Category: ecommerce

eBay auctions off Enterprise unit

Scott Denne

Contact: Scott Denne

Just days away from spinning off its PayPal division, eBay inks a deal to divest eBay Enterprise, its e-commerce software and services business, to a consortium of private equity (PE) firms for $925m. The Enterprise unit was formed through the 2011 acquisitions of fulfillment service GSI Commerce and e-commerce software vendor Magento, as well as a smattering of smaller software purchases.

The transaction is valued at 0.8x trailing revenue – a number that’s familiar to Sterling Partners, one of the PE firms leading the deal. Sterling snagged Innotrac, a similarly sized order fulfillment provider, in 2013 at a nearly identical multiple. It’s worth noting that eBay Enterprise comes with a broader software portfolio than Innotrac did. In addition to Sterling, Permira Funds, Longview Asset Management and Innotrac itself are also participating in the buyout.

Valuations of e-commerce software companies have been somewhat subdued in the M&A market lately. Google’s 2013 pickup of channel intelligence at just over 4x trailing revenue appears to be the recent high-water mark. Multiples on the public markets, however, tend to be more generous, with Demandware and the newly public Shopify garnering above 15x.

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Small ball M&A paying off for salesforce.com

Brenon Daly

Contact: Brenon Daly

When it comes to M&A at salesforce.com, starting small has yielded higher returns than going big. The SaaS giant has returned to the ‘buy and build’ strategy with its latest step into a new market with Analytics Cloud. The data visualization offering, which was unveiled this week at Dreamforce, was underpinned by the acquisition of EdgeSpring back in June 2013.

The $134m price notwithstanding, EdgeSpring stands as a small deal for salesforce.com. (We profiled EdgeSpring shortly after it emerged from stealth and a half-year before it was acquired. At the time, it claimed more than 10 paying customers and about 30 employees.)

Certainly, there were bigger targets for a move into the analytics market by salesforce.com, which will do more than $5bn in revenue this fiscal year and says it has a ‘clear line of sight’ to $10bn in sales. For instance, both Qlik Technologies and Tableau Software offer their data visualization software on salesforce.com’s AppExchange. With hundreds of millions of dollars in revenue, either of those vendors would have established salesforce.com as a significant player in the data analytics market as well as moving the company closer to its goal of doubling revenue in the coming years.

However, in that regard, a purchase of either Qlik or Tableau would be comparable with salesforce.com’s reach for ExactTarget in June 2013, which serves as the basis for its Marketing Cloud. The deal was uncharacteristically large, with salesforce.com spending more on the marketing automation provider than it has in all 32 of its other acquisitions combined. More significantly, salesforce.com has struggled a bit with ExactTarget, both operationally (platform integration and cross-selling opportunities) and financially (margin deterioration).

In contrast to that big spending, salesforce.com dropped only about one one-hundredth of the price of ExactTarget on InStranet in August 2008 ($2.5bn vs. $32m). The purchase of InStranet helped establish Service Cloud, which is now the company’s second-largest business behind its core Customer Records Management offering. And salesforce.com says the customer service segment is much larger than the market for its sales software.

Those divergent deals are something to keep in mind when salesforce.com buys its way into a new market. If we had to guess, we would expect the company to next make a play for online retailing (maybe call it Commerce Cloud?). If that’s the case, we might suggest that it look past the big oaks like Demandware and focus on the seedlings that can then grow up in the salesforce.com ecosystem.

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At the Wall Street box office, Alibaba is a blockbuster

Brenon Daly

Contact: Brenon Daly

In Hollywood, a blockbuster debut that is expected to help support the release of other films around the same time is known as a ‘tentpole.’ And while that phenomenon may have also played out in the IPO business in the past, no one is expecting the Alibaba debut later this week to help prop up other offerings. Quite the opposite, in fact.

To understand why, think of Alibaba as Godzilla (the monster, not the movie). The Chinese e-commerce giant is looking to come to market – backed by no fewer than 20 investment banks – and create almost a Facebook-size valuation overnight. The sheer size of Alibaba’s record-setting offering of some 320 million shares at (currently) $68 each basically pushes other IPO candidates outside the awning of any Alibaba tentpole.

With Alibaba and its underwriters looking to place billions of dollars of equity, buyers are unlikely to step right back in to buy smaller-ticket tech IPOs. That means solid offerings that are in process, such as Cyber-Ark and HubSpot, may initially open a bit soft at the box office that is Wall Street.

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Care.com squeezes into retail with Citrus Lane

Scott Denne

Contact: Scott Denne

Care.com expands into commerce with the $31m pickup of Citrus Lane, a gambit that’s meant to decrease the company’s reliance on a subscription service that’s increasingly expensive to fill with new members. Care.com’s service – a website that matches families with babysitters and other caregivers – has grown substantially in terms of memberships and revenue (up 40% YoY last quarter), but the amount of money the company spends on marketing to sustain that momentum is expanding faster.

In its last quarter, Care.com spent $20.5m on sales and marketing, or 81% of revenue, up from 71% a year ago, while the average paid membership lasts seven months. Adding a parenting-focused commerce company to its platform could leverage that marketing spending through new kinds of revenue from people who visit the website. Also, Citrus Lane sells monthly subscriptions for parenting gift boxes – adding that to its own subscription service could entice parents to stick with Care.com longer than seven months.

The deal resembles Care.com’s previous acquisition, the $45m reach for Breedlove & Associates, which added a payment-processing service to its platform. We expect Care.com to continue looking for businesses that it can stitch into its matching service. A parenting content play would be a powerful combination, as it would not only add revenue via advertising and lead-generation services, but could also help defray the expense of getting parents to the website in the first place.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.