BDO & PITCHBOOK: CURRENT STATE OF E-COMMERCE
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BDO & PITCHBOOK: CURRENT STATE OF E-COMMERCE
Transcript of BDO & PITCHBOOK: CURRENT STATE OF E-COMMERCE
BDO & PITCHBOOK:
CURRENT STATE OF E-COMMERCE
ABOUT THE BDO CONSUMER BUSINESS PRACTICE
BDO has been a valued business advisor to consumer business companies for over 100 years. The firm works with a wide variety of retail clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.
ABOUT BDO
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 500 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 67,700 people working out of 1,400 offices across 158 countries.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.
For more information please visit: www.bdo.com.
Digital Deals: Retailers Move Online Bit by Byte
“ Despite headlines, brick-and-mortar is not dead. The traditional retail model is changing and that is especially impacting one-dimensional brands as consumers increasingly favor a few clicks over a trip to the store.”
Natalie Kotlyar, national leader of BDO’s Consumer Business practice
Retailers have begun to accept the reality that a hybrid in-store and e-commerce presence is essential to their business model.
The National Retail Federation predicts online retail sales will expand between 8 and 12 percent in 2017, growing three times faster than the rest of the industry. To compare, brick-and-mortar is expected to grow at just 2.8 percent, illustrating the importance of robust omnichannel offerings, as e-commerce will spearhead growth.
Total Capital Invested Deal Count Source: PitchBook Data, Inc.
GENERAL RETAIL E-COMMERCE: M&A
2012 2013 2014 2015 2016
$10.35B
66
$7.02B
$2.36B
$10.51B
$17.00B
62 74
110
105
GENERAL RETAIL E-COMMERCE: BUYOUTS
2012 2013 2014 2015 2016
$1.36B
18
$6.74B
$307.7M
$2.23B
$6.13B
16
13
29
30
The greater emphasis on online platforms and big projections for growth is driving U.S. e-commerce M&A. 2016 saw 105 transactions totaling $17 billion, a clear high over the past five years. Not to be outdone, U.S. PE buyouts also increased, reaching 30 completed transactions totaling $6.13 billion, up from $2.23 billion in 2015. As retailers look to fill gaps in their digital capabilities, strategic deals are the name of the game.
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BDO & PITCHBOOK: CURRENT STATE OF E-COMMERCE
Traditional Retail Models Must Evolve or Risk Becoming Obsolete
Retailers are not immune to consumer desire for the latest and greatest technology, particularly those that deliver convenience. To resist becoming obsolete, many retailers are setting their sights on subscription and startup e-commerce models to
reinvigorate brand loyalty and capture new markets.
Consider last year’s $1 billion acquisition of Dollar Shave Club by Unilever. This deal signaled a new trend for startups and subscription-based companies, showing that legacy brands have an appetite for these types of megadeals. With Dollar Shave Club, Unilever gained a strong, high-growth potential company that has proven to be excellent at direct-to-consumer brand building.
This strategic deal begs the question: Will this prompt Proctor & Gamble, owner of Gillette, to make a move for similar razor startup, Harry’s? There are several recent deals that indicate that possibility is not out of the question. Look to examples like the 2015 flash-sale startup Gilt Groupe’s sale to Hudson’s Bay Co. for $250 million or Bed Bath & Beyond’s $100 million acquisition of One Kings Lane.
Is the Price Right? Dealmaking can be a fast-paced game. Wait too long and risk missing an open window of opportunity, jump the gun and risk paying too much. How do retailers know when the timing is right?
Late last year, Walmart quickly scooped up Jet.com, aiming to bolster its e-commerce presence and be more competitive with Amazon online. Jet.com was purchased at a premium ($3.3 billion) compared to its valuation ($1.35 billion), but it might have been the right move at the right time for Walmart. This deal was both a high-value, high-profile acquisition, and it filled a serious gap that Walmart was missing in e-commerce. In 2016, Walmart’s global e-commerce sales increased 15 percent from the previous year, and its U.S. e-commerce sales gained 36 percent.
But striking fast doesn’t always deliver such clear wins. The Hudson’s Bay Co. and Bed Bath & Beyond acquisitions enabled the buyers to enter the flash-sale space at a discounted rate, but the market ultimately slowed. Gilt Groupe’s sale now seems like a win; however, the brand was previously valued at $1 billion before losing its steam as the flash-sale scene slowed overall. A similar story was told for One Kings Lane. The total acquisition amount was never released, but estimates put the deal around $150 million, a far cry from the company’s previous valuation of $900 million. The measure of success here is less clear than with Walmart and Jet.com.
Retail’s New RealityThe retail model is changing online and off. In stores, traditional retailers are making big investments in technology and e-commerce to deliver a more holistic omnichannel experience.
Macy’s and Target partnered with e-retail startup ThredUp, enabling consumers to donate used clothing to ThredUp in exchange for store credit. Some retailers, like Lord & Taylor and Urban Outfitters, are partnering with technology companies to take advantage of in-store beacon technology to gather real-time information about their customers’ shopping preferences and in-store traffic.
At the same time, historically pure-play e-retailers are expanding their brick-and-mortar footprint. In 2017, unicorn startup Warby Parker plans to bring its brick-and-mortar store count to around 70. Similarly, e-commerce king Amazon is in the process of opening a variety of brick-and-mortar concepts, from bookstores to groceries, and—possibly—clothing stores.
Proceed With CautionRetail as we know it is rapidly changing. Just as the industry is different today from what it was 50 years ago, surely it will be a new environment in 2067. While the industry claws for market share
online, buyers should beware—ensuring they’re buying with purpose, rather than to quickly fill a need. Those businesses with niche services should also proceed with caution, careful not to let a good deal slip through the cracks.
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$6.84M
INTERNET RETAIL: M&A
2012 2013 2014 2015 2016
$2.67B
111
$2.02B $10.91B $13.30B
110117
154 155
INTERNET RETAIL: BUYOUTS
2012 2013 2014 2015 2016
$1.36B
32
$1.27B $604.4M $2.64B $2.00B
25 25
38
48
INTERNET RETAIL: EXITS
2012 2013 2014 2015 2016
$2.01B
9
$717.4M $260.7M $2.35B $2.75B
13
7
12
17
Internet retail is a large and dynamic sector, including U.S.-based multinational e-retailers like Amazon and Overstock.com.
As these purely internet-based brands continue to grow and gain value in the industry, deals abound—evidenced by the number of internet retail M&A transactions in 2016. In addition, it’s reasonable to expect buyouts will continue on the upward trend as PE players look to get a foothold in this booming sector by snatching up distressed assets from traditional brands, then turning them around and moving online. While business flourishes for niche internet retailers, there’s chatter that several well-known young e-commerce brands are looking to an IPO in 2017, potentially raising the bar for internet retail exits this year as well.
Total Capital Invested Deal Count Source: PitchBook Data, Inc.
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Though apparel & accessories is a huge sector online, deal activity is relatively low.
Last year saw just 20 M&A transactions in the apparel & accessories sector—including deals like DSW’s acquisition of e-retailer Ebuys Inc. in February, five buyouts and one exit. As the industry continues to move online, we’ll be looking for notable trends in this sector, especially surrounding brick-and-mortar versus e-commerce expansion.
E-COMMERCE APPAREL & ACCESSORIES: M&A
2012 2013 2014 2015 2016
$1.36B
12
$6.31B $405.6M $423.1M $1.50B
1817
27
20
E-COMMERCE APPAREL & ACCESSORIES: BUYOUTS
2012 2013 2014 2015 2016
$1.32B
5
$6.21B $7.50M $464.1M
7
4
8
5
E-COMMERCE APPAREL & ACCESSORIES: EXITS
2012 2013 2014 2015 2016
$1.05B
1
$6.21B $80.0M $255.0M
4
1
5
1
Total Capital Invested Deal Count Source: PitchBook Data, Inc.
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E-COMMERCE CONSUMER DURABLES: BUYOUTS
2012 2013 2014 2015 2016
$177.7M
1
$350.0M $112.0M
3
6 7
5
E-COMMERCE CONSUMER DURABLES: EXITS
2013 2014 2015 2016
1
$140.0M
2 2
1
With the uptick in consumer sentiment through the end of 2016 into 2017, the consumer durables segment should benefit both online and off, considering sales for these retailers are closely tied to employment and wages. Should sentiment remain high, we’ll be watching for a related spark in activity in this segment.
Total Capital Invested Deal Count Source: PitchBook Data, Inc.
E-COMMERCE CONSUMER DURABLES: M&A
2012 2013 2014 2015 2016
$8.84B
5
$94.0M $177.7M$490.0M $392.3M
10
16
14
16
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BDO & PITCHBOOK: CURRENT STATE OF E-COMMERCE
For more information on BDO USA’s service offerings to retailers, please contact one of the following regional practice leaders:
MIKE METZMinneapolis952-656-2612 / [email protected]
RICK SCHREIBER Memphis901-680-7607 / [email protected]
JENNIFER VALDIVIA Los Angeles 310-557-8274 / [email protected]
TED VAUGHANDallas214-665-0752 / [email protected]
DAVID BERLINERNew York212-885-8347 / [email protected]
LEE DURANSan Diego858-431-3410 / [email protected]
SCOTT HENDONDallas214-665-0750 / [email protected]
NATALIE KOTLYARNew York212-885-8035 / [email protected]
ISSY KOTTONLos Angeles310-557-0300 / [email protected]
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Stay up to date on industry news and trends by following the Consumer Business practice @BDOConsumer or checking out the Consumer Business Compass Blog.
Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.© 2017 BDO USA, LLP. All rights reserved.
Stay up to date on industry news and trends by following the Consumer Business practice @BDOConsumer or checking out the Consumer Business Compass Blog.
Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.© 2017 BDO USA, LLP. All rights reserved.
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