Digital Commerce M&A Deals Settle After Frenzied Levels

October 24, 2022

Record transaction volumes in the digital commerce sector have fallen back to more established pre-pandemic levels, according to Hampleton Partners’ Digital Commerce M&A Market report [download page]. This past quarter (Q3) saw 410 digital commerce M&A transactions, down 25% from Q2’s 544, which itself had been down 22% from Q1’s record-breaking 699.

In fact, the high point reached early this year came after sustained growth in previous quarters, which saw deal volumes rise in each successive quarter starting from Q1 2021’s 549.

All told, there were more than 2,300 deals struck last year, representing a 38% hike from 2020’s 1,722 and a 70% jump from 2019’s 1,397.

Despite the declines this year, the 410 transactions in Q3 remained above the average for the 2016-2019 period, of 385, though it’s true that there have been several quarters over the 400 mark in the past few years.

It’s likely that dealmaking has been tempered by a variety of factors including the war in Ukraine, supply chain pressures, inflation, and rising interest rates.

Deals by Subsector

The “digital commerce” market covered in the report contains 5 subsectors, and these have not all moved in the same direction in terms of deal volume.

The two largest subsectors in terms of transaction volume in the first half of the year – Internet Services & Portals (30% share), and Digital Commerce Software (26% share) – have experienced dramatic declines in the second and third quarters of the year. The decreases have been steadier and longer for the next-largest subsectors – Media, Social & Gaming (18% share) and Online Retail (14% share) – which started their decreases in late 2021.

The smallest subsector by deal volume, Agencies & Service Providers (12% share), actually saw an increase in deals in Q3, and has generally been on an upward trend in the past few years.

Here are a few more highlights by subsector:

Internet Services & Portals

Deal volume in this subsector grew steadily from Q2 2021 to a peak in Q1 2022 (212), but has since fallen back to earth. Just 76 deals were recorded in Q3, the lowest of any quarter dating back at least to 2016.

At the same point, the 30-month trailing median EBITDA multiple reached a new high of 13.1x in Q2 2022, besting the previous high of 12.3x from Q4 2017. (Deal multiples are only reported in the study in the second and fourth quarters of the year.)

Digital Commerce Software

After deal volume doubled year-over-year in Q1 2022, things have been on a decline, with the 91 deals recorded in Q3 being about half of the 188 registered in Q1.

Valuations have also fallen, with the 30-month trailing median EBITDA multiple standing at 10.7x in Q2 2022, down from sustained averages of 12.5x and higher in previous quarters and years.

Media, Social & Gaming

In line with the general trend, deal volumes have fallen in this subsector, though the declines started earlier, in Q4 2021. While the number of deals has dampened over several quarters, they remain elevated from pre-pandemic levels.

As for valuations, these have remained steady. Trailing EBITDA multiples dropped when the number of deals exploded in Q4 2020, and have stayed quite constant since then, with the latest median being 10.6x in Q2.

Online Retail

Deal volume in the online retail subsector has fluctuated, although perhaps not to the same degrees seen in other sectors. Nonetheless transactions have been steadily falling since Q2 2021, and there were 179 deals closed in the first half of this year, compared to 247 in the first half of 2021.

Median EBITDA multiples are steady at 10.9x, though they remain depressed compared to levels registered from 2016-2018.

Agencies & Services Providers

With the exception of Q2 2021, deal volume in this subsector has been at consistently elevated levels since Q4 2020, and the 153 deals closed in the first half of this year compare favorably with the 123 from the first half of last year.

EBITDA multiples have been steady throughout the period of elevated deal volume, with the 30-month trailing median standing at 7.5x as of last count.

For more, download the report here.

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