Best Buy has ended a prolonged dry spell with the $800m purchase of GreatCall, a maker of phones and wearables for the elderly. Like all brick-and-mortar retailers, the buyer is contending with a shifting channel as much of the path to purchase moves online. With this deal, and more broadly, Best Buy is responding by playing up its strength in customer services, which it expects to be valuable as a raft of new consumer technologies (smart home, virtual reality, etc.) come to market. Today’s transaction fits into that strategy and shows that Best Buy has learned from its past failed tech acquisitions.
The purchase marks a new high for the electronics retailer. According to 451 Research’s M&A KnowledgeBase, it had never spent more than $167m on a tech acquisition and had never valued any of its targets above 2x trailing revenue – this deal values GreatCall at roughly 2.5x. Aside from the financial metrics, the acquisition differs from Best Buy’s past tech M&A in another respect – it’s not looking to jump into an unfamiliar market.
Its previous purchases have extended the retailer into web hosting (Speakeasy) and digital music (Napster). In 2011 and 2012, around the time it was divesting Napster in a pair of sales to Rhapsody, it entered the IT managed services market with the pickup of mindSHIFT and another tuck-in to support that asset. That deal was unwound two years later in a sale to Ricoh.
This time, Best Buy isn’t stretching as far. Although it hadn’t previously bought a device maker, it’s been offering its own private-label electronics (Insignia) for over a decade. Moreover, GreatCall offers a subscription service for help with its devices, emergency dispatch and the like. Although the purpose differs, the business model resembles the subscription technical support that Best Buy is rolling out today.
While there’s probably some synergy between consumer technical support and GreatCall’s elderly audience, and the acquisition furthers Best Buy’s customer-service story, it’s not clear that the device business will do much to drive traffic to Best Buy’s stores. According to 451 Research’s VoCUL: Smartphone Leading Indicator Survey, July 2018, more than half of those purchasing a new smartphone this quarter plan to buy from the wireless provider or manufacturer – fewer than 5% plan to go to an electronics store or big-box retailer.