like ModCloth, Moosejaw has a strong millennial customer base that Walmart hopes to absorb. The Moosejaw acquisition demonstrates Walmart’s persistent effort to gain footing in the online apparel market to compete with Amazon.

 ShoeBuy, January 2017, $70 million  ShoeBuy, purchased through Walmart’s subsidiary Jet.com, is an online retailer of footwear and apparel. The acquisition allows Walmart to compete with Amazon, which owns 26% of the online shoe sales market, due largely to its 2009, $1 billion acquisition of Zappos. ShoeBuy suppliers are now able to sell their products on Jet.com, expanding the company’s product offering and customer base.

Description:

Wal-Mart Stores, Inc. operates retail stores in various formats across the world. Founded in 1945, in Bentonville, Arkansas, the firm operates through three segments: WalmartUS,WalmartInternational, and Sam’s Club. Through its successful operation and management of discount stores, supermarkets, supercenters, home improvement stores, apparel stores, and retail websites, Wal-Mart has proven to be an elite Fortune 500 company. Walmart possesses an immense product offering that includes but is not limited to: grocery products, health and wellness products, pharmacy services, household chemicals, electronics, and more. Currently, there are over 11,700 brick-and-mortar locations under 59 banners in 28 countries, as well as e-commerce websites in 11 countries.

Capstone Partners LLC 3 E-Commerce/Internet Retailing Q3 2017

NOTABLE TRANSACTIONS

Several notable transactions have already been completed or announced in the E-Commerce/Internet retailing Industry through the latter part of Q2 and former part of Q3 2017. Select transactions are outlined below, followed by a comprehensive list on the following table.

 QVC acquires Home Shopping Network (July 2017) – On July 6, Liberty Interactive, QVC’s corporate owner, announced a deal to acquire longtime rival Home Shopping Network for approximately $2.1 billion. The combined company will include flash-sale website Zulily, which QVC spent $2.4 billion to acquire in 2015, and HSN’s Cornerstone division, comprised of several leading online home retail brands including Ballard Designs and Frontgate. It will also have annual revenue of $14 billion, of which roughly half comes from e-commerce, making it the third largest e-commerce company in North America after Amazon and Walmart. The move reflects the retail industry’s push to compete with the online behemoths, as both television shopping networks have seen sales decline in recent years. “The addition of HSN will enhance QVC’s position as the leading global video E-Commerce retailer,” Greg Maffei, CEO of Liberty Interactive, said of the deal. “Every year they together produce over 55,000 hours of shoppable video content.”

 PetSmart acquires Chewy (April 2017) – PetSmart recently engaged in the largest e-commerce acquisition in history, acquiring Chewy.com in April for an enterprise value of $3.35 billion. Chewy, an online retailer of pet food and other pet-related products, has been one of the fastest growing e-commerce sites in the world. In 2016, only its fifth year in existence, Chewy brought in $900 millioninrevenue.Sinceitslaunchin 2011, the company has built a strong following due to excellent customer service, enormous selection, and fast shipping. Chewy has raised an estimated $236 million in venture capital from investors such as BlackRock and T. Rowe Price, demonstrating the significant optimism surrounding the site. PetSmart, which currently operates over 1,500 brick-and-mortar stores, stated in its announcement that Chewy.com, “will continue to be led by CEO Ryan Cohen and operate largely as a subsidiary of PetSmart, focusing on its current business strategy while PetSmart will continue to execute its strategic initiatives across the combined company.”

 Samsonite acquires eBags (April 2017) – Founded in 1998, eBags offers consumers a diverse selection of travel bags and accessories including luggage, backpacks, business bags, and more through its specialized e- commerce platform. In April 2017, the company was acquired by Samsonite for an enterprise value of $105 million. Samsonite, an American luggage manufacturer and retailer, offers products ranging from suitcases to small toiletries bags and briefcases. Mike Edwards, President & CEO of Samsonite, commented, “The acquisition provides us with a strong platform to significantly expand our direct-to-consumer online presence, not just in North America but around the world.” The company is hoping the acquisition of eBags, which demonstrated sales growth of 23.5% last year to reach $158.5 million, will provide an opportunity to strengthen its position in the online luggage market.

Capstone Partners LLC 4 E-Commerce/Internet Retailing Q3 2017

E-COMMERCE/INTERNET RETAILING: SELECT M&A TRANSACTIONS

Enterprise EV / LTM Ann. Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA Carousel Online retailer of infant, toddler/kids’ bedding and 08/07/17 Crown Crafts $9.7 1.3x - Designs nursery decor. Magic Mobile Online retailer of plumbing, electrical, hardware, and 08/03/17 Style Crest --- Homes heating, ventilation and air conditioning products. Intensity The Automotive Manufacturer and online retailer of nutritional products 07/31/17 --- Nutrition Resource Network for athletes. Manchester 07/17/17 Penketh's Online retailer of office products and supplies. - - - Office Supplies Online retailer and supplier of costumes, accessories, 07/05/17 BUYSEASONS Rubie's Costume --- seasonal décor and party supplies. Ulster Weavers 07/05/17 LoveOlli Online retailer of giftware products. - - - Apparel Manufacturer and online retailer of sleepwear for men, 06/30/17 Renee Claire Komar --- women and children. Hangzhou Lianluo 06/20/17 Newegg Online retailer of electronic products in the US $474.3 - - Interactive Sangoma Online retailer of voice over IP (VoIP) hardware 06/20/17 VoIP Supply $3.9 - - Technologies solutions. Online retailer of pants and shorts, suiting, shirts, 06/16/17 Bonobos Wal-Mart $310.0 - - sweaters and accessories for men. Relevium E-commerce platform for providing dietary 06/12/17 BioGanix $4.5 1.1x - Technology supplements. Pacific Coast Hollander Home Online retailer of down and feather pillows and beds in 06/09/17 --- Feather Fashions the US and Canada. Provides internet auction services for fine and rare 06/08/17 WineBid.com Third Leaf --- wines. Lowest Price 06/06/17 VisionPros Online retailer of contact lenses and eyeglasses. - - - Contacts Industrial Control Online distributor of industrial automation control 05/30/17 B&D Industrial --- Direct devices and wire management systems. Online retailer of men's, women's, and kid's apparel, 05/24/17 Namshi Emaar Malls $151.0 2.0x - accessories and shoes. Into The Online retailer of cell phone and video game virtual 05/23/17 AppSwarm --- VR World reality products. Discount Indoor Operates retail and online stores for growing 05/17/17 SinglePoint --- Garden Supply equipment and accessories. Grays Operates as an online retail and auction company for 05/04/17 Leasing Finance $133.6 1.3x 13.4x eCommerce consumer, industrial and commercial goods. Manufacturer and online retailer of soaps, body creams 05/04/17 Saavy Naturals Trimax $1.8 - - and body scrubs. Manufacturer and online retailer of home décor and 05/04/17 Deny Designs Leaf Group $12.2 - - furniture. Operates a local services consumer review service and 05/01/17 Angie's List HomeAdvisor $615.4 1.8x 51.6x e-commerce marketplace.

Capstone Partners LLC 5 E-Commerce/Internet Retailing Q3 2017

E-COMMERCE/INTERNET RETAILING: SELECT M&A TRANSACTIONS (CONTINUED)

Enterprise EV / LTM Ann. Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA Kalyan Jewelers 04/26/17 Candere Manufacturer and online retailer of jewelry in Mumbai. $5.8 - - India

04/20/17 Thesockgame.comHoopSwagg Online retailer of custom socks.---

Manufacturer and online retailer of dog and cat food, 04/18/17 Chewy PetSmart $3,350.0 - - treats and supplies.

04/13/17 Pro DJ Sound Stroodl Online retailer of DJ and audio equipment. - - -

Klink Operates an application and website that delivers beer, 04/12/17 Delivery.com --- Technologies wine and spirits to customers. Operates as a savings destination for online and in- 04/10/17 RetailMeNot Harland Clarke $455.1 1.5x 14.8x store purchases.

04/7/17 eBags Samsonite Online retailer of bags and luggage products. $105.0 0.7x -

Nutraceutical Online retailer of food supplements and nutrition 04/06/17 Zhou Nutrition $19.7 - - International products. Liquid Blaino Operates as Junkfood Clothing Company, an online 03/31/17 JMJD Ventures $28.0 - - Designs retailer and delivery service for apparel.

03/28/17 Souq.com Amazon.com Operates an e-commerce platform in the Middle East. $650.0 - -

Youngevity Online retailer of herbal and fruit-based tea, coffee, 03/27/17 RicoLife --- International cleanses and energy and slimming products. Online retailer of indie and vintage-inspired women's 03/16/17 ModCloth Jet.com $62.5 - - clothing and swimwear. Manufacturer and online retailer of Chinese herbal 03/03/17 Kan Herb PuraPharm $5.4 1.1x - products.

02/15/17 New Moosejaw Walmart Stores Online retailer of active outdoor apparel and gear. $51.0 - -

Anova Applied Manufacturer and online retailer of cooking devices for 02/06/17 AB Electrolux $250.0 6.3x - Electronics home and commercial use. Online retailer of women’s, men’s, and kid’s footwear, 01/05/17 Shoebuy.com Jet.com $70.0 - - apparel, bags and accessories.

11/07/16 Blue Nile Bain Capital Online retailer of diamonds and fine jewelry. $496.6 1.0x 27.8x

Trans World Online retailer of eco-friendly products for homes and 10/17/16 etailz $75.1 0.8x - Entertainment businesses. Operates a smart shopping platform that allows its 09/16/16 Jet.com Walmart Stores $3,300.0 - - members to shop online from various retailers. Ritchie Bros. Operates an online marketplace for buying and selling 08/29/16 IronPlanet $758.5 - 13.0x Auctioneers used heavy equipment. Dollar Shave Online subscription service that delivers razors and 07/20/16 Unilever $1,000.0 6.6x - Club other shaving products. Tredz Ltd and 05/24/16 Halfords Online retailer of bikes and accessories. $46.2 1.0x 13.2x Wheelies Direct

Capstone Partners LLC 6 E-Commerce/Internet Retailing Q3 2017

CAPSTONE PARTNERS: SELECT RELEVANT TRANSACTIONS

Capstone Partners has represented numerous companies that operate in the E-Commerce/Internet Retailing Industry and related consumer product markets. This focus allows Capstone to provide companies with real- time transaction information and immediate access to key decision makers among the industry’s most active acquirers and investors.

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Capstone Partners LLC 7 E-Commerce/Internet Retailing Q3 2017

THE E-COMMERCE/INTERNET RETAILING TEAM

Lisa Tolliver, Director [email protected] • (312) 674-4532 Lisa has over 18 years of experience in the investment banking industry, primarily focused on advising middle market private business owners in liquidity related transactions. As a Director based in Capstone’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, Lisa worked in the Capital Strategies Group at Morgan Stanley Smith Barney 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 involving private businesses and corporate divestitures. Over her career, Lisa has developed M&A expertise in several industry sectors including consumer products, e-commerce, industrial, government & defense and technology-enabled business services. Lisa received her BA on academic scholarship from State University andisa Series 7 and 63 Registered Securities Representative.

Ted Polk, Managing Director [email protected] • (312) 674-4531 Ted is a Managing Director and in charge of the firm’s Chicago office. Previously, Ted worked in a similar capacity for Morgan Stanley Smith Barney’s Capital Strategies Group and its predecessor, Citi Capital Strategies. He has over20yearsof mergers and acquisitions-related experience,havingcompletednumerous strategic sale and recapitalization transactions across a variety of industries. Ted works closely with businesses providing tech enabled products and services for industrial, government related and other applications. He started his career in the Corporate Banking Group at The Bank of New York and also previously worked as an ESOP advisor for Valuemetrics, Inc. Ted has been the recipient of multiple industry awards.

Parker Dwyer, Associate [email protected] • (312) 674-4533 Parker is an Associate in Capstone’s Chicago office, working closely with private business owners to execute and optimize corporate finance transactions. Prior to joining Capstone, Parker was an Associate in Deloitte’s Business Valuation practice, specializing in enterprise, equity and intangible asset valuations across multiple industries including consumer, industrials, manufacturing and healthcare. Parker received his BA in Finance from the University of Notre Dame.

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ABOUT CAPSTONE PARTNERS

Capstone Partners LLC is an award-winning investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. Over the past 15 years, Capstone has earned a reputation as one ofthe For more information most innovative firms in the industry, offering corporate sale & divestiture, merger & about our expertise, acquisition, private placement, corporate restructuring, valuation andfinancial please visit advisory services. The firm maintains seven industry practices, including: Business Services, Consumer Products, Education & Training, Government & Defense Services, www.capstonellc.com Health & Medical, Industrial & Manufacturing, and Technology & Telecom. Headquartered in Boston, Capstone has offices in Chicago, London, Los Angeles, New York, Orange County, Philadelphia, San Diego, Silicon Valley and Tampa with an international presence that spans 450+ professionals in 70 offices across 31 countries.

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