January 4, 2017, 4:16 PM

Magento raises $250 million from a Chinese investment firm

The money will fund Magento’s global expansion, product development and future acquisitions.

Lead Photo

E-commerce platform provider Magento Inc. has received a $250 million investment from Chinese investment management firm Hillhouse Capital Group. Magento says it will use the money to fund a worldwide expansion of its sales, marketing and client support capabilities, along with new product development and future acquisitions.

In making the investment, Hillhouse is partnering with the Magento management team and existing investor Permira Funds, which will continue to own a majority stake in the company.

A person familiar with the deal says the transaction values Magento at more than $700 million. Phil Guinand, partner with Permira, declined to discuss the valuation for Magento but says Hillhouse will get two seats on the Magento board as part of the deal.  

Magento says more than 250,000 businesses worldwide use its source e-commerce platform. Of those, according to the company, 246,000 merchants use the Magento 1.0 free Community edition and 6,600 merchants pay for the Magento 1.0 Enterprise edition. Additionally, 7,000 merchants use both the Community and Enterprise editions of Magento 2.0 combined. 

Magento CEO Mark Lavelle says the money from Hillhouse will support Magento’s key goals for 2017 and beyond, which include global expansion and continuing to improve the cloud-based service it rolled out in 2016. He adds that improvement will include the addition of sales, customer-support and account-management personnel to better help customers set up and manage Magento’s software. Roughly 40% of new Magento users are adopting the cloud service, but Lavelle declines to provide sales figures.    

In April, Magento launched Marketplace, a forum where Magento merchants can access e-retail services from vendors vetted by Magento. Magento Marketplace is a new iteration of the earlier Magento Connect and is designed to be a quick way for merchants to add functionality to their sites, including social media plug-ins, personalization tools and payments services, without having to code from scratch. Unlike Magento Connect, extensions in Magento Marketplace undergo a vetting process and code review. In November, Magento opened Marketplace to merchants using the older Magento 1.0 platform.

Lavelle says the company has been devoting more resources to vetting and testing the extensions. Because Magento is based on open-source code, he says, it can’t stop others from selling Magento add-ons themselves, but it can and does work to make sure extensions available on Magento Marketplace work as intended.

“If you get (an extension) from us, it will be tested and we’ll work with you to make sure it works,” Lavelle says.

The company also has been working to make the software easier to use. An online retailer with relatively simple needs can get Magento up and running in days or weeks. However, Magento also is designed so that users do very complex things with it. As an example, Lavelle cites the omnichannel shopping platform adopted by the Frankfurt Airport which, among other things, allows travelers to buy in the air and pick up on the ground. Given the logistics, security and regulatory requirements that come with being one of the largest airports in the world, that’s a complicated task.

In addition to providing cash for growth, Hillhouse brings expertise in building technology businesses and will help open doors in Asia, making it a good fit for Magento, Lavelle says.

Permira’s Guinand says Hillhouse has had an impressive track record of successful investments and a good understanding of Chinese and Asian markets, which are an important part of Magneto’s global business strategy. Hillhouse also has an investment philosophy similar to that of Permira, which views its role as helping managers of portfolio companies do their job more effectively, he says.

Magento spun off from eBay Inc. in November 2015 with the financial backing of a consortium led by Permira. Magento provides a range of services to more than 200 merchants ranked in the Internet Retailer 2016 Top 1000.

Penny Gillespie, director digital commerce at Gartner Inc., says she sees the deal with Hillhouse as a positive move for Magento, in part because Permira retains a majority share.

“China is a hot market and many sellers—both Chinese and foreign­—are attempting to reach the Chinese shopper,” Gillespie says. “However, doing business in China can be difficult. By establishing a relationship in China via this funding endeavor, Magento is likely to find sage guidance from (Hillhouse Capital chairman & CEO) Zhang Lei, who is no stranger to commerce, for expanding the Magento footprint in China which is a win for both Magento and its existing customer base.”

Beyond that, Gillespie says, the cash infusion can be used by Magento to expand its product offering to support a larger portion of the digital commerce ecosystem. That’s important, she says, because digital commerce platforms have shifted from being transactional-focused to experience-focused, which requires platform vendors to offer more functionality.

In the Internet Retailer 2017 Leading Vendors to the Top 1000, which ranks the top players in each of 30 technology categories by the number of e-retailers in the Top 500 and Second 500 that they serve, Magento takes home top marks in several categories. It ranks No. 1 in terms of the number of Top 1000 retail clients for the following categories: e-commerce platform (202 Top 1000: 54 Top 500 retailers and 148 Second 500), content management (189 Top 1000: 50 Top 500, 139 Second 500), mobile commerce (189 Top 1000: 52 Top 500 and 137 Second 500) and order management (192 Top 1000: 54 Top 500 and 138 Second 500).

Clients using Magento’s open-source e-commerce platform include bigger players such as Best Buy Co. Inc. (No. 12) and smaller merchants including NorthShore Care Supply (No. 514) and Vertana Group (No. 522). Magento says its clients worldwide process more than $50 billion in online sales annually.

In August, Magento acquired the e-commerce analytics platform RJMetrics and rebranded it as Magento Analytics. 

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