The Bay ups its online biz with acquisition

Department stores had a terrible year in 2015 but Hudson’s Bay Co. continues to make moves to capture global market share

Gilt Groupe Holdings Inc., a startup once valued at about $1 billion, agreed to be acquired by Hudson’s Bay Co. for $250 million in cash.
The business will be combined with Hudson’s Bay’s Saks Off 5th division, giving customers more online shopping options, according to a statement from the companies on Thursday. The deal is slated to close around Feb. 1.
Department-store chains are scrambling to add e-commerce capabilities at a time when brick-and-mortar shopping is in decline. Though flash-sale services such as Gilt have lost favor in recent years, the business has more than 9 million members, who use the service to shop online for fashion, accessories and home decor. Hudson’s Bay plans to open Gilt concept shops at its Saks Off 5th stores, an attempt to create a so-called all- channel model.
“Retailers today need to be strong in bricks-and-mortar and on the Internet -- it’s not one or the other,” Hudson’s Bay Chief Executive Officer Jerry Storch said in an interview. “The flash business belongs with a bricks-and-mortar retailer. The synergy is just too compelling.”
Hudson’s Bay expects Gilt to add about $500 million to fiscal 2016 sales without cannibalizing its existing business. Gilt will contribute $40 million in adjusted earnings before interest, taxes, depreciation and amortization by fiscal 2017, according to the statement. The buyer, which also owns Lord & Taylor in addition to its namesake line of department stores, plans to pay for the deal with cash on hand.

For Gilt, the deal represents a comedown from its original ambitions. The company had been envisioning an initial public offering and was often cited as a top New York technology startup. But the flash-sale market, which lets customers snap up discounted products for a limited time, became more crowded and many shoppers lost interest in the approach.
Scotiabank provided financial advice to Hudson’s Bay, while Willkie Farr & Gallagher LLP acted as M&A legal counsel. Stikeman Elliott LLP served as the company’s legal counsel. Lazard Ltd. was Gilt’s financial adviser, with Wilmer Cutler Pickering Hale and Dorr acting as its counsel.

Lindsey Rupp
Bloomberg News