White Paper | M&A in Online Specialty Retail
The McLean Group | Jones Day
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Mergers & Acquisitions in Online Specialty Retail
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Mergers & Acquisitions in Online Specialty Retail
STRATEGIES FOR 2014 AND BEYOND
The M&A market for online specialty retailers is active with both strategic and financial investors. This is good
news for entrepreneurs that have built strong and growing online retail businesses. This paper will address key
factors driving investor interest, exit planning considerations, and various due diligence issues.
Capital Markets and Online Retail
The M&A market has been robust for online retail. Over the past two years there have been 119 acquisitions
involving online retailers. Key acquisitions since 2012 include WellPoint’s acquisition of 1-800 Contacts for
$900M, Priceline’s acquisition of Kayak for $701M, Webster Capital and Charlesbank Capital’s $525M
acquisition of Redcats USA, Firsthand Capital Management’s acquisition of Gilt Groupe for $309M, Blucora’s
acquisition of Monoprice for $180M, Aeropostale’s acquisition of GoJane for $33M, and Swoozie’s
undisclosed acquisition of Beau-Coup.
During the same time, we have seen significant investor interest in online retail. For instance, in 2013 alone,
there were more than 177 private placements involving online retail companies. Notable financings since 2012
include Modcloth’s $25M financing in May of 2012, Nasty Gal’s $49M financing in August of 2012, Bonobos’
$30M financing in December of 2012, and Warby Parker’s financing of $42.5M in January of 2013. Other
financings include 360buy’s $700M series F financing in February of 2013, Stitch Fix’s $12M financing in
October of 2013, Dollar Shave Club’s $12M financing in October of 2013 and American Giant’s $3.6M
financing in November of 2013.
Additionally, investors in capital markets have benefited from the successful IPOs of online retailers. The IPOs
of Zulily, Alibaba, Vancl.com and RetailMeNot in 2013 have brought unprecedented returns to investors and
entrepreneurs alike. The impressive gains reaped from M&A, Private Placements and Capital Markets over the
past two years have cemented investor interest in the online retail industry. Going forward, the promising
investment landscape offers entrepreneurs a wide range of opportunities.
Investor Interest
Several key factors drive strong valuations today. Moody’s estimates that strategic buyers have more than
$1.50 trillion to invest and private equity and venture capital have approximately $800 billion in cash to invest.
While only a portion of these funds will be invested in online retail, this $2.30 trillion in “dry powder” creates
pent
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up demand – thereby driving up prices – because both groups are under pressure to invest their cash.
Venture capital and private equity groups must invest their cash or at some point return it to investors. Strategic
buyers (often publicly
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held) also are pressured to invest or return cash to shareholders via dividends or stock
repurchases.
Strategic online retailers are flush with cash and are active in the market. They are looking for additional
brands and opportunities to consolidate markets and increase margins. Brick and mortar retailers are active and
