NEW YORK — Hudson’s Bay Co. Inc. this morning revealed it has signed a definitive agreement to acquire Gilt Groupe for $250 million in cash.
HBC said it plans to fold the luxury flash-sale site into its Saks Off 5th division to further develop its all-channel retail model. “With this transaction, we will further accelerate both HBC’s all-channel and Gilt’s growth,” said Jerry Storch, chief executive officer of HBC, who spearheaded the deal.
The purchase is expected to close Feb. 1. The acquisition of Gilt is expected to contribute about $500 million to HBC’s 2016 sales and the department store retailer expects Gilt to contribute about $40 million of adjusted earnings before interest taxes, depreciation and amortization by 2017.
Reports the two companies were in talks began circulating in mid-December. Gilt was founded in 2007 and had rapid growth through the Great Recession when it and similar flash-sale sites were able to snap up excess inventory and develop significant scale. Gilt expanded into women’s and men’s apparel and accessories and subsequently added travel, home furnishings and food. Kevin Ryan cofounded the firm and led it as chief executive officer from 2010 to 2013, eventually passing the baton off to Michelle Peluso.
But as retailers gained better control over inventories — and began opening their own off-price stores — growth of the flash-sale model began to slow. The price HBC is paying for Gilt represents a major drop for the once high-flying firm. Last year, Gilt was believed to be working with Goldman Sachs toward an initial public offering and at its peak had reached the elusive “unicorn” status, being valued at $1 billion. General Atlantic, the private equity company that has a stake in Tory Burch, has invested in the company during three rounds, mostly recently giving it $50 million in a February private placement. Other investors include Goldman’s merchant banking division and Partners.
Other flash sites have been sold, but not at the high valuations that once seemed possible. Nordstrom paid $270 million for HauteLook in February 2011, while Groupon last year paid just over $43 million in cash to purchase fashion flash-sale site Ideeli.
Gilt represents another deal for the acquisitive HBC and its governor and executive chairman, Richard Baker, and team. Only last September HBC paid $2.5 billion to buy German department store chain Galeria Kaufhof from Metro AG. The Gilt purchase represents the first acquisition HBC has made in the purely digital space. It has up until now been focused on brick-and-mortar purchases in order to leverage the real estate.
HBC indicated that Gilt has over 9 million members and that about 50 percent of Gilt orders are generated on its mobile platform. HBC also said Gilt has cultivated “a loyal and devoted Millennial following.”
“We see tremendous potential to enhance our mobile and personalization strategies by leveraging Gilt’s advanced capabilities,” said Storch. He added that Gilt will help accelerate the growth of HBC’s digital business across all of its banners, which include the Hudson’s Bay, Saks Fifth Avenue, Lord & Taylor and Kaufhof department stores.
Said Michelle Peluso, ceo of Gilt, “HBC understands our proposition and is committed to positioning our business for further success. Our members will find having a brick-and-mortar presence valuable and a positive addition to the Gilt experience.”
Additionally, HBC plans to leverage Gilt’s mobile and personalization capabilities to accelerate the growth of HBC’s digital business across all of its existing banners.
The company also said that the integration of Gilt with Saks Off 5th locations will lead to the introduction of a new return program at Saks Off 5th locations for Gilt merchandise following the closing of the acquisition. That could drive both traffic and transactions at Off 5th. HBC also expects to create Gilt concept shops at Off 5th stores, developing an all-channel model for Gilt and potentially growing Gilt’s membership via Off 5th traffic.
Expense savings are seen through operational efficiencies attained by combining the businesses including reduced shipping costs, increased purchasing power and shared inventories across Gilt and Saks Off 5th.
HBC expects to fund the $250 million purchase price plus transaction costs using cash on hand.
Scotiabank is acting as exclusive financial adviser to HBC. Willkie Farr & Gallagher LLP acted as M&A legal counsel, and Stikeman Elliott LLP served as company legal counsel. Lazard is acting as exclusive financial adviser to Gilt and Wilmer Cutler Pickering Hale and Dorr is acting as its counsel.