A good measure of health in any industry is the interest investors have in acquiring its companies. And by that measure, 2006 was a great year for Internet retailing.
Following only a handful of -mergers in 2005, 2006 produced close to 30 mergers and acquisitions involving merchants listed in the Internet Retailer Top 500 Guide to Online Retail Web Sites.
“It was a banner year for mergers and acquisitions among web retailers and direct channel marketers,” says Jim Okamura, senior partner with retail consultants J.C. Williams and Co.
Among the most active buyers of web and catalog properties in 2006 was Golden Gate Capital, which acquired Haband Inc., Carabella Corp. and Norm Thompson Outfitters Inc. Along with Sun Capital, Golden Gate Capital also acquired Eddie Bauer.
Other retailers -changing ownership in 2006 were Provide Commerce, now a part of Liberty Media; The Sportsman’s Guide Inc., which became a part of Redcats; and Lillian Vernon, acquired in May by LV Catalog Holding.
“There’s a flood of private equity money coming into the market and investors are looking for under--valued brands they can invest in and grow for a longer period of time,” Okamura says. “All of this investment activity and deal-making speaks well to the health of the web retailing market.”
Investors making acquisitions in 2006 looked for both recognized brands and companies with a solid e-commerce infrastructure. NetShops Inc. acquired Thralow Inc. for its tightly focused stores that offer specialty products at diverse price points, says NetShops co-founder and CEO Douglas Nielsen. Likewise, IAC/InterActiveCorp purchased ShoeBuy Inc. in January for its growing base in the $5 billion online shoes business.
Brands with a future
“The acquisitions and mergers we saw in 2006 were by investors who wanted companies with both a high growth direct sales channel and established cash flow,” Okamura says.
With Forrester Research predicting that the web retailing market will generate total sales of about $151 billion in 2007, industry analysts expect the next 12 months to be another active period for mergers and acquisitions. “There is still a ton of private equity money out there that can move into the web retailing market and the fact that many of the top retailers have been posting double-digit growth isn’t being lost on investors,” says LakeWest Group CEO Robert W. Antall. “This is a healthy industry trend.”