eBay to buy GSI Commerce
March 28, 2011 11:25 AM
EBay Inc. will acquire e-commerce service provider GSI Commerce Inc. in a $2.4 billion deal, the online marketplace powerhouse announced today.
EBay says the deal will connect eBay sellers with GSI Commerce’s services and GSI clients with eBay and the company’s PayPal payments unit. “Combined with eBay Marketplaces and PayPal, we believe GSI will enhance our position as the leading strategic global commerce partner of choice for retailers and brands of all sizes,” eBay said in a statement.
GSI Commerce supplies the e-commerce platform for 180 e-retailer clients, including 31 Internet Retailer Top 500 retailers such as Victoria’s Secret (No. 18), Toys ‘R’ Us (No. 37), PetSmart (No. 281), RadioShack (No. 240) and Ace Hardware (No. 481).
EBay president and CEO John Donahoe says the two companies’ strengths complement each other and that the combination will allow eBay to drive innovation and offer services to merchants of all sizes. “We intend to lead the next generation of commerce innovation,” he says. “We believe GSI will enhance our position as the leading strategic global commerce partner of choice.”
Today’s deal is the largest in dollar terms in a spate of acquisitions of e-commerce technology vendors dating back to September 2009. It eclipses Visa Inc.’s $2 billion of online payment security company CyberSource in April 2010, as well as Adobe’s $1.8 billion purchase of analytics provider Omniture, IBM’s $1.4 billion acquisition of order management specialist Sterling Commerce and Oracle’s nearly $1 billion buyout of e-commerce software provider ATG. In addition, IBM bought analytics provider Coremetrics last year, but did not disclose the purchase price.
During a conference call today Donohoe told stock analysts that eBay and GSI will offer technology and services as either a complete, bundled package or on an a la carte basis. EBay will also take over seven of GSI's nine fulfillment centers. “PayPal, GSI and eBay will be at the table for retailers and say, ‘How can we help you?’” he says.
Under terms of the acquisition, which is expected to close in the third quarter, GSI Commerce will operate as a separate business unit headed by Chris Saridakis, who is the current CEO of GSI’s marketing services division.
GSI CEO Michael Rubin says that GSI’s retailer clients are “excited” about the opportunity to address one of their biggest and most costly challenges—selling out-of-season goods at markdown prices—work more closely with eBay to sell their excess merchandise on eBay.com.
Paula Rosenblum, managing partner with research and advisory firm RSR Research, agrees that the eBay marketplace provides a good end-of-product-lifecycle selling arena for GSI’s retailers while also adding a new level of retail and marketing services to eBay’s sellers. “The acquisition provides a nice cradle-to-grave selling channel for the GSI customers, and better services for eBay—which is not very good at merchant services right now,” she says.
EBay will divest much of its interest in several parts of GSI’s business, including 100% of GSI’s Fanatics Inc. unit, which sells licensed sports merchandise. GSI purchased Fanatics last month for $277 million. EBay will also sell off 70% of flash-sale site Rue La La (No. 103) and 70% of ShopRunner, the shipping program GSI launched last year that aims to compete with Amazon’s Prime shipping program. EBay says these businesses are not aligned with its long-term growth strategy. Rubin will run ShopRunner, Rue La La and the sports merchandising business as part of a separate holding company. EBay will loan the holding company $467 million and retain a 30% stake in ShopRunner and Rue La La businesses. Rubin will invest $31 million.
Bernardine Wu, CEO of e-commerce consulting firm FitForCommerce, says spinning off Rue La La, ShopRunner and the sports merchandise business positions eBay as a service provider. “The GSI portions that Michael Rubin will own represents the merchant businesses, which means the GSI units that eBay will own are the service provider units, thus separating ‘retailer’ from ‘service provider.’ GSI/eBay will be able to focus on being a pure service provider,” she says.
The deal will also make eBay a stronger provider of services to online retailers, especially the larger retailers that GSI serves, Wu says. This could put eBay into a stronger position to compete with Amazon as a selling platform for larger retailers. “It means eBay can leverage the GSI offerings such as fulfillment and customer service,” she says. “This would appear to be a counter to Amazon's web store and fulfillment services."
Scot Wingo, CEO of ChannelAdvisor, a firm that helps retailers sell through online marketplaces including Amazon and eBay, says eBay's purchase of GSI is a result of Amazon's increasing success. "This is largely driven by Amazon, with its wildly successful marketplace and Fulfillment by Amazon services," he says. "The competition is intensifying in between eBay and Amazon, and eBay needs to merge that gap or face becoming obsolete." Wingo says he expects eBay to make more acquisitions in its advance to secure growth and stave off Amazon.
EBay announced in February that it owns 49% of Magento, an e-commerce platform provider that serves mainly small to mid-sized e-retailers. The acquisition of GSI gives eBay an opening with larger e-retailers, says Alex Schmelkin, president of e-commerce design firm Alexander Interactive. "EBay now has a solution for large clients down to the smallest eBay Marketplace retailer. This is a significant stake in the ground for eBay in its continued competition with Amazon," he says. "Amazon does not have a platform for the largest of online retailers. With the GSI acquisition, eBay now does.”
The deal is a good move for eBay, says Forrester Research analyst Brian Walker. “GSI ultimately serves a small segment of larger retailers and consumer brands in a very diverse solutions market, and the acquisition of GSI and their marketing services gives eBay and PayPal access to many key brands that can support growth of PayPal’s multichannel payments solutions and eBay’s marketplace recovery,” Walker says.
EBay in February told analysts that it expects to increase revenue by 10% to 14% annually through 2013 and that it is aggressively pursuing innovations and opportunities. “We see a crystal ball full of opportunities,” said Bob Swan, eBay’s chief financial officer. “The role innovation is playing across our business is accelerating.”
Swan said during the conference call that eBay will acquire seven of GSI's nine fulfillment centers. GSI has seven domestic and two international fulfillment centers, including one domestic center operated by Fanatics. The new holding company to be headed by GSI's Rubin will take the Fanatics center and one other yet to be named, while eBay takes the remaining seven, Swan said.
EBay executives added that, eventually, some of eBay's largest merchants will have the opportunity to use some of GSI's fulfillment capabilities. But eBay declined to say when that might happen.
EBay says it will pay $29.25 per share for GSI stock, a 47% premium over GSI’s average closing share price over the last 30 trading days and a 51% premium over Friday's closing price for GSI stock. GSI also gets a 40-day window to shop for a better deal, and eBay says it has the right to match any higher offer GSI gets. EBay says the deal will be financed with cash and debt.