E-retailers—and their support companies—get lots of financing activity in September.
Whew! The first half of September was a busy two weeks in financing for the e-retailing industry. From the $2.6 billion that eBay Inc. agreed to pay to acquire Internet telephony company Skype to BabyUniverse Inc. paying $6.4 million to acquire competitor HutaDuna Inc., operator of DreamTimeBaby.com, the pencils were getting sharpened.
eBay & Skype
EBay says its acquisition of Luxembourg-based Skype Technologies SA for $2.6 billion will help retailers who sell at eBay.com increase customer service at lower operating cost. Skype provides for free computer-to-computer Voice over IP calls as part of a broader package of fee-based telecommunications services. By offering its services along with the eBay and PayPal brands, "we will create an extraordinarily powerful environment for business on the Internet," said eBay president and CEO Meg Whitman.
The most likely users of the Skype service are retailers of high-ticket products, like jewelry or automobiles, who could benefit from more voice communications with customers, says Scot Wingo, president and CEO of ChannelAdvisor Corp., a company that helps independent retailers set up with eBay and other marketplaces. "They have to sell high-average-price items to justify the cost of call reps," he says.
Wingo says the Skype service may be too costly for many eBay sellers, especially smaller ones, because many are already overwhelmed with e-mail communications and can’t afford to hire additional people to answer phone calls, even if the calls are free.
The Skype U.S. user base has surged 178% over the past year to 1.11 million in August 2005 from 398,000 in August 2004, according to Nielsen/NetRatings Inc. Globally, Skype had a unique audience of 6.9 million in July, Nielsen/NetRatings says.
Ritz: Money for acquisitions
Ritz Interactive Inc., one of the Top 100 online retailers, filed a much-anticipated IPO on Sept. 9. While the details were still unclear at the end of the month-no price or total proceeds had been established-Ritz said it will pay off a $10 million promissory note and use the remaining capital for general corporate purposes and business development, including making more acquisitions.
Ritz has acquired a number of companies over the years in the photography and boating worlds.
In its filing, Ritz said it could initially raise $34.5 million, but noted that the valuation was estimated solely for calculating the registration.
Ritz Interactive, which is a separate business from Ritz Camera Centers and in which Ritz Camera Centers has no ownership interest, notes in its IPO papers that it depends heavily on its relationship with Ritz Camera Centers for both inventory management and fulfillment. Ritz Interactive uses three Ritz Camera distribution and warehouse facilities in Suwanee, Ga., Topeka, Kan., and Denton, Md., for fulfillment.
The company also purchases substantial inventory from Ritz Camera. For the six months ended June 30, Ritz purchased $30.8 million of products from Ritz Camera Centers. For 2002, 2003 and 2004, Ritz Interactive purchased $45.4 million, $54.1 million and $65 million, respectively. "We maintain a strategic relationship with Ritz Camera Centers and have a perpetual agreement with them pursuant to which we purchase substantially all of our photographic and boating, marine and fishing products," the company says in its S-1 filing.
In its IPO papers, Ritz Interactive reports that for the year ended Dec. 31, 2004, merchandise sales totaled $85.8 million, an increase of 20.8% from the prior year.
In 2004, Ritz Interactive shipped more than 264,000 orders with an average value of over $425 for digital cameras and other photography products, and over $153 for marine, boating and fishing products, the company says in its S-1 filing with the Securities and Exchange Commission.
Also on the IPO front, Harry and David, which filed for an IPO in August, set its terms on Sept. 12 with a price of $13 to $15 per share. That could raise as much as $125 million in new working capital.
Online, off-price retailer SmartBargains Inc., which previously had filed for an IPO, withdrew the IPO and announced in September that it had received a commitment for $18 million in equity funding from its investors, including Highland Capital Partners, Maveron, General Catalyst, Gordon Brothers and Time Warner.
The company also named Benjamin Fischman as president and CEO, replacing Carl Rosendorf, who left the company in January. Fischman has been chief marketing officer for the company for the past five years. Prior to joining SmartBargains, he founded Lids Inc., a national specialty retailer of headwear and accessories.
SmartBargains plans to use the equity funding to finance the growth of the business, including expanding customer relationships through marketing partnerships
SmartBargains’ revenue rose from $75.8 million in 2003 to $92.2 million in 2004, but the company has yet to be profitable. Losses narrowed from $10.7 million in 2003 to $1.4 million in 2004.
The dream team
BabyUniverse’s acquisition of DreamTimeBaby.com closed Sept. 13. BabyUniverse paid $6.4 million in cash plus 53,165 shares (with a value of about $450,000) of BabyUniverse’s common stock. DreamTimeBaby generated $1 million in operating income on $7 million in gross sales for the 12 months ended June 30, compared to an operating loss by BabyUniverse of $249,100 over the same period, BabyUniverse said.
In addition, providers of services to the e-retailing industry were in the financing news. Performance marketing company LinkShare Corp. in September agreed to be acquired by Japanese Internet portal Rakuten Inc. in a cash deal valued at $425 million. Rakuten, with a market capitalization of just under $10 billion, is regarded as the seventh largest Internet company in the world.
"Their intention is to grow their business and become a number one player around the world, and to use LinkShare as a platform and a starting point to build a much bigger business in the U.S.," says LinkShare chairman and CEO Steven Messer.
Messer adds that the entire senior management team, including himself and LinkShare COO and president Heidi Messer, his sister, will remain with the company. The Messers were the largest stakeholders in the company.
Rakuten, founded in 1997, operates a range of consumer-facing businesses including e-commerce, portal and media, travel, and financial services. It also has a foothold in professional sports as owner of a baseball team, the Rakuten Golden Eagles.