September 12th, 2022: CommerceHub acquires ChannelAdvisor, Instacart acquires Rosie, Church & Dwight will acquire Hero Cosmetics, and updates at Target
It’s September 12, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
CommerceHub Acquires ChannelAdvisor In Combination of Two Rivals
Instacart Running Away From Its Former Mission by Acquiring Software Company Rosie
Church & Dwight to Acquire Amazon Native Brand Hero Cosmetics
Target Updates Supply Chain Leadership and Plans CEO Succession
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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BUT FIRST in our shopping cart full of news….
CommerceHub Acquires ChannelAdvisor In Combination of Two Rivals
So what happened simply?
CommerceHub acquired public company ChannelAdvisor for $23 per share which amounts to about $660M, and I expect that after the acquisition closes ChannelAdvisor will be a private company since CommerceHub is private.
In the eCommerce software space, there are pretenders and those that were there in the beginning when it was all created. Two companies that came out of the early days of eCommerce were CommerceHub, founded in 1997 and ChannelAdvisor founded in 2001, each in different segments.
CommerceHub really got its boost when it got a major investment from QVC in 2000 to facilitate a new virtual form of inventory management and fulfillment called dropshipping.
ChannelAdvisor on the other hand had different roots. The founders of ChannelAdvisor set out to build software to help eBay powersellers as early as 1999 and pivoted into the market after successfully selling refurbished servers and computers on eBay for Sun Microsystems and IBM.
For most of their history, they have been on parallel paths. CommerceHub had a two-sided model where retailers would connect with brands, and both sides would pay CommerceHub based on the number of transactions on the platform.
ChannelAdvisor, on the other hand, charged the brand a percentage of sales to connect to an online marketplace like eBay or Amazon.
First, I know so many of the players at both companies -- I spent 10 of the earliest years of my career at ChannelAdvisor and had CommerceHub as a consulting client a few years back.
What does CommerceHub get and become with this acquisition?
First, a huge stable of marketplace integrations and large brand customers integrated with marketplaces - much more modern than its own which was the result of a 2015 Mercent acquisition.
Second, Commercehub gets a sizeable international presence, something that the Albany-based CommerceHub never seemed to master. (they don't call it "small-bany" for nothing)
Third, these companies also get to stop competing with each other. ChannelAdvisor had built a nascent 1P dropship offering, and CommerceHub continued to try and sell against ChannelAdvisor, with relatively limited success. That can all stop.
If you’re a ChannelAdvisor customer or employee right now, probably you are understandably nervous. That’s all normal, but I expect that ChannelAdvisor will continue to develop and grow post-acquisition. CommerceHub needs ChannelAdvisor to grow in order to maximize its investment. On the other hand, most acquisitions fail, so there’s that.
Why did this happen now?
The simple answer is that ChannelAdvisor is a profitable business but has been consistently challenged with its stock price due to its lack of tremendous growth over the years. The profitability of the company allowed it to take its time and essentially pick its acquirer, and in the grand scheme of things this is one of the best tie-ups you could imagine.
Overall, there have been near constant rumors about ChannelAdvisor being up for sale in the past 5 years or so, looking for the right buyer and the right price. The 57% premium on the current share price for ChannelAdvisor by a strategic competitor was likely too high to pass up, especially in this market. Put another way, ChannelAdvisor was acquired for its peak pandemic price.
Best wishes to both teams on the closing and the post-integration merger discussions!
[References:]
Our Second Story
Instacart Running Away From Its Former Mission by Acquiring Software Company Rosie
Instacart has acquired another company, an eCommerce platform for retailers called Rosie, and in doing so is desperately trying to shake its previous image as a grocery marketplace built on a marketplace for gig workers.
Normally when a company attempts an IPO, they do into what’s called a quiet period where they the do what all of us had to do in the past 3 years of the pandemic:
Hunker Down.
Instacart is taking an unexpected approach - aggressive acquisition.
Well, we have enough data now that since taking over as CEO of Instacart, Fidji Simo is taking the company in a direction where it can credibly call itself a service provider for retailers.
This new acquisition, Rosie, is an eCommerce software application designed for independent retailers which allows online ordering, catering and meal prep, and a consumer advertising platform.
I have to wonder if this acquisition means that the previous acquisition of software platform Unata was not working out, or this is just a retail customer land grab.
In case you missed it, just a week ago Instacart acquired an AI-based price and promotions platform called Eversight.
The company is trying to shed its former image because not only is a marketplace of gig workers not the most popular idea in this economy, Instacart has been consistently known as no friend of the average retailer. And that’s because at the end of the day Instacart as a marketplace wants to own the relationship with the buyer.
Time will tell here, but if they pull off this pivot CEO Fidji Simo will definitely become known for either killing the business faster, or for relaunching the company in a new direction.
[References:]
Our Third Story
Church & Dwight to Acquire Amazon Native Brand Hero Cosmetics
Seems like an acquisitive week doesn’t it Watsonians?
Hero Cosmetics was acquired by Church and Dwight who is best known for the Arm and Hammer line of products. This news caught my attention for a few reasons.
First and foremost, we have a growing, profitable Amazon native brand. In this market, it’s almost akin to Bigfoot. Often talked about but rarely seen.
Trailing twelve months net sales were $115 million, but more importantly, the company reported a 40% EBITDA margin.
Just to give you some idea how rare that is you have to start talking about companies like Apple who has 30% EBITDA margin and Microsoft who has approximately 45% EBITDA margin, according to sources.
For any kind of direct to consumer or marketplace brand, these numbers are unheard of.
What’s next for the brand? What Church and Dwight has that Hero does not have is retail relationships. Expect the brand to leverage those relationships in a big way. Meanwhile, if you want to look at a great model for how to run an Amazon business, Hero Cosmetics is not a bad model. Frankly it looks to me like one of the big keys to their success is their bundling approach.
[References:]
And Our Last Story
Target Updates Supply Chain Leadership and Plans CEO Succession
Last week, Target released significant leadership news regarding their CEO Brian Cornell and Chief Supply Chain Officer, Art Valdez.
We talk a lot on this program about the value of having the right inventory in-stock, that seemed to resonate with many people - particularly when consumer preferences and aspirational shopping has been replaced by budget prioritization due to rising prices and increased economic uncertainty.
Target, fresh off a quarter there their net operating margin plummeted to 1% from its typical 8%, has gotten the memo more than anyone, and it reflects in leadership too. The previous Head of Supply Chain at Target was Art Valdez, former long-timer Amazoner, who has helped spearhead Target's omnichannel transformation. The traits that Art brought to the role include building new capabilities at scale, in a way that fit Target's business model.
But the future is different. Gretchen McCarthy, is now the SVP of Supply Chain at Target. Her background? Head of Global Inventory Management and an 18 year Target veteran.
I can't say I'm surprised with this decision, and I like the direction.
Much like Amazon moving on from Dave Clark, Target is following suit replacing a builder with an optimizer.
That's no slight, either.
It's not like Target won't continue to build, but an omnichannel playbook is already written. It now just needs to be updated and improved.
The bigger problem in this world is now inventory. In particular, how much inventory to have, when, and where. That is the core function of inventory management and one that Target will be thankful they prioritized going forward.
It should probably be mentioned that Target also has the distinct advantage of one of the best COO's in the business in John Mulligan, who helped set the stage for Target's transformation even before Brian Cornell arrived. John is likely in the pole position for that job, having a catbird seat to Brian Cornell's entire tenure.
The company also made a relatively minor announcement that CEO Brian Cornell will stay fully another 3 years, past the normal Target retirement age of 65. That's also good news for Target as Brian has been a transformational leader for the firm.
Leadership reflects focus and priorities, and these changes definitely speak to Target’s future.
[References:]
https://www.linkedin.com/feed/update/urn:li:activity:6973267545579528192/
https://investors.target.com/news-releases/news-release-details/target-announces-leadership-updates
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Marketing measurement platform Northbeam Raises $15 Million in Series A Funding
Northbeam is spending most of its time focused on the hard problem of marketing ROI. John Wanamaker, the famous ad man, famously said that half my advertising is wasted, I just don’t know which half, and Northbeam seems intent on solving this problem. This seems like a worthy adventure for a startup in a digital market with dozens of channels that the average brand could invest their time and money in.
Link: https://www.finsmes.com/2022/08/northbeam-raises-15-million-series-a-funding.html
Second
eCommerce Accelerator Pattern acquires Influencer Marketing Platform Current
This is a different kind of move for Pattern whose model has traditionally been buying inventory from brands an helping them manage their entire marketplace business from end to end. The influencer market is an odd choice particularly since it’s a crowded space that even large platforms like Shopify are investing in, but Pattern likely feels this traffic can be applied to marketplaces as well.
Third
Last-mile routing software HyperTrack raises $25 M
The company is focusing on the on-demand delivery market for difficult functions like order assignment, route density, and order visibility. These problems are important because route density is literally the key to last-mile profitability.
The only challenge with the model may be the fact that the large platforms will want their own software, but that’s probably something the VCs view as one of those good problems, since Hypertrack may be an acquisition target.
Link: https://techcrunch.com/2022/08/17/hypertrack-which-provides-last-mile-routing-software-raises-25m/
Fourth
MyPlanet Secures Investment Funding to Expand Its Composable Commerce Vision
Flexbility and separation of concerns in any major software application has been important since software development was invented. MyPlanet focuses its efforts on a corner of the eCommerce software market called composable commerce, which is a particular design pattern or software architecture approach that enables brands to select best in breed components for various parts of their stack.
I’ve had the pleasure of working with the MyPlanet team recently on a headless eCommerce RFP for a major marketplace, and they have been a pleasure to work with. Congrats to Jason Cottrell and the entire MyPlanet team.
AND FINALLY …
Shopify participates in the Series A fundraising of a web3 development toolkit called Thirdweb
Thirdweb’s tools helps companies build what are called web3 apps more easily. Web3 at this stage is essentially an idea that the world will be connected via smart contracts, decentralized finance, and independent actors. Color me skeptical, but I am calling it out here because Shopify is an investor. I jumped down the web3 rabbit hole last year and sorry to say that I found 95% scams and grift.
My take on this is that Shopify has much bigger fish to fry at the moment with its logistics investments. But this is an investment and not a Shopify product, so just hope Tobi isn’t thinking about this too hard.
Link: https://blog.thirdweb.com/thirdweb-series-a-announcement/
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That’s all for this week! Till next time Watsonians.....
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Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is CitizenRacecar. The show is produced by Alex Brouwer; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
