Tag: Best Buy

Best Buy nabs elderly mobility vendor: earlier deals haven’t aged well

Mark Fontecchio

by Scott Denne

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.

Cyber Monday’s here

-Contact Thomas Rasmussen, Brenon Daly

Even though the receipts from Black Friday, the traditional retailers’ launch of the holiday shopping season, weren’t much bigger than they were last year, online retailers on Cyber Monday appeared to be ringing up a pretty good business this year. Amid all of the cyber-shopping, we couldn’t help but notice that there has also been a fair amount of buying of the shopping sites themselves. For instance, Amazon recently wrapped up its $847m all-stock acquisition of online apparel retailer Zappos. This stands as Amazon’s largest purchase, nearly three times larger than its second-largest buy. (We should also note that when the deal closed earlier this month, the equity was worth a whopping $1.2bn thanks to the recent surge in Amazon shares. The stock, which hit an all-time high on Monday, has risen some 62% over the past three months.) While overall M&A spending this year appears likely to be half the amount of 2008, online retail dealmaking is still going strong. We expect spending on Internet commerce acquisitions to come in roughly where it did in previous years, at some $2.3bn worth of transactions in the sector.

Meanwhile, another e-commerce vendor continues its push for a different exit. Newegg.com filed to go public in late September, and appears to be on track for a debut early next year. The online electronics retailer, which was founded in 2001, has more than doubled sales over the past four years while also posting a profit in each of those years. Although growth has slowed so far this year, Newegg still raked in $2.2bn in revenue and $70m in EBITDA for the four quarters that ended last June.

Given the recent trend in dual-track offerings, we wonder if Newegg might not get snapped up before it hits the Nasdaq under the ticker ‘EGGZ.’ Granted, this is pure speculation, but there are a fair number of parallels between Newegg and Zappos, which could mean that Amazon will reach for it. (Both Newegg and Zappos have developed profitable, growing businesses by specializing in a slice of the market that Amazon has tried – but failed – to dominate.) Additionally, electronics retailers such as Best Buy could well be interested in bolstering their online sales units with Newegg. Although Newegg and its underwriters haven’t set an initial valuation, we suspect that any buyer would have to be ready to hand over slightly more than $2bn to add Newegg to its shopping cart.

Online retail M&A

Period Number of deals Total deal value
2005 30 $1.27bn
2006 53 $3.78bn
2007 36 $2.62bn
2008 45 $1.36bn (excluding the sale of Getty Images)
2009 YTD 55 $2.34bn

Source: The 451 M&A KnowledgeBase