Andy DunnBonobos: Spring/Summer 2017 Presentation, La Sirena, New York, USA - 27 Sep 2016

The fashion-tech unicorn with its billion-dollar valuation and ultrabuzz remains an elusive target.

But even though bottoms specialist Bonobos took a cut to its roughly $500 million valuation of 2014 last week to accept a $310 million buyout by Wal-Mart Stores Inc., there’s hope still in the fund-raising market.

It’s just the exit strategy has changed.

Whereas companies like Bonobos might once have dreamt of an initial public offering, there is a clearer road to a strategic deal where young companies can look to lend their cool and digital expertise to a retailer aiming to compete against Amazon (or they might even be able to sell to Amazon itself, which inked a megadeal to buy Whole Foods last week). Target Corp. has also proven to be on the prowl, having flirted with a takeover of mattress maker Casper before making an investment.

When the game is investing in quickly growing start-ups, the key is the exit; one reason the beauty industry is in the throes of such a vibrant mergers and acquisitions market is because private equity companies are scrambling to pick up names that can be developed and sold to the likes of The Estée Lauder Cos. Inc. or Unilever. (Beauty is also a more vibrant market at the moment). In tech-related fashion and other categories, when the hippest of the hip misstepped, they found their options limited and suffered mightily.

Nasty Gal fell into bankruptcy, Fab.com was sold for $15 million, and Gilt Groupe went from a $1 billion valuation to a $250 million deal with Hudson’s Bay Co. Although each flameout has been shaped by its own specifics, the start-up class can be expected to fare better when there’s someplace to graduate to.

“With a lot of these start-up valuations, there’s an irrational exuberance, there’s always this feeling like, ‘Hey, we struck gold,” said Manik Aryapadi, a principal in A.T. Kearney’s retail practice.

Aryapadi said Bonobos founder Andy Dunn, who will now oversee Wal-Mart’s digitally native vertical brands, did about as well as could be expected at the end when it came to price.

“I think it was fair,” Aryapadi said. “I would argue probably Wal-Mart paid a tad too much. I think they could have negotiated a better deal.”

More established companies are clearly feeling the need to do something to stay ahead or catch up in a rapidly changing market.

“Timing is of the essence and there’s a sense of urgency,” Aryapadi said. “There’s almost a sense of inevitability around these historically brick and mortar retailers.”

The old guard feels they have to move, hence Wal-Mart’s big acquisition push under the command of Jet.com’s Marc Lore, who sold his business to Wal-Mart and then bought Modcloth, Moosejaw and ShoeBuy before moving on to Bonobos.

Others retailers have gobbled up cool up-and-comers as well, such as Neiman Marcus with MyTheresa and Nordstrom with a series of investments, including a stake in Bonobos. But these deals have had a mixed record. The debt-laden Neiman Marcus shuttled MyTheresa off into a separate subsidiary for balance-sheet reasons and Nordstrom wrote off $197 million of the goodwill tied to Trunk Club.

The market might simply be changing too fast even when companies try their best to be nimble. Who knows what will be the next big thing on a given day? Omnichannel? Web rooms? Virtual reality? Augmented reality? Conversational commerce? Data-based retail?

“When someone comes in and disrupts the disruptor or competition comes in, it’s harder,” said investment banker William Susman, founder of Threadstone Partners.

“Bonobos was kind of tending like Gilt, where they were doing great, they were raising more money,” Susman said. “And effectively this [sale to Wal-Mart] was a down round. Why would anyone accept it? Number one, it’s down from such a silly high, the number is still attractive. Number two, they’re buying 100 percent. Sometimes these rounds are, ‘I raise $5 million on a billion-dollar valuation, it’s not really real.’ Bonobos and Gilt are good businesses, but to me they are feeling massive growing pains.”

Even if the deal-making continues, price expectations are definitely coming down, putting unicorn status of $1 billion farther out of reach. In part, that’s because they were never really reasonable, but based more on confluence of events that conferred sky-high tech valuations on fashion companies that were born of the tech world, but still relied on much of the push and pull of the garment trade, inventory and all.

Fashion companies looking for money today would also do well to have sales and profits.

“You cannot apply pure revenue multiples in this space and definitely not premium revenue multiples,” said investment banker Janki Lalani Gandhi, managing director at Lincoln International.

She said the rising fashion tech plays are “in that pivotal point in their business where they’re trying to figure out the right mix between online brick-and-mortar and then also their plan to profitability.”

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